Filed 6/16/15 K Corp. Enterprises v. Fidelity Nat. Financial CA5




                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIFTH APPELLATE DISTRICT

K CORP. ENTERPRISES, INC.,
                                                                                           F069098
         Plaintiff and Appellant,
                                                                        (Super. Ct. No. S-1500-CV-273919)
                   v.

FIDELITY NATIONAL FINANCIAL, INC. et                                                     OPINION
al.,

         Defendants and Respondents.



         APPEAL from a judgment of the Superior Court of Kern County. Sidney P.
Chapin, Judge.
         Clayton Campbell for Plaintiff and Appellant.
         Fidelity National Law Group, Helen P. Hoeffel for Defendants and Respondents.
                                                        -ooOoo-
         An error in a preliminary title report caused an escrow company to record an
incorrect grant deed on behalf of a buyer of real property. The grantor’s name as shown
was incorrect. Six years later, the buyer’s efforts to sell the property were temporarily
thwarted by this problem. The title insurer honored the buyer’s claim and removed the
defect, but by that time the delay had resulted in damages. No additional recourse being
available under the title insurance policy, the buyer sued the escrow company, the escrow
officer employed by the company, and the title insurer, claiming negligence, breach of
fiduciary duty, and breach of the escrow agreement. No issues under the title insurance
policy were raised. After a bench trial, the court found for defendants on all causes of
action.
          We affirm. Plaintiff K Corp. Enterprises, Inc. (K Corp.), has not demonstrated
that the trial court erred in finding no liability.
                           FACTS AND PROCEDURAL HISTORY
          In 1994, Samuel Brainin bought a condominium in Santa Barbara. He took title
not in his own name but as trustee of the Sam Brainin Trust of September 29, 1993.
          In June 2000, Brainin, as trustee, recorded a deed purporting to transfer the
property to himself as an individual. A description of the property was attached as an
exhibit. On August 29, 2000, Brainin, as an individual, recorded another deed,
purporting to transfer the property back to the trust, with himself again as trustee. The
same description of the property was again attached as an exhibit.
          On August 11, 2003, Brainin entered into an agreement to sell the property to Kyle
Carter. The following day, Chicago Title Company issued a preliminary report. The
preliminary report stated that title to the property was vested in Brainin as an individual,
subject to item 24 in schedule B. It further stated that Chicago Title Company would
issue or cause to be issued a policy of title insurance insuring against loss caused by any
title defect not shown in schedule B. Item 24 in schedule B was “effect of deed from
Samuel M. Brainin, a married man as his sole and separate property to Sam Brainin,
trustee of the Sam Brainin Trust of September 29, 1993 recorded August 29, 2000 .…”
Item 24 explained that this deed “contains incorrect legal description.”1 (Capitalization
omitted.)

          1The
             parties’ briefs do not offer any account of what was wrong with the
description. Our comparison of the 1994 deed with the two, 2000 deeds shows a small
number of typographical or clerical errors. In the most significant of these, the 2000

                                                2.
       In other words, Chicago Title Company had determined that Brainin held title as
an individual, not as trustee, because its title search had discovered an incorrect legal
description of the property in the deed of August 29, 2000, which was the last recorded
transaction and which purported to transfer the property from Brainin as an individual to
Brainin as trustee. The insurer was willing to insure the title of Brainin as an individual
because that deed was ineffective and thus left title remaining with Brainin as an
individual; but it excluded from the policy any defect in Brainin’s title that might
possibly arise from the ineffective attempted transfer to the trust.
       The preliminary report did not, however, contain any reference to the fact that the
previous transfer—from the trust to Brainin as an individual in June 2000—was by
means of a deed that had the same incorrect legal description of the property. The report
thus overlooked the facts that Brainin’s title as an individual also was apparently
defective and that the last transfer lacking the defect was the original transfer to Brainin
as trustee when he purchased the property in 1994.
       Escrow officer Trisha Kenney,2 an employee of Chicago Title Company, prepared
or directed the preparation of a deed to transfer the property from Brainin to one of
Carter’s companies, Kyle Carter Customer Service, Inc. (Another of Carter’s companies,
K Corp., later succeeded to the assets and claims of Kyle Carter Customer Service, Inc.)
Relying on the preliminary report, Kenney listed Brainin, as an individual, as the grantor
on the deed. She understood the preliminary report to mean that the trust had failed to
receive valid title because of the incorrect legal description in the deed recorded on



versions refer to “Book 1698, Pages 21 through 29,” where the 1994 version refers to
“Book 169, Pages 21 through 29 .…” Also, where the face of the 1994 deed only
incorporates an attached description by reference, the faces of the 2000 deeds contain
both the incorporation by reference and a recitation of a fragment of the description,
which could be seen as misleading.
       2At   the time of the transaction, Kenney had her maiden name, Trisha Keiser.


                                              3.
August 29, 2000. She was not aware of the earlier transfer with its similarly erroneous
deed.
        A deed purporting to transfer the property from Samuel Brainin as an individual to
Kyle Carter Customer Service was recorded on September 29, 2003. Chicago Title
Insurance Company issued a policy of title insurance to Kyle Carter Customer Service on
the same day.
        On October 7, 2009, K Corp. entered into an agreement to sell the property to
Patricia Leontsinis. During the escrow period for this transaction, an escrow officer from
First American Title told Kyle Carter that the 2003 transfer had not been effective.
Carter and the buyer agreed to extend the escrow and Carter submitted a claim to
Chicago Title Insurance Company. Chicago Title Insurance Company accepted the
claim, but additional extensions of escrow were necessary and the buyer withdrew before
the title was cleared.
        K Corp. completed a sale to another buyer, for a lower price, in June 2010.
Chicago Title Insurance Company cleared the title by obtaining a quiet title judgment,
which was filed in superior court in December 2010.
        K Corp. filed this lawsuit on June 20, 2011. The defendants are Chicago Title
Insurance Company, Chicago Title Company,3 and Trisha Kenney. Two other
defendants, Fidelity National Financial, Inc., and Fidelity National Title Group, were
named but later dismissed.



        3The  parties’ appellate briefs do not explain the relationship between Chicago
Title Insurance Company and Chicago Title Company, and we have not found any
explanation of this relationship in the record. Throughout its briefs, however, K Corp.
refers to Chicago Title Insurance Company as the title insurer and Chicago Title
Company as the escrow holder, and asserts that they are separate entities. For the sake of
argument, we will assume these really are two separate corporate entities and that K
Corp.’s descriptions of them as title insurer and escrow holder correctly describe the two
entities’ roles in the facts on which K Corp.’s claims are based.


                                             4.
       As amended, K Corp.’s complaint alleged three causes of action against all
defendants. First, it alleged that defendants were negligent in their failure to identify
correctly the grantor in the deed of September 29, 1993, as Brainin the trustee. Second,
the complaint alleged that defendants breached their fiduciary duty to K Corp.’s
predecessor because they had reason to suspect a potential defect in the title, but they did
not inform K Corp.’s predecessor of the problem. Finally, the complaint alleged that
defendants breached their escrow agreement with K Corp.’s predecessor by failing to
prepare a deed that would “effectively” transfer the property.
       In the complaint, K Corp. prayed for damages based on the loss of the sale to
Leontsinis, which led to a later sale for a lower price at a higher commission. The
amount claimed for this portion of the damages was $255,775.18. At trial, K Corp.
undertook to prove additional damages based on another real property transaction that K
Corp. could have executed by itself, in cash, had the Leontsinis sale been completed.
Instead, it had to obtain financing and split the profits with a partner. K Corp. claimed
$450,000 in lost profits on this transaction.
       The trial was to the court without a jury. K Corp. presented testimony by Kyle
Carter and Trisha Kenney. Defendants presented testimony by Trisha Kenney. The
defense also called Corlis Chevalier, a claims attorney with Fidelity National Title who
testified about the Chicago Title Insurance Company policy and the action taken by
Chicago Title Insurance Company to resolve K Corp.’s claim under the policy.
       The court ruled for the defense. The following paragraphs from the statement of
decision set forth the court’s reasoning:

               “Defendants have no liability on plaintiff’s claim because defendant
       Chicago Title Insurance Company fulfilled its obligations under the terms
       and conditions of the title insurance policy issued to plaintiff such that …
       plaintiff is not entitled to recover any damages from defendants. Chicago
       Title Insurance Company acted with reasonable diligence to remove the
       cause of the claim tendered by plaintiff to Chicago Title Company/Chicago
       Title Insurance Company, and Chicago Title Insurance Company has no


                                                5.
       obligation for any alleged loss incurred during the time Chicago Title
       Insurance Company was removing the cause of the claim. A preliminary
       title report is not an abstract of title, but only reflects the terms under which
       the insurer is willing to issue title insurance, which may or may not reflect
       the true condition of record title.

               “Defendants are not liable for negligence for having listed … the
       grantor in his individual capacity, as the preliminary report states that title
       to said estate or interest is vested in Samuel M. Brainin, a married man as
       his sole and separate property, subject to item 24 of Schedule B.
       Defendants had no obligation to list the grantor in some other capacity, and
       could not do so as the transfer to the trust contained an incorrect legal
       description.

              “Plaintiff did not carry its burden to prove negligence or breach of
       fiduciary duty or contract of any defendant otherwise, and did not carry a
       burden to prove causation of foreseeable damages.”
                                       DISCUSSION
       K Corp. now argues that the trial court erred in holding that K Corp. failed to
prove its claims. We review the trial court’s factual findings for substantial evidence, and
we review its conclusions of law de novo. (Brewer v. Murphy (2008) 161 Cal.App.4th
928, 935-936.)
       Substantial evidence is evidence from which a reasonable trier of fact could have
made the necessary findings. When considering whether there is substantial evidence in
the record, we presume every reasonable inference the trier of fact could have made from
the evidence; we do not reweigh the evidence or reevaluate the credibility of witnesses;
and we do not reverse merely because the evidence could be reconciled with a contrary
result. (People v. D’Arcy (2010) 48 Cal.4th 257, 293.)
       K Corp. contends that, even if Chicago Title Insurance Company performed all its
obligations under the title insurance policy, it does not necessarily follow that none of the
defendants have any liability, because there could be liability for negligence, breach of
fiduciary duty, or breach of the escrow agreement that would be independent of any
liability under the policy. Assuming this is correct, we nevertheless conclude that K


                                              6.
Corp. has not demonstrated the trial court erred in finding no liability under those
theories, each of which we will consider in turn.
I.     Negligence
       K Corp. maintains that Kenney and Chicago Title Company are liable for
negligence because they prepared and recorded a deed that misidentified the grantor and
therefore failed to transfer the property. K Corp. contends that Chicago Title Insurance
Company is liable for negligence because the preliminary report it prepared misidentified
the grantor, leading to the incorrectly prepared deed.
       The elements of negligence are a duty to use due care, a breach of the duty, and
damages proximately resulting from the breach. (Ladd v. County of San Mateo (1996) 12
Cal.4th 913, 917.) An escrow holder has a duty toward the parties to an escrow to
exercise reasonable skill and ordinary diligence in its employment. (Wade v. Lake
County Title Co. (1970) 6 Cal.App.3d 824, 828.)
       As a threshold matter, the record does not support the proposition that Chicago
Title Insurance Company prepared the preliminary report. The preliminary report itself
bears the name of Chicago Title Company, not Chicago Title Insurance Company, and K
Corp.’s own position is that these are two separate entities. Because K Corp. makes no
other argument about why Chicago Title Insurance Company would be liable for
negligence, its argument on negligence as to that defendant fails.
       It is undisputed that, in preparing the deed or causing it to be prepared, Kenney
relied on the preliminary report provided to her by her employer. K Corp. cites no
authority for the view that an escrow officer working as an employee of an escrow
company can be liable for negligence as an individual for a loss that results from the
officer’s reliance on erroneous data provided to her by the company. As appellant, K
Corp. has the burden of showing that Kenney’s duty of care was not satisfied by her
reliance on information provided by her employer. Is there authority for the view that her



                                             7.
duty to use reasonable care required her to supplement her employer’s research with her
own? K Corp. has not shown anything of this kind.
       K Corp. does point to evidence that Kenney knew of the existence of the Brainin
Trust. Kenney received instructions to wire the proceeds of the sale to a bank account
established for the benefit of the Sam Brainin Trust of September 23, 1993. K Corp. has
not explained, however, why this would trigger a duty to carry out additional research to
discover the first erroneous deed. Brainin might have wished the proceeds of the sale to
go into his trust account regardless of whether the property was owned in the trust’s name
or Brainin’s name as an individual.
       K Corp. also relies on the fact that Kenney sent Brainin a document titled Escrow
Acceptance Letter that included a request to “provide a copy of your trust agreement for
my title department’s review.” (Capitalization omitted.) But Kenney testified that this
language was boilerplate and she included it in the letter by mistake, not because she
believed or had reason to believe the preliminary report was erroneous in attributing title
to Brainin as an individual. The trial court was free to credit and rely on this testimony.
K Corp. argues that the testimony “is simply not credible,” and that Kenney must have
suspected a problem with the title and then failed to follow up. Our role, however, is not
to reweigh the evidence or substitute our own credibility determinations for those of the
trial court. In any event, K Corp.’s assertion that Kenney “knew of the apparent problem
with the title but either intentionally or negligently ignored it” is pure speculation. The
fact that a document issued by Kenney made reference to a trust does not prove that
Kenney knew or should have known the preliminary report was in error.
       The same analysis applies to a Post-It Note that was found in the escrow file. The
note says, “Dina [check] escrow file for trust info.” K Corp. speculates that Kenney
wrote this note to direct an assistant to investigate the title problem and “then neglected
to follow up.” In reality, there is no evidence that Kenney knew of the title problem and
no evidence of why this Post-It Note was in the file.

                                              8.
       Finally, K Corp. has not demonstrated that the trial court was compelled by the
evidence to find that Chicago Title Company breached its duty of care. What does a
reasonable title company do when researching title and preparing a preliminary report?
What did Chicago Title Company actually do in this instance? How did its actions fail to
satisfy the standard of reasonable skill and ordinary diligence? K Corp. does not direct us
to any evidence in the record relevant to these questions. It is not enough to show simply
that the deed was erroneous or that the error in the deed resulted from the error in the
preliminary report.
       K Corp. does contend that Chicago Title Company is liable for Kenney’s
negligence through the doctrine of respondeat superior. As we have said, however, K
Corp. did not demonstrate Kenney’s negligence.
       K Corp. also argues that Chicago Title Company was negligent because “it never
ensured that [Kenney] received training regarding trusts and the manner in which
property is held by a trust.” K Corp. relies on the transcript of a deposition in which
Kenney testified that she had not been trained on “the effect of title held by a trustee” and
did not know “how a trust would hold title to a parcel of land .…” Kenney explained at
the deposition that, when she prepares a deed, she simply copies the name of the grantor
as it appears in the preliminary report. K Corp. has not shown that an escrow company is
negligent if it instructs an escrow officer to rely on title as shown in the company’s
preliminary report and does not provide the officer with training on the law of trusts.
Further, at trial, Kenney testified that she did, in fact, receive training on the role of trusts
in property ownership. Again, it is not our role to reweigh the evidence or resolve
conflicts in the evidence.
       For these reasons, we cannot reverse the trial court’s conclusion that K Corp. did
not prove negligence.




                                               9.
II.    Breach of fiduciary duty
       Similar considerations apply to K Corp.’s claim of breach of fiduciary duty. K
Corp. cites case law stating that an escrow holder has fiduciary duties to the parties to an
escrow. For instance, in Spaziani v. Millar (1963) 215 Cal.App.2d 667, the Court of
Appeal held that the trial court erred in nonsuiting claims of negligence and breach of
fiduciary duty by a seller of property against an escrow holder. The court stated that an
escrow holder has a fiduciary obligation “to disclose to his principal information acquired
by him in the course of his employment .…” (Id. at p. 684.) There was substantial
evidence that the escrow holder learned that the terms of a loan obtained by the buyer
materially departed from an agreement the buyer and seller had made but failed to
disclose this to the seller. The causes of action therefore should not have been rejected
via nonsuit. (Id. at pp. 683-684.) K Corp. has not, however, demonstrated that the trial
court in this case was compelled to find a breach of fiduciary duty by the evidence in the
record, as we will explain.
       In arguing for reversal on the fiduciary-duty claim, K Corp. relies exclusively on
Kenney’s purported failures. It does not claim that Chicago Title Company is liable
based on anything other than Kenney’s conduct, and it does not make any argument at all
on this issue with respect to Chicago Title Insurance Company.
       K Corp. says Kenney knew there was a trust because the preliminary report
referred to the ineffective attempted transfer from Brainin to the trust on August 29,
2000; because she wired the sale proceeds to the trust account; and because her letter to
Brainin included a reference to a trust. K Corp. says Kenney should have told it about
the trust’s existence because Brainin’s attempt to transfer the property to a trust was a
“suspicious circumstance” possibly indicative of “fraud.” There is no evidence that
Brainin ever did anything improper, however. K Corp.’s argument seems to be that
Kenney should have suspected fraud where none existed and should have warned K
Corp. of her suspicion so that K Corp., investigating the nonexistent fraud, could

                                             10.
fortuitously discover the true state of the property’s title. This fanciful reasoning is far
from being a demonstration of breach of fiduciary duty. Nothing here is comparable to
the failure to disclose known facts in Spaziani. The essence of this case is that the sale of
the property was delayed because Chicago Title Company did not know an important
fact—the existence of the defective June 2000 deed—in consequence of which title to the
property remained vested in Brainin’s trust and never was transferred to Brainin as an
individual. The record does not support K Corp.’s effort to represent the situation as one
in which Kenney was proved to know something disadvantageous to a party and failed to
disclose it.
          In light of the above considerations, we hold that K Corp. has failed to
demonstrate any error in the trial court’s conclusion that there was no breach of fiduciary
duty.
III.      Breach of contract
          K Corp. argues that the trial court erred in rejecting its claim that Chicago Title
Company is liable for breach of contract because it failed to uphold the requirements of
the escrow agreement. An escrow holder has a duty to comply strictly with the escrow
instructions provided by the parties. “Upon the breach of an instruction by an escrow
holder, the injured party acquires a cause of action for breach of contract.” (Wade v.
Lake County Title Co., supra, 6 Cal.App.3d at p. 828.) K Corp.’s position is that the
escrow instructions required Chicago Title Company to record a deed conveying the
property to the buyer, Kyle Carter Customer Service, and it failed to do this because the
deed named the grantor incorrectly.
          K Corp. relies on paragraph 12D of the joint escrow instructions that were
included in the purchase agreement form employed by the buyer and seller. Section 12D
states:

          “At Close of Escrow, Buyer shall receive a grant deed conveying title .…
          Title shall vest as designated in Buyer’s supplemental escrow instructions.


                                                11.
       THE MANNER OF TAKING TITLE MAY HAVE SIGNIFICANT
       LEGAL AND TAX CONSEQUENCES. CONSULT AN APPROPRIATE
       PROFESSIONAL.”
       Defendants cite paragraphs 12A and 12B of the escrow instructions and argue that
paragraph 12D must be understood in light of them. Those paragraphs state:

       “A. Within the time specified in paragraph 14, Buyer shall be provided a
       current preliminary (title) report, which is only an offer by the title insurer
       to issue a policy of title insurance and may not contain every item affecting
       title. Buyer’s review of the preliminary report and any other matters which
       may affect title are a contingency of this Agreement as specified in
       paragraph 14.

       “B. Title is taken in its present condition subject to all encumbrances,
       easements, covenants, conditions, restrictions, rights and other matters,
       whether of record or not, as of the date of Acceptance except: (i) monetary
       liens of record unless Buyer is assuming those obligations or taking the
       Property subject to those obligations; and (ii) those matters which Seller
       has agreed to remove in writing.”
       In defendants’ view, the combined effect of paragraphs 12A, 12B, and 12D is that
an escrow holder can fulfill its duty to provide the buyer with a deed by providing one in
accordance with the preliminary report and presenting the preliminary report to the buyer
for the buyer’s inspection, with the warning that the buyer takes title subject to various
encumbrances whether of record or not. Defendants cite no authority in support of this
interpretation, and K Corp. cites none against it.
       Defendants have the better argument. The parties’ dispute in this case arises from
an incomplete title search that resulted in an incorrect preliminary title report, leading to
an incorrectly prepared deed. Title insurance policies cover title problems like this, as
happened in this case. The escrow instruction form utilized by the parties here included
(in paragraph 12E) a requirement that the buyer receive a specified type of title insurance.
If, as K Corp. argues, the meaning of the instructions is that the escrow holder is liable
for losses arising from title problems that cause the recorded deed not to pass title to the
buyer, then a contract claim against the escrow holder would always be available when


                                             12.
this form is used, in addition to the buyer’s recourse under the insurance policy, even if
the failure to detect the title problem was not the escrow holder’s fault. We consider it
unlikely that the instructions would include a requirement to obtain title insurance if the
intent were for an uninsured liability on the part of the escrow holder to exist whenever a
grant deed is ineffective because of a title problem.
       For these reasons, the trial court did not err in concluding that Chicago Title
Company’s failure to provide an effective grant deed failed to establish a breach of
contract.
IV.    Damages
       K Corp. argues that the trial court erred in finding that damages were not proved.
Because we hold that K Corp. has not established error on the issue of liability, we need
not discuss damages.
                                      DISPOSITION
       The judgment is affirmed. Defendants are awarded costs on appeal.

                                                                 _____________________
                                                                                Smith, J.
WE CONCUR:


 _____________________
 Kane, Acting P.J.


 _____________________
 Poochigian, J.




                                            13.
