Stull v. First American Title Ins.

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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:2000 ME 21
Docket:Ken-99-315
Argued:	December 8, 1999
Decided:	February 8, 2000


Panel:WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY, and CALKINS, JJ.

RUSSELL B. STULL{1}

v.

FIRST AMERICAN TITLE INSURANCE CO.

WATHEN, C.J.

	[¶1]  First American Title Insurance Co. (First American) appeals from
a judgment entered in the Superior Court (Kennebec County, Hjelm, J.)
following a jury verdict in favor of Russell Stull on his claim for intentional
infliction of emotional distress.  First American claims that the court erred
in denying its motion for judgment as a matter of law because, even taking as
true all facts and inferences supporting the jury's verdict, First American's
conduct did not satisfy the requirements for tort recovery.  We agree and
vacate the judgment.
	[¶2]  The historical facts in this case, though not in dispute, are
complex.  In 1992, Russell Stull purchased a trash collection business
located on Bog Road in Augusta.  The business, Mid Maine Services, was
owned by Ed Betit and was renamed Capitol City Transfer (Capitol City)
when Stull purchased it.{2}  The primary asset of Capitol City was its location. 
The Bog Road property was the central office for the business, where trucks
were maintained and empty trash containers were stored.  Moreover, the
property was grandfathered for trash collection and was ideal for servicing
Capitol City's customers.  The zoning status was particularly important as it
was difficult to find a piece of property zoned for trash collection. 
	[¶3]  Even though the land was of principal importance for Capitol
City, it remained in Betit's hands and was leased to Capitol City until late
1993.  At that time, Betit and Capitol City agreed that Capitol City would
purchase the land.  The present dispute arises out of that transaction.  The
Capitol City property is the landlocked southern half of a larger, nearly
rectangular parcel that had, at one time, been owned entirely by Betit.  The
northern half of the property is owned by Albert and Linda Penney; there is
a deeded right of way over the Penney property providing access to Capitol
City's land.  The Penneys purchased their property from Betit's father in
1972 through an outconveyance from the larger rectangular parcel.  Capitol
City knew generally that the Penneys owned the northern plot, but it did not
take any action to discover the boundaries of the two lots.  Capitol City,
however, unequivocally did not intend to purchase the Penney property, and
no part of its payment was intended to compensate Betit for that property. 
	[¶4]  Unfortunately for Capitol City, it was mistaken about the
boundaries of its property.  At the time of purchase, Capitol City believed
that a tree line marked the northern boundary between its property and that
of the Penneys.  The tree line, however, was not the boundary between the
two lots:  Although the northern boundary began at the tree line, it sloped
away from the tree line to the south at an angle, passing within 15 feet of
Capitol City's building before intersecting the eastern boundary of the
property.  The tree line, the actual boundary, and the northeastern and
undisputed boundary form a triangle that is the basis of the present dispute. 
The triangle constitutes approximately 20% of the property that Capitol City
believed it had been purchasing.  The triangle had been used by Capitol City
and its predecessor to store trucks and containers and to access the rear of
the building.  Stull stated that he had seen it used by Betit's business as long
ago as 1982.  Without this triangle, Capitol City would not have been able to
conduct its business at the Bog Road location.  
	[¶5] Capitol City's misunderstanding was not the only mistake involved
in this transaction.  Capitol City financed the purchase with a loan from
Cushnoc Bank.{3}  Cushnoc advised Capitol City to purchase title insurance;
Capitol City contacted First American, which agreed to provide coverage.{4} 
First American's agent, Keith Varner, prepared a commitment letter
outlining the scope of coverage.  Varner was also Cushnoc's attorney, and, in
that capacity, he performed a title search on the property.  In this search,
Varner missed the 1972 outconveyance to the Penneys.  As a result, both the
commitment letter and the deed described the entire parcel that had been
owned by Betit prior to 1972, or, in other words, both the Penney and
Capitol City lots.  There is no dispute that these mistaken descriptions do
not reflect the intent of Betit, Capitol City, or First American; no one
intended to convey, purchase, or insure the entire parcel.
	[¶6]  By November of 1994, the Penneys had discovered that the true
boundary line was not the tree line and informed Capitol City that it was
using some of their land, an allegation that Capitol City denied.  As between
the Penneys and Capitol City, the conflict over the triangle can only be
characterized as a boundary dispute.  The commitment letter--and later the
title policy--contained an exception excluding coverage for boundary
disputes (the survey exception).{5}  Nonetheless, Capitol City informed
Varner, as agent for First American, that it believed there was a problem
with title to the land.  Varner visited the property, and then sent Capitol
City a corrected deed he had sent to Betit for Betit's signature.  This deed
description excepted the Penneys' property, as described in the 1972
outconveyance and thus contained the exact description that would have
been in the original deed but for Varner's mistake.  Capitol City, however,
now refused to accept this deed.
	[¶7]  The dispute between Capitol City and the Penneys continued for
several months until the Penneys demanded that Capitol City purchase their
entire property or vacate the disputed triangle.  At the same time that the
Penneys made their demand, Capitol City, through its attorney, sent First
American a notice of claim, and then followed that letter with several
telephone calls and letters requesting that the insurer both indemnify and
defend Capitol City from the Penneys' claims.  Meanwhile, Capitol City was
unable to purchase the Penney lot and could not vacate the triangle without
incurring large economic losses.  The Penneys therefore served Capitol City
with the summons and complaint that began the present action.{6} 
	[¶8]  A day or two after the complaint was filed, First American,
through its state counsel Joseph Attura, indicated that it would be denying
Capitol City's claim.  Up until this point, the contract between Capitol City
and First American was based on the commitment letter, as the policy had
not yet been issued.{7}  On the same day that First American denied the claim,
Attura told Varner to issue a policy that conformed with the commitment
letter.  A day later, however, Attura sent Varner another letter specifically
countermanding his previous orders; Varner was instead to issue a policy
with an additional exception that excluded all claims "resulting from lack of
title" to the Penney's land.{8}  Varner delayed the issuance of the policy
because he was concerned about a possible malpractice claim.  It was only
after Attura advised Varner that First American would not pursue a
malpractice claim that Varner issued the policy.  As issued, the policy
contained the additional exception requested by Attura, thus creating a
discrepancy between the commitment letter and the policy. 
	[¶9]  As a result of First American's denial of coverage,  Capitol City
and Stull filed a third party complaint against First American and others.{9}  
The third party complaint had four counts against First American: breach of
contract, breach of an implied covenant of good faith and fair dealing,
unlawful claims practice, and intentional infliction of emotional distress.{10} 
Stull's individual claim for intentional infliction of emotional distress was
predicated upon First American's refusal to defend Capitol City; Stull
maintained that this action was extreme and outrageous and had caused him
severe emotional distress.  Approximately a week before trial, the Penneys
settled their claim with Capitol City, requiring it to relinquish its claim to
the triangle.  The case was tried to the jury on the counterclaim against First
American alone.  The jury found for Capitol City on the breach of contract
claim,{11} and for Stull on his claim for intentional infliction of emotional
distress.  The jury awarded Stull $85,000 in compensatory damages and,
concluding that First American had acted with malice, $1,500,000 in
punitive damages.  
	[¶10]  At the close of evidence, First American moved for judgment as
a matter of law pursuant to M. R. Civ. P. 50.  The Superior Court denied the
motion after the verdict and entered judgment for Capitol City.  Following
the entry of judgment, First American again moved for judgment as a matter
of law, for a new trial pursuant to M. R. Civ. P. 59, and for remittitur of the
punitive damages award.  The court denied that motion as well.  First
American now appeals from the judgment.
	[¶11]  On appeal First American initially argues that because Stull was
not the insured, he lacked standing to bring the contract claim; his claim
was solely derivative and could therefore not be maintained.  The issue of
whether Stull has standing to bring his claim is jurisdictional.  See Singal v.
City of Bangor, 440 A.2d 1048, 1050 (Me. 1982) ("Even though the issue of
standing was not raised by the parties, the matter is jurisdictional . . . ."). 
Litigants normally may not assert the rights of third parties but must
demonstrate that they have received some particularized injury in order to
have standing to raise their claim.  See Guardianship of Cardner, 1998 ME
80, ¶ 8 n.1, 709 A.2d 731, 732 n.1; Common Cause v. State, 455 A.2d 1, 6
(Me. 1983).  This requirement is met when the defendant's actions have
adversely and directly affected the plaintiff's property, pecuniary or personal
rights.  See New England Herald Dev. Group v. Town of Falmouth, 521 A.2d
693, 695 (Me. 1987).  First American is correct insofar as it argues that
Stull does not have standing to maintain a suit seeking recovery for the
breach of the insurance contract between First American and Capitol City.
	[¶12]  Nonetheless, it is not correct to state that Stull is seeking
recovery for breach of contract or is, in other words, seeking to stand in the
shoes of his corporation, as would be the case in a shareholder derivative
suit.  Stull argues that the circumstances attending the breach of contract
were such as to satisfy the tort of intentional infliction of emotional distress. 
The tort claim he alleges is his alone, and could, potentially, allow recovery
separate from the breach of contract.  See Colford v. Chubb Life Ins. Co., 687
A.2d 609, 616 (Me. 1996).  Stull is not seeking to assert any rights other
than his own and therefore has standing to maintain this suit. 
	[¶13]  We next turn to the merits.  First American appeals from the
denial of its Rule 50 motions for judgment as a matter of law.  We review
"the denial of a motion for judgment as a matter of law to determine if any
reasonable view of the evidence and those inferences that are justifiably
drawn from that evidence supports the jury verdict."  Larochelle v. Cyr,
1998 ME 52, ¶ 6, 707 A.2d 799, 801 (internal quotations omitted).  The
party appealing has "the burden of establishing that the verdict was clearly
and manifestly wrong."{12}  Townsend v. Chute Chemical Co., 1997 ME 46,
¶ 8, 691 A.2d 199, 202.
	[¶14]  In a claim by an insured against its insurer, tort recovery must
be based on actions that are separable from the actual breach of contract. 
"In order to secure emotional distress and punitive damages in this action,
[an insured] must demonstrate that [the insurer] committed independently
tortious conduct beyond the denial of [the] claim."  Colford, 687 A.2d at 616
(emphasis in original); Marquis v. Farm Family Mut. Ins. Co., 628 A.2d 644,
652 (Me. 1989) ("We therefore refuse to adopt an independent tort action
for an insurer's breach of the implied contractual obligation to act in good
faith and deal fairly with an insured, and limit an insured's remedies for
breach of the duty to the traditional remedies for breach of contract . . . ."). 
Stull tries to argue within the Colford rule and advances the argument that
First American's actions in issuing a policy at variance with its commitment
letter is somehow more than the breach of the contract created by that
commitment letter.  Stull argues that First American acted "unilaterally"
and committed "an affront to the rule of law" when it altered the policy
rather than seeking judicial reformation, that its actions could only be
considered a breach of contract if it had "an arguable contractual right to do
what" it did, and that it "took calculated action to protect its interests, at
the insured's expense, based on its asserted belief as to the proper remedy
for its own mistake."  
	[¶15]  Despite Stull's protestations, the evidence does not support the
conclusion that First American engaged in any other action than breaching
its contract.  Those who breach contracts often act unilaterally to protect
their own interests, without first seeking judicial intervention to protect the
other party.  Indeed, First American does not argue on appeal that it did
something it was legally entitled to do--it does not argue this because it does
not contest the finding that it breached the contract.  First American
entered into a contract when it issued the commitment letter.  The
commitment letter bound First American to issue a policy in conformity
with its provisions.  Its failure to do so was a breach.  Stull is seeking to
recover tort damages for an action that is purely a breach of contract.
	[¶16]  This, however, does not end the matter.  Colford directly limits
the right of the insured to sue the insurer in tort.  Stull is not the insured,
but instead seeks to recover as a third party injured by the bad faith breach. 
The Superior Court distinguished Colford on these grounds and based its
denial of First American's motions for judgment as a matter of law on the
theory that Colford was "inapplicable here where the tort claimant is not the
same person or entity as the insured." 
	[¶17]  Whether the Colford rule applies to third parties is a question of
first impression.  Allowing third parties to sue because an unadulterated
breach of contract has caused them emotional distress conflicts with
established precedent in other areas.  Third parties to contracts are strictly
limited in their ability to maintain an action under contract law.  See Fleet
Bank of Maine v. Harriman, 1998 ME 275, ¶ 6, 721 A.2d 658, 660.  A third
party harmed by a breach may only sue for breach of contract if the
contracting parties intended that the third party have an enforceable right. 
See Devine v. Roche Biomedical Laboratories, 659 A.2d 868, 870 (Me.
1995).  Limiting Colford to claims by the insured would essentially eliminate
the requirement that a third party prove the parties' intent and would allow
the third party to have a more extensive recovery than the insured for what
is essentially the same injury.  Contract damages are more limited than
compensatory damages for a tort and, "[n]o matter how egregious the
breach, punitive damages are unavailable under Maine law for breach of
contract . . . ."  Drinkwater v. Patten Realty Corp., 563 A.2d 772, 776 (Me.
1989). 
	[¶18]  We appreciate the court's concern that the presence of an
action for breach of contract by the insured should not necessarily bar a
third party tort claimant from recovery.  Colford, however, does not
implicate this concern -- it merely requires that a recovery in tort be based
upon conduct, independent of the breach of contract.  In the absence of
such independent conduct, there is no tort recovery by anyone.  Because
Stull proved nothing more than a simple breach of contract, his action for
intentional infliction of emotional distress fails.
	The entry is:
Judgment vacated.  Remanded for entry
of judgment in favor of First American.
                                       Attorney for plaintiff:

Raymond C. Hurley, Esq. (orally) 
Hurley & Mina
12 City Center
Portland, ME 04101

Attorneys for defendant:

William J. Kayatta Jr., Esq. (orally) 
Christopher T. Roach, Esq.
Pierce Atwood
One Monument Square
Portland, ME 04101-1110

Andrew W. Sparks, Esq.
Drummond & Drummond, LLP
One Monument Way
Portland, ME 04101

FOOTNOTES******************************** {1} . This case originated from a boundary dispute between Albert and Linda Penney and Capitol City Transfer and a contract dispute between Capitol City Transfer and First American Title Insurance Co. The only dispute remaining on appeal is Russell Stull's tort claim against First American for the intentional infliction of emotional distress. The caption reflects the parties on appeal. {2} . Capitol City is a closely held corporation and Stull is the sole shareholder. At the time of his purchase of Capitol City, Stull was already involved in the trash collection business as the sole shareholder of another company called Yarmouth Rubbish. {3} . Stull, as sole shareholder, pledged his home and all of the assets of Yarmouth Rubbish as collateral and guaranteed the loan personally. {4} . The title insurance contract was only between Capitol City and First American. Although Stull participated in the negotiations and the closing, he did so only as an officer of Capitol City and not in his personal capacity. {5} . Experts at trial testified that the survey exception is designed to prevent a title insurer from becoming involved in disputes over where the land described in the policy is actually located on the face of the earth. It is normally waived when the insured conducts a survey, but no survey had been performed in the present case. {6} . This is the second time this case has come before us. The first time was on First American's counterclaim for declaratory relief, requesting a determination that First American had no obligation to defend or indemnify Capitol City against the Penney suit. First American based its counterclaim upon the survey exception in the policy. Although the Superior Court agreed with First American and granted summary judgment in its favor, we vacated the judgment on the ground that a comparison between the complaint and the insurance policy indicated that there was indeed a duty to defend. See Penney v. Capitol City Transfer, Inc., 1998 ME 44, ¶ 7, 707 A.2d 387, 389. {7} . Part of the reason for the delay was that Varner had been attempting to get an IRS lien against Betit removed from the property. {8} . Attura indicated that he believed the survey exception gave him the authority to add this new exception. {9} . The third party complaint also named Varner, his law firm, Cushnoc Bank, and Betit. The counts against these defendants are not at issue in this appeal. {10} . Only the claim for intentional infliction of emotional distress was maintained by Stull personally. {11} . The jury found that First American had not acted in good faith or dealt fairly with Capitol City and awarded damages of $5,000. First American does not challenge this judgment on appeal. {12} . Stull argues that this language only allows for a deferential review of the judgment. This overstates the standard of review. To the extent that First American seeks to challenge the factual findings made by the jury, we do undertake the deferential review Stull urges. First American, however, does not challenge the jury's factual findings, but contends that these findings--and all inferences that may be drawn in favor of them--do not satisfy, as a matter of law, the elements of the tort. See Colford, 687 A.2d at 616 ("It is for the Court to determine, in the first instance whether the Defendant's conduct may reasonably be regarded as so extreme and outrageous to permit recovery or whether it is necessarily so.") (quoting Rubin v. Matthews Int'l Corp., 503 A.2d 694, 699 (Me. 1986)). The Court reviews issues of law de novo. See H.E. Sargent, Inc. v. Town of Wells, 676 A.2d 920, 923 (Me. 1996).