Legal Opinions - U.S. District Court, Maryland: October 20, 2008

Daily Record, The (Baltimore), Oct 20, 2008

U.S. DISTRICT COURT, MARYLAND

Contracts

Scope of agency relationship

BOTTOM LINE: The employment of an agent for purposes of issuing title insurance does not, by itself, establish an agency relationship for purposes of settlement and closing activities undertaken by the title agent.

CASE: Proctor, et al. v. Metropolitan Money Store Corp., et al., USDMD No. RWT 07cv1957 (decided Sept. 29, 2008) (Judge Titus).

FACTS: Melvin Proctor and Nadine McKenzie-Proctor, Delores and Ronnell Wallace, and Dina Simon (collectively, the Homeowners) claimed they were subjected to a foreclosure rescue scam. A group of "rescuers" allegedly duped them into transferring title to their homes, stripped the Homeowners of their substantial home equity through excessive fees, and left them with the unattainable option of repurchasing their homes at a price well above the amount they owed in the first place.

The Homeowners filed a class action suit in federal district court setting forth various claims under both federal and state law against numerous defendants who allegedly defrauded them.

The defendants fell into roughly four classes. First, at the heart of the alleged scam were Joy Jackson, Kurt Fordham, and Jennifer McCall, along with the corporate entities allegedly used by them to accomplish their scheme, Metropolitan Money Store Corporation and Fordham and Fordham Investment Group, Limited. Second, the Homeowners named certain "straw buyers" that were allegedly recruited to incur mortgage loans and take title to the homes, including Letitia Nicholls and Jamie Clark. Third, the Homeowners brought claims against the settlement agents and associated employees of the companies that allegedly closed the transactions: Valerina Tomlin and her settlement company, RTE Title & Escrow, LLC, as well as Alexander J. Chaudhry, Ali Farahpour, and Wilbur Ballesteros, all of whom were employed by Sussex Title, LLC, f/k/a Cap Title, LLC. Finally, the Homeowners named two title insurance companies, Chicago Title Insurance Company and Southern Title Insurance Corporation, that provided title insurance for certain of the transactions and which were alleged to be liable as principals for the actions of the settlement agents.

In response to the Homeowner's amended complaint, Southern and Chicago filed separate motions to dismiss, each asserting similar grounds that reflect their similar positions vis-a-vis the Homeowners. Additionally, Farahpour and Chaudhry -- both allegedly involved in closing certain of the transactions at issue ---filed separate motions to dismiss, Farahpour as to the entire amended complaint and Chaudhry as to only one count thereof.

The district court granted all four motions to dismiss and dismissed the amended complaint as to all four defendants. It did, however, grant leave to the Homeowners to amend their complaint a second time as to defendants Chaudhry and Farahpour.

LAW: Agency is the fiduciary relation that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. Green v. H & R Block, Inc., 735 A.2d 1039, 1047 (Md. 1999). Where a plaintiff's claim is dependent upon the existence of an agency relationship, the plaintiff has the burden of proving such a relationship, including its extent. Id. at 1048. Because the existence of an agency relationship is a factual matter under Maryland law, the threshold question was whether, under FRCP 12(b)(6), the factual allegations, construed in the light most favorable to the Homeowners, were legally sufficient to establish an agency relationship.

Whether an actual agency relationship exists "turns on the parties' intentions," as manifested by either express agreement or by inference from the actions and words of the purported principal and agent. Id. at 1047-48. Courts consider three factors to determine whether an agency relationship exists under Maryland law: (1) whether the agent is subject to the principal's right of control; (2) whether the agent has a duty to act primarily for the benefit of the principal; and (3) whether the agent holds a power to alter the legal relations of the principal. See Schear v. Motel Mgmt. Corp., 487 A.2d 1240, 1248 (Md. App. 1985). Those factors are neither essential elements nor the only factors to consider but, rather, "should be viewed within the context of the entire circumstances of the transaction or relations." Green, 735 A.2d at 1049.

The employment of an agent for purposes of issuing title insurance does not (at least by itself) establish an agency relationship for purposes of settlement and closing activities undertaken by that title agent. An issuing title insurance agent may, in accordance with an agency contract, wear "two hats" -- one as an agent to issue or sell title insurer's insurance policies, and the other as a settlement agent to conduct closings on his or her own behalf. In such cases, the title insurer is responsible only for the title insurance issued; it cannot be held liable for the agent's participation in related closings or provision of escrow services. See Nat'l Mortgage Warehouse, LLC v. Bankers First Mortgage Co., 190 F. Supp. 2d 774, 780 (D. Md. 2002).