Opinion
No. 29454-4-III.
Filed: August 9, 2011. UNPUBLISHED OPINION.
Appeal from a judgment of the Superior Court for Spokane County, No. 09-2-01762-4, Salvatore F. Cozza, J., entered September 24, 2010.
Affirmed in part and reversed in part by unpublished opinion per Brown, J., concurred in by Sweeney and Siddoway, JJ.
Prime Real Estate Closing Escrow, LLC (Prime) paid off the wrong loan when closing on real property owned by Craig Heberling. Prime claimed it received inconsistent closing instructions from Empire Mortgage Group, Inc. (Empire) concerning Mr. Heberling's refinance loan from GN Mortgage. GN Mortgage settled on its resulting title insurance claim against Pacific Northwest Title Insurance Company, Inc. (PNWT). Next, Prime settled with PNWT. Prime then sued Mr. Heberling for unjust enrichment and Empire for negligent misrepresentation, indemnity, and contribution. Prime summarily prevailed against Mr. Heberling on its unjust enrichment claim and on his fiduciary-duty counterclaims. The trial court granted Empire summary dismissal of Prime's negligent misrepresentation, indemnification, and contribution claims based on the economic loss rule and denied Prime's reconsideration request. Prime and Mr. Heberling appealed. We hold the trial court erred in ruling the economic loss rule barred Prime's negligent misrepresentation claim against Empire; we conclude remaining genuine issues of material fact regarding justifiable reliance prevent summary dismissal of that claim. Necessarily, we reverse the trial court's dismissal of Prime's indemnification and contribution claims. Like the trial court, we hold Mr. Heberling was unjustly enriched and reject his breach of fiduciary duty counterclaim and affirm the trial court.
FACTS
In spring 2007, Mr. Heberling, a real estate purchaser and investor, owned among others, two Spokane, Washington properties, one located on Decatur Street and the other on Normandie Street. Wells Fargo Bank held deeds of trust on each property securing Loan 62 on the Decatur property and Loan 44 on the Normandie property. Mr. Heberling wanted to refinance the Decatur property. He received mortgage financing assistance from mortgage broker Empire. GN Mortgage approved Mr. Heberling's loan to refinance Loan 62. Mr. Heberling retained Prime to act as his escrow/closing agent. Empire prepared the refinancing documents and provided them to Prime.
About April 10, Prime received initial closing documents from Empire concerning the Decatur property refinancing. One document Prime received was a Form 1003 mortgage loan application. The loan application showed an asterisk next to Loan 62. According to Prime, this asterisk indicated which loan was to be paid off at closing. The first page of the loan application listed the subject property as the Decatur property.
About May 16, Prime received a second loan application from Empire. This application showed an asterisk next to Loan 44. However, the second loan application listed the subject property as the Decatur property. Before closing, Prime had in its possession documents evidencing the Decatur real property description, including a copy of the preliminary commitment for title insurance on the Decatur property.
At the May 21 closing, Prime's agent was confused regarding the correct loan number for the Decatur property. Additionally, Prime's agent was having difficulty getting a correct payoff amount from Wells Fargo on Loan 62 as of May 21. Prime requested a Wells Fargo payoff for Loan 44 on or about May 21 and received a Wells Fargo payoff quote showing Loan 44 as relating to 5922 N. Normandie Street. Nevertheless, Prime closed the real estate transaction and erroneously paid off Loan 44 instead of Loan 62.
A mortgage encumbrance in favor of GN Mortgage was recorded on the Decatur property, resulting in two mortgage encumbrances on the Decatur property and no mortgage encumbrance on the Normandie property. Recognizing the error, Prime offered to help correct the error by giving Mr. Heberling a private loan. The private loan from Prime could have been used to pay off Loan 62, and would have been secured by the Normandie property. Instead, with the Normandie property free and clear of encumbrances, Mr. Heberling seized the opportunity to obtain a new loan from Option One Mortgage, pledging the Normandie property as collateral. Mr. Heberling took $101,275 in cash proceeds from the Option One loan. Additionally, Mr. Heberling received about $12,282 from the refinance because Loan 44 had a lower principal balance than Loan 62. Between the extra proceeds from the refinance and the new Option One loan, Mr. Heberling received nearly $113,557.
Mr. Heberling spent this money to buy more properties, soon experiencing insufficient cash flow. He stopped paying and defaulted on both Loan 62 and the GN Mortgage loan. Wells Fargo foreclosed against Mr. Heberling and the Decatur property. GN Mortgage foreclosed against Mr. Heberling and the Decatur property.
Since Loan 62 was not paid off as intended, GN Mortgage's deed of trust was in second position behind Wells Fargo Loan 62. GN Mortgage successfully claimed against PNWT on its lender's title insurance policy. PNWT paid Loan 62 and demanded reimbursement from Prime. Prime settled with PNWT for $108,086.20.
Prime sued Mr. Heberling for unjust enrichment. Mr. Heberling's counterclaims included breach of fiduciary duty. Prime sued Empire for negligent misrepresentation, indemnity, and contribution. The trial court granted Prime's motion for summary judgment against Mr. Heberling for unjust enrichment and later summarily dismissed Mr. Heberling's counterclaims. The trial court summarily dismissed all of Prime's causes of action against Empire. The trial court denied Prime's reconsideration motion. Prime and Mr. Heberling appealed.
ANALYSIS A. Unjust Enrichment
The issue is whether the trial court erred in concluding Mr. Heberling was unjustly enriched as a matter of law and summarily granting Prime partial summary judgment. Mr. Heberling contends genuine issues of material fact remain. We disagree.
We review a trial court's summary judgment grant de novo, engaging in the same inquiry as the trial court. Barker v. Advanced Silicon Materials, LLC, 131 Wn. App. 616, 623, 128 P.3d 633 (2006). Summary judgment is proper if no genuine issues of material fact remain and the moving party is entitled to judgment as a matter of law. CR 56(c). "A material fact is one that affects the outcome of the litigation." Owen v. Burlington N. Santa Fe R.R., Co., 153 Wn.2d 780, 789, 108 P.3d 1220 (2005). When considering a summary judgment motion, we must construe all facts and reasonable inferences in the light most favorable to the nonmoving party. Lybbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000). We should grant the motion if, from all the evidence, reasonable persons could reach but one conclusion. Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d 805 (2005).
The moving party bears the initial burden of showing the absence of an issue of material fact. Young v. Key Pharm., Inc., 112 Wn.2d 216, 225, 770 P.2d 182 (1989). Once the moving party meets this initial showing, the inquiry shifts to the nonmoving party. Atherton Condo. Apartment-Owners Ass'n Bd. v. Blume Dev. Co., 115 Wn.2d 506, 516, 799 P.2d 250 (1990). "[T]he nonmoving party must present evidence that demonstrates that material facts are in dispute." Id. If the nonmoving party fails to do so, then summary judgment is proper. Id. In making a responsive showing, the nonmoving party must set forth specific facts showing a genuine issue and cannot rely on mere allegations, speculation, or argumentative assertions. Little v. Countrywood Homes, Inc., 132 Wn. App. 777, 780, 133 P.3d 944 (2006); Baldwin v. Sisters of Providence in Wash., Inc., 112 Wn.2d 127, 132, 769 P.2d 298 (1989).
The essential elements of unjust enrichment are "`a benefit conferred upon the defendant by the plaintiff; an appreciation or knowledge by the defendant of the benefit; and the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value.'" Young v. Young, 164 Wn.2d 477, 484, 191 P.3d 1258 (2008) (quoting Black's Law Dictionary 1535-36 (6th ed. 1990)).
Here, Prime satisfied its initial burden. Prime paid $108,086.20 to indemnify PNWT for paying off Mr. Heberling's loan, Loan 62. Mr. Heberling defaulted on Loan 62. Mr. Heberling knew Prime had earlier paid off Loan 44 instead of Loan 62, making one of his properties unencumbered and making Loan 62 undersecured.
Mr. Heberling contends no evidence shows he benefitted from Prime's payment of the defaulted loan. Mr. Heberling acknowledges he was spared potential liability, but he unpersuasively asserts that does not amount to a benefit, failing to create a genuine material fact issue. Mr. Heberling benefitted from Prime's payment. Moreover, based on his investing experience, Mr. Heberling should have known other parties would be prejudiced by his actions. His claim he had no knowledge Prime would face liability on the loan is likewise unpersuasive. As Prime argues, it is "immaterial that he may not have predicted precisely how that prejudice would affect each interested party." Br. of Resp't (Prime) at 13.
Equity will not permit Mr. Heberling to retain the benefit of the sums Prime paid to satisfy his debt. Mr. Heberling argues Prime's damage was due to its own negligence. Even if negligent, Prime did not have unclean hands. Prime paid PNWT because it was obligated to do so by contract, not because it was "clearly . . . in the wrong," as Mr. Heberling asserts. Reply Br. of Appellant at 3. Mr. Heberling asserts he acted in good faith and reasonably mitigated damages. But he took advantage of the situation, effectively preventing the other parties from mitigating their damages. Mr. Heberling's argumentative assertions do not create genuine issues for trial.
B. Mr. Heberling's Counterclaims
The issue is whether the trial court erred in summarily dismissing Mr. Heberling's fiduciary-duty counterclaims against Prime. Mr. Heberling contends material issues of fact remain precluding summary judgment.
In a summary judgment motion, the party bearing the burden of proof at trial bears the burden of showing sufficient facts to establish the existence of every element essential to the case. Key Pharm., 112 Wn.2d at 225. The essential elements to establish liability for breach of fiduciary duty are duty, breach, causation, and damages. 29 David K. DeWolf, Washington Practice, Washington Elements of an Action: Breach of Fiduciary Duties, § 11:1 at 313-14 (2010-2011 ed.). See also Senn v. Nw. Underwriters, Inc., 74 Wn. App. 408, 414, 875 P.2d 637 (1994).
An escrow agent owes a fiduciary duty to all escrow parties. Nat'l Bank of Wash. v. Equity Investors, 81 Wn.2d 886, 910, 506 P.2d 20 (1973). The agent's duties are specifically defined by the instructions provided by the parties to the transaction. Id. An escrow agent is bound "to act strictly in accordance with the provisions of the escrow agreement." Delson Lumber Co., Inc. v. Wash. Escrow Co., Inc., 16 Wn. App. 546, 551, 558 P.2d 832 (1976). And, the instructed tasks must be undertaken with "ordinary skill and diligence, and due or reasonable care." Denaxas v. Sandstone Court of Bellevue, LLC, 148 Wn.2d 654, 663, 63 P.3d 125 (2003) (citations omitted).
Here, the parties do not dispute Prime owed Mr. Heberling a duty to strictly follow instructions and conduct the transaction with diligence. However, Washington has not imposed a duty on escrow agents independent of the parties' instructions. See id. at 663-64. In Denaxas, the escrow agent did not have the duty to point out the discrepancy in the legal description without specific instruction to do so. Id. at 663. The law "does not impose a duty on escrow agents to affirmatively identify differences between the closing documents and documents drafted by others." Id. at 664.
Here, genuine fact issues remain regarding whether Prime breached its duty to Mr. Heberling to undertake its instructed tasks with reasonable care. Although Prime followed directions Empire provided, Mr. Heberling presents sufficient evidence to demonstrate material facts are in dispute. Prime received inconsistent instructions and admits it was confused about which loan to pay off. Even so, Mr. Heberling fails to allege any damage. And, even if we were to assume economic losses, Mr. Heberling would still need to show Prime's breach was the proximate cause of injury.
Two elements to proximate cause are cause in fact and legal cause. Hartley v. State, 103 Wn.2d 768, 777, 698 P.2d 77 (1985). Cause in fact exists where the alleged harm arises from a direct and unbroken sequence of events. Tae Kim v. Budget Rent A Car Sys., Inc., 143 Wn.2d 190, 203-04, 15 P.3d 1283 (2001). Where a later "independent and intervening act" is shown not reasonably anticipated, no cause in fact is shown because the causal chain has been broken. Griffin v. West RS, Inc., 143 Wn.2d 81, 85, 18 P.3d 558 (2001); see Tae Kim, 143 Wn.2d at 203-04. Cause in fact is generally a jury question. Daugert v. Pappas, 104 Wn.2d 254, 257, 704 P.2d 600 (1985). Cause in fact becomes a question of law for the court when undisputed facts and the inferences therefrom, are plain and incapable of reasonable doubt or difference of opinion. Id.
Here, it is undisputed Prime failed to pay off Loan 62 as anticipated. And, Mr. Heberling later chose to purchase a third property with the Option One loan rather than pay off Loan 62. Months later, Mr. Heberling defaulted on Loan 62. Plainly, Mr. Heberling's actions were independent and intervening. Mr. Heberling unpersuasively argues Prime could have anticipated he would use the Option One loan for another investment instead of paying off Loan 62; but even he admits the loan was meant to correct the mistake. Prime's actions were not the cause in fact of Loan 62 being undersecured because Mr. Heberling's actions broke the sequence of events. And, Prime's actions were not the legal cause of any alleged harm by Mr. Heberling. Legal cause is based on a policy determination of how far the consequences of a defendant's actions should extend. Tae Kim, 143 Wn.2d at 204. Courts resolve legal cause upon consideration of logic, commonsense, justice, policy and precedent, and we review as a question of law. Id. We conclude no legal cause is shown.
In sum, Mr. Heberling's actions led to his default on Loan 62. His actions effectively prevented Prime from rectifying the situation. It would not be logical, nor would it be just, to require Prime to compensate Mr. Heberling for the losses he set up for himself. The trial court did not err in dismissing Mr. Heberling's counterclaims.
C. Negligent Misrepresentation
The issue is whether the trial court erred in concluding Prime's negligent misrepresentation claim was barred by the economic loss rule and summarily dismissing that claim. At the outset we note Empire effectively concedes, based on Borish v. Russell, 155 Wn. App. 892, 901, 230 P.3d 646 (2010), that the trial court's reasoning was in error. Borish held "[i]n order for the economic loss rule to apply and preclude tort damages for negligent misrepresentation, there must be a contract between the parties." Prime and Empire agree that no contract existed between them.
However, Empire asks us to affirm the trial court's decision on other grounds. We may affirm the trial court's summary judgment grant if it is supported by any ground in the record, regardless of whether the trial court relied upon that ground. LaMon v. Butler, 112 Wn.2d 193, 200-01, 770 P.2d 1027 (1989); Estep v. Hamilton, 148 Wn. App. 246, 256, 201 P.3d 331 (2008). Empire bears the burden of proof in a summary judgment context of showing sufficient facts to establish the existence of every element essential to the case. Key Pharm., 112 Wn.2d at 225.
The essential elements of negligent misrepresentation are (1) the defendant supplied information for the guidance of others in their business transactions that was false, (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in his business transactions, (3) the defendant was negligent in obtaining or communicating the false information, (4) the plaintiff relied on the false information, (5) the plaintiff's reliance was reasonable, and (6) the false information proximately caused the plaintiff damages. Bloor v. Fritz, 143 Wn. App. 718, 734, 180 P.3d 805 (2008).
Empire argues "[j]ustifiable reliance is the element at issue here." Br. of Resp't (Empire) at 10. Justifiable reliance means reliance that is reasonable under the surrounding circumstances. Lawyers Title Ins. Corp. v. Soon J. Baik, 147 Wn.2d 536, 551, 55 P.3d 619 (2002). Ordinarily, justifiable reliance is a question of fact. Havens v. C D Plastics, Inc., 124 Wn.2d 158, 181, 876 P.2d 435 (1994). When reasonable minds could reach but one conclusion, it may be determined as a matter of law. Id. Empire argues no genuine issue of material fact remains regarding the lack of justifiable reliance. We disagree. Prime undeniably relied on the allegedly incorrect and inconsistent information provided by Empire. Different, inconsistent applications were provided to Prime by Empire. One application instructed Prime to pay off Loan 44. Viewed in the light most favorable to Prime, we cannot say Prime's reliance was unjustified. In other words, reasonable minds could reach more than one conclusion regarding justifiable reliance. Whether Prime's reliance was justified is a remaining genuine fact question; therefore, summary dismissal of Prime's negligent misrepresentation claim was improper.
Because the trial court erred in summarily dismissing Prime's negligent misrepresentation claim, it was premature for it to dismiss the indemnification and contribution claims. Therefore, the summary dismissal of Prime's indemnification and contribution claims are reversed. Thus, we do not reach those claims here. Finally, considering the trial court's erroneous economic loss ruling, the trial court erred by abusing its discretion in failing to grant reconsideration. Wagner Dev., Inc. v. Fidelity Deposit Co., 95 Wn. App. 896, 906, 977 P.2d 639 (1999).
Affirmed in part, reversed in part.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
SWEENEY, J. and SIDDOWAY, J., concur.