Silverlake Park Llc v. Stewart Title Guaranty Company et al

NOTICE OF MOTION AND MOTION to Dismiss Case of All of Plainitff's Claims Against it Under Fed. R. Civ. P. 12

C.D. Cal.June 8, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS Joshua E. Anderson (SBN 211320) janderson@sidley.com Collin P. Wedel (SBN 278461) cwedel@sidley.com SIDLEY AUSTIN LLP 555 West Fifth Street, Suite 4000 Los Angeles, California 90013 Telephone: (213) 896-6000 Facsimile: (213) 896-6600 Attorneys for Stewart Title Guaranty Company UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SILVERLAKE PARK LLC, a California limited liability company, Plaintiff, vs. STEWART TITLE GUARANTY COMPANY, a Texas corporation; and DOES 1 through 30, inclusive, Defendants. Case No. 17-cv-03291-CAS-AGR Assigned to: Hon. Christina A. Snyder NOTICE OF MOTION AND MOTION OF DEFENDANT STEWART TITLE GUARANTY COMPANY TO DISMISS ALL OF PLAINTIFF’S CLAIMS AGAINST IT UNDER FED. R. CIV. P. 12(b)(6); MEMORANDUM OF POINTS AND AUTHORITIES Date: July 31, 2017 Time: 10:00 a.m. Place: Courtroom 8D 350 W. First Street, 8th Floor Los Angeles, CA 90012 Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 1 of 16 Page ID #:138 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE THAT, on July 31, 2017, at 10:00 a.m., or as soon thereafter as this matter may be heard before the Honorable Christina A. Snyder, in Courtroom 8D of the above-entitled Court, located at 350 W. First Street, 8th Floor, Los Angeles, CA 90012, Defendant Stewart Title Guaranty Company (“STG”) will and hereby does move this Court to dismiss with prejudice Plaintiff Silverlake Park, LLC’s (“Plaintiff”) Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. This Motion is made on the following grounds, which are explained more fully in the attached Memorandum of Points and Authorities: First, California law is clear that STG did not owe any fiduciary duties to Plaintiff in connection with the escrow at issue. Plaintiff neither was a party to the escrow nor did it submit any escrow instructions regarding the escrow funds. Moreover, STG followed the instructions of the parties to the escrow in releasing the escrow funds. Any interest in the escrow that Plaintiff ostensibly obtained through assignment from another entity, also a non-party to the escrow, does not give rise to a fiduciary duty, either. Thus, Plaintiff’s claim for breach of fiduciary duty fails. Second, Plaintiff’s negligence claim also must be dismissed because, under controlling California law, STG did not owe any duty to Plaintiff. The Motion is based upon this Notice of Motion and Motion, the attached Memorandum of Points and Authorities, the concurrently filed Request for Judicial Notice and exhibits thereto, the pleadings on file with the Court, and such arguments and authorities as may be presented at or before the hearing. /// /// /// /// Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 2 of 16 Page ID #:139 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS This Motion is made following the conference of counsel pursuant to Local Rule 7-3, which took place on June 2, 2017. DATED: June 8, 2017 Respectfully submitted, SIDLEY AUSTIN LLP By: /s/ Joshua E. Anderson Joshua E. Anderson Attorneys for Defendant Stewart Title Guaranty Company Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 3 of 16 Page ID #:140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -i- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS TABLE OF CONTENTS Page INTRODUCTION ...................................................................................................... 1 FACTUAL AND PROCEDURAL BACKGROUND ............................................... 2 A. The Purchase and Sale Agreement ........................................................ 2 B. The Addendum to the Purchase and Sale Agreement ........................... 3 C. STG’s Compliance with the Escrow Instructions .................................. 3 D. Silverlake’s Lawsuit ............................................................................... 4 LEGAL STANDARD ................................................................................................ 4 ARGUMENT .............................................................................................................. 5 I. THIS COURT SHOULD DISMISS SILVERLAKE’S BREACH OF FIDUCIARY DUTY CLAIM WITH PREJUDICE. ....................................... 5 II. THIS COURT SHOULD DISMISS SILVERLAKE’S NEGLIGENCE CLAIM WITH PREJUDICE. .......................................................................... 8 CONCLUSION ......................................................................................................... 10 Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 4 of 16 Page ID #:141 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -ii- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS TABLE OF AUTHORITIES Page(s) CASES Alereza v. Chi. Title Co., 6 Cal. App. 5th 551, 560 (2016) ...................................................................... 9, 10 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .......................................................................................... 4, 5 Bill v. Brewer, 799 F.3d 1295 (9th Cir. 2015) ............................................................................... 2 Gilbertson v. Albright, 381 F.3d 965 (9th Cir. 2004) ................................................................................. 9 Jafari v. F.D.I.C., 2 F. Supp. 3d 1125 (S.D. Cal. 2014) ........................................................... 6, 8, 10 Kougasian v. TMSL, Inc., 359 F.3d 1136 (9th Cir. 2004) ............................................................................... 9 Lee v. Title Ins. & Trust Co., 264 Cal. App. 2d 160 (1968) ................................................................................. 7 Markowitz v. Fidelity Nat’l Title Co., 142 Cal. App. 4th 508 (2006) ...................................................................... 6, 7, 10 Premium Hospitality, L.L.C. v. Astra Capital Funding, No. 12-0779, 2013 WL 3791495 (E.D. La. July 19, 2013) .................................. 8 Sherr, LLC v. Silverlake Park, LLC, Case No. SC126712 (L.A. Super. Ct.) .................................................................. 4 Silverlake Park, LLC v. First Capital Real Estate Invs., LLC, Case No. SC124850 (L.A. Super. Ct.) .......................................................... 1, 4, 8 Sprewell v. Golden State Warriors, 266 F.3d 979 (9th Cir. 2001), reh’g denied and amended by, 275 F.3d 1187 (9th Cir. 2001) ...................................................................................... 7 Stereoscope, LLC v. U.S. Bank Nat’l Ass’n, No. 15-55370, 2017 WL 129885 (9th Cir. Jan. 12, 2017) .................................. 10 Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 5 of 16 Page ID #:142 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iii- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS Summit Fin. Holdings, Ltd. v. Cont’l Lawyers Title Co., 27 Cal. 4th 705 (2002) .................................................................................. passim United States v. Ritchie, 342 F.3d 903 (9th Cir. 2003) ................................................................................. 2 OTHER AUTHORITIES Fed. R. Civ. P. 8(a)(2)................................................................................................. 4 Fed. R. Civ. P. 10(c) ................................................................................................... 2 Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 6 of 16 Page ID #:143 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS INTRODUCTION Already mired in two pending state court lawsuits about a real estate deal with which it apparently has become dissatisfied, Plaintiff Silverlake Park, LLC (“Silverlake”) has now filed this action against Defendant Stewart Title Guaranty Company (“STG”), asserting rights under an escrow to which Silverlake was not a party and alleging wrongs by STG for simply carrying out the escrow instructions exactly as directed by the actual parties to the escrow. Under established California law, STG owed Silverlake no duty and breached no agreements with any of the parties, much less with Silverlake. Silverlake’s claims should therefore be dismissed with prejudice. First, Silverlake’s breach of fiduciary duty claim fails, because STG owed Silverlake no such duty. An escrow holder’s sole duty is to comply with the instructions of the parties to the escrow. Silverlake does not allege that it was a party to the escrow, nor does it allege that it submitted any escrow instructions to STG. Instead, Silverlake concedes that STG followed the instructions of the parties to the escrow in releasing the funds. Silverlake alleges that STG owed it a duty because Silverlake obtained an interest in the escrow via an assignment from another nonparty to the escrow. However, the California Supreme Court has conclusively held that such an interest does not create a fiduciary duty. See Summit Fin. Holdings, Ltd. v. Cont’l Lawyers Title Co., 27 Cal. 4th 705, 711-14 (2002). Second, Silverlake’s negligence claim also fails, due to the lack of any duty owed by STG to Silverlake. An analysis of the factors governing whether to impose a tort duty of care shows, as in Summit, that “there [i]s no reason to depart from ‘the general rule that an escrow holder incurs no liability for failing to do something not required by the terms of the escrow or for a loss caused by following the escrow instructions.’” Summit, 27 Cal. 4th at 715 (citation omitted). Accordingly, this Court should dismiss with prejudice Silverlake’s claims against STG. Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 7 of 16 Page ID #:144 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS FACTUAL AND PROCEDURAL BACKGROUND1 A. The Purchase and Sale Agreement In or about January 2015, First Capital Real Estate Investments, LLC (“First Capital”) and VC Visions, LLC (“VCV”) entered into a Purchase and Sale Agreement (“Agreement”), pursuant to which First Capital would sell VCV seventeen hotel properties. Compl. ¶ 8; Request for Judicial Notice (“RJN”), Ex. 1.2 The Agreement identified STG as the “Escrow Holder” (RJN, Ex. 1 § 2(b)), and provided that: “This Agreement shall serve as the initial escrow instructions. Counsel for Buyer [VCV] and Seller [First Capital] are hereby authorized to execute any further escrow instructions necessary or desirable, and consistent with the terms hereof, in connection with the escrow established for this transaction by the Escrow Holder (the ‘Escrow’).” Id. § 2(f); see also Compl. ¶ 11 (“[STG] treated the Agreement as its escrow instructions.”). Silverlake is not a party to the Agreement, is not mentioned anywhere in the Agreement, and is not a third-party beneficiary under the Agreement. Indeed, the Agreement expressly provides that: “The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller [First Capital] and Buyer [VCV] only and are not for the benefit of any third party . . . , and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.” RJN, Ex. 1 § 15.15 (emphases added). The Agreement is governed by 1 STG assumes, for purposes of this Motion only, the truth of the well-pled allegations of the Complaint. See, e.g., Bill v. Brewer, 799 F.3d 1295, 1299 (9th Cir. 2015). STG reserves the right to contest any and all of the factual allegations of the Complaint, if necessary. 2 This Court may consider the Agreement in ruling on this Motion because it is attached to and incorporated by reference in Silverlake’s Complaint. See Compl. ¶ 8 & Ex. A; RJN, at 1-2; United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (“A court may … consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice-without converting the motion to dismiss into a motion for summary judgment.”); see also Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”). Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 8 of 16 Page ID #:145 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS California law. Id. § 15.10. B. The Addendum to the Purchase and Sale Agreement Pursuant to the Agreement, in or about February 2015, First Capital and VCV opened escrow with STG. Compl. ¶ 11. On or about March 3, 2015, STG was provided with an Addendum to Purchase Agreement of 17-Hotels from FCREI (“Addendum”), signed by First Capital, VCV, and Saper, Inc. (“Saper”). Id. ¶ 14 & Ex. B. While the Addendum provides that “[e]scrow shall be moved to and held at American Trust Escrow,” id., Ex. B § 1, that allegedly did not occur, id. ¶ 14. The Addendum further provides that (a) “Fees of $2,250,000 are to be paid to [VCV] and/or its assigns, and $2,250,000 are to be paid to [Saper]; and the sum of $250,000 from Dromy International Investment Corp shall be paid to [Saper] directly,” and (b) “Title to be vested as follows: 50% to Dromy International Investment Corp. and/or assign, 25% [First Capital]; 12.5% to [VCV] and/or its assigns and 12.5% to [Saper].” Id., Ex. B §§ 2 & 3. Finally, the Addendum provides that: “All other terms and conditions shall remain the same.” Id., Ex. B. Silverlake is not a party to the Addendum and is not mentioned anywhere in the Addendum. Moreover, the Addendum does not purport to make Silverlake (or any other individual or entity) a third-party beneficiary under the Agreement or to modify or delete the Agreement’s “No Third Party Beneficiary” clause. C. STG’s Compliance with the Escrow Instructions Sometime after the execution of the Addendum, Dromy International Investment Corp. (“Dromy”) supposedly “assigned its interest in the transaction to” Silverlake. Compl. ¶ 15. Silverlake alleges that STG was aware of that assignment. Id. As escrow holder, STG allegedly received funds from Dromy, Silverlake, or the principals of both companies (“Silverlake Funds”). Id. ¶ 16. Silverlake alleges that STG was informed that the Silverlake Funds were to be used as consideration for Silverlake’s purchase of an interest in the hotel properties. Id. Between March 2015 and May 2015, “based on instructions from First Capital and VCV”-the only Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 9 of 16 Page ID #:146 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS parties to the escrow-STG released the alleged Silverlake Funds to First Capital, VCV, and others. Id. ¶ 17 (emphasis added). Silverlake does not allege that it provided any escrow instructions to STG. D. Silverlake’s Lawsuit Silverlake filed its Complaint on March 30, 2017, and served STG on April 3, 2017.3 Silverlake alleges that STG improperly released the Silverlake Funds from escrow without obtaining its approval to do so and without Silverlake obtaining any interest in the hotel properties. Compl. ¶¶ 17-20. Based on these allegations, Silverlake asserts claims against STG for breach of fiduciary duty and negligence. Id. ¶¶ 13-25. Silverlake seeks $13 million in purported damages from STG-representing the entirety of the alleged losses from its apparently unsuccessful investment. Id. ¶ 22. On May 2, 2017, STG removed this action to this Court based on diversity jurisdiction. See Dkt. No. 1. LEGAL STANDARD A pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). This “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’” Id. (citation omitted). “Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Id. (citation omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual 3 Silverlake’s lawsuit against STG is at least the third lawsuit related to the Agreement. On October 7, 2015, Silverlake sued First Capital, VCV, and others. See Silverlake Park, LLC v. First Capital Real Estate Invs., LLC, Case No. SC124850 (L.A. Super. Ct.). A copy of Silverlake’s operative Third Amended Complaint in that action is attached as Exhibit 2 to the RJN. On November 17, 2016, Sherr, LLC (“Sherr”) and Rone Oren sued Silverlake and its principal, Eli Dromy. See Sherr, LLC v. Silverlake Park, LLC, Case No. SC126712 (L.A. Super. Ct.). A copy of Sherr’s and Oren’s operative First Amended Complaint in that action is attached as Exhibit 3 to the RJN. Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 10 of 16 Page ID #:147 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The plausibility standard requires a plaintiff to demonstrate “more than a sheer possibility that a defendant has acted unlawfully.” Id. (citation omitted). “Where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id. (citation omitted). Ruling on a motion to dismiss is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-‘that the pleader is entitled to relief.’” Id. at 679 (citations omitted). Here, Silverlake’s claims fail as a matter of law and should be dismissed with prejudice. ARGUMENT I. THIS COURT SHOULD DISMISS SILVERLAKE’S BREACH OF FIDUCIARY DUTY CLAIM WITH PREJUDICE. Silverlake’s breach of fiduciary duty claim fails as a matter of law because STG owed Silverlake no duty. “An escrow holder is an agent and fiduciary of the parties to the escrow.” Summit Fin. Holdings, Ltd. v. Cont’l Lawyers Title Co., 27 Cal. 4th 705, 711 (2002). “The agency created by the escrow is limited-limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow.” Id. (emphasis added). Therefore, “‘[a]n escrow holder must comply strictly with the instructions of the parties.’” Id. (citation omitted). “On the other hand, an escrow holder ‘has no general duty to police the affairs of its depositors’ . . . .” Id. (citation omitted). “Absent clear evidence of fraud, an escrow holder’s obligations are limited to compliance with the parties’ instructions.” Id. Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 11 of 16 Page ID #:148 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS The California Supreme Court’s decision in Summit is particularly instructive here. In that case, the parties to the escrow instructed the escrow holder to issue a check to Talbert Financial (“Talbert”) to pay off a note, and the escrow holder followed that instruction. Id. at 708. The escrow holder did so even though it undisputedly knew that Talbert had assigned its interest in the note to Summit Financial Holdings, Ltd. (“Summit”). Id. Neither Talbot nor Summit were parties to the escrow. Id. Summit sued the escrow holder, alleging that it breached its fiduciary duty to Summit by disbursing the funds to Talbot instead of to Summit. Id. The trial court agreed, entering judgment in favor of Summit. The Court of Appeal, however, reversed, holding that the escrow holder owed Summit no duty. Id. The California Supreme Court affirmed, concluding that an escrow holder does not “owe[] a duty of care to a nonparty to the escrow based on an assignment to that nonparty by another nonparty to the escrow,” even where the escrow holder knew of the assignment. Id. at 707-08, 712-14; see also Markowitz v. Fidelity Nat’l Title Co., 142 Cal. App. 4th 508, 521, 525-29 (2006) (holding that plaintiff could not state a cause of action against escrow holder for breach of fiduciary duty where plaintiff was not a party to the escrow and did not submit escrow instructions). Here, Silverlake does not allege that it was a party to the escrow. Nor could it. Silverlake indeed affirmatively alleges that: “[STG] treated the Agreement as its escrow instructions.” Compl. ¶ 11. The Agreement-the only parties to which were First Capital and VCV-provided that: “This Agreement shall serve as the initial escrow instructions. Counsel for Buyer [VCV] and Seller [First Capital] are hereby authorized to execute any further escrow instructions necessary or desirable, and consistent with the terms hereof, in connection with the escrow established for this transaction by the Escrow Holder (the ‘Escrow’).” RJN, Ex. 1 § 2(f). Silverlake does not allege that it was a party to the escrow or that it provided any escrow instructions to STG. See Jafari v. F.D.I.C., 2 F. Supp. 3d 1125, 1133 (S.D. Cal. 2014) (“[O]nly parties that actually submit instructions to escrow can rightfully be Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 12 of 16 Page ID #:149 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS considered parties to it.”). Thus, the only parties to the escrow were First Capital and VCV, and Silverlake concedes that STG followed their instructions in disbursing the Silverlake Funds from the escrow. Compl. ¶ 17. Therefore, STG faithfully fulfilled its sole duty as an escrow holder-to comply with the instructions of the parties to the escrow. Summit, 27 Cal. 4th at 711.4 Silverlake alleges that STG owed it a duty because, even though it was not a party to the escrow, it had an interest in the escrow as a result of an assignment, of which STG allegedly was aware, from Dromy, another nonparty to the escrow. Compl. ¶ 15. The California Supreme Court, however, has foreclosed that argument, too, holding that an escrow holder owes no fiduciary duty to a nonparty to the escrow based upon an interest that the entity obtained through an assignment from another nonparty. Summit, 27 Cal. 4th at 707-08, 712-14.5 Because STG owed Silverlake no fiduciary duty, this Court should dismiss Silverlake’s breach of fiduciary duty claim with prejudice. See, e.g., Summit, 27 Cal. 4th at 707-08, 712-14; Markowitz, 142 Cal. App. 4th at 521, 525-29; Lee v. Title Ins. & Trust Co., 264 Cal. App. 2d 160, 162-63 (1968) (affirming dismissal of breach of fiduciary duty claim because “it is generally held that no liability attaches to the escrow holder for his failure to do something not required by the terms of the escrow or for a loss incurred while obediently following his escrow instructions”); 4 Notably, Silverlake’s counsel was counsel for the prevailing escrow holder in Summit. See Summit, 27 Cal. 4th at 707. 5 Silverlake also alleges that it was “an intended third party beneficiary of the Agreement.” Compl. ¶ 12. But, the Agreement expressly contradicts that allegation, providing that: “The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller [First Capital] and Buyer [VCV] only and are not for the benefit of any third party (including, without limitation, the Title Company and the Brokers), and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.” RJN, Ex. 1 § 15.15 (emphasis supplied). Silverlake’s contrary allegation can and should be disregarded. See, e.g., Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (“The court need not . . . accept as true allegations that contradict matters properly subject to judicial notice or by exhibit.”), reh’g denied and amended by, 275 F.3d 1187 (9th Cir. 2001). Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 13 of 16 Page ID #:150 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS Jafari, 2 F. Supp. 3d at 1133-35 (dismissing breach of fiduciary duty claim because escrow holder owed no duty to entity that was not a party to the escrow and did not submit escrow instructions, even though escrow holder knew of that entity’s interest in escrow proceeds); accord Premium Hospitality, L.L.C. v. Astra Capital Funding, No. 12-0779, 2013 WL 3791495, at *9-10 (E.D. La. July 19, 2013) (applying California law to dismiss breach of fiduciary duty claim by nonparty to the escrow). II. THIS COURT SHOULD DISMISS SILVERLAKE’S NEGLIGENCE CLAIM WITH PREJUDICE. Silverlake’s negligence claim also fails, because STG likewise owed no tort duty to Silverlake. In Summit, the California Supreme Court explained that: “The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” Summit, 27 Cal. 4th at 715 (quotation omitted). Here, as in Summit, “there [i]s no reason to depart from ‘the general rule that an escrow holder incurs no liability for failing to do something not required by the terms of the escrow or for a loss caused by following the escrow instructions.’” Id. (citation omitted). First, the Agreement was not intended to affect Silverlake. Silverlake was not a party to the Agreement, nor was it a third-party beneficiary under the Agreement. RJN, Ex. 1 § 15.15. Silverlake also was not a party to the escrow and did not provide any escrow instructions. Jafari, 2 F. Supp. 3d at 1133. Thus, the Agreement and escrow by their plain terms were intended to impact First Capital and VCV, and any impact on Silverlake “was collateral to the primary purpose of Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 14 of 16 Page ID #:151 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS the escrow.” Summit, 27 Cal. 4th at 715; Alereza v. Chi. Title Co., 6 Cal. App. 5th 551, 560 (2016). Second, although Silverlake alleges that it was injured, there are no allegations to support a conclusion that STG could have foreseen that Silverlake would not receive either what it alleges was its money back or the interest in the hotel properties to which it alleges it was entitled. Summit, 27 Cal. 4th at 715-16. Third, again applying Summit to the case at bar, STG’s compliance “with its fiduciary duty to follow the instructions of the parties to the escrow was not blameworthy and is, instead, a policy consideration that militates against concluding [STG] had a tort duty in this case.” Summit, 27 Cal. 4th at 716. Fourth, there is not a sufficiently close connection between STG’s release of the Silverlake Funds from the escrow and Silverlake’s purported injury. As Silverlake itself alleges in another case currently pending in Los Angeles Superior Court, Silverlake’s alleged loss of its funds or its prospective interest in the hotel properties was caused by contractual breaches and torts by First Capital, VCV, Sherr, and their principals, not by STG. RJN, Ex. 2 ¶¶ 4-16; Summit, 27 Cal. 4th at 716.6 Fifth, under California law, “the policy of preventing future harm does not require imposition of a new legal duty on [STG] in this case. Escrow companies already owe a fiduciary duty to parties to an escrow to properly carry out all escrow instructions. Failure of an escrow company to perform gives parties to the escrow a 6 The allegations in the Complaint alone make clear that STG is not the cause of Silverlake’s alleged harm, and give this Court ample basis to dismiss this claim. Should this Court harbor any doubt that STG is not the cause of Silverlake’s harm, however, and to avoid entering a ruling that would contradict or interfere with the ongoing state proceedings, cf. Gilbertson v. Albright, 381 F.3d 965, 977 (9th Cir. 2004) (stay under Younger appropriate where federal court proceedings would have practical effect on state proceedings tantamount to formal injunction); Kougasian v. TMSL, Inc., 359 F.3d 1136, 1139 (9th Cir. 2004) (“Rooker-Feldman prohibits a federal district court from exercising subject matter jurisdiction over a suit that is a de facto appeal from a state court judgment.”), this Court should stay or abstain from this action pending final judgment on Silverlake’s two other state-court actions. STG will provide further briefing on this topic if helpful to the Court. Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 15 of 16 Page ID #:152 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10- DEFENDANT STEWART TITLE GUARANTY COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS cause of action for breach of contract for any proximately caused damages. For this reason, escrow companies already have both duties and incentives to faithfully execute the escrow instructions of the parties.” Alereza, 6 Cal. App. 5th at 561. Because STG owed Silverlake no tort duty of care, this Court should dismiss Silverlake’s negligence claim with prejudice. See, e.g., Summit, 27 Cal. 4th at 715- 16; Alereza, 6 Cal. App. 5th at 560-62; Markowitz, 142 Cal. App. 4th at 521, 525- 29; Stereoscope, LLC v. U.S. Bank Nat’l Ass’n, No. 15-55370, 2017 WL 129885, at *2 (9th Cir. Jan. 12, 2017) (affirming dismissal of negligence claim because “California courts have consistently recognized that escrow holders do not owe duties to third parties to the escrow, even when those parties have an interest in the escrow that is known to the escrow holder”); Jafari, 2 F. Supp. 3d at 1133-35 (dismissing negligence claim because escrow holder owed no duty to third-party plaintiff that was not a party to the escrow and did not submit escrow instructions, even though escrow holder knew of third-party plaintiff’s interest in escrow proceeds). CONCLUSION For the foregoing reasons, STG’s Motion should be granted and Silverlake’s Complaint should be dismissed with prejudice. DATED: June 8, 2017 Respectfully submitted, SIDLEY AUSTIN LLP By: /s/ Joshua E. Anderson Joshua E. Anderson Attorneys for Stewart Title Guaranty Company Case 2:17-cv-03291-CAS-AGR Document 12 Filed 06/08/17 Page 16 of 16 Page ID #:153