Daily Development for Thursday, April 22, 2010
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri

SLANDER OF TITLE; LIS PENDENS: Even where position relied upon by party filing lis pendens is clearly wrong, and pending lawsuit will not result in an interest in the subject property, owner of property cannot succeed in a slander of title action unless it can show that the filing was “malicious.”  Stupidity is a defense. 

First Nat’l Bank of St. Louis v. Ricon, 2010 Westlaw 1223788 (Mo. App.  3//30/10) (not yet released for publication) 

Bank had an outstanding loan to Borrower secured by certain personal property, perfected through a UCC assignment for creditors, and by a deposit agreement whereby Borrower agreed to maintain its deposits with Bank, subject to setoff rights if it defaulted on the loan. 

Bank alleged that Borrower established new accounts in another bank and transferred funds from the accounts with Bank to those accounts, and that further that Borrower sold some of the personal property collateral and deposited the proceeds in the other bank.  It further alleged that Borrower used these funds in other bank to acquire certain real and personal property.

Bank filed a lawsuit for the amount of the loan, $350,000, and “such further relief, as the court deems just and proper”  It alleged all of the above facts.

In fact, it appeared that Borrower had acquired two homes financed 100%  with money borrowed from other sources than Bank, but that it may have used some of the monies in the accounts established in the other bank to make mortgage payments on those houses.

Bank filed notices of lis pendens against these two residences, alleging, that its pending lawsuit might result in its acquiring an interest in them.  It had not named or described these residences in its complaint, making only allusions to the fact that Borrower had acquired certain “real property” with money diverted from Bank’s collateral.

Borrower counterclaimed in Bank’s collection action for slander of title, alleging by affidavit that another lender had committed to make a refinancing loan for a lower interest rate on the two residences, but withdrew from that commitment when it learned of the lis pendens filings.  The trial court awarded summary judgment to Borrower on liability.

At trial on the issue of damages only, a jury awarded Borrower $250,000 in actual damages and $500,000 in punitive damages against Bank.  It   further awarded Borrower $40,000 in attorney’s fees.  The court also awarded Bank $375,000 (including accrued interest)  in its suit on the loan, but obviously this was cold comfort at this point.

On Bank’s appeal, the Missouri appellate court reversed, on grounds that it stated were very narrow.  Bank barely escaped from the liability.

Bank argued that the lis pendens filings were valid because indeed its lawsuit might support the creation of an interest in the properties.  Presumably (the court does not tell us) it was arguing that it could trace the converted collateral into these properties.  Unfortunately, its suit was for damages, and not for the establishment of an equitable lien or constructive trust in any real estate.  The mere request for “such relief as the court deems just and proper” was not enough to convert a lawsuit for damages into a claim for a property interest, particularly in undescribed real estate. 

Bank argued that Borrower’s naked allegation that it had been denied a valuable loan because of the lis pendens, was based upon hearsay evidence concerning the position of the other lender, and was inadequate to support summary judgment.  The appeals court noted that Bank had failed to introduce any evidence to refute Borrower’s allegation, so the affidavit was sufficient.  There had been a wrongful filing of lis pendens and Borrower had been injured.

But Borrower foundered on its attempt to establish that there was an adequate basis for summary judgment on the final requirement for slander of title - that the lis pendens was filed with malicious intent.  Here, Borrower relied upon a letter from Bank’s counsel in which it refused to release the lis pendens.”  The contents of the letter proved relevant to both sides of the controversy:

“[W]e recorded the notice lis pendens with the reasonable belief that the collateral securing the loans in issue were used by the [Borrower] to make payments on, purchase and/or finance other assets such as the real property against which the notices were recorded.  This [sic] the Bank’s collateral were [sic] used by [Borrower] to make payment toward., or on, their real property.  To that end, your statement that our notice lis pendens was filed to the [Borrower’s] real property to preserve the Bank’s right to dispose of or have a lien against the same is quite correct, but clearly was not the only reason the notice was filed.”

Bank relied on the first half of the letter, Borrower on the second half, where counsel agreed that a purpose of the lis pendens was to have the property available in the event of judgment in the lawsuit on the note.  Tying up property for this purpose is malicious.  But tying it up because you have a reasonable belief in establishing an equitable lien is not. 

The appeals court ruled that, although the question was close, the issue of malice ought to go to a jury, so it reversed summary judgment as to liability. 

Comment 1: The court commented that a slander of title action would not be actionable if it was “innocently made out of stupidity or ignorance.”  It concluded absolutely that the filed lawsuit would not create an interest the subject properties, so one wonders it was accusing the Bank’s counsel of ignorance, stupidity, both or neither.  You be the judge.

Comment 2: In any event, since the Borrower’s lawyer was able to wring a $500,000 punitive damages judgment out of the first jury, Bank’s counsel at this point would be wise to conclude that the risk of a finding that its lis pendens was maliciously filed is quite likely, and perhaps it would want to settle this case if it can. 

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