Stewart Title Guaranty v. Fallgatter

Filed 3/9/06 Stewart Title Guaranty v. Fallgatter CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Kern County. Sidney P. Chapin, Judge.

McCormick, Barstow, Sheppard Wayte & Carruth, Marshall C. Whitney and Randall H. Romero for Defendant and Appellant, Thomas C. Fallgatter.

Baker, Manock & Jensen, Donald R. Fischbach and Olga A. Balderama for Defendants and Appellants Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball.

Alborg, Veiluva & Epstein and Michael Veiluva for Plaintiffs and Appellants Stewart Title of California and Stewart Title Guaranty Company.

Cunningham & Treadwell and James H. Treadwell for Plaintiff and Respondent, Prudential Insurance Company of America.

John B. Linford for Plaintiff and Respondent Milham Farms, Inc.

-ooOoo-

This is an appeal from a summary judgment in favor of respondents Thomas Fallgatter (Fallgatter), the law firm of Klein, DeNatale, Goldner, Cooper, Rosenlieb and Kimball, LLP (Klein DeNatale), and Milham Farms, Inc. (Milham), in an action brought by appellants Stewart Title Guaranty Company, Stewart Title of California (collectively Stewart) and Prudential Insurance Company of America (Prudential). The action sought damages for slander of title, for negligence in recording documents affecting interests in property, for fraudulent transfer of property, for violation of the Uniform Fraudulent Transfer Act (Civ. Code,^[1] § 3439 et. seq.), for conspiracy to fraudulently transfer property and for indemnity. As to Fallgatter alone, appellants sought the imposition of a constructive trust and damages for fraud. The dispute arose when Milham defaulted on a note in the principal sum of $2,100,000. The note was secured by a deed of trust dated December 6, 1991, against property owned by Milham. The lender and beneficiary of this deed of trust was San Joaquin Bank. The deed of trust covered 8 parcels of real property owned by Milham; these parcels were legally described in full in an attachment to the deed of trust. The deed of trust was recorded on December 11, 1991, by Stewart, as the escrow agent involved in the loan transaction, but the legal description of the Milham property attached to the deed of trust as recorded did not include all 8 parcels of property legally described in the executed original deed of trust.^[2] In all, about one-third of the Milham property (omitted property) was not described in the deed of trust as recorded.^[3]

The note and deed of trust were ultimately assigned by San Joaquin Bank to Prudential. Milham defaulted on the note and, when Prudential began foreclosure proceedings under the deed of trust, Prudential discovered that Stewart had recorded the deed of trust without the legal descriptions of the omitted property. Stewart then requested that Milham voluntarily execute a new deed of trust for recording. Stewart sent the proposed new deed of trust to Fallgatter, who represented Richard Freeborn, the sole shareholder of Milham, and, as a result, Fallgatter and Milham learned that all of the property encumbered by the deed of trust was in fact not legally described in the recorded deed of trust. Thereafter, Fallgatter, through a series of transactions,^[4] attempted to transfer the omitted property to a bona fide purchaser (Steve Smoot) in order to preserve some of Milham's assets for Zak Freeborn, Fallgatter's new client and Richard Freeborn's son. According to appellants, these transactions were intended to defeat Prudential's legitimate security interest in the omitted property.

In order to attempt to rectify Stewart's recording error, Prudential, on March 30, 2000, initiated several lawsuits, including this action and an action against Stewart. The action against Stewart was settled in December 2001; among the settlement terms was an assignment by Prudential to Stewart of all Prudential's rights under the deed of trust and a payment from Stewart to Prudential of $3,230,000. Also in December 2001, Stewart paid Smoot $135,000 for a deed to one-third of the omitted property.

On July 16, 2002, Stewart accepted from Milham a Grant Deed in Lieu of Foreclosure (deed in lieu), which read in relevant part as follows:

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