First American Title Insurance Co. v. Bowles Rice, L.L.P.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

FIRST AMERICAN TITLE INSURANCE CO.,

Plaintiff,

v. CIVIL ACTION NO. 1:16cv219

(Judge Keeley)

BOWLES RICE, LLP,

Defendant.

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

Pending before the Court are the parties’ competing motions

for summary judgment (Dkt. Nos. 168; 170). For the following

reasons, the Court DENIES the motions.

I. INTRODUCTION

For a detailed summary of the factual and procedural

background in this case, the Court incorporates its statement of

the facts in the related case of ALPS Property & Casualty Company

v. Bowles Rice, LLP, Civil Action No. 1:18CV29, Dkt. No. 48 at 2-

13. The plaintiff, First American Title Insurance Company (“First

American”), is a title insurance company with an office in

Barboursville, West Virginia. The defendant, Bowles Rice, LLP

(“Bowles Rice”), is a law firm with offices in, among others,

Charleston and Morgantown, West Virginia.

The parties’ relationship is contractual. In 1994, First

American and Bowles Rice entered into a Limited Agency Agreement in

which First American appointed the Bowles Rice office in Charleston

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

to act as its agent throughout West Virginia (“the 1994 Agency

Agreement”). Carl Andrews, a partner at the office in Charleston,

executed the agreement on Bowles Rice’s behalf. When the parties

amended the agreement in 2003, Charles Dollison (“Dollison”),

another partner in the Charleston office, executed the addendum for

Bowles Rice. In 2006, First American and Bowles Rice entered into

a separate Agency Agreement in which First American appointed the

Bowles Rice office in Morgantown, West Virginia, to act as its

agent throughout the state (“the 2006 Agency Agreement”). Charles

Wilson (“Wilson”), a partner in the firm’s Morgantown office,

executed that agreement for Bowles Rice.

The pending case is one of many flowing from the ill-fated

construction of a $2 billion coal-fired power plant by Longview

Power, LLC (“Longview”), straddling the border of Monongalia

County, West Virginia, and Greene County, Pennsylvania. Financing

for the Longview project was secured by a deed of trust in favor of

Union Bank of California, N.A. (“Union Bank”). When Union Bank’s

financing closed on February 28, 2007, First American issued an

owner’s and lender’s policy for the West Virginia properties and an

owner’s and lender’s policy for the Pennsylvania properties.

At issue in this case is Union Bank’s $775 million lender’s

policy for the West Virginia properties that Dollison signed on

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behalf of First American (“Lender’s Title Policy”).1 At Union

Bank’s request, the Lender’s Title Policy included an endorsement

that covered risks related to mechanic’s liens.

The Longview project took a turn for the worse in 2012 when

Longview’s contractors filed mechanic’s liens totaling in excess of

$335 million. Because the contractors might claim that their liens

held priority over its deed of trust, Union Bank filed a claim on

First American under the Lender’s Title Policy in April 2013.

Longview subsequently filed for bankruptcy protection in the

District of Delaware in August 2013. After extensive litigation, in

December 2014, First American agreed to pay $41 million to settle

Union Bank’s claim as part of Longview’s bankruptcy proceeding.

In November 2016, First American filed this case against

Bowles Rice, claiming that Bowles Rice caused its losses under the

Lender’s Title Policy by breaching its duties under the parties’

agency agreements. More particularly, First American claims that

Bowles Rice knew construction had commenced on the Longview

project, thereby presenting a risk of mechanic’s liens senior in

1 Dollison also signed the owner’s policy for West Virginia,

but because neither Dollison nor Wilson were licensed title agents

in Pennsylvania, First American itself issued the policies for

Pennsylvania. Nonetheless, the Bowles Rice office in Morgantown

conducted title examinations related to the Longview project in

Pennsylvania (Dkt. No. 172-1 at 6).

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priority to Union Bank’s deed of trust, but failed to advise First

American of this risk pursuant to its obligations under the 1994

and 2006 Agency Agreements.

II. STANDARD OF REVIEW

Summary judgment is appropriate where the “depositions,

documents, electronically stored information, affidavits or

declarations, stipulations (including those made for purposes of

the motion only), admissions, interrogatory answers, or other

materials” establish that “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a), (c)(1)(A). “When cross-motions for

summary judgment are submitted to a district court, . . . the facts

relevant to each must be viewed in the light most favorable to the

non-movant.” Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir. 2003);

see also Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211

F.3d 846, 850 (4th Cir. 2000). The Court must avoid weighing the

evidence or determining its truth and limit its inquiry solely to

a determination of whether genuine issues of triable fact exist.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The moving party bears the initial burden of informing the

Court of the basis for the motion and of establishing the

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nonexistence of genuine issues of fact. Celotex Corp. v. Catrett,

477 U.S. 317, 323 (1986). Once the moving party has made the

necessary showing, the non-moving party “must set forth specific

facts showing that there is a genuine issue for trial.” Anderson,

477 U.S. at 256 (internal quotation marks and citation omitted).

The “mere existence of a scintilla of evidence” favoring the non-

moving party will not prevent the entry of summary judgment; the

evidence must be such that a rational trier of fact could find for

the nonmoving party. Id. at 248–52. Nor can the non-movant “create

a genuine issue of material fact through mere speculation or the

building of one inference upon another.” Runnebaum v. NationsBank

of Md., N.A., 123 F.3d 156, 164 (4th Cir. 1997).

III. APPLICABLE LAW

This case involves the interpretation of agency agreements,

lien waivers, and various other contracts. “A federal court

exercising diversity jurisdiction is obliged to apply the

substantive law of the state in which it sits.” Volvo Constr.

Equip. N. Am. v. CLM Equip. Co., Inc., 386 F.3d 581, 599-600 (4th

Cir. 2004) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79

(1938)). In West Virginia, “[a] claim for breach of contract

requires proof of the formation of a contract, a breach of the

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terms of that contract, and resulting damages.” Sneberger v.

Morrison, 776 S.E.2d 156, 171 (W. Va. 2015) (citing Syl. Pt. 1,

State ex rel. Thornhill Group, Inc. v. King, 759 S.E.2d 795 (W. Va.

2014)). In addition, the plaintiff must “show that he has complied

with the contract himself, . . . and, if the evidence shows that he

has not complied with the terms of the contract, and has not been

prevented or relieved therefrom as aforesaid, he will be denied a

recovery from the breach of same.” Charleston Nat’l Bank v. Sims,

70 S.E.2d 809, 813 (W. Va. 1952) (quoting Jones v. Kessler, 126

S.E. 344 (W. Va. 1925)); see also Exec. Risk Indem., Inc. v.

Charleston Area Med. Ctr., Inc., 681 F. Supp. 2d 694, 714

(S.D.W.Va. 2009) (citing 23 Williston on Contracts § 63:1 (Richard

A. Lord, ed., 4th ed. West 2009)).

When the existence of a written contract is not in dispute,

“[i]t is the province of the Court, and not of the jury, to

interpret” the contract. Syl. Pt. 1, Toppings v. Rainbow Homes,

Inc., 490 S.E.2d 817 (W. Va. 1997). “A valid written instrument

which expresses the intent of the parties in plain and unambiguous

language is not subject to judicial construction or interpretation

but will be applied and enforced according to such intent.” Syl.

Pt. 4, Zimmerer v. Romano, 679 S.E.2d 601 (W. Va. 2009) (quoting

Syl. Pt. 1, Sally-Mike Props. v. Yokum, 332 S.E.2d 597 (W. Va.

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1985)). “[I]t is the duty of the court to construe [a written

instrument] as a whole, taking and considering all the parts

together, and giving effect to the intention of the parties

wherever that is reasonably clear and free from doubt.” Zimmerer,

679 S.E.2d 601, Syl. Pt. 5 (quoting Syl. Pt. 5, Hall v. Hartley,

119 S.E.2d 759 (W. Va. 1961)).

“A contract is ambiguous when it is reasonably susceptible to

more than one meaning in light of the surrounding circumstances and

after applying the established rules of construction.” Williams v.

Precision Coil, Inc., 459 S.E.2d 329, 342 n.23 (W. Va. 1995). Only

if a contract is ambiguous may the Court resort to “the situation

of the parties, the circumstances surrounding them when the

contract was entered into[,] and their subsequent conduct.”

Zimmerer, 679 S.E.2d 601, Syl. Pt. 7 (quoting Syl. Pt. 2, Snider v.

Robinett, 88 S.E. 599 (W. Va. 1916)).

IV. DISCUSSION2

A. The 2006 Agency Agreement may apply to this case.

As an initial matter, Bowles Rice contends that the 1994

Agency Agreement is the only contract applicable to this case.

2 As appropriate, the facts relevant to each cross-motion for

summary judgment are viewed in the light most favorable to the non-

moving party. Mellen, 327 F.3d at 363.

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According to Bowles Rice, because Dollison’s duties as an agent

were governed by the 1994 Agency Agreement, and he signed the

Lender’s Title Policy upon which First American bases its

allegations, the 2006 Agency Agreement is inapplicable (Dkt. Nos.

171 at 7; 179 at 10).

Whether Bowles Rice breached the 2006 Agency Agreement is much

more fact-bound than Bowles Rice’s simple observation that Dollison

signed the Lender’s Title Policy. Neither party’s motion adequately

addresses whether the alleged title work performed by Wilson and

the Morgantown office falls under the 2006 Agency Agreement.

Indeed, both parties recognize that deciding whether the 2006

Agency Agreement applies in this case involves questions of fact

that are not necessary to resolve in order to decide the pending

motions (Dkt. Nos. 171 at 7; 172 at 15 n.4). Therefore, the Court

will focus its analysis on application of the 1994 Agency

Agreement, and reserve for trial whether Bowles Rice breached the

2006 Agency Agreement.

B. First American is not entitled to summary judgment on the

question whether Bowles Rice breached the 1994 Agency

Agreement.

First American contends that Bowles Rice breached the 1994

Agency Agreement when it failed to inform First American that

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construction had commenced on the Longview property (Dkt. No. 172

at 14-17). A mechanic’s lien attaches “as of the date such labor,

material, machinery or other necessary equipment shall have begun

to be furnished, and shall have priority over any other lien

secured by a deed of trust or otherwise which is created subsequent

to such date.” W. Va. Code § 38-2-17. Under the 1994 Agency

Agreement, Bowles Rice was required to determine insurability

based, in part, on “[t]he absence of knowledge by Agent or approved

attorney of any fact, doubt, or rumor which may adversely affect

the interest of the proposed insured or the real property to be

described in the policy” (Dkt. No. 170-18 at 3). It follows that,

when Bowles Rice asked First American to authorize issuance of the

Lender’s Title Policy, Bowles Rice was required to advise if it had

knowledge of such a “fact, doubt, or rumor.” See id. at 2-3.

As Longview’s efforts to finance the project drew to a close,

on February 13, 2007, several parties opposed to the project filed

suit against Longview and its contractors, alleging that a

necessary Prevention of Significant Deterioration (“PSD”) permit

under the Clean Air Act (“CAA”) had expired (“the Jamison

litigation”) (N.D.W.Va., Civil No. 1:07cv20, Dkt. No. 1). Bowles

Rice partner Leonard Knee (“Knee”) responded to the Jamison

litigation on behalf of Longview. He argued, in part, that West

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Virginia regulations approved by the Environmental Protection

Agency required a PSD permit to be revoked after 18 months only if

Longview could not provide “written proof of a good faith effort

that . . . construction . . . has commenced” (N.D.W.Va., Civil No.

1:07cv20, Dkt. No. 10-1 at 14-16). He also unequivocally advised

the Court that construction activities had commenced, including

“preliminary site establishment activities such as clearing and

grubbing of vegetation, grading for placement of construction

offices and an access road, [and] placement of stone base material

on the access road and parking area” (N.D.W.Va., Civil No.

1:07cv20, Dkt. No. 12-2 at 9).

Around the same time, Dollison and Knee were involved in the

preparation of a permitting opinion letter for Union Bank, which at

the lender’s request, included an express opinion that construction

had commenced for purposes of the CAA permit (Dkt. No. 174-2 at

370). When Dollison became aware of this request on February 21,

2007, he asked Union Bank’s counsel to “give [him] a call about the

. . . requested express opinion on commence construction” because

Bowles Rice could not “give that without a lengthy discussion of

the pending case.” Id. at 376. In his deposition, however, Dollison

testified that he had only a general knowledge of the Jamison

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litigation, and that he could not remember whether he knew in

February 2007 that work had commenced. Id. at 27, 33-35.

Viewed in the light most favorable to Bowles Rice, questions

of fact exist regarding whether Dollison’s knowledge of the Jamison

litigation and permitting issues was detailed enough to constitute

a “fact, doubt, or rumor” that construction actually had commenced

on the Longview property sufficient for a mechanic’s lien to

attach. In light of these questions, First American is not entitled

to summary judgment on the issue whether Bowles Rice breached the

1994 Agency Agreement because of Dollison’s knowledge that work had

commenced on the site of Longview’s project.3

C. The 1994 Agency Agreement includes an express indemnification

provision that may apply to this case.

The parties dispute whether the 1994 Agency Agreement

expressly requires Bowles Rice to indemnify First American for the

$41 million settlement in bankruptcy court (Dkt. Nos. 179 at 10-12;

192-2 at 8-9).

West Virginia recognizes both express and implied duties of

indemnification. Express indemnity is based on a written agreement

and "can provide the person having the benefit of the agreement,

3 Notably, neither party addresses whether Knee’s undisputed

knowledge of work done on the Longview property is imputable to

Dollison under the principles of partnership law.

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the indemnitee, indemnification even though the indemnitee is at

fault." Syl. Pt. 1, Valloric v. Dravo Corp., 357 S.E.2d 207 (W. Va.

1987). Implied indemnity, on the other hand, arises out of a

relationship between the parties. Id. To receive the benefit of

implied indemnification, the indemnitee’s “independent actions”

must not have “contribute[d] to the injury.” Syl. Pt. 6,

Ruckdeschel v. Falcon Drilling Co., LLC, 693 S.E.2d 815 (W. Va.

2010) (quoting Syl. Pt. 2, Harvest Capital v. W. Va. Dep’t of

Energy, 560 S.E.2d 509 (W. Va. 2002)).4

The 1994 Agency Agreement provides that Bowles Rice is

responsible for indemnification in the following circumstances:

Agent shall be liable for the first one Thousand Dollars

($1,000.00) of each and every loss or expense arising

from a policy issued by Agent and any loss, cost or

expense occassioned [sic] by assumption of a risk not

authorized by the Company.

(Dkt. No. 170-18 at 5). Bowles Rice contends that its liability, if

any, is limited to $1,000 because First American authorized it to

issue the Lender’s Title Policy (Dkt. No. 179 at 11-12). Indeed,

First American employees have confirmed that First American

authorized Bowles Rice to issue the Lender’s Title Policy, knowing

4 The 2006 Agency Agreement undoubtedly includes an express

indemnification provision (Dkt. No. 170-10 at 8-9). But, as

discussed earlier, whether the agreement applies under the

circumstances is disputed by the parties. See supra Part IV.A.

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that it included a mechanic’s lien endorsement (Dkt. Nos. 172-23 at

8; 183-5 at 2-3; 183-6 at 2).

First American, on the other hand, contends that Bowles Rice

is liable for its entire loss because First American authorized a

mechanic’s lien endorsement without being fully advised by its

agent of the risk entailed (Dkt. No. 172 at 18). Resolution of this

dispute requires analysis of the phrase “assumption of a risk not

authorized by the Company” (Dkt. No. 170-18 at 5).

The 1994 Agency Agreement does not define “assumption” or

“risk,” but the Court is aided by dictionary definitions. See Nat’l

Union Fire Ins. Co. v. Miller, 724 S.E.2d 343, 352 (W. Va. 2012).

“Assume” means “to take to or upon oneself.” Assume, Merriam-

Webster, https://www.merriam-webster.com/dictionary/assume. In the

context of insurance, “risk” is “[t]he chance or degree of loss to

the subject matter of an insurance policy” or “the amount that an

insurer stands to lose.” Risk, Black’s Law Dictionary (10th ed.

2014). Under these definitions, the 1994 Agency Agreement would

require Bowles Rice to fully indemnify First American even in some

circumstances, such as the instant case, where First American

authorizes a policy or endorsement. In other words, if Bowles Rice

requested and received authorization to issue a mechanic’s lien

endorsement, but did not disclose “the chance or degree of loss”

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that such an endorsement would entail, it could be said that Bowles

Rice assumed a risk not authorized by First American.

But “Risk” may also mean “[t]he type of loss covered by a

policy; a hazard from a specified source.” Id. In fact, looking at

the context of the entire instrument, Zimmerer, 679 S.E.2d 601,

Syl. Pt. 5, the 1994 Agency Agreement appears to utilize this form

of the definition. Bowles Rice is not authorized to act for First

American with regard to “[a]ny proposal or agreement to accept or

insure over any special or extraordinary risks not contemplated in

the Company’s forms including, but not limited to, mechanic lien

risk, without prior approval by the Company” (Dkt. No. 170-18 at

3). Under this reading, Bowles Rice would only be required to

indemnify First American when it insured over an extraordinary

risk, such as issuing a mechanic’s lien endorsement, without

receiving authorization from First American. First American would

otherwise be limited to holding Bowles Rice liable for the first

$1,000 of loss, even where Bowles Rice omitted critical details

when requesting the endorsement from First American. Id.5

5 Although this result seems absurd when the agent is issuing

$775 million in title insurance, one must recall that the 1994

Agency Agreement capped Bowles Rice’s authority at $500,000 (Dkt.

No. 170-18 at 2). Moreover, the parties are free to contract for

the express indemnification provision of their choosing, as

illustrated by the much more comprehensive indemnity provision in

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Consequently, even after application of the established rules

of construction, what constitutes “assumption of a risk not

authorized by the Company” is reasonably susceptible to two

different meanings. Williams, 459 S.E.2d at 342 n.23. Neither

party, therefore, is entitled to summary judgment regarding whether

the 1994 Agency Agreement requires express indemnification in this

case.

D. Factual disputes preclude a ruling regarding whether Bowles

Rice had a duty to indemnify First American.

Even if the 1994 Agency Agreement expressly imposes a duty to

indemnify, there are material facts in dispute regarding whether

First American is entitled to be indemnified in the amount of $41

million. When an indemnitee settles its liability to a third party,

there are two possible burdens of proof; the indemnitee must either

establish that it was potentially or actually liable to recover

from the indemnitor. Valloric, 357 S.E.2d at 211.

1. There are material facts in dispute regarding whether

First American provided adequate notice.

“[W]hether actual or potential liability must be shown depends

on whether the indemnitor . . . had actual notice of the underlying

claim, an opportunity to defend it, and the right to participate in

the 2006 Agency Agreement (Dkt. No. 170-10 at 8-9).

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any settlement negotiations.” Id. These factors are commensurate

with an indemnitee’s duty to provide “reasonable notice . . . of a

claim that is covered by [an] indemnity agreement.” VanKirk v.

Green Const. Co., 466 S.E.2d 782, 789 (W. Va. 1995). Disputed

questions regarding notice, including its reasonableness under the

circumstances, are reserved for the trier of fact under West

Virginia law. See, e.g., Syl. Pt. 1, Dairyland Ins. Co. v. Voshel,

428 S.E.2d 542 (W. Va. 1993) (holding that the reasonableness of

notice provided to an insurer “ordinarily becomes a question of

fact”); Johnson v. Inter-Ocean Cas. Co., 164 S.E. 411, 412 (W. Va.

1932) (referring to “proper notice” as a question of fact).

Here, First American contends that it must only prove

potential liability because two letters it sent Bowles Rice

constitute adequate notice under the circumstances (Dkt. No. 172 at

12-13). On May 6, 2014, First American’s Senior Claims Counsel,

Brian Barlow (“Barlow”), sent a letter to Dollison summarizing the

nature of the “title issue” in Longview’s bankruptcy proceeding,

including that the mechanic’s liens claimed priority over the deed

of trust because “construction work began on the project prior to

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the recording of the Deed of Trust” (Dkt. No. 172-18 at 74).6

Barlow further advised Dollison that

[t]he lien priority issues have proceeded to mediation in

the Bankruptcy Court. Based on the information available

to date, your firm should put its liability insurance

carrier on notice of this claim if it has not already

done so. Please confirm in writing that you have put your

liability insurance carrier on notice of this claim.

Id. On “May 19, 2014, Bowles Rice notified ALPS of a potential

claim arising out of” its services on the Longview project (Dkt.

No. 172-24 at 32). On May 21, 2014, Dollison sent an email to

Barlow confirming that Bowles Rice had placed its carrier on notice

of the claim (Dkt. No. 172-18 at 75).

In the second letter from Barlow to Dollison, dated July 14,

2014, Barlow noted that “[t]o date, I have not been contacted by

any representative of the insurance carrier regarding the

investigation of [the] claim. Nor, despite knowledge of the ongoing

litigation, has the insurance carrier involved itself in this

6 Although First American focuses on the letters it sent to

Bowles Rice in 2014, Dollison actually was aware of the lien

priority issues well in advance of that. On May 1, 2013, shortly

after Union Bank lodged its claim, Dollison emailed Laura Wareheim

(“Wareheim”), the First American employee who authorized issuance

of the Lender’s Title Policy (Dkt. No. 172-23 at 8), advising that,

even if $300 million of mechanic’s liens held priority over the

deed of trust, he was confident they would be covered by Longview’s

significant equity and would never involve the Lender’s Title

Policy (Dkt. No. 174-2 at 418).

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matter.” Id. at 76. The letter also stated that First American was

proceeding with settlement negotiations, and possibly might settle

the case in the absence of “communication or objections” from

either Bowles Rice or its carrier. Id. Around this same time,

Bowles Rice also received a subpoena duces tecum and a notice of

deposition related to the ongoing litigation, and even retained

counsel. It did not, however, involve itself in Longview’s

bankruptcy proceeding (Dkt. No. 172-24 at 7-8).

The content of First American’s letters is straightforward,

and their effects are undisputed. But neither party has

sufficiently developed a record of the surrounding circumstances,

which also will inform the adequacy of notice. For instance,

although Union Bank lodged its claim with First American in April

2013 (Dkt. No. 174 at 2), and Dollison had knowledge of the

mechanic’s lien issues at that time, First American has not offered

evidence regarding why it waited until May 2014 to advise Bowles

Rice to put its carrier on notice of the claim (Dkt. No. 172-18 at

74).7 First American’s activities during this period bear directly

7 First American’s “status history” regarding the claim

reflects only that it thought the mechanic’s liens did not assert

priority over Union Bank’s deed of trust (Dkt. No. 174 at 5).

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on whether Bowles Rice actually had a reasonable opportunity to

defend the claim.

Moreover, as First American readily admits, it did not place

Bowles Rice on notice of the claim until after the first mediation

had taken place in Longview’s bankruptcy, and only one week before

First American filed suit against Union Bank in California state

court (Dkt. Nos. 170-2; 172 at 21). Whether First American

participated in the first mediation session is unclear (Dkt. No.

170-2); if it did so without informing Bowles Rice, however, such

an action would be relevant to whether Bowles Rice had an

opportunity to participate in any settlement negotiations. See

Valloric, 357 S.E.2d at 211. Thus, there are material facts in

dispute regarding the adequacy of First American’s notice.

2. There are material facts in dispute regarding whether

First American reasonably settled the claim in light of

its potential liability.

“Where an indemnitor has not been notified . . . and given an

opportunity to participate in the settlement negotiations, then an

indemnitee must prove that he was actually liable to the

plaintiff.” Id., 357 S.E.2d 207, Syl. Pt. 3. On the other hand,

“[w]here a party having a duty to indemnify has been notified or

been made a party to the underlying proceedings and given an

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opportunity to participate in its settlement negotiations . . . the

defendant-indemnitee should not be required to prove” that it was

actually liable “to recover the amount paid in the settlement.”

Id., 357 S.E.2d 207, Syl. Pt. 2. Rather, “[u]nder a potential

liability standard, the indemnitee must in his indemnity suit show

that the original claim is covered by the indemnity agreement. Then

he must demonstrate that he was exposed to liability which could

reasonably be expected to lead to an adverse judgment. Finally, he

must prove that the amount of the settlement was reasonable.” Id.,

357 S.E.2d 207, Syl. Pt. 4. “The focus must remain on what was a

reasonable judgment in light of the circumstances at the time the

settlement was made.” Id. at 213.

Valloric cited with approval Trim v. Clark Equipment Co., 274

N.W.2d 33, 36-37 (Mich. App. 1979) (internal quotation and citation

omitted), where the court observed:

Potential liability actually means nothing more than that

the indemnitee acted reasonably in settling the

underlying suit. The reasonableness of the settlement

consists of two components which are interrelated. The

fact finder must look at the amount paid in settlement of

the claim in light of the risk of exposure. The risk of

exposure is the probable amount of a judgment if the

original plaintiff were to prevail at trial, balanced

against the possibility that the original defendant would

have prevailed. If the amount of the settlement is

reasonable in light of the fact finder’s analysis of

these factors, the indemnitee will have cleared this

hurdle. The fact that the claim may have been

20

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

successfully defended by a showing of contributory

negligence, lack of negligence or otherwise, is but a

part of the reasonableness analysis and, therefore,

subject to proof.

Valloric, 357 S.E.2d at 214.

Assuming that it provided adequate notice to Bowles Rice,

First American contends it is entitled to judgment as a matter of

law that it reasonably settled a claim for which it was potentially

liable (Dkt. No. 172 at 23-24). Bowles Rice, on the other hand,

contends that the settlement was unreasonable because First

American had strong defenses to the mechanic’s lien claims (Dkt.

No. 171 at 13-23). Based on these arguments, further factual

development is needed, and neither party is entitled to summary

judgment regarding First American’s potential liability.

a. First American is not entitled to summary judgment

on potential liability.

First American argues that, because construction commenced

before it issued the Lender’s Title Policy, the mechanic’s liens

had priority over Union Bank’s deed of trust (Dkt. No. 172 at 24).

It further contends that it made a “reasonable decision to settle”

the $335 million claim for a “steep discount” of $41 million after

“having its defenses rejected by the bankruptcy court at every

turn.” Id.

21

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

Under the test in Valloric, First American must show that its

settlement was reasonable “in light of the risk of exposure,” which

“is the probable amount of a judgment if the original plaintiff

were to prevail at trial, balanced against the possibility that the

original defendant would have prevailed.” Valloric, 357 S.E.2d at

214 (quoting Trim, 274 N.W.2d at 36-37). This includes an analysis

of whether the claim may have been successfully defended in whole

or in part. Id.

First American has not addressed many aspects of this burden.

For instance, was $335 million the true “risk of exposure,” or did

the mechanic’s liens include amounts that were disputed by

Longview? Another important question not taken up fully in First

American’s motion is whether construction actually had commenced

for purposes of mechanic’s lien attachment.8

8 Although discussed in Bowles Rice’s response brief (Dkt. No.

179 at 2-5, 21-23), neither party specifically moved for summary

judgment on the fact-bound question regarding whether construction

had commenced for purposes of mechanic’s lien attachment or whether

Union Bank’s knowledge of site work brings its claim under section

3(a) of the Lender’s Title Policy exclusions.

The site preparation sufficient to attach mechanic’s liens

under West Virginia law is not entirely clear. Compare Syl. Pt. 3,

Carolina Lumber Co. v. Cunningham, 192 S.E.2d 722 (W. Va. 1972)

(“[A]ll perfected mechanics’ liens attach at the time the initial

mechanic’s lien comes into existence after the construction of the

building or structure begins . . . .”), with Augusta Apartments,

LLC v. Landau Bldg. Co., No. 11-0438, 2011 WL 8197526 (W. Va. Oct.

21, 2011) (memorandum decision) (finding that preparatory work such

22

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

Without addressing these key issues, First American simply

notes the existence of Union Bank’s claim and points to the

settlement for less than the amounts asserted in the mechanic’s

liens. Such arguments, however, are insufficient to meet First

American’s burden to prove that it was potentially liable for Union

Bank’s claim. See id. Therefore, First American is not entitled to

summary judgment regarding the reasonableness of its settlement.

b. Bowles Rice is not entitled to summary judgment on

potential liability.

Turning to Bowles Rice’s motion, it contends that First

American’s settlement was unreasonable because “[t]he evidence in

the record demonstrates that the likelihood Plaintiff would have

prevailed at trial is overwhelmingly high” (Dkt. No. 171 at 15). It

argues that 1) First American’s own actions demonstrate that the

settlement was unreasonable; 2) First American cannot establish

that the mechanic’s liens were valid; and 3) the mechanic’s liens

were fully released and could not relate back. Id. at 16.9

as “leveling, clearing trees and brush, and hauling out mud and

rocks” was sufficient for mechanic’s liens to attach). The

mechanic’s lien statutes, however, are liberally construed due to

their remedial nature. Carolina Lumber, 192 S.E.2d at 726.

9 Bowles Rice also contends that it is entitled to summary

judgment because First American has not disclosed an expert witness

regarding “the validity of the mechanic’s liens and the strength of

the contractors’ claims” (Dkt. No. 171 at 13). Although expert

23

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

With regard to its first argument, Bowles Rice contends that

the settlement was unreasonable because First American initially

set its reserve at $0 and, “[f]or nearly all of 2014, . . .

maintained the position that settlement . . . would be unreasonable

because the mechanic’s liens were not valid and/or did not have

priority.” Id. The Court has already ruled that subjective

evaluations such as reserves are irrelevant to the objective

inquiry set forth in Valloric (Dkt. No. 128 at 12-14). Moreover,

that First American settled the claim without “litigat[ing] its

defenses” has nothing to do with the reasonableness of its

settlement. Tellingly, had First American litigated its defenses,

a settlement would have been unnecessary.

For its second argument, Bowles Rice contends that First

American “cannot demonstrate that the mechanic’s liens were valid”

because the proper parties were not named in the contractors’ lien

notices and lawsuits (Dkt. No. 171 at 17). Pursuant to W. Va. Code

testimony on “the reasonableness of the claim’s settlement and the

underlying motivation for that settlement” certainly may be

appropriate in a bench trial, Chicago Title Ins. Co. v. IMG Exeter

Associates Ltd. P’ship, 985 F.2d 553, 1993 WL 273921, at *4 n.6

(4th Cir. 1993) (unpublished decision), it is within the Court’s

discretion whether to admit, consider, or accept expert testimony

regarding the mechanic’s liens or the strength of the contractors’

claims. See id. Therefore, expert testimony on such legal issues is

not necessary to First American’s claim.

24

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

§§ 38-2-7 and 38-2-8, a mechanic’s lien is discharged unless

perfected and preserved by the filing of a notice of mechanic’s

lien within 100 days after project completion. Bowles Rice thus

contends that the contractors’ notices were insufficient because

they failed to name the Monongalia County Development Authority

(“MCDA”), which owned the property at issue (Dkt. No. 171 at 18).

Review of the only notice of mechanic’s lien filed by Bowles Rice,

however, belies this argument and confirms that the MCDA is clearly

named (Dkt. No. 170-14 at 2).

In addition, pursuant to W. Va. Code § 38-2-34, a lien holder

must bring suit to enforce the lien within six months of filing a

notice of mechanic’s lien. The Supreme Court of Appeals of West

Virginia has indicated that the lender and the trustee of the deed

of trust are necessary parties to such a lien enforcement action.

Syl. Pt. 4, Lunsford v. Wren, 64 S.E. 308 (W. Va. 1908).

Bowles Rice contends that the mechanic’s liens were

unenforceable because the enforcement actions did not name Union

Bank or the trustee (Dkt No. 171 at 18-19). That Union Bank was not

initially named in the contractors’ enforcement actions is not a

foolproof defense (Dkt. No. 170-15), however, as the state court

may have allowed the contractors to amend their pleadings as

necessary. See, e.g., O.G. Augir & Co. v. Warder, 81 S.E. 708, 708

25

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

(W. Va. 1914); Lunsford, 64 S.E. at 315; see also Earp v.

Vanderpool, 232 S.E.2d 513, 516 (W. Va. 1976) (describing when

mechanic’s lien statutes are subject to either a strict or liberal

construction).

Third and finally, Bowles Rice contends that the contractors

were fully paid and released their right to assert mechanic’s liens

for work done prior to Union Bank’s closing (Dkt. No. 171 at 19-2).

This argument is unpersuasive; the very language of the partial

lien waivers executed by the contractors establishes that

mechanic’s liens for subsequent work could relate back to when

construction first commenced on the Longview project.

Undoubtedly, a contractor may waive his right to file a

mechanic’s lien. See Bauer Enters., Inc. v. Frye, 382 S.E.2d 71, 74

(W. Va. 1989).10 But in West Virginia, “[a] valid written instrument

which expresses the intent of the party in plain and unambiguous

10 Bowles Rice cites to cases that generally address the fact

that one may waive mechanic’s liens, but not whether one’s priority

has been waived upon the execution of a partial lien waiver. Such

cases are of little assistance to the Court’s analysis. See, e.g.,

First Union Nat’l Bank v. RPB 2, LLC, 674 N.W.2d 1 (N.D. 2004);

Durant Const., Inc. v. Gourley, 336 N.W.2d 856, 658 (Mich. App.

1983) (finding that record supported conclusion that contractor

intended to waive future liens). Moreover, Bowles Rice cites a case

that actually contradicts its position. See Lyda Swinerton

Builders, Inc. v. Cathay Bank, 409 S.W.3d 221, 230 (Tex. Ct. App.

2013) (noting that liens arising subsequent to a lien waiver relate

back to the time when construction commenced).

26

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

language is not subject to judicial construction or interpretation

but will be applied and enforced according to such intent.” Kopf v.

Lacey, 540 S.E.2d 170, 175 (W. Va. 2000) (quoting Syl. Pt. 1,

Cotiga Dev. Co. v. United Fuel Gas Co., 128 S.E.2d 626 (1962)).

Here, the lien waivers resulted from the Construction Services

Agreement between Longview and its contractors, which required the

contractors, as a condition precedent to payment, to supply “a

waiver and release of liens . . . in order to assure an effective

release of mechanics’ or materialmen’s liens in accordance with the

Applicable Laws of the State of West Virginia.” The waiver form was

to comply with what was “reasonably required by a title insurer

providing title insurance to Owner or any Lender.” The waiver forms

utilized and executed by contractors during the project waived “all

right that the undersigned may have to a lien upon the land and

improvements . . . to the extent payment has been made to

Contractor” (Dkt. No. 174-4 at 181).11

The language of the form lien waiver is plain and unambiguous.

Although releasing the contractor’s lien to the extent that payment

11 From the record provided, it appears that Bowles Rice

initially provided a draft lien waiver form to Longview that did

not qualify the waiver “to the extent payment [had] been made”

(Dkt. No. 174-2 at 484). The contractors, however, were not willing

to utilize such a waiver. Id. at 478.

27

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

had been made, it says nothing about when future liens will attach.

Therefore, future liens may still relate back for attachment

purposes to the date that construction commenced. W. Va. Code § 38-

2-17.

As First American aptly contends, this case is like Wachovia

Bank N.A. v. Superior Construction Corp., 718 S.E.2d 160 (N.C. App.

2011). There, the partial lien waiver stated that the contractor

“[did] hereby waive, relinquish, surrender and release any and all

lien, claim, or right to lien on the above said described project

and premises, arising under and by virtue of the mechanic’s lien

laws of the State of North Carolina on account of any labor

performed or the furnishing of any material to the above described

project and premises up to and including the” date specified. Id.

at 249-50.

The limited language in the partial lien waiver did not affect

when future liens attached:

[T]he plain meaning of a waiver of lien rights arising

“on account of” labor performed before 31 May 2005 is

that the only lien rights being waived are those arising

“because of,” “as a result of,” or “on the basis of” work

done prior to the relevant date. The language utilized in

the partial lien waivers does not in any way refer to a

waiver of Defendant Superior’s “place in line;” instead,

it simply refers to a waiver of “any and all” lien rights

applicable to specific payments. In essence, the partial

lien waivers at issue in this case function as an

acknowledgment that a payment for labor and materials

28

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

expended through a certain date has been made and that

Defendant Superior has no further lien rights in the

furnishing of labor and materials reimbursed by those

payments. Thus, we conclude that the partial lien waivers

executed by Defendant Superior merely operated as a

waiver of its right to claim a lien on amounts for which

it had been paid . . . .

Id. at 166. This holding is consistent with similar cases in other

states. See id. (citing Metropolitan Fed. Bank v. A.J. Allen, 477

N.W.2d 668, 673-75 (Iowa 1991); Duckett v. Olsen, 699 P.2d 734,

736-37 (Utah 1985)).

Because Bowles Rice has failed to conclusively establish that

First American was not potentially liable under the Lender’s Title

Policy for at least a portion of the $335 million in mechanic’s

liens filed and prosecuted by the contractors, it is not entitled

to summary judgment regarding its obligation to indemnify First

American for the losses sustained under the Lender’s Title Policy.

E. This action is not barred by judicial estoppel.

Finally, Bowles Rice contends that judicial estoppel bars

First American from “contending that the mechanic’s liens filed by

the contractors on the Power Plant were valid and took priority

over the Credit Line Deed of Trust” because it took the opposite

position in prior litigation (Dkt. No. 171 at 23). After careful

review of the issue, the Court concludes that applying the doctrine

29

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

of judicial estoppel would be an inappropriate exercise of its

discretion. See King v. Herbert J. Thomas Mem’l Hosp., 159 F.3d

192, 196 (4th Cir. 1998) (noting that the application of judicial

estoppel is at the discretion of the district court).

“Judicial estoppel precludes a party from adopting a position

that is inconsistent with a stance taken in prior litigation.”

Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive

Risk Assurance Co., Inc., 867 F.3d 449, 457 (4th Cir. 2017)

(quoting John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26,

28 (4th Cir. 1995)). “The purpose of the doctrine is to prevent a

party from playing fast and loose with the courts, and to protect

the essential integrity of the judicial process.” Id. (quoting John

S. Clark Co., 65 F.3d at 29).

In order to apply the doctrine, a court must find that the

following four circumstances exist:

(1) the party sought to be estopped must be seeking to

adopt a position that is inconsistent with a stance taken

in prior litigation; (2) the position sought to be

estopped must be one of fact rather than law or legal

theory; (3) the prior inconsistent position must have

been accepted by the court; and (4) the party sought to

be estopped must have intentionally misled the court to

gain unfair advantage.

30

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

Id. at 458 (internal quotation omitted) (quoting Lowery v. Stovall,

92 F.3d 219, 223-24 (4th Cir. 1996)). Notably, in the Fourth

Circuit, the final element is determinative. Id.

Regarding the first element, as Bowles Rice contends, First

American has adopted a somewhat different position in this case

than it did in the earlier litigation related to the Lender’s Title

Policy. In the California litigation and its adversary proceeding

in the Bankruptcy Court, First American argued that the

contractors’ mechanic’s liens were both invalid and not entitled to

priority over Union Bank’s deed of trust. Here, First American

contends that a settlement of $41 million was warranted based on

the risks of an adverse judgment and the magnitude of the exposure

it faced.

None of the other elements, however, are met under the facts

of this case. As to the second element, the about-face of which

Bowles Rice complains plainly involves legal contentions, not

factual issues. Lowry, 92 F.3d at 225. Whether sufficient

construction has commenced for a lien to attach or whether a

mechanic’s lien is valid and entitled to priority are, in the final

instance, questions of law. Any perceived variation in First

American’s position on these legal theories is permissible. King v.

Cardinal Health 411, Inc., 5:10CV112, 2011 WL 59672256, at *3

31

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

(N.D.W.Va. Nov. 29, 2011) (Stamp, J.) (noting that “it is rare for

judicial estoppel to be applied to prevent a party from changing

legal theories” or “contradicting itself”).

Under the third element, moreover, “judicial estoppel does not

apply to the settlement of an ordinary civil suit because there is

no judicial acceptance of anyone’s position.” Lowery, 92 F.3d at

225 (internal quotation omitted) (quoting Reynolds v. Commissioner,

861 F.2d 469, 473 (6th Cir. 1988)). Bowles Rice, however, contends

that First American did not settle an “ordinary civil suit.”

“[W]hen a bankruptcy court - which must protect the interests of

all creditors - approves a payment from the bankruptcy estate on

the basis of a party’s assertion of a given position,” the party

may be judicially estopped from later asserting a contrary

position. Reynolds, 861 F.2d at 473. This principle, however, is

grounded in the bankruptcy court’s “obligation to apprise itself of

the underlying facts and to make an independent judgment as to

whether the compromise is fair and equitable.” Id.

Here, the bankruptcy court was not called upon to make such

independent judgments regarding the bankruptcy estate:

First American and the Settling Contractors no doubt

believe that they would prevail in their respective

litigations with the Debtors. It cannot be disputed,

though, that such litigations would be enormously complex

and expose all sides to material risks of adverse

32

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

judgments, measured not only by relation to the complex

issues involved but also the magnitude of any potential

adverse judgments.

(Dkt. No. 194-1 at 22). In essence, First American advised the

Bankruptcy Court that, while it stood behind its legal positions,

it had decided to mitigate the risk that it was wrong by settling

its liability for a sum certain. Clearly, this is not the type of

“judicial acceptance” contemplated for the purposes of estoppel,

even in the bankruptcy context. Cf. Reynolds, 861 F.2d at 473.

Finally, with regard to the fourth factor, Bowles Rice has not

established that First American “misled the court to gain unfair

advantage.” Lowery, 92 F.3d at 223. Rather, First American defended

itself against liability on multiple fronts, but, ultimately,

conceded the potential of an “adverse judgment” when it decided to

settle in the Bankruptcy Court (Dkt. No. 194-1 at 22).

In sum, Bowles Rice has established only one of the four

factors necessary for application of judicial estoppel. And,

although not necessary to the analysis, the Court notes that a

contrary conclusion would defy logic and prevailing practice. Under

Bowles Rice’s interpretation of judicial estoppel, a party could

not assert good faith defenses in an underlying action without

losing its right to seek indemnification if it then, pursuant to a

court-approved agreement, settles the case based on its potential

33

FIRST AMERICAN V. BOWLES RICE 1:16CV219

MEMORANDUM OPINION AND ORDER DENYING THE PARTIES’

MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 168; 170]

liability. This result would be wholly inconsistent with the legal

policy of encouraging settlements. Cf. United States v. North

Carolina, 180 F.3d 574, 581 (4th Cir. 1999); Valloric, 357 S.E.2d

at 212 & n.6. For all these reasons, the Court concludes that the

doctrine of judicial estoppel does not apply to this case.

V. CONCLUSION

For the reasons discussed, neither party is entitled to

judgment as a matter of law regarding First American’s breach of

contract claims. Therefore, the Court DENIES the parties’ motions

for summary judgment (Dkt. Nos. 168; 170).

It is so ORDERED.

The Court directs the Clerk to transmit copies of this Order

to counsel of record.

DATED: August 8, 2018.

/s/ Irene M. Keeley

IRENE M. KEELEY

UNITED STATES DISTRICT JUDGE

34