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Anastasi v. Fidelity National Title Insurance Co.

Supreme Court of Hawaii

February 4, 2016

LLOYD R. ANASTASI, Petitioner and Respondent/Plaintiff-Appellant,
FIDELITY NATIONAL TITLE INSURANCE COMPANY, Respondent and Petitioner/Defendant-Appellee.


Philip J. Leas, John P. Duchemin and Trisha H.S.T. Akagi for petitioner and respondent Lloyd R. Anastasi

Edmund K. Saffery, Thomas Benedict and Dawn T. Sugihara for respondent and petitioner Fidelity National Title Insurance Company

Wayne Nasser and Benjamin M. Creps for amicus curiae Hawaii Land Title Association




Both Plaintiff-Appellant Lloyd R. Anastasi (Anastasi) and Defendant-Appellee Fidelity National Title Insurance Company (Fidelity) have applied for a writ of certiorari from the Intermediate Court of Appeals's (ICA) February 6, 2015 Judgment on Appeal filed pursuant to its December 30, 2014 Opinion. The ICA vacated the judgment of the Circuit Court of the First Circuit (circuit court), which was entered in favor of Fidelity on Anastasi's bad faith claim.

Anastasi filed a bad faith and breach of contract claim against Fidelity after Fidelity allegedly delayed in making payments to Anastasi under a title insurance policy. Anastasi had loaned $2.4 million to a third party in exchange for a mortgage on a property that was supposedly owned by that third party. Fidelity insured that the third party had good title, but it was soon discovered that the warranty deed purporting to give title to the third party was forged. When Anastasi was sued by the true owners of the property, Fidelity immediately accepted tender of the claim under a reservation of rights and retained an attorney to represent Anastasi.

Anastasi argued that Fidelity committed bad faith because Fidelity knew early on in the underlying litigation that the deed was forged but continued to litigate the lawsuit. Anastasi asserts that the lawsuit was used by Fidelity to delay paying him under the policy. The circuit court granted summary judgment in favor of Fidelity on this issue.

On appeal, Anastasi argued that there were genuine issues of material fact as to whether Fidelity committed bad faith. Anastasi also challenged a circuit court order that allowed Fidelity to withhold certain documents that Anastasi requested during discovery under attorney-client privilege and work product doctrine. The ICA remanded the discovery order to the circuit court and vacated part of the circuit court's order granting summary judgment.

For the reasons stated below, we affirm in part and vacate in part the February 6, 2015 judgment of the ICA filed pursuant to its December 30, 2014 opinion and remand to the circuit court for further proceedings consistent with this opinion.


Anastasi made a loan to Alajos Nagy (Nagy) in the amount of $2.4 million that was secured by a mortgage on a property located in Mokule'ia, O'ahu. In 2005, Anastasi had over twenty years of experience in real estate transactions and made loans to individuals as a business. Anastasi's loans were equity loans based on the value of properties. Anastasi stated in his deposition that a business acquaintance of his, Paul Lee (Lee), first brought the Nagy loan to his attention. Anastasi did not know what Lee did on a day-to-day basis for work except that Lee referred prospective borrowers to Anastasi. Michael Talisman (Talisman) also brought the Nagy loan to Anastasi's attention. Anastasi stated that Lee did not tell him where he procured his customers, and Anastasi could not recall any details about how Nagy, Lee, and Talisman were connected.

In March 2005, Anastasi was in communication with Lee and Talisman regarding a potential mortgage to Nagy that would be secured by the property. Anastasi testified that during that month, he performed a due diligence investigation into the property. Among documents that Anastasi reviewed as part of his investigation was a document from the tax assessor's office that indicated that the property was owned by Paul Stickney (Stickney). At that time, the property was owned by a trust, and Stickney was the trustee and Gregory Rand (Rand) was the beneficiary of the trust. Anastasi stated that it was his understanding that Lee and Talisman and Rand and Stickney were making arrangements between them and that Nagy would acquire title to the property unencumbered and be the one signing the loan documents. Anastasi was assured that he would also be issued title insurance at that time. Anastasi also reviewed an appraisal of the property done by Mark Justmann (Justmann) dated March 15, 2005. Justmann valued the property at almost $7 million, but Anastasi believed the actual value of the property was closer to $5 million.

A $2.4 million mortgage was executed by Nagy on April 25, 2005. On June 1, 2005, a warranty deed was apparently signed by Stickney and purported to deed the property from Stickney to Nagy in exchange for $10 in consideration. The warranty deed and the mortgage were recorded in the Bureau of Conveyances on June 17, 2005. Also on June 17, 2005, Fidelity issued Anastasi a title insurance policy (Policy) on the property in the amount of $2.4 million.

The Policy contained a section that stated the following:

(a)Upon written request 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 requires 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 requested 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 in 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 theinsured to furnish the required 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 requiring such cooperation.

A. Stickney Lawsuit

On November 23, 2005, Stickney and Rand filed their First Amended Complaint to Quiet Title against Nagy and Anastasi, alleging that Stickney's signature had been forged on the June 1, 2005warranty deed. Anastasi was served with the complaint on January 5, 2006, and he tendered the claim to Fidelity. Fidelity received notice of the claim on January 6, 2006.

Elizabeth McGinnity (McGinnity), Senior Vice-President and Major Claims Counsel for Fidelity, reviewed Anastasi's claim and determined that Fidelity should provide a defense to Anastasi under a reservation of rights. In a letter to Anastasi dated January 23, 2006, McGinnity informed Anastasi that Fidelity accepted his tender of defense and reserved all of its rights, including its right to continue its investigation of the matter and later deny coverage. McGinnity also informed Anastasi that Fidelity had retained Jade Lynne Ching (Ching) of Alston Hunt Floyd & Ing to represent him in the Stickney lawsuit.

Ching sent an introductory letter dated January 27, 2006 to Anastasi. Ching wrote that she would be acting as counsel for Anastasi, and not Fidelity, even though her fees would be paid by Fidelity. The letter also stated that because Ching was serving as Anastasi's attorney, confidential information provided to Ching by Anastasi would not be disclosed to Fidelity without Anastasi's consent. Ching wrote that it was her practice to provide Fidelity with copies of correspondence, pleadings, discovery responses, deposition transcripts, and periodic status reports, including an assessment of the likelihood of success of the defense of a claim. Ching further wrote that

[i]t is anticipated that Fidelity will provide recommendations and instructions to the law firm regarding the steps and procedures to be taken in defending or settling the Claim. I shall endeavor to keep you informed of such instructions and obtain your consent where appropriate to the procedures to be taken in defending or settling the title dispute. In the event of any dispute between you and Fidelity concerning the proper procedures to be followed in defending or settling the title dispute, it is necessary for you or your individual attorney to negotiate the matter directly with Fidelity. This law firm reserves the right to withdraw from your representation in the event such dispute cannot be resolved by agreement between you and Fidelity and the law firm receives conflicting instructions from you and Fidelity concerning the procedures to be followed in defending or settling the Claim.

On February 13, 2006, McGinnity and Ching received a letter from an attorney, Clifford Frieden (Frieden), who was retained by Fidelity to provide coverage advice and investigate the allegations made in the Stickney lawsuit. Frieden's letter stated that he compared Stickney's signature to the signature of the person who executed the warranty deed, and the two signatures were very different. The driver's license number and the expiration date of the license recorded by the notary were also different from Stickney's actual driver's license number and expiration date. Suspecting the potential involvement of Talisman, Justmann, and Nagy in the falsely executed warranty deed, Ching filed a cross-claim against Nagy and a third-party complaint against Talisman and Justmann.

On October 6, 2006, the Stickney plaintiffs filed a motion for summary judgment. Through Ching, Anastasi opposed the motion, but on April 11, 2007, the circuit court granted the plaintiffs' motion for summary judgment.

On April 20, 2007, Ching filed a motion for reconsideration on the grant of summary judgment on Anastasi's behalf. The circuit court denied the motion on October 23, 2007. On November 19, 2007, Ching sent an email to McGinnity informing her that the deadline to file an appeal was two days away and that

[t]o protect Anastasi's appeal rights, we suggest a notice of appeal be filed; we can dismiss the appeal at any time. Also, since the court denied Stickney's fee request, there is some utility in procuring an agreement from Stickney that we will not pursue the appeal so long as he does not appeal the court's denial of his request for fees.

Attached to the email was a memorandum from Ching to McGinnity that was labeled as confidential, work product, and attorney-client communication (Ching-McGinnity Memorandum). In the memorandum, Ching gave the following conclusion: "Though we would likely succeed on appeal, it would be a pyrrhic victory since we would not be able to establish the validity of the Warranty Deed. For this reason, we do not recommend an appeal of the order granting summary judgment." McGinnity sent the following response to Ching: "Yes. File the notice. Thanks." A notice of appeal was filed by Ching on November 21, 2007.

The Stickney plaintiffs also filed a cross-appeal challenging the circuit court's denial of their attorneys' fees. On February 27, 2008, the attorney for the Stickney plaintiffs sent an email to Ching stating that the plaintiffs would accept Ching's offer to settle for $10, 000 and that both parties would dismiss their appeals. The parties eventually filed a stipulation for dismissal of all claims on August 14, 2008.

On February 28, 2008, Fidelity retained Harlin Young to appraise the property as of the date of the loss in order to determine the amount of loss in accordance with the Policy's terms. The appraisal was issued on April 30, 2008, and ...

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