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Nationwide Life Insurance Company v. Commonwealth Land Title Insurance Company

February 17, 2011

NATIONWIDE LIFE INSURANCE COMPANY, PLAINTIFF,
v.
COMMONWEALTH LAND TITLE INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Buckwalter, S.J.

MEMORANDUM

Currently pending before the Court are Defendant Commonwealth Land Title Insurance Company's Motion for Summary Judgment and Plaintiff Nationwide Life Insurance Company's Cross-motion for Summary Judgment. For the following reasons, Plaintiff's Motion is granted in part and denied in part, and Defendant's Motion is denied in its entirety.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1988, the Franklin Mills Mall (the "Mall") in Philadelphia County was being developed by Liberty Mills Limited Partnership ("Liberty Mills"). On June 28, 1988, in connection with that development, Liberty Mills entered into a Master Declaration and Agreement of Easements, Covenants, Conditions and Restrictions with Liberty Mills Residual Limited Partnership (the "Master Declaration"). (Am. Compl. ¶ 7; Answer ¶ 7.) This Master Declaration governed all stores in the Mall, including the property at issue in this case, located at 1933 Franklin Mills Circle, a/k/a 4301 Byberry Road Unit M3, Philadelphia, Pennsylvania (the "Property"). (Def.'s Mot. Summ. J., Ex. 5.) The Master Declaration provided that "[n]o Occupant shall use or permit the use of its Property within the Total Parcel for any use or operation which is . . . substantially inconsistent with and/or materially detrimental to the operation of a shopping center and other complementary developments." (Id. at 36.) Included among such "detrimental" uses or operations were: (a) any use which emits an obnoxious odor, noise or sound; (b) any use which is physically damaging to other portions of the Franklin Park Development or which is dangerous; (c) any assembly or manufacturing operation; (d) any trailer court, mobile home park, junk yard, stock yard, or animal raising operation (other than pet shops and veterinarians); (e) any dump or disposal; (f) any warehouse; (g) any central laundry, dry cleaning plant, or laundromat (not including a facility providing on-site services oriented to pickup and delivery by the ultimate consumer); (h) a mortuary; (i) an establishment selling or exhibiting pornography; (j) a flea market; and (k) an activity which unreasonably physically interferes with the business of any party or other occupant. (Id. at 36-37.) In addition, no occupant of the Mall was to use or permit the use of its property for: (a) a night club, disco, or dance hall; (b) a lot for the sale of new or used cars; (c) a motor vehicle repair or service shop, or a car wash; or (d) a pool or billiards hall (unless operated as a part of a large-scale recreation or entertainment facility). (Id. at 37.)

Thereafter, on August 15, 1988, a company by the name of PMI Associates ("PMI") purchased a parcel of the Mall from Liberty Mills. (Am. Compl. ¶ 8; Answer ¶ 8.) At that time, PMI and Liberty Mills entered into a Declaration of Restrictions (the "Declaration of Restrictions"). (Am. Compl. ¶ 9; Answer ¶ 9; Def.'s Mot. Summ. J., Ex. 6.) The Declaration of Restrictions set forth an "Operating Covenant," which applied to a period of three years after the opening of the business on the Property. (Def.'s Mot. Summ. J., Ex. 6, 6-7.) Such restrictions required that the Property be operated as a Phar-Mor variety or general merchandise retail store, which would include the sale of health and beauty aids, pharmaceuticals, video tapes, housewares, pre-packaged food items, greeting cards, automotive supplies, books and magazines, and school supplies and stationary. (Id.) After the expiration of this Operating Covenant period, the Declaration of Restrictions provided the following:

Buyer shall have the right to use the Property and/or the building for any single retail use which is (1) permitted under all applicable laws, ordinances, orders, rules, regulations and requirements of all governmental authorities having jurisdiction over the Shopping Center Project, (2) consistent with and permitted under the Master Declaration, and (3) compatible with an enclosed super-regional discount specialty retail shopping center (or such other type of shopping center as may be operated by Seller within the Shopping Center Project in the future); provided, however, that in no event shall Buyer use the Property and/or the building for any of the purposes listed on Exhibit 3 [listing the types of stores already in the Mall]; and provided further, however, that Buyer shall not change the use of the Property from a variety or general merchandise store (as described above) without prior written consent of Seller (which shall not be unreasonably withheld or delayed if the proposed use otherwise satisfies the foregoing requirements of this sentence.) In no event shall the Property be used or occupied for any purpose or in any manner other than as set forth in this [paragraph]. With respect to the foregoing restrictions on the use of the Property, Buyer hereby acknowledges and agrees that the Property is part of the larger Shopping Center Project, and that Seller has a substantial interest in the ownership and operation of the Shopping Center Project. Accordingly, Seller desires to insure that the Property being conveyed to Buyer will be used in a manner consistent with the plans and designs of Seller (for both the appearance and the operation of the Shopping Center Project) and not in a manner that would injure or adversely affect the remaining portions of the Shopping Center Project and/or the operation thereof. Buyer hereby further acknowledges the legitimacy of these objections, and acknowledges and agrees that its acceptance of the use restrictions set forth in this Sub-paragraph 2(A) is a material inducement to Seller to convey the Property to Buyer, by virtue of its need to protect the legitimate objectives more particularly described above. (Id. at 7 (emphasis added).)

Aside from the foregoing language, the Declaration of Restrictions contained several other provisions pertinent to the present dispute. First, it set forth a "Repurchase Option," which granted Franklin Mills Associates Limited Partnership ("Franklin Mills"), the successor-in-interest to Liberty Mills, (Def.'s Mot. Summ. J., Ex. 3, Dep. of Gregg Goodman, 11:1-17:5, Aug. 18, 2010 ("Goodman Dep.")), the right to buy back the property from PMI under certain circumstances. (Def.'s Mot. Summ. J., Ex. 6, 9-12.) It stated specifically that "[i]f at any time after the expiration of the Buyer's three (3) year covenant to operate its building as provided in Sub-paragraph 2(B) above, Buyer or any occupant of the Property desires to cease conducting business to the public in its building on the Property, then Seller may, at its sole option, repurchase the property . . ." (Id. at 10.) In addition, the Declaration required PMI to pay to Franklin Mills annual assessments for the purpose of (1) contributing to the funding of the Promotion Fund used to advertise and promote businesses in the Mall and (2) maintaining the Common Areas ("CAM charges"). (Id. at 13-15.) According to the Declaration, "[n]o sale or transfer shall relieve the owner of the Property . . . from liability for any Annual Assessments." (Id. at 14.) Finally, the Declaration of Restrictions provided that "[a]ll of foregoing covenants, conditions, restrictions and easements shall be covenants running with the land, and shall be binding upon the parties hereto and their respective representatives, successors and assigns, and all subsequent owners and occupants of the Property . . . ." (Id. at 30.)

In 2001, PMI took out a $3.5 million loan from Plaintiff Nationwide Life Insurance Company ("Nationwide") using the above Property as security (the "Mortgage"). (Am. Compl.

¶¶ 13-14; Answer ¶¶ 13-14; Def's Mot. Summ. J., Ex. 4.) The Mortgage explicitly stated that PMI "covenants and warrants with and to Lender that, subject to the Permitted Exceptions (as hereinafter defined), Borrower is indefeasibly seized of the Property and has good right, full power, and lawful authority to convey and encumber all of the same as aforesaid." (Def.'s Mot. Summ. J., Ex. 4, at Bates No. 3608.) In the "Permitted Exceptions" attachment, the Mortgage explicitly referenced both the Master Declaration and the Declaration of Restrictions.*fn1 (Id. at Bates No. 3642.)

In connection with this Mortgage, Nationwide purchased a title insurance policy (the "Policy") from Defendant Commonwealth Land Title Insurance Company ("Commonwealth"). (Def.'s Mot. Summ. J., Ex. 2.) The Policy contained several crucial provisions. First, it encompassed what is known as an American Land Title Association 9 Endorsement (the "ALTA 9 Endorsement"), covering Nationwide against, among other things, loss or damage sustained by reason of:

1. The existence at Date of Policy of any of the following:

(a) Covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity priority or enforceability.

(b) Unless expressly excepted in Schedule B . . .

(2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land which, in addition, (i) establishes an easement on the land; (ii) provides a lien for liquidated damages; (iii) provides for a private charge or assessment; (iv) provides for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant. (Id. at Bates No. 591.) Second, it contained the referenced Schedule B, entitled "Exceptions from Coverage," which stated as follows:

SCHEDULE B

EXCEPTIONS FROM COVERAGE . . .

PART I . . .

This policy does not insure against loss or damage (and [Commonwealth] will not pay costs, attorney's fees or expenses) which arise by reason of . . .

4. Master Declaration and Agreement of Easements, Covenants, Conditions and Restrictions between Liberty Mills Limited Partnership and Liberty Mills Residual Limited Partnership dated June 28, 1988 and recorded June 30, 1988 in Deed Book FHS 1111, page 508 ("The Master Declaration"), as Amended by First Amendment to Master Declaration, dated February 5, 1990 and recorded in Deed Book FHS 1576, page 347.

5. Declaration of Restrictions between Liberty Mills Limited Partnership and PMI Associates dated August 15, 1998 and recorded in Deed Book GHS 1155, page 206, and First Amendment to Declaration of Restrictions between Franklin Mills Associates Limited Partnership and PMI Associates dated December 5, 1989 and recorded December 21, 1989 in Deed Book FHS 1518, page 541. (Id. at Bates No. 587.)

PMI eventually defaulted on the balance of its loan in 2003 and, in lieu of facing foreclosure proceedings, it conveyed the Property to Nationwide by fee simple deed. (Am. Compl. ¶¶ 19-20; Answer ¶¶ 19-20.) In an effort to recoup its losses, Nationwide attempted to sell the Property to Ironwood Real Estate, LLC ("Ironwood"), who agreed to purchase the property for $3,800,000. (Pl's Mot. Summ. J., Ex. E, Aff. of Jennifer Thrasher ¶ 12, Oct. 18, 2010 ("Thrasher Aff.").) Ironwood was a company that acquired and developed shopping centers. (Def.'s Mot. Summ. J., Ex. 9, Dep. of Jeremy Fogel, 24:8-22, June 30, 2010 ("Fogel Dep.").) It sought to lease the space to Lincoln Technical Institute for use as a technical school. (Id. at 43:21-44:24.) Because Ironwood was a "tenant driven" company, it was only interested in the Property if it had a user to occupy it. (Id. at 125:10-126:17.) Thus, Nationwide contacted Franklin Mills to formally request that it (1) execute a waiver of its right of first refusal and option to purchase the Property and (2) approve Ironwood as the buyer of the Property. (Thrasher Aff. ¶¶ 16-17.) Franklin Mills, however, invoked its rights under the Declaration of Restrictions and stated that it did not consent to either the sale of the Property to Ironwoood or the lease to Lincoln Tech. (Def.'s Mot. Summ. J., Ex. 8, Dep. of Jennifer Thrasher, 36:16-37:14, 42:12-43:11, July 13, 2010 ("Thrasher Dep."); Thrasher Aff. ¶ 18.) As a result, Ironwood refused to complete its purchase of the property. (Thrasher Aff. ¶ 22; Fogel Dep. 126:8-17.) Although Nationwide and its local broker Fameco made several more attempts to find buyers acceptable to Franklin Mills, they were unsuccessful. (Thrasher Aff. ¶¶ 26-27.) Finally, Nationwide attempted to sell the Property back to Franklin Mills for $1.00 in order to obtain a release of the duty to pay CAM charges. (Id. ¶ 29; Goodman Dep. 35:7-36:21, 51:2-21.) Franklin Mills, however, agreed to accept ownership only if Nationwide would pay it an additional $200,000. (Thrasher Aff. ¶ 30.) Nationwide subsequently made efforts to reduce the assessed value of the Property for tax purposes, and the City of Philadelphia assigned it a fair market value of $450,000. (Id. ¶ 32.)

Thereafter, Nationwide submitted a claim for coverage to Commonwealth, alleging that Franklin Mills's rights of refusal were covered restrictions that made the property unusable and unsalable. (Am. Compl. ¶ 33; Answer ¶ 33; Thrasher Aff. ¶ 35.) Commonwealth denied the claim for coverage by letter dated April 13, 2004. (Am. Compl. ¶ 34; Answer ¶ 34; Thrasher Aff. ¶ 37; Pl.'s Mot. Summ. J., Ex. B, Dep. of James Conmy, 47:19-49:12 & Ex. 4, July 14, 2010 ("Conmy Dep.").) In light of its disagreement with the coverage decision, Nationwide initiated a lawsuit against Commonwealth in this Court seeking both a declaratory judgment and money damages. (Compl. ¶¶ 4-5.) Commonwealth filed a motion to dismiss the case in its entirety. On October 19, 2005, the Court dismissed the litigation, holding that, by listing the Declaration of Restrictions under the "Exceptions from Coverage" section in Schedule B of the Policy, the Policy "expressly excepted" any loss or damage arising from that Declaration. Nationwide Life Ins. Co. v. Commw. Land Title Ins. Co., No. CIV.A.05-281, 2005 WL 2761492, at *7 (E.D. Pa. Oct. 19, 2005). Nationwide subsequently sought reconsideration, but the Court denied the motion and further held that Plaintiff Nationwide bore the burden of proper diligence before issuing the mortgage to PMI. Nationwide Life Ins. Co. v. Commw. Land Title Ins. Co., No. CIV.A.05-281, 2006 WL 1192998, at *3 (E.D. Pa. May 3, 2006).

Nationwide appealed to the United States Court of Appeals for the Third Circuit. Originally, the appeal was stayed pending the outcome of another case brought by Nationwide against Franklin Mills claiming that the relevant restrictions in the Declaration were unenforceable. See Compl., Nationwide v. Franklin Mills, No. CIV.A.04-5049 (E.D. Pa. Oct. 27, 2004). That latter case, however, settled without any ruling on the substantive issues. Stipulation of Dismissal, Nationwide v. Franklin Mills, No. CIV.A.04-5049 (E.D. Pa. Feb. 28, 2008). Thereafter, via decision issued January 28, 2009, the Third Circuit reversed the District Court's dismissal of this matter. Nationwide Life Ins. Co. v. Commonw. Land Title Ins. Co., 579

F.3d 304 (3d Cir. 2009). The Appeals Court reinterpreted the Policy considering not only the text of the contract, but also its purpose and industry custom and practice. Upon doing so, it found that, "[t]o except expressly from ALTA 9 Endorsement coverage a right of refusal or other restrictions noted in paragraph 1(b)(2) of the Endorsement, an insurer must list those restrictions specifically in Schedule B. It is not enough for the insurer merely to list in some part of Schedule B the document in which the restrictions are embedded." Id. at 317 It went on to hold that, "Commonwealth bore the burden of detecting the restrictions stated in the Declaration, and had to list those restrictions explicitly as exceptions to avoid covering loss from them." Id. at 319.

Under Third Circuit mandate, the parties returned to this Court. Plaintiff filed a First Amended Complaint on November 12, 2009, alleging claims for breach of contract, bad faith, and a declaratory judgment. (Am. Compl. ¶¶ 48-57.) The parties have now completed discovery and filed the current Cross-motions for Summary Judgment.

II. STANDARD OF REVIEW

Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c)(2). A factual dispute is "material" only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be "genuine," a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id.

On summary judgment, the moving party has the initial burden of identifying evidence that it believes shows an absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir. 2004). It is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations.

Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi's IGA Supermkts., Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir. 1993)). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party, and "all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255.

Although the moving party bears the initial burden of showing an absence of a genuine issue of material fact, it need not "support its motion with affidavits or other similar materials negating the opponent's claim." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can meet its burden by "pointing out . . . that there is an absence of evidence to support the nonmoving party's claims." Id. at 325. Once the movant has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec., 475 U.S. at 586. "[T]he non-moving party must rebut the motion with facts in the record and cannot rest solely on assertions made in the pleadings, legal memoranda, or oral argument." Berckeley Inv. Group. Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir. 2006). If the nonmoving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial," summary judgment is appropriate. Celotex, 477 U.S. at 322. Moreover, the mere existence of some evidence in support of the non-movant will not be adequate to support a denial of a motion for summary judgment; there must be enough evidence to enable a jury to reasonably find for the non-movant on that issue. Anderson, 477 U.S. at 249-50.

Notably, "[t]he rule is no different where there are cross-motions for summary judgment." Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008). As stated by the Third Circuit, "'[c]ross-motions are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.'" Id. (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)).

III. DISCUSSION

The parties' Cross-motions for Summary Judgment raise a multitude of common issues that bear equally on their merits. Accordingly, in lieu of engaging in a separate -- and likely duplicative -- discussion of the two Motions, the Court addresses their commonly raised issues in joint fashion, remaining cognizant of each party's individual burden of proof.

A. Whether the Law of the Case Doctrine Forecloses Commonwealth's Argument that the ALTA 9 Covers Only Certain Limited Provisions Prior to reaching the substantive dispute regarding the meaning of the Policy in this case, the Court must confront the preliminary -- and perhaps most contentious -- issue of whether Defendant's contract interpretation is barred by the "law of the case" doctrine. Although the Court engaged in a cursory discussion of this topic when ruling upon Plaintiff's Motion in Limine to exclude Defendant's expert's report, a more thorough review of the issue is warranted given the parties extensive summary judgment briefing.

"The 'law of the case' doctrine reflects courts' general reluctance to reconsider matters soundly decided." Falor v. G & S Billboard, No. CIV.A.04-2373, 2008 WL 5190860, at *2 (D.N.J. Dec. 10, 2008). "The doctrine is designed to protect traditional ideals such as finality, judicial economy and jurisprudential integrity." In re City of Philadelphia Litig., 158 F.3d 711, 717-18 (3d Cir. 1998). It provides that "when a court decides upon a rule of law, that rule should continue to govern the same issues in subsequent stages in the litigation." In the Matter of Resyn Corp., 945 F.2d 1279, 1281 (3d Cir. 1991) (quotations omitted). In other words, "once an issue has been decided, parties may not relitigate that issue in the same case." Waldorf v. Shuta, 142 F.3d 601, 616 n.4 (3d Cir. 1998).

With this well-established proposition, however, comes the equally well-settled corollary that a trial court "may consider, as a matter of first impression, those issues not expressly or implicitly disposed of by the appellate decision." Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943, 950 (3d Cir. 1985). Thus, the trial court is "free to make any order or direction in further progress of the case, not inconsistent with the decision of the appellate court, as to any question not settled by the decision." Id.; see also Resyn Corp., 945 F.2d at 1282 (noting that issues raised but not reached on a prior appeal are not within the law of the case doctrine). Moreover, it is abundantly clear that "[t]he doctrine does not apply to dicta." United Artists Theatre Circuit, Inc. v. Twp. of Warrington, Pa., 316 F.3d 392, 397 n.4 (3d Cir. 2003). Thus "[g]ratuitous statements in an opinion that do not implicate the adjudicative facts of the case's specific holding do not have the bite of precedent. They bind neither coordinate nor inferior courts in the judicial hierarchy. They are classic obiter dicta: 'statement[s] of law in the opinion which could not logically be a major premise of the selected facts of the decision.'" U.S. v. Warren, 338 F.3d 258, 265 (3d Cir. 2003) (quotations omitted).*fn2

As set forth above, Defendant denied coverage for Plaintiff's claim and subsequently moved to dismiss the lawsuit against it on the ground that loss arising from the Master Declaration and Declaration of Restrictions was "expressly excepted" under the terms of the Policy. Although this Court originally agreed with that argument, the Third Circuit reversed and remanded the case. In lieu of further challenging the Third Circuit's interpretation of "expressly excepted," Defendant currently contends that the ALTA 9 Endorsement never extended coverage in the first place to Plaintiff's loss. It explains that the ALTA 9 Endorsement in the Policy only provides insurance for loss or damage if an instrument -- like the Master Declaration or the Declaration of Restrictions -- contains direct restraints on alienation such as an option to purchase, a right of first refusal, or a right of approval of a future purchaser, and if the claimed damage or loss results directly from such provisions. According to Defendant, Nationwide suffered no such harm on account of any such right contained in either the Master Declaration or the Declaration, but rather only from the use restrictions -- also known as indirect restraints on alienation -- within those documents. In turn, it concludes that such use restrictions are not covered under the ALTA 9 Endorsement.

Plaintiff now insists that the entire meaning of the ALTA 9 Endorsement has been fully and conclusively determined by both this Court's ruling on the Motion to Dismiss and the Third Circuit's subsequent decision. It argues that both opinions expressly noted that the ALTA 9 Endorsement covers the entirety of the instruments at issue in this case, from which the claimed damage to Nationwide's property interest arose. According to Plaintiff, any contrary interpretation is foreclosed by the law of the case doctrine.

This argument, however, fails in multiple respects. First, this Court made no essential holding regarding the ALTA 9 Endorsement's scope of coverage when granting the motion to dismiss. Moreover, the Third Circuit's decision was clearly limited to an interpretation of the phrase "expressly excepted" within the ALTA 9 Endorsement. Finally, any commentary by the Third Circuit as to the proper interpretation of the ALTA 9 Endorsement's scope of coverage was nothing more than dicta not covered by the law of the case doctrine. The Court expands upon each of these bases below.

1. The District Court Made No "Essential Holding" that the ALTA 9 Endorsement Provides Coverage for an Instrument Referred to Schedule

B

Plaintiff initially claims that the District Court, in ruling on the Motion to Dismiss, found that "[t]he ALTA 9 Endorsement provides coverage for an instrument referred to in Schedule B, if that instrument provides for an option to purchase, a right of first refusal, or the prior approval of a future purchaser or occupant, unless that instrument is expressly excepted in Schedule B."

Nationwide Life Ins. Co., 2005 WL 2716492, at *7 (emphasis in original). Highlighting the first phrase of that sentence -- "[t]he ALTA 9 Endorsement provides coverage for an instrument referred to in Schedule B" -- Plaintiff argues that "[t]his essential holding was not disturbed by the court of appeals." (Pl.'s Resp. Def.'s Mot. Summ. J.3.)

Such an argument constitutes a misreading of the Court's opinion and disregards the context in which the statement was made. Defendant's brief in support of its motion to dismiss argued that "even if the Declaration is 'an option to purchase, right of first refusal, or prior approval of a future purchaser or occupant,' under the first prong of the test, it is 'expressly excepted by Schedule B,' under the second prong of the test, and therefore, is not afforded coverage under the ALTA 9 Endorsement." Nationwide Life Ins. Co., 2005 WL 2716492, at *6 (emphasis added). This Court proceeded under this same assumption regarding the scope of the ALTA 9 Endorsement's coverage and then dismissed the case solely on the grounds that the Declaration had, in fact, been "expressly excepted" by Schedule B. Id. at *7. Clearly, this Court made no ruling on the present scope of coverage issue which the Third Circuit could either affirm or leave undisturbed.

2. The Third Circuit Expressly Limited Its Holding to a Determination of the Words "Expressly Excepted"

That same restriction of holding equally applies to the Third Circuit's decision. Given the limited bounds of the District Court's opinion, the only issue before the Court of Appeals was the meaning of the words "expressly excepted," a fact which it explicitly acknowledged at the very outset of its opinion, as follows:

To decide this case, we interpret the standard-form policy drafted by the American Land Title Association ("ALTA") and used by Commonwealth. In particular, we determine what a title insurer must do to except restrictions from coverage under a specific endorsement to the policy. The District Court held that an insurer can do so merely by listing in a schedule of exceptions to the policy the document in which the restrictions are found. Because we believe that an insurer must list the actual restriction in such a schedule to except them, we reverse.

Nationwide, 579 F.3d at 306.

Thereafter, the Third Circuit spent the substance of its opinion reviewing the meaning of the term "expressly excepted," while effectively disregarding the merits of Commonwealth's footnote argument that the ALTA 9 Endorsement covers only prior-approval-of-future-purchaser restrictions, and not use restrictions. Indeed, via the very first footnote to the opinion, the Third Circuit remarked:

Commonwealth disputes that the Declaration contains a prior-approval-of-future -purchaser restriction, arguing instead that Nationwide seeks simply to evade the Declaration's use restrictions. Commonwealth accepts, however, that because this case was decided at the motion to dismiss stage in the District Court, the allegations in Nationwide's complaint "must be accepted as true for purposes of this appeal."

Id. at 306 n.1. As such, the Third Circuit proceeded on the same assumption as Commonwealth that such coverage existed unless "expressly excepted" by Schedule B. Upon engaging in a thorough discussion of the text and purpose of the policy, as well as industry custom associated with the ALTA 9 endorsement, the Court of Appeals ultimately held that:

To except expressly from ALTA 9 Endorsement coverage a right of refusal or other restrictions noted in paragraph 1(b)(2) of the Endorsement, an insurer must list those restrictions specifically in Schedule B. It is not enough for the insurer merely to list in some part of Schedule B the document in which the restrictions are embedded. Commonwealth thus failed to "expressly except[]" from ALTA Endorsement coverage loss from the restrictions contained in the Declaration, and should cover Nationwide's claim.

Id. at 317. Via this finding, the Third Circuit determined, not that the ALTA 9 Endorsement extended coverage to the loss, but only that "[w]hen Commonwealth issued its title insurance policy to Nationwide, it failed to except expressly the restrictions contained in the Declaration under paragraph 1(b)(2) of the policy's ALTA 9 Endorsement." Id. at 319. It is this holding to which the law of the case doctrine applies.

3. The Third Circuit's Commentary as to the Scope of Coverage of the ALTA 9 Endorsement Was Nothing More than Dicta

Despite the strict confines of the appellate decision, Plaintiff references multiple passages from that opinion that comment on both the ALTA 9 Endorsement's scope of coverage and whether paragraph 1(b)(2) of that Endorsement expressly provided title coverage for the restrictions that caused damage to Nationwide. According to Plaintiff, the following statements by the Third Circuit constitute binding holdings:

Because Franklin Mills based its refusal on the Declaration's restrictions, Commonwealth's calling them another name -- use restrictions rather than a prior-approval-of-future purchaser restriction or some other right of refusal, see supra nn.1 & 2 -- is irrelevant. Though we need not decide whether use restrictions necessarily are restrictions on the approval of future purchasers of property, they are deemed so here because that is the practical effect of Franklin Mills's actions in this case. (In any event, use restrictions are, like prior-approval-of-future-purchaser restrictions, among the important items of information lenders and owners seek in obtaining title insurance policies).

Nationwide, 579 F.3d at 306 n.3. [We] hold that paragraph 1(b)(2) of the ALTA 9 Endorsement extends coverage to loss from an instrument in either part of Schedule B unless the insurer takes express exception to the specific restrictions stated in the instrument. Id. at 311.

[B]ecause the Declaration is an "instrument referred to in Schedule B as containing . . . restrictions on the land which . . . provides for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant," loss arising from it is covered under paragraph 1(b)(2) of the ALTA 9 Endorsement "[u]nless expressly excepted in Schedule B." Id. at 309-10.

In sum, the text, purpose, and industry usage of the ALTA 9 Endorsement convince us that the District Court erred in granting Commonwealth's motion to dismiss. . . . Commonwealth thus failed to "expressly except[ ]" from ALTA 9 Endorsement coverage loss from the restrictions contained in the Declaration, and should cover Nationwide's claim. Id. at 317.

When taken in such isolated form, these passages create the deceptive appearance that the Third Circuit definitively ruled on the current issues of coverage. Reading them in the context of the entire opinion, however, this Court finds them to be classic obiter dicta. As to the first quoted passage, it was made in a footnote within the "Factual and Procedural Background" section of the opinion with no case citation, evidentiary sources, or reference to industry treatises. In addition, the Court placed a caveat on its remark, noting that it "need not decide whether use restrictions necessarily are restrictions on the approval of future purchasers of property." Id. at 306 n.1 (emphasis added). Such precatory statements, which are "not necessary to the actual holding of the case," are "properly considered dicta, and are not binding." Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d 340, 355 (3d Cir. 2002); see also In re Conston, Inc., 181 B.R. 769, 774-75 (D. Del. 1995) (noting that while dicta may be "instructive as to the position of a particular appellate panel, it is not binding on the lower Court").

The next three remarks are similarly consistent with only the appellate court's holding that to remove a restriction from ALTA 9 coverage, the insurer must "expressly except" it in Schedule B. As indicated above, at the outset of the opinion, the Third Circuit expressly noted that Commonwealth assumed, solely for purposes of deciding the "expressly excepted" issue, that the ALTA 9 Endorsement covered the restrictions contained in the Declaration. Nationwide, 579 F.3d at 306 n.1. Thereafter, prior to starting any substantive discussion of the case, the Third Circuit made clear that "[f]or purposes of our opinion, 'restrictions' include defects in title, liens, easements, encumbrances, conditions and covenants (such as the rights at issue in this case) affecting the insured property." Id. at 308 n.4 (emphasis added). In doing so, it offered no legal interpretation of paragraph 1(b)(2) of the ALTA 9 Endorsement and made no statement or implication that this assumption became part of its holding or mandate. Working under the assumption that the ALTA 9 Endorsement provided insurance coverage for the restrictions affecting the encumbered Property, the Third Circuit then proceeded to discuss the meaning of "expressly excepted." Accordingly, the above-mentioned remarks were made solely for the purpose of emphasizing what an insurer must do to expressly except a right of refusal or other restriction from ALTA 9 Endorsement coverage.

This interpretation of the Third Circuit's comments finds ample support in the procedural posture of the case and the briefing presented to the Third Circuit. As repeatedly discussed, the case was originally dismissed by the District Court at the earliest stages of the litigation without any discovery and based on a very limited issue. In its opening brief to the Third Circuit, Plaintiff focused solely and entirely on whether the District Court's interpretation of the phrase "expressly excepted" was proper, without any argument as to whether the ALTA 9 Endorsement covered the rights at issue. (Nationwide's Opening Br., App. No. 06-2890.) Defendant's responsive brief followed suit by focusing on the identical issue. Although Defendant raised its scope-of-coverage argument by way of a footnote, it conceded that "[b]ecause the allegations of the Complaint must be accepted as true for purposes of this appeal . . . whether or not a right of first refusal, an option to purchase, or approval of a future purchaser is really at issue does not affect the question for resolution by this Court on appeal." (Commonwealth Opening Br., App. No. 06-2890, at 4 n.2 (emphasis added).) Plaintiff did not contest this statement in its subsequent briefs and did not discuss the scope of ALTA 9 coverage. Ultimately, the appellate court had before it no evidence or legal argument to assist with an independent determination of such an issue. As neither party raised, researched, or briefed this issue on appeal, the Third Circuit clearly could not have intended that its gratuitous comments regarding the scope of the ALTA 9 Endorsement would constitute the law of the case.*fn3

Finally, the Third Circuit's mandate to this Court is inconsistent with the notion that it ruled on the proper interpretation of the ALTA 9 Endorsement's scope of coverage. Plaintiff seizes on the appellate court's language that "Commonwealth thus failed to 'expressly except[ ]' from ALTA 9 Endorsement coverage loss from the restrictions contained in the Declaration, and should cover Nationwide's claim." Nationwide, 579 F.3d at 317 (emphasis added). This highlighted comment, however, was made solely in the context that to the extent Commonwealth denied coverage based solely on the "expressly excepted" provision, it erred in its coverage decision. The Third Circuit neither found that Nationwide was entitled to judgment on its Complaint nor remanded only for a calculation of damages. Rather, it simply reversed the District Court's dismissal of the case and remanded "for further proceedings consistent with this opinion." Id. at 319. Had the Third Circuit wished to conclusively decide all issues of coverage, it would have said so.

In short, the Court agrees that the Third Circuit's opinion as to the meaning of "expressly excepted" now constitutes the law of the case. To the extent, however, that the Third Circuit casually commented on any additional matters -- particularly whether the ALTA 9 Endorsement extended coverage to the restrictions at issue in this case -- this Court deems such statements non-binding dicta.

B. Whether Nationwide Has Suffered Loss or Damage on Account of Rights

Covered by the Policy

Nationwide, 579 F.3d at 510. This closing phrase is crucial because it was that point that the Third Circuit was emphasizing and ultimately holding. The previous statement about the Declaration being an instrument covered by paragraph 1(b)(2) of the ALTA 9 Endorsement was part of the Third Circuit's initial ...


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