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Anastasi v. Fidelity National Title Insurance Co.

Intermediate Court of Appeals of Hawaii

December 30, 2014

LLOYD R. ANASTASI, Plaintiff-Appellant,
v.
FIDELITY NATIONAL TITLE INSURANCE COMPANY, Defendant-Appellee.

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CIVIL NO. 08-1-0718)

Philip J. Leas (Jacqueline B. Kido with him on the briefs) for Plaintiff-Appellant Thomas Benedict (Carol A. Eblen, Edmund K. Saffery,

William K. Tanaka with him on the briefs) (Goodsill Anderson Quinn & Stifel) for Defendant-Appellee

FOLEY, PRESIDING JUDGE, FUJISE and GINOZA, JJ.

OPINION

GINOZA, J.

Plaintiff-Appellant Lloyd R. Anastasi (Anastasi) filed this lawsuit against his insurer Defendant-Appellee Fidelity National Title Insurance Company (Fidelity) claiming that Fidelity unreasonably delayed in paying benefits owed to Anastasi under a title insurance policy. The circumstances of this case involve an underlying lawsuit against Anastasi, in which Fidelity provided a defense under a reservation of rights. Out of that circumstance, Anastasi claims breach of contract and bad faith against Fidelity.

This appeal arises from a grant of summary judgment by the Circuit Court of the First Circuit (circuit court)[1] in favor of Fidelity on Anastasi's bad faith claim. The circuit court granted an immediate appeal of its judgment on the bad faith claim pursuant to Rule 54 (b) of the Hawai'i Rules of Civil Procedure (HRCP).

In resolving this appeal, we must determine: whether we have appellate jurisdiction to review discovery rulings by the circuit court; if we have jurisdiction to review any discovery ruling, whether the circuit court abused its discretion in said ruling; whether the circuit court erred in granting summary judgment to Fidelity on the bad faith claim; and whether an award of costs to Fidelity was proper.

For the reasons discussed below, we hold that:

(1) we have appellate jurisdiction to review the circuit court's ruling that Fidelity need not produce ten documents authored or received by Elizabeth McGinnity (McGinnity), a Senior Vice-President and Major Claims Counsel for Fidelity; however, we do not have appellate jurisdiction to review the circuit court's discovery ruling on "other claims" information sought by Anastasi to prove punitive damages;
(2) because McGinnity acted in a dual capacity as both in-house counsel and in generally handling Anastasi's claim, the circuit court abused its discretion in ruling that the entirety of the ten documents withheld from discovery were covered by the attorney-client privilege and/or work-product doctrine;
(3) the circuit court erred in determining that Fidelity acted reasonably as a matter of law, and thus, summary judgment for Fidelity must be vacated; and
(4) because summary judgment for Fidelity is vacated, any award of costs was not warranted.

I. Overview

To put Anastasi's allegations against Fidelity into context, it is necessary to consider the circumstances of both this case and the underlying lawsuit from which Anastasi's bad faith claim arises.

The title insurance policy issued by Fidelity to Anastasi insured that an individual named Alajos Nagy (Nagy) had good title to property located in Mokule'ia, Hawai'i (the Property) and insured Anastasi against loss in the event a mortgage on the Property executed by Nagy was not enforceable. Anastasi had loaned $2.4 million to Nagy and Nagy had executed the mortgage in favor of Anastasi as security for the loan. As set forth in more detail below, Nagy's title to the property later came into dispute. Individuals named Paul Stickney (Stickney) and Gregory Rand (Rand)[2] claimed to own the Property and brought a quiet title action against Nagy and Anastasi in a case filed in the Circuit Court of the First Circuit entitled Stickney, et al. v. Nagy, et al., Civil No. 05-1-2065-11 (Stickney Lawsuit). After being served with the Stickney Lawsuit, Anastasi tendered a claim to Fidelity under the title policy. Fidelity retained an attorney, Jade Ching (Ching), to defend Anastasi in the Stickney Lawsuit, but Fidelity also reserved its rights under the policy.

After the Stickney Lawsuit had been litigated for a little over two years and judgment against Anastasi had been entered, Anastasi filed the instant lawsuit against Fidelity. Anastasi contends that, not long after the Stickney Lawsuit was filed, it became clear that a Warranty Deed purporting to transfer the Property to Nagy had been forged. Anastasi claims Fidelity unreasonably delayed in paying him the $2.4 million owed under the title policy, and also claims that Fidelity improperly controlled Ching's actions in litigating the Stickney Lawsuit.

Anastasi's complaint in this case asserts causes of action for breach of contract (Count I) and bad faith (Count II) .[3] After ruling on various discovery issues, the circuit court granted summary judgment for Fidelity on the bad faith claim and entered judgment on that claim pursuant to HRCP Rule 54(b). Anastasi timely appealed. Thus, this appeal only involves the bad faith claim.

In his points of error on appeal, Anastasi contends that the circuit court erred by: (1) ruling that Fidelity's actions were reasonable as a matter of law;

(2) ruling that Anastasi did not raise a genuine issue of material fact as to whether Fidelity controlled Ching's actions in the Stickney lawsuit, and that Ching's actions must be imputed to Anastasi as a matter of law;

(3) holding that the ten documents authored or received by McGinnity could be withheld under the attorney-client privilege and/or work-product doctrine;

(4) holding that Anastasi's claim for punitive damages could be supported only by evidence of Fidelity's handling of similar claims in the State of Hawai'i within a limited time period; and

(5) awarding costs, because the circuit court was divested of jurisdiction upon the filing of this appeal and because it was premature to determine which party would be the prevailing party.

II. Underlying Circumstances and Quiet Title Action

A. Loan to Nagy, Warranty Deed, and Title Insurance

The circumstances surrounding the loan to Nagy and the transaction involving the Property are somewhat curious. As noted, Anastasi made the $2.4 million loan to Nagy secured by a mortgage on the Property. According to Anastasi's deposition testimony, submitted in relation to Fidelity's motion for summary judgment, he was in the business of making equity loans secured by the value of properties. Anastasi did not know Nagy and did not recall the purpose of the loaned money. An individual named Paul Lee (Lee), a business acquaintance who referred potential borrowers to Anastasi, brought the potential Nagy loan to Anastasi's attention. Anastasi was also contacted by one Michael Talisman (Talisman) about the Nagy loan, and at some point while analyzing the Property, Anastasi received an appraisal of the Property done by an individual named Mark Justmann (Justmann). Based on his own due diligence, Anastasi believed the value of the Property was around $5 million and therefore decided to make the loan to Nagy.

Prior to making the loan, Anastasi understood that Talisman had met with the owners of the Property and that Talisman was interested in purchasing the Property. Anastasi also understood that Nagy was not yet the owner of the Property, but Lee told Anastasi that by the time the loan closed, Nagy would be the owner of record, would sign the loan documents, and that title insurance would be issued to Anastasi. Anastasi felt there was a transaction between Talisman, Stickney and Rand to which he was not privy.

The Property was owned at the time by a trust in which Stickney was the sole trustee and Rand the sole beneficiary. As part of the loan transaction with Anastasi, Nagy executed the mortgage on the Property on April 25, 2005. Over a month later, the Warranty Deed dated June 1, 2005, was ostensibly signed by Stickney and purported to deed the Property from Stickney to Nagy -- the validity of Stickneys' signature on the Warranty Deed later became a central point of dispute in the Stickney Lawsuit. The Warranty Deed and the mortgage were recorded with the State of Hawai'i Bureau of Conveyances on June 17, 2005, and on the same day, Fidelity issued the subject title insurance policy to Anastasi.

The title insurance policy provided that, subject to the exclusions and exceptions set forth in the policy, Fidelity

insures, as of Date of Policy shown in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of:
1. Title to the estate or interest described in Schedule A being vested other than as stated therein;
2 . Any defect in or lien or encumbrance on the title;
5 . The invalidity or unenforceability of the lien of the insured mortgage upon the title[.]

Schedule A, in turn, indicated that title to the Property was vested in Nagy and that the insured mortgage was the one between Nagy and Anastasi for the $2.4 million debt.

Section 4 of the policy's "Conditions and Stipulations" sets forth the parties' rights related to the defense and prosecution of actions, as follows:

4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPORATE

(a) Upon written reguest by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees, costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy.
(b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to the insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently.
(c) Whenever the Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adverse judgment or order.
(d) In all cases where this policy permits or reguires the Company to prosecute or provide for the defense of any action or proceeding, the insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of the insured for this purpose. Whenever reguested by the Company, the insured, at the Company's expense, shall give the Company all reasonable aid (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act which the opinion of the Company may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured. If the Company is prejudice by the failure of the insured to furnish the reguired cooperation, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters reguiring such cooperation.

(Emphasis added.)

Section 7 of the "Conditions and Stipulations" sets forth the "Determination and Extent of Liability" under the policy as follows:

This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described.
(a) The liability of the Company under this policy shall not exceed the least of:
(i) the Amount of Insurance stated in Schedule A [$2.4 million], or, if applicable, the amount of insurance as defined in Section 2(c) of these Conditions and Stipulations;
(ii) the amount of the unpaid principal indebtedness secured by the insured mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs, together with interest thereon; or
(iii) the difference between the value of the insured estate or interest as insured and the value of the insured estate or interest subject to the defect, lien or ...

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