                                                                        ACCEPTED
                                                                     01-14-00170-cv
                                                         FIRST COURT OF APPEALS
                                                                 HOUSTON, TEXAS
                                                              6/15/2015 10:48:00 PM
                                                              CHRISTOPHER PRINE
                                                                             CLERK



CASE NO. 01–14–00170–CV
                                              FILED IN
                                       1st COURT OF APPEALS
                                           HOUSTON, TEXAS
        IN THE   FIRST COURT OF APPEALS6/15/2015 10:48:00 PM
                 HOUSTON, TEXAS        CHRISTOPHER A. PRINE
                                                Clerk
   _____________________________________________

      FIRST AMERICAN TITLE INSURANCE COMPANY

                           V.


                    PATRIOT BANK
   _____________________________________________

   On Appeal from the 61st Judicial District Court of
     Harris County, Texas, Cause No. 2012–47633
   _____________________________________________

        PATRIOT BANK’S MOTION FOR REHEARING


            LEYH, PAYNE & MALLIA, PLLC
                  Sean M. Reagan
              Texas Bar No. 24046689
               sreagan@lpmfirm.com
            9545 Katy Freeway, Suite 200
               Houston, Texas 77024
                   (713) 785-0881
                (713) 784-0338 (Fax)

Counsel for Appellee and Cross–Appellant, Patriot Bank




                           1
                                    TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................... 2

ISSUES PRESENTED ON REHEARING................................................ 3

INTRODUCTION ...................................................................................... 4

ARGUMENT & AUTHORITIES............................................................... 5

        A.      The Court didn’t address Patriot’s argument that the
                proper measure of damages for a complete failure of
                title should be the same as the measure of damages
                for breach of the covenants of seisin and warranty of
                good title. ................................................................................. 5

        B.      The Court didn’t address Patriot’s argument that the
                Texas Department of Insurance’s Manual of Title
                Insurance dictates that the value of the property at
                issue must be at least $1.5 million. ........................................ 8

        C.      First American’s alleged reliance on Shelkey’s
                affidavit is legally insufficient as a matter of law
                because the linchpin for his claim that a bona fide
                dispute exists is an appraisal done more than three
                years after Patriot’s claim accrued. The date of
                valuation, if any, must be the date of the loss, April
                29, 2009, and not some date three years after the
                fact. ........................................................................................ 10

PRAYER .................................................................................................. 12

CERTIFICATE OF SERVICE................................................................. 13

CERTIFICATE OF COMPLIANCE ........................................................ 14




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               ISSUES PRESENTED ON REHEARING

Issue Presented Number One:

Texas Rule of Appellate Procedure 47.1(a) requires the Court to address
every issue raised and necessary to the final disposition of an appeal.
The Court’s opinion didn’t address the following issues raised by
Patriot:

     (1)   whether the measure of damages for a complete failure of
           title is the same as the measure of damages for breach of the
           covenants of seisin and good title,

     (2)   whether the Texas Department of Insurance’s Manual of
           Title Insurance dictates that the value of the property at
           issue must be at least $1.5 million, and

     (3)   what is the correct date on which to measure Patriot’s loss.

Should the Court grant rehearing and address these issues?

Issue Presented Number Two:

First American claims that Patriot’s insurance bad faith claims are
barred as a matter of law because a bona fide dispute exists. The
linchpin of this claim is First American’s reliance on an appraisal that
valued the property as of June 19, 2012—three years after Patriot’s
claim accrued. Is First American’s reliance on this appraisal legally
sufficient to establish a bona fide dispute as a matter of law?




                                   3
TO THE HONORABLE FIRST COURT OF APPEALS:

                           INTRODUCTION

     The Court should grant rehearing and address each issue raised

by Patriot in its opening brief, including (1) whether the measure of

damages for a complete failure of title is the same as the measure of

damages for breach of the covenants of seisin and good title, (2) whether

the Texas Department of Insurance’s Manual of Title Insurance dictates

that the value of the property at issue must be at least $1.5 million, and

(3) what is the correct date on which to measure Patriot’s loss. The

Court should also grant rehearing and address whether First

American’s reliance on an appraisal that valued the property as of June

19, 2012—more than three years after Patriot’s claim accrued—is

legally sufficient to establish a bona fide dispute exists as a matter of

law and thus, bar Patriot’s insurance bad faith claims.




                                    4
                    ARGUMENT & AUTHORITIES

     A.    The Court didn’t address Patriot’s argument that the proper
           measure of damages for a complete failure of title should be
           the same as the measure of damages for breach of the
           covenants of seisin and warranty of good title.

     Patriot argued in its opening brief that a complete failure of

insured title is virtually identical to a breach of the covenants of seisin

and warranty of good title. The Court did not address this argument in

its opinion.

     As set forth in Patriot’s opening brief, the covenant of seisin, in

the absence of any qualifying expression, is read into every conveyance

of land or interest in land, except in quitclaim deeds. Childress v. Siler,

272 S.W.2d 417, 420 (Tex. Civ. App.—Waco 1954, writ ref’d’n.r.e.). The

proper measure of damages for breach of the covenants of seisin and

warranty of good title is the consideration paid for the conveyance. Sun

Exp. and Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987); Boatright,

790 S.W.2d at 727; Johns, 381 S.W.2d at 936; Childress, 272 S.W.2d at

420. This measure of damages is applied upon the theory that since the

grantor had no title, he had none to convey, and thus, the grantee may

recover the money paid without consideration. See Evans v. Henderson,

460 B.R. 848, 899 (Bankr. S.D. Miss 2011) (quoting Securities Serv.,

                                    5
Inc. v. Transamerica Title Ins. Co., 583 P.2d 1217, 1221 (Wash. 1978)).

This measure of damages makes the plaintiff “whole” because he is

allowed to recover the consideration he provided in the event there is a

failure of title. This is virtually identical to the purpose of title

insurance. See also, Chicago Title Ins. Co. v. McDaniel, 875 S.W.2d 310,

311 (Tex. 1994) (title insurance is a contract of indemnity requiring an

insurer to pay the loss or damage its insured suffered because of the

title defect); see also, (CR 822, ¶ 8(a) (“This policy is a contract of

indemnity against actual monetary loss or damage sustained by the

Insured Claimant who has suffered loss or damage by reason of matters

insured against by this policy.”).

      Here, it is undisputed that a complete failure of title exists

regarding the 8.225 acre and 7.500 acre tracts. (CR 828, ¶ 3). The

question is how to measure Patriot’s loss or damage when there is such

a complete failure of title.

      Patriot asserts that, just as when there is a breach of the

covenants of seisin and warranty of good title, its loss or damage is

measured by the amount of consideration it provided for the deed of

trust Tantalus Bay had no right to convey. Patriot would not have


                                     6
loaned $1.5 million to Tantalus Bay if it knew its collateral was

worthless, nor would any lender do so. See, e.g., Citicorp Sav. of Ill. v.

Stewart Title Guar. Co., 840 F.2d 526, 530 (7th Cir. 1988) (“As a

practical matter, Citicorp would not have extended $27,000 credit to

Robinson on the basis of a voidable mortgage. No lender would do so.”).

Thus, to be made whole, Patriot would have to recover the consideration

it provided to Tantalus Bay in exchange for title to real property that

Tantalus Bay had no right to convey, which was $1.5 million. Patriot’s

claim is virtually identical to a claim for breach of the covenants of

seisin and warranty of good title and its damages must be measured the

same way.

     The Court did not address this issue in its opinion. Texas Rule of

Appellate Procedure 47.1(a) requires the Court to address every issue

raised and necessary to the final disposition of appeal. TEX. R. APP. P.

47.1(a). Patriot respectfully requests that the Court grant rehearing

and address this issue.




                                    7
      B.     The Court didn’t address Patriot’s argument that the Texas
             Department of Insurance’s Manual of Title Insurance
             dictates that the value of the property at issue must be at
             least $1.5 million.

      Patriot also asserted in its opening brief that, even if First

American were correct and the value of the property were relevant, the

value of the property for purposes of calculating Patriot’s damages

would still be at least $1.5 million. The Court didn’t address this issue

in its opinion.

      Under the Texas Department of Insurance’s Manual of Title

Insurance, which First American admits it is bound by, “[w]hen the

land covered in the policy represents only part of the security of the

loan(s), then the policy shall be written in the amount of the value of

such land or the amount of the loan, whichever is the lesser.” (CR 1013).

Tantalus Bay pledged a laundry list of collateral for the underlying

loan, including:

            All buildings and other improvements existing or placed on
             the land in the future;

            All equipment, fixtures, furnishings, and other articles of
             personal property existing or placed on the land in the
             future;

            All water and water rights utility capacity;


                                      8
         All leases, rents, royalties, bonuses, profits, revenues, or
          other benefits of the land; and

         An assignment of rents.

(CR 499–502). Thus, the land at issue was not the only security for

Patriot’s loan. (Id.). So, the amount of insurance at issue, $1.5 million,

must be either the value of the land or the amount of the loan,

whichever is less. (Id.). Logic thus dictates the value of the property as

insured must be at least $1.5 million as a matter of law under the Texas

Department of Insurance’s Manual of Title Insurance. Therefore, even if

the value of the property were relevant, the value of the property would

nevertheless be at least $1.5 million under the Texas Department of

Insurance’s mandate as a matter of law.

     The Court did not address this issue in its opinion. Texas Rule of

Appellate Procedure 47.1(a) requires the Court to address every issue

raised and necessary to the final disposition of appeal. TEX. R. APP. P.

47.1(a). Patriot respectfully requests that the Court grant rehearing

and address this issue.




                                    9
     C.    First American’s alleged reliance on Shelkey’s affidavit is
           legally insufficient as a matter of law because the linchpin
           for his claim that a bona fide dispute exists is an appraisal
           done more than three years after Patriot’s claim accrued.
           The date of valuation, if any, must be the date of the loss,
           April 29, 2009, and not some date three years after the fact.

     First American’s claim that Patriot’s bad faith claims are barred

as a matter of law because a bona fide dispute exists is predicated on

the appraisal Shelkey ordered. First Am. Title Ins. Co., Slip. Op. at 17–

18 (“First American explained that it had determined that it was liable

for $205,000, which is the value of the Property, as determined by First

American’s appraiser. *** First American attempted to promptly effect

what it reasonably considered to be a fair and equitable settlement of

the claim based upon First American’s *** reliance upon an

independent appraisal ***.”). But the appraisal Shelkey allegedly relied

upon to generate the dispute at issue valued the property as of June 19,

2012, which is legally insufficient because this date is more than three

years after Patriot’s claim accrued. Id. at 17; (CR 863).

     The rule in Texas has long been that contract damages are

measured at the time of the breach. Miga v. Jensen, 96 S.W.3d 207, 214




                                    10
(Tex. 2002).1 This rule of law is equally applicable to title policies.

Southern Title Guar. Co., Inc. v. Prendergast, 494 S.W.2d 154, 157 (Tex.

1973) (valuation is determined as of the date of the policy); Stewart

Title Guar. Co. v. Cheatham, 764 S.W.2d 315, 318 (Tex. App.—

Texarkana 1988, writ denied) (any damage occurred on the date the

property was purchased). Patriot’s title failed on the date of closing,

April 29, 2009. (C.R. 498–526). Thus, Patriot’s damages must be

measured as of April 29, 2009, the date Patriot’s claim accrued. Miga,

96 S.W.3d at 214; Prendergast, 494 S.W.2d at 157.

      First American’s appraisal valued the property as of June 19,

2012—more than three years after Patriot’s title failed. (CR 863). The

valuation of the property more than three years after the claim accrued

is patently irrelevant as a matter of law. The date the breach

occurred—April 29, 2009—is what matters, not some date three years

down the road. So, Shelkey’s reliance on a legally insufficient appraisal

cannot support a summary judgment in First American’s favor as a

matter of law.




1 Patriot’s actual damages for insurance bad faith are contractual in nature, i.e.,
benefit of the bargain.
                                        11
     Patriot raised the issue of when to calculate its loss in its opening

brief. But the Court did not address this issue in its opinion. Texas Rule

of Appellate Procedure 47.1(a) requires the Court to address every issue

raised and necessary to the final disposition of appeal. TEX. R. APP. P.

47.1(a). Patriot respectfully requests that the Court grant rehearing

and address this issue.

                                 PRAYER

     FOR THESE REASONS, Patriot Bank respectfully requests that

the court grant rehearing, set aside its May 12, 2015 opinion, affirm the

trial court’s summary judgment in favor of Patriot Bank, award it its

reasonable and necessary attorney’s fees set forth in the trial court’s

judgment for defending this appeal, and its costs of appeal. Patriot

Bank also requests that the Court reverse the summary judgment in

favor of First American and remand Patriot’s bad faith claims back to

the trial court for further proceedings. Patriot also requests any other

such and further relief to which it is entitled to receive.

                          {Signature on next page}




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                                Respectfully submitted,

                                LEYH, PAYNE & MALLIA, PLLC


                                By: /s/ Sean M. Reagan
                                      Sean Michael Reagan
                                      sreagan@lpmfirm.com
                                      Texas Bar No. 24046689
                                      9545 Katy Freeway, Suite 200
                                      Houston, Texas 77024
                                      Telephone: 713-785-0881
                                      Facsimile: 713-784-0884

                                ATTORNEY FOR APPELLEE


                    CERTIFICATE OF SERVICE

      I certify that a true and correct copy of this document has been
served to all interested parties of record on this the 15th day of June
2015:

Tim McDaniel                               Via E–Service
Kelly Conklin
Irelan McDaniel, PLLC
440 Louisiana, Suite 1800
Houston, Texas 77002

Don Colleluori                             Via E–Service
Mark T. Davenport
Figari & Davenport, LLP
901 Main Street, LB 125
Dallas, Texas 75202


                                           /s/ Sean M. Reagan
                                           Sean M. Reagan

                                  13
                  CERTIFICATE OF COMPLIANCE

     Under Rule 9.4 of the Texas Rules of Appellate Procedure, I certify
that the foregoing document is a computer-generated document
containing 1,738 words. The undersigned relied upon the word count
feature on his word processor in determining the word count.


                                            /s/ Sean M. Reagan
                                            Sean M. Reagan




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