Daily Development for Tuesday, August 17, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

TITLE INSURANCE; ABSTRACTOR'S LIABILITY; FIDUCIARY DUTY: The agreement to prepare a title report for sellers of a property does not, by itself, create a fiduciary duty to the sellers from the title company.

Gildea v. Guardian Title Co. of Utah, 970 P.2d 1265 (Utah 1998).

Gildea's were purchasing property on an installment land contract from Day. Mrs. Gildea's sister agreed to purchase the seller's interest in the contract from Hale, and in connection with this transaction Mr. Gildea apparently asked Guardian to prepare a preliminary title report and a deed of transfer, for which Guardian received $200.

The title report disclosed a lien against the property which later was determined to have been discharged by means of Gildea's earlier bankruptcy. The lien was placed on the property by Sittner, one of Gildea's old creditors, through his attorney Mabey, who also did work for Guardian. Gildea claimed to have evidence that Guardian had provided Mabey with access to its Gildea file which was later lost and claimed that Mabey or Guardian had conspired to defraud Gildea by including the lien on the title report. In fact, in a suit brought by Sittner, through Mabey, to collect on the lien, the court found that the line had been discharged and awarded Gildea and others attorney's fees.

Gildea sued Guardian arguing (among other things) that Guardian's disclosure of this file breached fiduciary duties of confidentiality and loyalty based upon the argument that Guardian was Gildea's agent. The court held that the mere hiring of a title company to prepare a title report does not, in fact, by itself create a fiduciary duty.

Gildea also sued Guardian based upon a negligent misrepresentation claim arguing that Guardian should have realized that the Sittner judgment lien was not valid and not reported the lien on the title commitment. The Court noted that since Mrs. Gildea's sister, was to rely upon the title insurance, and Gildea admitted that Gildea was not seeking insurance coverage, Gildea could not have relied as it claimed upon the negligent misrepresentation, and therefore it was not inappropriate for the District Court to dismiss the claim.

The court affirmed summary judgment for Sittner and Mabey and viewed the case against Gildea so plain that it awarded costs on appeal to the defendant/respondents. But it should be noted that the holding as to fiduciary responsibility was an alternative holding, as the court went on to conclude that even if there had been a fiduciary relationship here, there was no evidence that the relationship had been breached. It concluded that Gildea had brought suit in the hopes of "fishing" some evidence of inappropriate behavior through discovery.

It should be noted, further that prior Utah authority has concluded that there is no "abstractor's liability" in Utah based upon title reports. A title report sets forth only the terms upon which the insurer is willing to insure.

Comment 1: In this new era of shifting rules as to who can practice law and what is the practice of law, it is interesting to note that the court went right by the point that the title company took $200 for the preparation of a document for which it had no responsibility and the drafting of a deed outside of the context of a closing or insurance policy. Sounds to the editor like it was practicing law without a license. We haven't changed those rules yet, have we?

Note that the court acknowledges that it was Gildea who engaged the title company and apparently paid its fee. Had Gildea engaged an attorney to perform the same services, a fiduciary relationship attorney/client clearly would have arisen. Normally, we say that when an unlicensed party purports to practice law, it undertakes all the responsibilities of a licesned lawyer. Would that not include fiduciary responsibilities?

Comment 2: The court's recitation of the facts does make it appear that Gildea had no real proof of breach of a fiduciary relationship or fraudulent conduct on the part of the title company. Mabrey obviously gave his own client some very bad advice, and the client paid for it in the failed judgment lien enforcement action and the attorney's fees award in that action. But the court notes that attempting to collect a discharged lien is not itself fraud, especially, as here, where the bankruptcy court had not formally discharged the lien. (It was later found that Sittner had waived the lien in seeking treatment as an unsecured creditor in bankruptcy).

Thus, Gildea should have lost. But is it appropriate for the court to conclude that Guardian had no fiduciary duty at all not even a duty of confidentiality when a party provides information to it in connection with a proposed transaction in which it is anticipated that the company will issue title insurance and provide legal documents?

Because of the fact that we have an alternative holding here, title companies may be hesitant to cite this case, but it certainly does the industry (or is that profession?) some favors.

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