The opinion of the court was delivered by: Yohn, J.
U.S. Bank, N.A. ("U.S. Bank") and First American Title Insurance Company ("First American") have filed cross-motions for summary judgment. U.S. Bank brought this suit against First American for breach of contract and bad faith under a title insurance policy with respect to a securitized mortgage, of which U.S. Bank is the trustee. First American argues that the claims are barred by res judicata, collateral estoppel, and the statute of limitations, that there are no genuine issues of material fact with respect to the claims, and that it is entitled to judgment as a matter of law. After careful review of each party's motion for summary judgment, the responses thereto, and the attached exhibits, I conclude that under the undisputed facts U.S. Bank's breach of contract claim is barred by the statute of limitations, and that there are no genuine issues of material fact with respect to the bad faith claim and that the claim fails as a matter of law. Therefore, summary judgment is granted in favor of First American and denied as to U.S. Bank.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY*fn1
In July 2002, Allied Mortgage Group, Inc. ("Allied") issued a loan to Christopher P. Fekos for real property located at 99 Alexander Drive, McMurray, Pennsylvania. (Am. Compl. ¶ 6.) Allied purchased a title insurance policy from First American in connection with the loan that insured Allied's mortgage as a first lien on the Fekos property up to $868,500.00. (Id. ¶ 7.) First American assigned the duties of closing and recording the mortgage to its agent, Ideal Settlement Services, Inc. ("Ideal"), along with the duty of satisfying an existing mortgage on the property held by Beneficial Consumer Discount Company ("Beneficial"). (Id. ¶¶ 8-9.) Ideal failed to satisfy the Beneficial mortgage and promptly record the Allied mortgage; consequently, by the time it recorded the Allied mortgage on March 4, 2003, two intervening mortgages had already been recorded: one by Centex Home Equity Co. ("Centex") and one by Bank Pittsburgh. (Id. ¶¶ 9-10.) Fairbanks Capital Corp. ("Fairbanks"), servicer for the Allied mortgage, discovered the title defect and provided First American with notice of a claim under the title insurance policy on December 8, 2003. (Id. ¶¶ 23, 27; see also Pl.'s Mot. Summ. J. Ex. E, pt. C.) First American responded to Fairbanks on December 15, 2003, stating that it "stands behind its policy as issued" and "will indemnify should [the policyholder] suffer a loss." (Am. Compl. ¶ 28; see also Pl.'s Mot. Summ. J. Ex. E, pt. C.)
On December 26, 2003, Allied assigned the mortgage and the title insurance policy for the Fekos property to a securitized trust, entitled "Certificate Holders Under the Pooling and Servicing Agreement Relating to the Mortgage Backed Pass Through Certificates Series 2002- 29" (the "Trust"), of which Bank One, N.A. ("Bank One") was the trustee.*fn2 (Am. Compl. ¶ 19; Pl.'s Mot. Summ. J. 4.) On February 1, 2004, U.S. Bank purchased a book of the institutional trust business from Bank One, and as a result U.S. Bank became the trustee of the Trust.*fn3 (Am. Compl. ¶ 20; Pl.'s Mot. Summ. J. Ex. Q.)
Fekos eventually defaulted on his loans. Bank Pittsburgh obtained a foreclosure judgment against the Fekos property on August 2, 2005. (Am. Compl. ¶ 25.) The property was subsequently sold at a sheriff's sale to Bank Pittsburgh on October 7, 2005, thus discharging the Allied (now U.S. Bank) mortgage. (Id. ¶ 26.) On June 29, 2006, Fairbanks filed a notice of claim with First American, requesting that First American take all necessary actions to resolve the adverse claim as a result of the foreclosure and sheriff's sale of the Fekos property. (Pl.'s Mot. Summ. J. Ex. E, pt. F.) First American responded on July 27, 2006, and informed Fairbanks that it had initiated an investigation into the claim and would contact Fairbanks as soon as the facts had been ascertained. (Id. Ex. E, pt. G.)
On March 23, 2007, First American brought suit against JP Morgan Chase ("JP Morgan")in the Court of Common Pleas of Washington County, Pennsylvania (the "Washington County Action"), seeking a declaratory judgment as to its obligations to JP Morgan under the title insurance policy. (Pl.'s Mot. Summ. J. 11; Ex. E, pt. H.) Bank One had merged with JP Morgan in July 2004, and neither First American nor JP Morgan appears to have realized until 2010-years after First American commenced the Washington County Action-that JP Morgan had no interest in the Allied Mortgage because it had been transferred to U.S. Bank prior to the merger. (Id. at 11.) Upon realizing the error, JP Morgan moved to substitute U.S. Bank as the defendant trustee in the Washington County Action, but that motion was denied on August 24, 2010, without explanation and U.S. Bank never became a party to the Washington County action. (Id. at 12.) On April 1, 2011, the Court of Common Pleas of Washington County found that U.S. Bank was the proper trustee, that JP Morgan had no interest in the title insurance policy, and that First American owed no obligation to JP Morgan. Thus, the court granted First American's motion for summary judgment against JP Morgan with regard to the Declaratory Judgment action. (Def.'s Mot. Summ. J. Ex. L.) The judgment was affirmed by the Superior Court of Pennsylvania on April 3, 2012. (Id. Ex. M.)
U.S. Bank brought this action on October 5, 2010, alleging breach of contract and bad faith insurance claims against First American. I dismissed U.S. Bank's original complaint without prejudice to its right to file an amended complaint with more specific factual allegations. U.S. Bank filed its amended complaint on August 17, 2011. Both parties now seek summary judgment.
Summary judgment is appropriate when "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." Fed. R. Civ. P. 56(a). "Facts that could alter the outcome are 'material,' and disputes are 'genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 743 (3d Cir. 1996). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)). To establish that there is no genuine dispute as to any material fact, a party may rely on "depositions, documents, electronically stored information, affidavits or declarations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials . . . ." Fed. R. Civ. P. 56(c).
U.S. Bank claims that First American is in breach of contract under the title insurance policy, and also claims that it is in violation of 42 Pa. Cons. Stat. § 8371 for acting in bad faith. Meanwhile, First American argues that U.S. Bank's claims are barred by claim and issue preclusion and that the statute of limitations has expired. Furthermore, First American argues that if either or both of the claims survive those arguments, it did not breach the title insurance contract or deal in bad faith. I begin my analysis with First American's preclusion and statute of limitations arguments, for if the claims are indeed barred under either theory it makes addressing the merits of the claims unnecessary.
A. Claim Preclusion and Issue Preclusion
"Under the Full Faith and Credit Statute, 28 U.S.C. § 1738, 'judicial proceedings . . . shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of' the state from which they emerged. Section 1738 'has long been understood to encompass the doctrines of res judicata, or claim preclusion, and collateral estoppel, or issue preclusion.'" R&J Holding Co. v. Redevelopment Auth. of Cnty. of Montgomery, 670 F.3d 420, 426 (3d Cir. 2011) (quoting San Remo Hotel v. City & Cnty. of S.F., 545 U.S. 323, 326 (2005)). In its motion for summary judgment, First American argues that U.S. Bank's claims are barred by the doctrines of claim preclusion and issue preclusion because of the Washington County trial court's grant of summary judgment and the affirmation of that judgment by the Superior Court on appeal. For the following reasons, I conclude that the claims are not barred by these doctrines.
"Res judicata, or claim preclusion, prohibits parties involved in prior, concluded litigation from subsequently asserting claims in a later action that were raised, or could have been raised, in the previous litigation." Wilkes ex rel. Mason v. Phoenix Home Life Mut. Ins. Co., 902 A.2d 366, 376 (Pa. 2006) (citing R/S Fin. Corp. v. Kovalchick, 716 A.2d 1228, 1230 (Pa. 1998)). Under Pennsylvania law, the following elements must be present for res judicata to apply: "(1) identity of issues; (2) identity in the cause of action; (3) identity of persons or parties to the action; and
(4) identity of the capacity of the parties suing or being sued." Daley v. A.W. Chesterton, Inc., 37 A.3d 1175, 1189-90 (Pa. 2012). "The essential inquiry [in a res judicata analysis] is whether the ultimate and controlling issues have been decided in a prior proceeding in which the present parties had an opportunity to appear and assert their rights." Chada v. Chada, 756 A.2d 39, 42 (Pa. 2000) (quoting Hammel v. Hammel, 636 A.2d 214, 218 (Pa. Super. Ct. 1994)).
The state court proceeding was a declaratory judgment action brought by First American against JP Morgan. U.S. Bank was not a party to the action. For that reason alone, claim preclusion is not appropriate, as the third element is missing. First American argues that claim preclusion is justified in this case, even though U.S. Bank was not a party to the previous action, because the doctrine "not only bars subsequent claims against the same defendants that were raised before but also those claims that should have been raised," citing Scott v. Mershon, 657 A.2d 1304 (Pa. Super. Ct. 1995) for support. (Def.'s Mot. Summ. J. 10.) Not only is this argument unpersuasive, it is a non sequitur. First, in Scott the parties to both actions were identical. See Scott, 657 A.2d at 1307. Second, as it was never a party in the prior proceeding, U.S. Bank never had an opportunity to appear and assert its rights, an opportunity that is essential in the eyes of the Pennsylvania Supreme Court before claim preclusion can be applied. See Chada, 756 A.2d at 42. For these reasons, First American's argument for claim preclusion fails.
Issue preclusion, or collateral estoppel, is somewhat broader than claim preclusion in that it "is a doctrine which prevents re-litigation of an issue in a later action, despite the fact that it is based on a cause of action different from the one previously litigated." Balent v. City of Wilkes-Barre, 669 A.2d 309, 313 (Pa. 1995). With respect to a legal standard, the Third Circuit has stated the following:
Under Pennsylvania law, issue preclusion applies where: (1) the issue decided in the prior adjudication was identical with the one presented in the later action; (2) there was a final judgment on the merits; (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom it is asserted has had a full and fair opportunity to litigate the issue in question in a prior action.
Greenleaf v. Garlock, Inc., 174 F.3d 352, 357-58 (3d Cir. 1999). "The party asserting issue preclusion . . . bears the burden of proving its applicability to the case at hand." Dici v. Pennsylvania, 91 F.3d 542, 548-49 (3d Cir. 1996). If even one element is not ...