Top Defense Verdicts - Central Pacific Bank v. Fidelity Title Co.

In April, after a six-week trial, a Riverside County Superior Court jury rejected the lawsuit by a bank attempting to recoup losses from a defaulted multi-million dollar loan on a failed home development, just one in a spate of similar cases resulting from the real estate market crash.

The thread of the legal battle started in 2006 when Central Pacific Bank made a $37 million construction loan for a major real estate development in Hemet. Fidelity National Title Co. acted as the underwritten title company and Fidelity National Title Insurance Co. insured the bank's deed of trust obtained from the borrower. Two years later, the borrower defaulted on the loan, and the guarantor went bankrupt. The bank sought $55 million in compensatory damages, interest and attorneys' fees as well as punitive damages from Fidelity. Central Pacific Bank v. Fidelity National Title Co., RIC525131 (Riverside County Super. Ct., filed 2009).

The verdict marked an important victory for the title insurance and escrow industries during a transitional period in the California real estate market, said Eric P. Early, lead trial counsel and managing partner at Early Sullivan Wright Gizer & McRae LLP.

"These banks were coming up with lawsuits to make themselves whole for loans that should have never been made in the first place," Early said. "The stakes were high."

Early said because of the real estate crash, many borrowers defaulted on loans, leading to a spate of similar litigation.

He said the case makes clear to would-be plaintiffs that title insurers and escrow companies are not "super-guarantors" of real estate transactions, and should discourage lenders from attempting to sue title insurers and escrow companies for losses resulting from their own predatory lending practices - practices he said helped trigger the recession. He and his law firm already have similar cases lined up.

"This case was important because it sent a message out there," he said. "It was a wonderful moment when we got that verdict."

Ronald S. Katz, lead trial counsel from Manatt, Phelps & Phillips who represented Central Pacific Bank, said he was not authorized to comment on the trial but said he appealed the decision.

- ALEXANDRA SCHWAPPACH

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