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First American Title Insurance Co. v. Bowles Rice, LLP

United States District Court, N.D. West Virginia

January 5, 2018

BOWLES RICE, LLP, Defendant.



         Pending is the Motion to Exclude Plaintiff's Rebuttal Witness filed by the defendant, Bowles Rice, LLP (“Bowles Rice”). For the reasons stated on the record during the December 20, 2017, status conference, as well as those that follow, the Court GRANTS the motion (Dkt. No. 116).

         I. BACKGROUND

         This case arises out of a $775 million title insurance policy issued by Bowles Rice as an agent of the plaintiff, First American Title Insurance Co. (“First American”). The policy became effective on March 9, 2007, and insured the priority of a credit line deed of trust related to the construction of a coal-fired power plant by Longview Power, LLC (“Longview”). In 2012, Longview's contractors filed mechanic's lien claims in excess of $335 million, which asserted priority over the credit line deed of trust. After initially contesting the legitimacy of coverage claims under its title insurance policy, First American ultimately settled its alleged liability to the title insurance policyholder, Union Bank of California, N.A. (“Union Bank”), for $41 million.[1]

         First American seeks indemnification from Bowles Rice pursuant to the parties' agency relationship. It alleges, in part, that Bowles Rice breached the relevant agency agreement by failing to inform First American that Longview's contractors had commenced construction before the credit line deed of trust was recorded. In both the underlying litigation and the instant lawsuit, however, the validity, priority, and enforceability of the contractors' mechanic's liens has remained a contested issue.

         During October and November 2017, the parties filed expert disclosures pursuant to the deadlines in the Court's Scheduling Order (Dkt. No. 25 at 2). On October 2, 2017, First American disclosed as its expert an attorney named Robert T. Edwards (“Edwards”) (Dkt. No. 116-1). Edwards' opinions focus primarily on whether Bowles Rice breached the parties' agency agreements when it issued the title insurance policy for the Longview project. Among others, Edwards opines that Bowles Rice breached the agreements by 1) failing to notify First American that construction had commenced on the project, 2) failing to exercise due diligence and reasonable care by inspecting the subject property, 3) failing to obtain approval to issue a policy in excess of $500, 000, and 4) failing to obtain approval to insure against the special risk of mechanic's liens. Id. at 6-7.

         On October 21, 2017, Bowles Rice identified two experts. Its first expert, attorney Robert B. Holman (“Holman”), covers a wide variety of subject matter in his report (Dkt. No. 116-2). He concludes that Bowles Rice was authorized to issue the West Virginia policy. Id. at 26-27. He also opines that Bowles Rice properly underwrote risks associated with mechanic's liens by obtaining an Owner's Affidavit and lien waivers prior to closing. Id. at 29-30. Moreover, he contends that, despite the allegation that Bowles Rice failed to tender knowledge of construction, First American itself failed to properly evaluate site work and take precautions with regard to mechanic's lien risks. Id. at 30-31. Finally, he opines that First American should have denied Union Bank's claim, and, further, that it handled the claim in an unreasonable manner by failing to investigate or challenge the validity of the mechanic's liens. Id. at 34-37.

         Bowles Rice also disclosed the “preliminary report” of its second expert, attorney Carl L. Fletcher (“Fletcher”). Id. at 42. In that report, Fletcher opines that “[t]he challenges to the priority and validity of the [mechanic's] liens are . . . well-grounded, ” and “that had [First American] pursued those issues to their conclusion it is likely to have prevailed on some or all of them.” Id. at 44-45.[2]

         On November 10, 2017, First American identified attorney Johnson W. Gabhart (“Gabhart”) as a rebuttal expert to offer opinions “concerning the enforceability and priority of certain mechanic's liens recorded by contractors working on the Longview Power Plant Project, ” including “whether the mechanic's liens appear to have been properly perfected and whether they created a security interest that was prior to a credit line deed of trust . . . insured by” First American (Dkt. No. 122-1).

         In Gabhart's opinion, activities such as clearing, grubbing, road construction, fencing, berming, and installation of office trailers, all of which took place prior to the recording of the credit line deed of trust, were necessary elements of the contractors' work. Id. at 4. Moreover, he opines that the partial lien waivers obtained by Bowles Rice were conditional and did not cover claims where no payment had been made. Consequently, Gabhart concludes that mechanic's liens for subsequent work could relate back to construction prior to the recording of the deed of trust. Id. He also concludes “that the subject mechanic's liens were properly executed and timely enforced, ” and that “the mechanic's liens were entitled to priority over the credit line deed of trust securing Union Bank's interest.” Finally, he opines “that First American's actions in settling the mechanic's liens and thereby correcting title to the subject property were quite reasonable.” Id. at 5.

         On November 22, 2017, Bowles Rice moved to exclude Gabhart as an expert, contending that, because First American bears the burden to prove the reasonableness of its settlement, Gabhart's opinion constituted inappropriate rebuttal (Dkt. No. 116 at 1). In response, First American argued that its case “has nothing to do with the actual validity, priority, and enforceability of the mechanic's liens, ” and that it has offered Gabhart's opinion only in response to an affirmative defense raised by Bowles Rice. Since that opinion is not being offered in support of its prima facie case, First American contends it is an appropriate subject for rebuttal testimony (Dkt. No. 122 at 1-2).


         Pursuant to Fed.R.Civ.P. 26(a)(2)(D), “[a] party must make expert disclosures at the time and in the sequence that the court orders.” The Court's Scheduling Order permits rebuttal experts “only if the evidence is intended solely to contradict or rebut evidence on issues not previously identified by another party” (Dkt. No. 25 at 4). As the Court has stated, the purpose of rebuttal is to address new issues that would not have been properly considered during a party's initial expert disclosures (Dkt. No. 99 at 12). The Southern District previously explained:

A party may not offer testimony under the guise of “rebuttal” only to provide additional support for his case in chief. The plaintiff who knows that the defendant means to contest an issue that is germane to the prima facie case (as distinct from an affirmative defense) must put in his evidence on the issue as part of his case in chief. . . . Ordinarily, rebuttal evidence may be introduced only to counter new facts presented in the defendant's case in chief. . . . Permissible rebuttal evidence also includes evidence unavailable earlier through no fault of the plaintiff.

Wise v. C.R. Bard, Inc., No. 2:12-cv-01378, 2015 WL 461484, at *2 (S.D.W.Va. Feb. 3, 2015) (internal citation and quotation omitted). An example of appropriate rebuttal evidence is that which responds to an affirmative defense. See id.

         If a party fails to make timely disclosures as required above, it may not “use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or harmless.” Fed.R.Civ.P. 37(c)(1). To determine within its discretion whether a ...

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