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Stewart Title Guar. Co. v. Sterling Sav. Bank

Supreme Court of Washington, En Banc

October 3, 2013

STEWART TITLE GUARANTY COMPANY, a Texas corporation, Appellant,
v.
STERLING SAVINGS BANK, a Washington corporation; Sterling Financial Corporation, a Washington corporation, Defendants, Witherspoon, Kelley, Davenport & Toole, PS, a Washington corporation; Duane M. Swinton and Jane Doe Swinton, and the marital community composed thereof, Respondents.

Argued Feb. 14, 2013.

Page 2

David P. Hirschi, Attorney at Law, Salt Lake City, UT, Brian J. Waid, Attorney at Law, Jessica Marie Creager, Waid Law Office, Seattle, WA, Jeffrey J. Steele, Salt Lake City, UT, for Appellant.

Ralph E. Cromwell Jr., Steven C. Minson, Byrnes Keller Cromwell, LLP, Seattle, WA, Michael Barr King, Carney Badley Spellman, PS, Seattle, WA, for Respondents.

GORDON McCLOUD, J.

[178 Wn.2d 563] ¶ 1 A title insurer, Stewart Title Guaranty Company, hired the law firm Witherspoon, Kelley, Davenport & Toole PS (collectively Witherspoon) to defend its insured, Sterling Savings Bank, from a claim of lien priority on real property by a construction company (Mountain West). The claim was resolved in favor of Mountain West, and Stewart Title then sued Witherspoon for malpractice. Stewart Title claimed the law firm had improperly failed to raise the viable defense of equitable subrogation. Witherspoon defended by arguing that there was no duty and no breach, specifically, (1) that Witherspoon's client was Sterling, not Stewart Title, and hence Witherspoon owed no duty to Stewart Title that would support that nonclient third party payor's claim of malpractice; and (2) that equitable subrogation would not have been a viable argument anyway.

¶ 2 Witherspoon moved for summary judgment on both grounds: (1) that it owed a duty only to the client, Sterling, rather than to the payor, Stewart Title; and (2) that an equitable subrogation argument would have failed. The trial court ruled against Witherspoon on the first, no-duty, ground but agreed with it on the second, no-breach, ground. The court therefore granted summary judgment in favor of Witherspoon. We accepted review of both the duty issue and the equitable subrogation issue. We affirm the trial court's grant of summary judgment dismissing Stewart Title's malpractice case against Witherspoon on the basis that Witherspoon owed no duty to Stewart Title. We do not reach the equitable subrogation issue.

FACTS

¶ 3 Because we resolve this case on the basis that Witherspoon owed no duty to Stewart Title that would [178 Wn.2d 564] permit Stewart Title to maintain a malpractice action against Witherspoon, we do not reach the parties' equitable subrogation arguments. Consequently, we recite the facts relevant to the issue of Witherspoon's duty to Stewart Title.

¶ 4 A lender— Sterling— agreed to lend money to a borrower to purchase property to develop. As a condition of the loan, Sterling required a first priority security interest in the property. The lender's title insurance company— Stewart Title— negligently failed to inspect the property before the loan went through; as a result, Stewart Title failed to discover that the builder— Mountain West— had already started construction on the property. By statute, Mountain West gained an interest in the form of a mechanics' lien as of the date construction began.

¶ 5 After a payment dispute arose, Mountain West discovered that its mechanics' lien held first position. The lender, Sterling, asked its title insurance company, Stewart Title, to defend it in the ensuing foreclosure action, because the insurer's policy covered mechanics' liens. Stewart Title admitted its

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duty to defend Sterling and hired Sterling's long time law firm— Witherspoon— to do so.

¶ 6 In that underlying lawsuit, Witherspoon stipulated that Mountain West had first priority and sought a swift settlement with the construction company. At some point after the stipulation, Stewart Title fired Witherspoon over disagreements related to whether equitable subrogation was a viable defense for Sterling. Stewart Title hired new counsel, who tried to argue that Sterling was equitably subrogated to the prior interests it paid off and therefore had priority after all. The trial court held the parties were bound by the earlier stipulation and disallowed the equitable subrogation defense.

¶ 7 Stewart Title then sued the law firm, Witherspoon, for malpractice based on Witherspoon's failure to raise the equitable subrogation defense for the lender, Sterling, before stipulating the construction company had priority. As discussed above, Witherspoon argued that (1) its client was [178 Wn.2d 565] the insured lender, not the title insurer, and it therefore owed no duty to the title insurer that would permit the insurer to sue the firm for malpractice; and, alternatively, that (2) an equitable subrogation argument would have failed under the facts of the case. As also discussed above, the trial court rejected Witherspoon's argument that it had no duty and denied Witherspoon's motion for summary judgment based on lack of a duty to Stewart Title. But the trial court agreed with Witherspoon that equitable subrogation would not have been a viable argument at the time of the ...


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