Appeals from the United States District Court for the Eastern District of Texas
Before WIENER, DENNIS, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge
These two consolidated appeals arise from a title insurance coverage dispute between the insured, Doubletree Partners, L.P. (Doubletree), and its insurance company, Lawyers Title Insurance Corporation (Lawyers Title). Doubletree appeals the magistrate judge's grant of Lawyers Title's motion for summary judgment and denial of its cross-motion for summary judgment on Doubletree's breach of contract claims and extracontractual claims. Doubletree's attorneys, Christopher A. Kalis and James Edwin Martin, appeal the magistrate judge's award of attorneys' fees to Lawyers Title under 28 U.S.C. § 1927. We affirm in part and reverse in part the magistrate judge's order on the motions for summary judgment, and we reverse the magistrate judge's award of attorneys' fees to Lawyers Title.
The facts are for the most part undisputed. Doubletree is a limited partnership formed by real estate developer Fred Placke. Doubletree purchased a thirty-six-acre tract in Highland Village, Texas, with the intent to develop it into a luxury retirement community for seniors. The plan for the development included approximately eighteen multi-story buildings, each with multiple units, a community center, and other amenities.
In April 2006, Doubletree closed on its purchase of the property with the seller, Duncan Duvall, for $3.45 million. Doubletree and Duvall escrowed the sales contracts for the property with Lawyers Title. In connection with the purchase, Doubletree acquired a title insurance policy from Lawyers Title. In addition, Lawyers Title offered to provide Doubletree "a more complete title insurance policy" that would insure "against loss because of discrepancies or conflicts in boundary lines, encroachments or protrusions, or overlapping of improvements, excluding from the coverage specific matters disclosed by the survey, " if Doubletree obtained a survey of the property and paid an additional premium. Doubletree decided to purchase this more complete policy, and the parties have referred to the additional coverage Doubletree purchased as "survey coverage."
Located on Lake Lewisville, the property at issue is encumbered by a number of easements and restrictions, including the flowage easement, which is at the heart of this dispute. Granted in 1955, the flowage easement gives the United States the right to flood, overflow, and submerge areas of the property that lie below 537 feet in elevation. The easement also prohibits construction of any structures below that elevation without the written consent of the United States.
Lawyers Title issued several title commitments to Doubletree and its agents before issuing the title insurance policy itself. The final title commitment lists several encumbrances as exceptions from coverage, including the flowage easement, and also reflects Doubletree's purchase of survey coverage. The exceptions listed in the final title commitment are also referenced in the sales contract, the vesting deed, and the leaseback agreement Doubletree signed at the closing of the sale.
Before closing, Doubletree retained a professional surveyor, Mark Paine, to conduct a pre-closing survey. This original March 2006 survey indicated the approximate location of the flowage easement held by the United States, showing that it covered a relatively small portion of the property's southern edge. In conducting the survey, Paine relied on flood insurance rate maps. However, Paine did not measure elevations with respect to the flowage easement, and he did not consult a publicly available contour map from the City of Highland Village.
Based on the original survey, Lawyers Title issued Doubletree's title insurance policy and provided the policy to Doubletree on April 18, 2006. Due to a software printing error, the original policy failed to include many of the encumbrances listed as exceptions, including the flowage easement. The original policy also failed to include the agreed-upon survey coverage. Several months later, in October 2006, Doubletree submitted a lost policy request. In response, Lawyers Title sent a copy of the policy that was identical to the original policy in all respects, including in its omission of the flowage easement exception and the survey coverage.
Meanwhile, Doubletree began its plans to develop the property. It retained an architectural firm to assist in the design and planning of the development on the property. Paine's company, G&A Consultants, assisted the architectural firm with engineering work. Both companies relied on the original survey to conduct their work. In an effort to comply with the restrictions on building within the flowage easement, the development plan reserved the area shown on the original survey as being covered by the flowage easement for landscaping and other green space.
As part of the development planning process, Doubletree sought a zoning change to accommodate the senior retirement community by submitting a zoning change application to the City of Highland Village. Not long after submitting the application, however, Doubletree discovered a serious error in the survey that halted development of the property: The survey substantially underrepresented the area of the property that was subject to the flowage easement. The significantly larger no-building zone covered by the flowage easement meant Doubletree would be unable to proceed with its plan to build several of the residential structures it intended to build on the lakeside portion of the property. Because of the impact of the error on its development plans, Doubletree withdrew its zoning application.
Doubletree then filed a complaint against Paine with the Texas Board of Professional Land Surveying. The Board ultimately determined that Paine did not violate any professional standards while conducting the survey. However, the Board noted that the location of the flowage easement to the United States was "substantially different from" the location of the easement shown on the documents on which Paine relied in drawing the survey map. The Board explained that the "best practice" is to identify the documents relied upon by the surveyor, which Paine did not do, and that the survey "could be considered confusing" for that reason. Despite this, the Board concluded the procedure Paine used "appear[ed] to be adequate" and, "[i]n lieu of further actions" by the Board, offered Paine the opportunity to sign an assurance of voluntary compliance with the Board's rules in the future.
In March 2008, Doubletree filed a title insurance claim with Lawyers Title. Doubletree alleged the existence of the flowage easement on the property caused $850, 025 in damage from the diminution of the property's value for its intended purpose. The claim did not rely on the error in the survey but instead relied on the original policy, which did not contain an exception for the flowage easement and did not include a provision for survey coverage. In response, Lawyers Title denied the claim, explaining that, based on the title commitments, the flowage easement was meant to come within an exclusion to coverage under the policy.
In May 2008, Doubletree resubmitted the claim to Lawyers Title, again relying on the fact that the title policy contained no exception relating to the flowage easement, and insisting that the title commitment containing that exception was no longer in force. Lawyers Title again denied the claim, but this time it provided a corrected policy with the denial. The corrected policy included the flowage easement exception as reflected in the final title commitment, as well as the standard survey exception as amended to reflect the purchase of survey coverage.
By the time Lawyers Title sent its second letter denying Doubletree's claim, Doubletree had been unable to go forward with its development as planned and was eventually unable to meet its loan obligations on the property. The property was subjected to foreclosure proceedings and sold at a public auction to the Trust for Public Land, a conservation organization, in June 2009.
In July 2008, Lawyers Title filed suit against Doubletree in the United States District Court for the Eastern District of Texas, seeking a declaration of the parties' rights and obligations and reformation of the original policy. Lawyers Title also sought attorneys' fees. Doubletree counterclaimed for breach of contract, breach of the duty of good faith and fair dealing, violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Consumer Protection Act (DTPA), common law and statutory fraud, and negligent misrepresentation, seeking declaratory relief and damages. The parties consented to proceed for all purposes before a magistrate judge.
Following discovery, the parties filed cross-motions for summary judgment. The magistrate judge granted Lawyers Title's motion for summary judgment and denied Doubletree's cross-motion for summary judgment. The magistrate judge's opinion reformed the title insurance policy to reflect the corrected policy issued by Lawyers Title. The magistrate judge further held that exclusion 3(a), which appeared in both the corrected policy and original policy issued by Lawyers Title, barred Doubletree's claim. According to the court, under exclusion 3(a), Doubletree "suffered, assumed or agreed to" the flowage easement as an encumbrance on title by accepting the final title commitment, the vesting deed, and the leaseback agreement, each of which referenced the easement. In addition, the magistrate judge held that, even under the corrected policy, the survey coverage purchased by Doubletree did not cover the survey error in identifying the easement; the type of title insurance Doubletree suggested it purchased is not available in Texas; and the exception for the flowage easement excluded the entire flowage easement from coverage in any event. For all of these reasons, the magistrate judge held that Doubletree could not recover on its breach of contract claim based on the title insurance policies. In the same opinion, the magistrate judge held that Doubletree could not recover on its extracontractual claims. By separate order, the magistrate judge awarded Lawyers Title $55, 310 in attorneys' fees against Doubletree's attorneys, Kalis and Martin, for their allegedly unreasonable and vexatious pursuit of Doubletree's extracontractual claims, pursuant to 28 U.S.C. § 1927. Doubletree appeals the decision on the summary judgment motions, and Kalis and Martin appeal the attorneys' fees award.
We first address the standards of review and choice-of-law rules governing this dispute. We review the grant or denial of a motion for summary judgment de novo, applying the same standard as the district court. Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.""When assessing whether a dispute to any material fact exists, we consider all of the evidence in the record but refrain from making credibility determinations or weighing the evidence." We also "consider all evidence in a light most favorable to the non-moving party and draw all reasonable inferences in favor of the non-moving party."
Under Texas choice-of-law rules, Texas substantive law governs the breach of contract claims and extracontractual claims here. "To determine state law, federal courts sitting in diversity look to the final decisions of the state's highest court." If there is no final decision by the state's highest court on the issue, "it is the duty of the federal court to determine, in its best judgment, how the highest court of the state would resolve the issue if presented with the same case." Ultimately, if state law does not provide a ready answer, a court making an "Erie guess" will apply state methodology in resolving the issue.
Finally, in considering an award of attorneys' fees under 28 U.S.C. § 1927, we review for an abuse of discretion. "A district court abuses its discretion if it awards sanctions based on an erroneous view of the law or on a clearly erroneous assessment of the evidence."
Lawyers Title argues that the district court correctly reformed the policy. It contends that the parties had a prior agreement regarding both the flowage easement exception and the amended standard survey exception but that a computer software error resulted in a mistake in reducing the agreement to writing. For these reasons, Lawyers Title argues that, under the doctrine of mutual mistake, the policy was properly reformed.
Although Doubletree argues on appeal that the policy should not be reformed, it provides virtually no factual analysis of this issue and cites no relevant authority in support of its position. In its briefing, Doubletree simply contends that reformation of a contract in favor of an insurer after an insured makes a claim, such that the policy precludes coverage, is unfair and contrary to public policy. It further argues that the summary judgment evidence did not establish that it made a mistake or engaged in any inequitable conduct warranting reformation.
Because it did not cite any supporting authority for its argument and did not develop the factual issues involved, Doubletree failed to brief the reformation issue adequately. As a result, it has waived this issue. However, even if we were to consider the merits, we would conclude that the magistrate judge properly reformed the policy to reflect the corrected policy.
"The underlying objective of reformation is to correct a mutual mistake made in preparing a written instrument, so that the instrument truly reflects the original agreement of the parties." To reform a written contract, the party seeking reformation must satisfy a two-part test: (1) an original agreement exists between the parties, and (2) a mutual mistake occurred, made after the original agreement, in reducing the agreement to writing. "A mistake by only one party to an agreement, not known to or induced by acts of the other party, is not grounds for finding a mutual mistake." However, a "[u]nilateral mistake by one party, and knowledge of that mistake by the other party, is equivalent to mutual mistake."
Here, the summary judgment evidence shows that an original agreement did exist between Doubletree and Lawyers Title. The final title commitment reflects agreement on the terms of the title insurance policy. That agreement included both an exception for the flowage easement and the survey coverage purchased by Doubletree. Further, the summary judgment evidence shows that Doubletree paid an additional premium to amend the survey clause to obtain survey coverage. Based on this evidence, the first part of the contract reformation test is satisfied.
The summary judgment evidence also reflects that Lawyers Title made a unilateral mistake in reducing the agreement to a final writing, and that Doubletree had knowledge of the mistake. As Lawyers Title explained, a software error resulted in the printing of the policy without including either the flowage easement exception or the survey coverage. Doubletree clearly had knowledge of this mistake since it paid a premium for survey coverage and received the final title commitment reflecting the coverage, but later received a policy from Lawyers Title that differed materially from the agreed-upon terms in the final title commitment. Indeed, the two title insurance claims Doubletree submitted to Lawyers Title were based on the original, flawed policy, and those claims noted that the policy it received lacked the flowage easement exception. Therefore, there is no question that Doubletree knew of the unilateral mistake by Lawyers Title in reducing the agreement to writing. Because a unilateral mistake by one party and knowledge of that mistake by the other party is equivalent to mutual mistake, the second part of the contract reformation test is also satisfied.
We hold that the magistrate judge correctly reformed the policy. The remainder of our analysis is based on the policy as thus reformed.
As to whether the reformed policy covered survey errors in identifying the location of the flowage easement, for the reasons set forth below, we hold that it did. We therefore reverse the magistrate judge's summary judgment dismissing Doubletree's breach of contract claim.
Three provisions of the reformed policy are relevant to determining whether the survey error is covered, and therefore whether Lawyers Title breached the contract by failing to indemnify Doubletree for the error: (1) the survey coverage clause, (2) the flowage easement exception, and (3) the policy's exclusion ...