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No Privity for Title Search Claim

Deborah Elkins//January 10, 2012

No Privity for Title Search Claim

Deborah Elkins//January 10, 2012//

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A Richmond U.S. District Court accepts a magistrate judge’s recommendation to deny remand of this suit for contract damages for an alleged defective title search, as plaintiff has not demonstrated the suit is for less than the jurisdictional threshold of $75,000, and the court grants defendant’s converted motion for summary judgment.

This matter arises from a dispute over a property title search report that plaintiff allegedly ordered from defendant. Plaintiff Church Hill Place Investments LLC has pursued the action against defendant MDA Lending Solutions Inc., for breach of warranty and breach of contract.

Plaintiff is in the business of financing small businesses using a lease structure and purports to be an affiliate of United Leasing Corp. (ULC), a Virginia corporation which is not a party to this case. Defendant is a Delaware corporation with a registered office and registered agent located in Richmond, Va.

Plaintiff alleges it engaged defendant to perform a title search on a property in the state of Georgia, which defendant provided on Sept. 2, 2008. Plaintiff alleges it relied on the title report in entering into an equipment lease agreement with a third-party, and that a default subsequently occurred under the terms of the lease with the third-party lessee. The accelerated balance due under the lease is $1,576,834, plus late charges, costs and attorney fees. Plaintiff sued for breach of contract and breach of warranty regarding alleged deficiencies in the title report.

It would appear from the documents and related allegations that plaintiff has filed its claim in good faith. However, plaintiff objects to the matter being received in federal court and requests a remand to the state court on the ground that defendant is acting in bad faith by pursuing removal.

Plaintiff is requesting well over the federal jurisdictional amount, yet desires that its case be resolved in state court. Such a position is fatally inconsistent.

While defendant has referred to a warranty provision in the title report that could limit potential damages to $25,000, such a limitation may be applicable only if the court determines plaintiff was not a party to the agreement. Plaintiff contends it is, in fact, a party to the agreement, which, if correct, could entitle it to damages well over the minimum requirement of $75,000. It cannot be concluded to a legal certainty that plaintiff would not be able to recover at least the minimum jurisdictional amount required. No certain “legal impossibility of recovery” exists to negate plaintiff’s presumed exercise of good faith in asserting its claims. The court recommends the alleged amount in controversy satisfies the jurisdictional requirement, and the case should not be remanded to the state court.

Defendant argues plaintiff’s claims should be dismissed as no privity exists between the two parties. Plaintiff asserts it engaged the services of defendant to provide the title report, which defendant did in fact provide, and plaintiff suffered a loss as a result of the deficient title report, and it has sufficiently alleged privity of contract in order for it to pursue both the breach of contract and breach of warranty claims against defendant.

Under the agreement’s forum selection clause, the court will apply Delaware law.

The agreement defines the parties as ULC and TransUnion, a predecessor in interest to defendant. The agreement does not apply all terms and conditions to the affiliates of the signing parties. Though the agreement explicitly states its terms are only applicable to the parties (but for the indemnification proviso), plaintiff seemingly argues that all terms of the agreement equally apply to affiliates of the parties. The contention is not supported by the plain language of the agreement.

The agreement was signed by ULC, a non-party in the present case, and TransUnion, a predecessor in interest to defendant. Plaintiff was never identified or otherwise mentioned in the agreement; nor did it sign the agreement. Plaintiff cannot be considered a party to the contract. It is difficult to hold that plaintiff was a party to the agreement, as the entity did not exist at the time the agreement was signed. Because plaintiff is not a party to the agreement, and it’s not otherwise included within its scope, it does not have privity with defendant.

Church Hill Investments LLC v. MDA Lending Solutions Inc. (Payne, Dohnal) No. 3:10cv288, March 15, 2011; USDC at Richmond, Va. VLW 011-3-122, 17 pp.

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