Fidelity National Title Insurance Co. v. Worthington

2015 UT App 19

_________________________________________________________

THE UTAH COURT OF APPEALS

FIDELITY NATIONAL TITLE INSURANCE COMPANY,

Plaintiff and Appellant,

v.

KENTON WORTHINGTON,

Defendant and Appellee.

Opinion

No. 20130799-CA

Filed January 29, 2015

Third District Court, Salt Lake Department

The Honorable Tyrone E. Medley

No. 110908756

Bryce D. Panzer, Brett N. Anderson, and Scott R.

Taylor, Attorneys for Appellant

Michael D. Mayfield and Caroline L. Hermeling,

Attorneys for Appellee

JUDGE JOHN A. PEARCE authored this Opinion, in which JUDGE

MICHELE M. CHRISTIANSEN and SENIOR JUDGE RUSSELL W. BENCH

concurred.1

PEARCE, Judge:

¶1 A homeowner sought the assistance of his sister and her

husband in refinancing his house. The three worked with a title

1. The Honorable Russell W. Bench, Senior Judge, sat by special

assignment as authorized by law. See generally Utah R. Jud.

Admin. 11-201(6).

Fidelity National Title Insurance Co. v. Worthington

company partly owned by the sister to secure a loan from a

bank. After the refinancing loan closed, a mechanic’s lien was

recorded upon the house. The title company’s underwriter paid

out to the bank to satisfy the lien and then sued the homeowner,

his sister, his sister’s husband, and the sister’s title company. For

a variety of reasons, including bankruptcies and the dissolution

of the title company, the only parties left standing in the

litigation are the homeowner and the underwriter. The

underwriter alleged that the homeowner committed fraud and

participated in his sister’s breach of fiduciary duty. The question

before us is whether the district court erred in dismissing the

underwriter’s complaint against the homeowner. Because the

underwriter did not plead any false representation made by the

homeowner and did not plead any duty to disclose owed by the

homeowner, we conclude that the fraud claim against him was

improperly pleaded and therefore properly dismissed. Because

the underwriter did not allege that the homeowner took any

specific action to further his sister’s alleged breach of fiduciary

duty, we conclude that the district court did not err by

dismissing the breach of fiduciary duty claim.

BACKGROUND

¶2 Kenton Worthington—the homeowner—purchased a

half-finished house (the Property) from a construction company

with the understanding that the construction company would

complete it. To finance the purchase, Worthington granted a first

trust deed to a lender for $1,100,000 and a second trust deed to

the construction company for $585,000. Worthington later sought

to refinance these obligations and obtain additional capital to

finish construction. To this end, Worthington’s brother-in-law

(Brother-in-Law), a mortgage broker, helped him obtain a

refinancing loan from a second bank (the Bank). The loan was

for $2,596,000 and was characterized as a refinance of existing

obligations rather than as a construction loan. Priority Title

Insurance Agency, a company partly owned by Worthington’s

sister (Sister), handled the closing of the refinancing loan.

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Fidelity National Title Insurance Co. v. Worthington

Priority Title was an agent of its underwriter, Fidelity National

Title Insurance Company (Fidelity).

¶3 According to Fidelity’s complaint, the refinancing loan’s

closing was conditioned upon, ‚among other things, obtaining

assurance that [the Bank] would have a first priority lien on the

Property, that there would be no other liens of record on the

title, and that there was no subordinate financing.‛ When the

loan closed, Priority Title disbursed funds to pay off the trust

deeds held by the first lender and the construction company.

Both of those entities reconveyed their trust deeds. Priority Title

also issued a lender’s title-insurance policy in favor of the Bank

in the amount of $2,596,000. The policy provided coverage to the

Bank against potential mechanic’s liens claiming priority over

the Bank’s trust deed.

¶4 Worthington and the construction company were unable

to agree on the balance still owing for construction. Two months

after the refinancing loan closed, their dispute boiled over into

litigation. The construction company filed a Notice of Lien

against the Property, asserting a $600,000 mechanic’s lien.

Because construction on the Property had commenced before the

initial sale to Worthington, the construction company asserted

that its lien had priority over the refinancing loan. The Bank was

joined to the litigation and tendered its claim to Fidelity under

the title-insurance policy. Fidelity settled that case by paying the

construction company approximately $490,000.

¶5 Fidelity then filed suit against Worthington, Sister,

Brother-in-Law, and Priority Title (collectively, the Defendants).

Fidelity’s complaint identified two claims for relief that are

pertinent to this appeal: (1) one titled ‚Fraud, Intentional

Misrepresentation, and Civil Conspiracy‛ and (2) one for

‚Breach of Fiduciary Duty.‛ Sister, Brother-in-Law, and Priority

Title are no longer in the case and are not parties to this appeal.

¶6 Worthington moved to dismiss Fidelity’s claims against

him, arguing that they were barred by the economic loss

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Fidelity National Title Insurance Co. v. Worthington

doctrine and that the claims should be dismissed for failing to

state a claim upon which relief could be granted. See Utah R. Civ.

P. 12(b)(6). In particular, Worthington argued that the fraud

claim failed because Fidelity did not plead ‚the circumstances

constituting fraud . . . with particularity.‛ See id. R. 9(b). The

district court agreed with Worthington and dismissed the claims

against him with prejudice. The court also determined that the

claims were ‚based solely and inextricably on alleged

contractual duties‛ and were therefore the type of ‚tort claims

barred by the economic loss rule, because the claimed duties

[were] not independent of the contract.‛2 The court further

stated that it could not ‚find that . . . Mr. Worthington owed any

legal duties to *Fidelity+.‛ The court incorporated by reference

‚all of the case law authorities and remaining grounds set forth

in *Worthington’s+ Memoranda in support and reply, which

serve as the basis of the Court’s decision.‛ Fidelity appeals.

ISSUE AND STANDARD OF REVIEW

¶7 Fidelity argues that the district court erred when it

dismissed Fidelity’s complaint against Worthington. The court

dismissed Fidelity’s complaint after it determined that Fidelity

failed to state claims upon which relief could be granted, see

Utah R. Civ P. 12(b)(6), and that the economic loss rule barred

Fidelity’s claims. For the purposes of a rule 12(b)(6) dismissal,

we accept the complaint’s factual allegations as true. Snow v.

Chartway Fed. Credit Union, 2013 UT App 175, ¶ 2 n.2, 306 P.3d

868. As a result, an appeal from a rule 12(b)(6) dismissal presents

only questions of law, and we review the district court’s ruling

for correctness. Simmons Media Group, LLC v. Waykar, LLC, 2014

UT App 145, ¶ 8, 335 P.3d 885.

2. Because we affirm based upon the pleading deficiencies, we

do not address the economic loss doctrine arguments.

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Fidelity National Title Insurance Co. v. Worthington

ANALYSIS

I. Fraud-Based Claims

¶8 Fidelity’s first claim for relief is a mélange of fraud-based

causes of action under the title ‚Fraud, Intentional

Misrepresentation, and Civil Conspiracy.‛ Rule 12(b)(6) of the

Utah Rules of Civil Procedure permits the dismissal of

complaints that fail to state claims upon which relief can be

granted. In the context of fraud-based causes of action, rule 9(b)

provides that the circumstances constituting fraud must be

pleaded with particularity in order to state a claim. Utah R. Civ.

P. 9(b).

¶9 Fidelity pleaded that each of the Defendants knew that a

mechanic’s lien could be filed against the Property and knew

that Fidelity would not underwrite an insurance policy for a

property subject to a possible mechanic’s lien. Fidelity claimed

that ‚*e+ach of the Defendants failed to disclose, or require the

disclosure of the [potential lien] to Fidelity for the purpose of

inducing Fidelity to issue the lender’s policy of title insurance to

*the Bank+.‛ Fidelity also alleged that ‚Priority Title and *Sister+

had a specific duty to disclose to Fidelity all facts and

information [relevant] to the issuance of the lender’s policy of

title insurance, and intentionally failed to do so.‛ Although the

complaint lumped fraud, intentional misrepresentation, and civil

conspiracy together, we will consider fraud and intentional

misrepresentation together and civil conspiracy separately.

A. Fraud

¶10 A claim of fraud requires the plaintiff to allege:

(1) that a representation was made (2) concerning a

presently existing material fact (3) which was false

and (4) which the representor either (a) knew to be

false or (b) made recklessly, knowing that there

was insufficient knowledge upon which to base

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Fidelity National Title Insurance Co. v. Worthington

such a representation, (5) for the purpose of

inducing the other party to act upon it and (6) that

the other party, acting reasonably and in ignorance

of its falsity, (7) did in fact rely upon it (8) and was

thereby induced to act (9) to that party’s injury and

damage.

Webster v. JP Morgan Chase Bank, NA, 2012 UT App 321, ¶ 16, 290

P.3d 930 (citation and internal quotation marks omitted); see also

Armed Forces Ins. Exch. v. Harrison, 2003 UT 14, ¶ 16, 70 P.3d 35

(reiterating that, in the context of a motion for summary

judgment, conclusory allegations of those elements,

unsupported by relevant surrounding facts, are insufficient).

¶11 Here, Fidelity’s complaint fails to allege the elements of a

fraud claim with the particularity our rules require. See Utah R.

Civ. P. 9(b) (‚In all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with

particularity.‛). Rule 9(b)’s specificity requirement modifies the

general rule that requires only a ‚short and plain‛ statement of

the claim demonstrating entitlement to relief and a demand for

judgment identifying the relief sought. See id. R. 8(a). A number

of reasons have been advanced to justify the more stringent

pleading requirement. Commentators have explained that rules

analogous to our rule 9(b) exist to discourage ‚lightly made

claims charging the commission of acts that involve some degree

of moral turpitude.‛ See 5A Charles Alan Wright & Arthur R.

Miller, Federal Practice and Procedure § 1296 (3d ed.). Others have

suggested that the rule stems from the common law’s historical

reluctance to reopen transactions. John P. Villano Inc. v. CBS, Inc.,

176 F.R.D. 130, 131 (S.D.N.Y. 1997) (citing William M. Richman,

Donald E. Lively & Patricia Mell, The Pleading of Fraud: Rhymes

Without Reason, 60 S. Cal. L. Rev. 959, 960–67 (1987)). The rule

also serves to deter filing exploratory suits with little

information in the hopes that discovery will uncover

information to support the allegations. See Republic Bank & Trust

Co. v. Bear Stearns & Co., 683 F.3d 239, 255 (6th Cir. 2012) (‚Rule

9(b) [of the Federal Rules of Civil Procedure] is designed, not

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Fidelity National Title Insurance Co. v. Worthington

only to put defendants on notice of alleged misconduct, but also

to prevent fishing expeditions . . . .‛ (citation and internal

quotation marks omitted)); Cornejo v. JPMorgan Chase Bank, No.

CV 11-4119 CAS(VBKx), 2012 WL 628179, at *4 (C.D. Cal. Feb. 27,

2012) (‚Plaintiffs’ assertion that they will ‘not know until

discovery’ the specific misrepresentations made is precisely

what Rule 9(b) [of the Federal Rules of Civil Procedure] seeks to

prevent.‛).

¶12 Here, Fidelity did not identify any false representation

Worthington made to Fidelity; rather, it asserted only that the

Defendants as a group had failed to disclose information to

Fidelity. Our supreme court has explained that a cause of action

for fraud against multiple defendants must

‚supply . . . information regarding *each defendant’s+ personal

participation in fraud.‛ Armed Forces Ins. Exch., 2003 UT 14, ¶ 21.

For this reason, the district court did not err by dismissing the

fraud claim.

¶13 Even if we could read the group allegations as directed

solely at Worthington, the complaint avers only that

Worthington ‚failed to disclose‛ the potential for a mechanic’s

lien. A defendant’s failure to disclose must implicate the breach

of a duty to be actionable. See Russell/Packard Dev., Inc. v. Carson,

2003 UT App 316, ¶ 33, 78 P.3d 616 (noting that, generally,

silence in the absence of a duty to speak does not of itself

constitute fraud), aff’d, 2005 UT 14, 108 P.3d 741; see also Gilbert

Dev. Corp. v. Wardley Corp., 2010 UT App 361, ¶ 21, 246 P.3d 131

(holding that a fraudulent nondisclosure claim required the

plaintiff to show that the defendant had a legal duty to

communicate the information at issue). Fidelity’s complaint does

not identify what duty Fidelity asserts Worthington owed to

Fidelity that would have required him to disclose that there was

a possibility (1) that a mechanic’s lien might one day be filed

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Fidelity National Title Insurance Co. v. Worthington

against the Property and (2) that the priority of such a lien might

predate the Bank’s interest.3

¶14 Because Fidelity’s complaint did not identify any false

representation Worthington made and did not identify any duty

Worthington breached by failing to disclose information to

Fidelity, Fidelity failed to plead fraud with the particularity rule

9(b) requires.

B. Conspiracy to Commit Fraud

¶15 Fidelity’s first claim for relief also alleged a civil

conspiracy amongst the Defendants to commit fraud. The

complaint asserted that the Defendants’ ‚acts and omissions‛

‚were undertaken as part of a conspiracy to defraud Fidelity,

and to intentionally misrepresent the facts and circumstances, in

order to induce Fidelity to issue a lender’s policy of title

insurance to *the Bank+.‛ Fidelity claimed that ‚Priority Title and

[Sister] were part and parcel of the conspiracy to mislead and

defraud Fidelity‛ and that Worthington knew that neither Sister

nor Priority Title would inform Fidelity or the Bank of the

potential mechanic’s lien.

¶16 A claim for civil conspiracy must allege the following

elements: ‚(1) a combination of two or more persons, (2) an

object to be accomplished, (3) a meeting of the minds on the

object or course of action, (4) one or more unlawful, overt acts,

and (5) damages as a proximate result thereof.‛ Israel Pagan

Estate v. Cannon, 746 P.2d 785, 790 (Utah Ct. App. 1987).

3. Fidelity did not allege that Worthington withheld information

from Priority Title; to the contrary, the complaint asserts that the

possibility of a mechanic’s lien was ‚known to each of the

Defendants,‛ including Priority Title.

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Fidelity National Title Insurance Co. v. Worthington

¶17 Here, Fidelity has not alleged facts to support its

allegations. Specifically, the complaint lacks any facts showing a

meeting of the minds. Rather, it states conclusorily that, ‚since

each of the Defendants knew that *Sister+ was *Worthington’s+

sister, and that [Brother-in-Law+ was *Worthington’s+ brother-in-

law, each of the Defendants knew that neither [Sister] nor

[Brother-in-Law+ would inform *Fidelity+‛ of the possibility of a

mechanic’s lien being filed. Thus, the complaint implied that

familial relationships alone give rise to an inference of

conspiracy when a sibling or her spouse is alleged to have

breached a duty to disclose. Fidelity must do more to allege a

meeting of the minds than simply imply that this element is

satisfied when the defendants are related by blood or marriage.

¶18 Because Fidelity’s complaint did not assert facts to show

that Worthington, Sister, Brother-in-Law, and Priority Title

agreed on a course of fraudulent behavior, Fidelity failed to

plead civil conspiracy to commit fraud with the particularity

required by rule 9(b). See Utah R. Civ. P. 9(b); see also Coroles v.

Sabey, 2003 UT App 339, ¶ 39 & n.23, 79 P.3d 974 (explaining that

rule 9(b)’s particularity requirement extends to civil conspiracy

claims predicated on fraud and possibly even to non-fraud civil

conspiracy claims).

¶19 Because we determine that Fidelity’s complaint did not

state the fraud and civil conspiracy claims with particularity, we

hold that the district court correctly dismissed those claims for

failure to state a claim upon which relief could be granted.

II. Breach of Fiduciary Duty

¶20 Fidelity’s second claim for relief alleged breach of

fiduciary duty. Specifically, Fidelity argued that Priority Title

and Sister breached the fiduciary duties they owed to Fidelity as

insurance agents. With respect to Worthington, Fidelity alleged

that he knew of that fiduciary relationship, that he knew that the

refinancing loan could only close if the possibility of a

mechanic’s lien was concealed from Fidelity, and that he

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‚actively participated in Priority Title’s and *Sister’s+

concealment‛ of that possibility. Fidelity asserted that

Worthington was therefore ‚jointly and severally liable for the

breach of fiduciary duty.‛

¶21 The district court’s ruling stated that the court could not

find that Worthington owed any legal duties to Fidelity. It also

noted that ‚the claim that *Worthington+ aided and abetted a

fraud and conspiracy are not allegations pled in the Amended

Complaint.‛ On appeal, Fidelity argues that ‚[a]n independent

duty exists not to participate in the breach of a fiduciary duty‛

and that the allegations in the complaint were ‚sufficient to state

a claim against [Worthington] for participating in (aiding and

abetting) the breach of fiduciary duty claim.‛

¶22 We note that the complaint does not expressly plead an

aiding and abetting cause of action. Rather, the section of the

complaint Fidelity relies upon is titled ‚Breach of Fiduciary

Duty.‛ That section does not contain the phrase ‚aiding and

abetting.‛ On appeal, Fidelity attempts to shoehorn the meaning

of ‚aiding and abetting‛ into its use of the word ‚participated.‛

Even assuming that this is sufficient to plead an aiding and

abetting cause of action, Fidelity’s complaint fails to state a claim

upon which relief can be granted.

¶23 The sufficiency of the pleadings within a complaint ‚must

be determined by the facts pleaded rather than the conclusions

stated.‛ Franco v. Church of Jesus Christ of Latter-day Saints, 2001

UT 25, ¶ 26, 21 P.3d 198 (citation and internal quotation marks

omitted); Foster v. Saunders, 2005 UT App 264U, at para. 3 (per

curiam). Here, Fidelity’s complaint asserts that Priority Title and

Sister breached their fiduciary duties to Fidelity. But the

complaint does not allege any act Worthington performed in

furtherance of those breaches. Fidelity’s complaint claims only

that Worthington ‚actively participated‛ in the breach. This

allegation is purely conclusory rather than factual and is

therefore insufficient to support a claim for relief. See Chapman v.

Primary Children’s Hosp., 784 P.2d 1181, 1186 (Utah 1989) (‚We

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Fidelity National Title Insurance Co. v. Worthington

have stressed, and continue to hold, that mere conclusory

allegations in a pleading, unsupported by a recitation of relevant

surrounding facts, are insufficient to preclude dismissal or

summary judgment.‛). Accordingly, dismissal pursuant to rule

12(b)(6) of the Utah Rules of Civil Procedure was appropriate.

CONCLUSION

¶24 Fidelity’s complaint did not allege fraud or conspiracy to

commit fraud with the particularity rule 9(b) of the Utah Rules of

Civil Procedure requires. Fidelity’s complaint also failed to

allege facts to support a claim that Worthington aided and

abetted Sister, or Priority Title, in breaching a fiduciary duty

owed to Fidelity. The district court therefore correctly granted

Worthington’s motion to dismiss for failure to state a claim upon

which relief could be granted. As a result, we need not consider

whether the district court correctly applied the economic loss

rule to Fidelity’s fraud and breach of fiduciary duty claims. We

affirm the district court’s order dismissing the complaint.

¶25 Affirmed.

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