Bergin Financial, Incorporated v. First American Title Company

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 10a0529n.06
No. 08-2453
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BERGIN FINANCIAL, INCORPORATED,
Plaintiff-Appellant,
v.
FIRST AMERICAN TITLE COMPANY,
Defendant-Appellee,
and
A & S APPRAISAL GROUP, INCORPORATED;
ROBERT D. WILLEY; LINCOLN TITLE CO., et al,
Defendants.
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ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF MICHIGAN
BEFORE: BOGGS, ROGERS, and COOK, Circuit Judges.
ROGERS, Circuit Judge. Bergin Financial, a mortgage company that was the victim of a
fraudulent “flipping” scam, sues First American Title Company, which provided title insurance for
the flip transactions. Bergin Financial does not assert any title defects. Rather, Bergin Financial
argues that Lincoln Financial, an independent agent for First American, knowingly engaged in the
fraudulent scam in its capacity as the closing agent for the transactions, and that First American
should be vicariously liable for Lincoln Financial’s actions. The district court determined that acting
as a closing agent was outside the scope of Lincoln Financial’s agency agreement with First

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American and thus granted First American’s motion for summary judgment. On appeal, Bergin
Financial primarily contends that, under the theories of implied or apparent agency, Lincoln
Financial was First American’s agent for the purpose of closing the transactions at issue. Under
Michigan law, however, implied agency cannot contradict the clear terms of agency agreements, and
the agreement in this case explicitly limited the scope of Lincoln Financial’s agency to issuing title
insurance contracts. Because Bergin Financial has also not submitted sufficient evidence of apparent
agency, First American was entitled to summary judgment.
First American Title Company is a title insurance company, and Lincoln Financial is an
independent agent of First American for the purpose of issuing title insurance policies. The agency
agreement between First American and Lincoln Financial provides,
[First American] hereby appoints [Lincoln Financial] to act for, and in the
name of, [First American] in transacting title insurance business, but only for the
purposes and in the manner specifically set forth in this contract and for no other
purpose and in no other manner whatsoever. The authority hereby granted is subject
to all of the limitations on the scope of the Agency contained in this contract . . . .
The agency agreement lists only one grant of authority from First American to Lincoln Financial:
[Lincoln Financial] is authorized to issue, in the name of [First American],
title insurance commitments and policies (including endorsements thereto); [under
certain conditions].
The agency agreement also grants First American the right to audit Lincoln Financial’s escrow
accounts for transactions in which First American title insurance policies are issued. The agency
agreement further states,
The right of [First American] to periodically inspect and audit [Lincoln
Financial]’s escrow accounts and escrow files shall not be construed by [Lincoln

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Financial] or any party dealing with [Lincoln Financial] as an undertaking on the part
of [First American] to assume any responsibility or liability for the acts or any errors
or omissions of [Lincoln Financial] in the performance of [Lincoln Financial]’s
duties as an escrowee under any escrow agreement.
As part of its relationship with its independent closing agents, First American issues
“Underwriting Alerts” and “Escrow Bulletins.” One Underwriting Alert instructed recipients not
to issue title insurance or close transactions involving certain parties. Another Underwriting Alert
provided advice on how to avoid involvement in fraudulent flip transactions. The Escrow Bulletins
asked recipients to contact First American if they were asked to close or insure a transaction
involving any of a list of specified parties. First American sent these documents both to independent
agents and to First American’s employees who also issued insurance policies and performed
closings.
Lincoln Financial was allegedly involved in two fraudulent schemes. The first took place
between October 2001 and March 2002. In this first scheme (the “ABN Scheme”), Alan Schiffman
originally owned the properties at issue, and Mary Kathryn DeCuir was his real estate agent.
Schiffman sold the properties at a low price to Paul Dailey (operating through Monumental
Investments), and Dailey—the “flipper” in the scheme—then sold the properties at inflated values
to straw purchasers. The straw purchasers borrowed the money to finance the purchases from ABN
AMRO Mortgage Group, Inc. (ABN), and the goal of the scheme was apparently for Dailey to
receive the borrowed money based upon the inflated values and for the borrowers to default on the
loans, defrauding ABN in favor of Dailey. For each property, the closings for both steps of the
property transactions (Schiffman to Dailey, then Dailey to the straw purchasers) took place on the

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same day, and Lincoln Financial’s president, Kevin Bluhm, presided over the closings of these
transactions. Dailey was eventually imprisoned for his role in this scheme.
Lincoln Financial first became aware of problems related to the ABN loans when ABN
contacted Lincoln Financial to notify Lincoln Financial that it was being taken off ABN’s list of
approved title companies. In May 2002, representatives of the Federal Home Loan Mortgage
Corporation (Freddie Mac) interviewed Lincoln Financial’s president, Bluhm. The parties dispute
when Lincoln Financial notified First American of ABN’s action and the Freddie Mac investigation.
Because the district court granted First American’s motion for summary judgment, we view the facts
in the light most favorable to Bergin Financial. Scott v. Harris, 550 U.S. 372, 378 (2007). Viewed
in that way, the facts suggest that Lincoln Financial notified First American of both ABN’s decision
to remove Lincoln Financial from ABN’s list of approved title companies and the Freddie Mac
investigation around May 10, 2002.
This case concerns the second fraudulent scheme in which Lincoln Financial was allegedly
involved. The scheme involved a number of the same individuals, and it was structured in a similar
way. The properties at issue in this second scheme were originally owned by the Stollman Entities,
and DeCuir was the real estate agent representing those entities. In this scheme, Terry Barnes (acting
through Omicron Development) was the flipper; Barnes purchased the properties at low prices from
the Stollman Entities and then resold the properties at substantially higher prices to straw buyers.
DeCuir allegedly convinced Robert Willey to appraise the properties at inflated values to support the
high sales prices, often without Willey’s visiting the properties. Lincoln Financial issued First

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American title insurance for all of the transactions in this case, and Lincoln Financial’s president,
Bluhm, acted as the closing agent for these transactions. (Bluhm did not actually attend all of the
closings.) The straw purchasers borrowed the money from Bergin Financial acting through loan
officer Steve Kohn, who had met a confederate of Barnes while working as a part-time cashier at a
gas station. Bergin Financial alleges that between May 21 and July 11, 2002, it issued 61 loans to
finance the purchases related to this scheme, and that Bergin Financial has suffered millions of
dollars in damages as a result of the non-payment of those loans.
Bergin Financial alleges in its brief that Lincoln Financial consulted with First American
about how to deal with the transactions involving Barnes. Bluhm’s testimony, however, was that
he had, at a time he could not recall, asked First American generally about how to handle
simultaneous closings. First American had responded by providing advice about what kinds of
simultaneous closings should generate red flags. The evidence arguably supports a conclusion that
Bluhm used this information to help conceal the fraudulent scheme. The claim by Bergin Financial
that “First American, on notice of the illegitimacy of the transactions, nonetheless authorized its
agent to close them and provided express guidance on how to do so” finds no support in the record.
As a result of the investigation related to the ABM Scheme, Freddie Mac placed Lincoln
Financial on its “Exclusionary List” effective January 31, 2003. Freddic Mac based this action on
its conclusion that Lincoln Financial “knew or should have known about the problems associated
with the loans at issue [in the ABM scheme].” First American terminated its agency agreement with
Lincoln Title in April 2003.

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Bergin Financial filed suit in federal court against First American, Lincoln Financial, Bluhm,
Willey and the appraisal company where Willey worked, Omicron, Barnes, DeCuir, the Stollman
Entities, the straw buyers, and related parties. The complaint alleged breach of contract by Willey
and his appraisal company; breach of contract by Lincoln Title and Bluhm; civil conspiracy by all
of the defendants; common law fraud by all of the defendants; negligent misrepresentation by all of
the defendants; Racketeering Influenced Corrupt Organization (RICO) violations under 18 U.S.C.
§1962(c) by the Stollman Entities, the appraisal company, Omicron, Lincoln Title, First American,
and two other defendants; and RICO violations under 18 U.S.C. §1962(d) by all of the defendants
other than the individual straw buyers. The district court entered default judgments against a number
of the defendants, including Lincoln Title and Barnes. The district court granted the summary
judgment motion filed by defendants Willey and the appraisal company on the majority of the claims
against them, and the district court dismissed the remainder of the claims against these defendants
without prejudice.
The district court also granted First American’s motion for summary judgment. The court
determined that First American’s liability was premised upon Lincoln Financial’s acting as First
American’s agent for the purpose of closing the flip transactions, and the court found that Lincoln
Title was not First American’s agent for that purpose. The district court also concluded that Bergin
Financial had not produced sufficient evidence of any direct, wrongful actions of First American,
and thus determined that First American was not liable to Bergin Financial for Bergin Financial’s

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First American filed a motion on appeal challenging this court’s appellate jurisdiction on1
the grounds that (1) the final judgment in this case was improperly manufactured by the dismissal
of many claims without prejudice and (2) the notice of appeal was filed too late to appeal the opinion
and order granting First American’s motion for summary judgment. A motions panel of this court
denied First American’s motion to dismiss. Bergin Fin., Inc. v. First Am. Title Co., No. 08-2453
(6th Cir. Nov. 24, 2009) (order denying motion to dismiss) (citing Hicks v. NLO, Inc., 825 F.2d 118,
120 (6th Cir. 1987)).
Application of Michigan agency law is clearly appropriate with respect to the three state-law2
causes of action—conspiracy, fraud, and negligent misrepresentation. The district court also applied
Michigan agency law to the RICO claims. Bergin Financial does not suggest any basis outside
Michigan agency law for establishing agency, so we assume that Michigan law also determines
Lincoln Financial’s agency relationship with First American for RICO purposes.
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losses. The district court dismissed without prejudice Bergin Financial’s claims against all of the
remaining defendants, including Bluhm, the Stollman Entities, and the straw buyers.
Bergin Financial now appeals, arguing primarily that Lincoln Financial was acting as First
American’s agent when it closed the fraudulent transactions at issue in this case, and thus that First
American is liable for Lincoln Financial’s fraudulent conduct in connection with those transactions.1
Lincoln Financial did not act as First American’s agent when performing closings because
implied agency cannot exist contrary to clear written agreements and because Bergin Financial has
not produced sufficient evidence of apparent agency. The written agency agreement in this case2
provides that Lincoln Financial did not have actual authority to close real estate transactions as First
American’s agent. The agency agreement states that Lincoln Financial is an agent of First American
“only for the purposes and in the manner specifically set forth in this agreement and for no other
purpose and in no other manner whatsoever,” and the agreement sets forth only one
purpose—“issu[ing] . . . title insurance commitments and policies”—for which Lincoln Financial

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could act as First American’s agent. Under Michigan law, implied authority is one form of actual
authority, Auto-Owners Ins. Co. v. Mich. Mut. Ins. Co., 565 N.W.2d 907, 912 (Mich. Ct. App. 1997),
and such authority is generally defined as the authority “to do business in the principal’s behalf in
accordance with the general custom, usage and procedures in that business,” Meretta v. Peach, 491
N.W.2d 278, 280 (Mich. Ct. App. 1992). Because implied authority is a form of actual authority,
“[a]n implied agency cannot exist contrary to the express intention of an alleged principal.” Flat
Hots Co. v. Peschke Packing Co., 3 N.W.2d 295, 297 (Mich. 1942). The clear contractual provisions
demonstrate that Lincoln did not have actual authority—express or implied—to act as First
American’s agent when closing real estate transactions.
This conclusion accords with the most factually analogous case decided by a Michigan court,
Pal Properties LLC v. Ticor Title Insurance Co., No. 280389, 2008 WL 5158894 (Mich. Ct. App.
Dec. 9, 2008). In Pal Properties, the defendant Ticor Title Insurance Company (Ticor) “issued a title
insurance commitment with respect to the property, through Consolidated Title Services, LLC
[(Consolidated)], and Consolidated appeared at and conducted the closing.” Id. at *1. Consolidated
failed to pay off an existing mortgage, and the purchaser “eventually lost the home to foreclosure.”
Id. The purchaser sued Ticor, alleging that Consolidated was acting as Ticor’s agent when
conducting the closing and thus that Ticor was liable for Consolidated’s misconduct. See id. The
Michigan appellate court determined that Ticor and Consolidated had an agency relationship, and
applied a rule that “a written agency agreement defines the scope of an agent’s undertaking.” Id. at
*2. Even though that contract included an arguably broad delegation of authority—Consolidated was

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appointed as an agent “for promoting and transacting of a title insurance business”—the court
interpreted that agreement as not granting Consolidated the authority to conduct closings on behalf
of Ticor. Id. at *2-3. Because the agency agreement at issue in this case is even more limited than
the agreement at issue in Ticor, that case strongly supports a conclusion that Lincoln Financial did
not have implied authority to close real estate transactions as an agent for First American under
Michigan law. A published federal circuit court case, interpreting a relevantly identical contract
between First American and a different independent agent, reached the same result under Missouri
law. See Bluehaven Funding, LLC v. First Am. Title Ins. Co., 594 F.3d 1055, 1056-60 (8th Cir.
2010).
The conclusion that Lincoln Financial did not act as First American’s agent when closing real
estate transactions is also supported by industry practice. Title insurance industry practice generally
requires an additional document—a closing protection letter—before title insurance companies can
be liable for the actions of their independent title insurance agents when those agents are conducting
closings. As a district court recently explained,
[b]ecause there is a difference between closing and issuing a policy, lenders routinely
ask for a “closing protection letter” to be issued on behalf of the underwriter. In a
closing protection letter, the underwriter agrees to indemnify the lender for any
problems that arise from the closing agent’s failure to properly apply the funds, as set
forth in the closing instructions, and the title insurance commitment.
Ticor Title Ins. Co. v. Nat’l Abstract Agency, Inc., No. 05-CV-73709-DT, 2008 WL 2157046, at *5
(E.D. Mich. May 22, 2008). No such closing protection letter was issued in this case.

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Indeed, in the only case cited on this point by Bergin Financial, the Court of Appeals of3
Michigan held that the alleged agent did not have implied authority to bind the principal. Auto-
Owners, 565 N.W.2d at 912-13.
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That Lincoln Financial’s president, Bluhm, believed he was acting as First American’s agent
when closing real estate transactions does not support the opposite conclusion. Bergin Financial
points to Bluhm’s testimony that he believed his settlement activities were part of his agency
contract, and asks this court to apply a rule that “[i]mplied authority is the authority which an agent
believes he possesses,” Meretta, 491 N.W.2d at 280. The statement from Meretta is not a rule of
law in Michigan. This statement appears in Michigan cases as a general characterization of implied
authority, and Bergin Financial points to no cases in which a Michigan court applied this statement
as a rule or held that an agent’s belief constituted a sufficient condition of implied agency.3
First American’s knowledge that Lincoln Financial closed real estate transactions is also not
sufficient to demonstrate implied authority. A principal’s knowledge of general industry customs
can demonstrate the principal’s granting of implied authority to an agent that operates within those
customs. See id. In this case, however, it was not demonstrative of agency for First American to
allow Lincoln Financial to close real estate transactions because Lincoln Financial was perfectly
capable of performing closings under its own name and not as an agent of First American.
The Underwriting Alerts and Escrow Bulletins also do not demonstrate that Lincoln Financial
was an agent of First American for the purpose of closing real estate transactions. Bergin Financial
relies upon the phrasing of the documents to argue that First American had the authority to control
the closing activities of Lincoln Financial. But the strength of this inference is greatly diminished

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by the fact that these notices were sent to two audiences: First American’s internal closing personnel
and its independent insurance agents. The tone of the notices is apparently more appropriate to the
internal personnel, over whom First American did exert detailed control. One might still be able to
draw some inference of First American’s control over Lincoln Financial from the bulletins, but that
inference would not be sufficient to overcome the terms of the agency agreement. Those terms limit
the scope of Lincoln Financial’s agency and provide that only written and signed documents can
amend the agency agreement.
The Michigan cases cited by Bergin Financial stating the proposition that “the existence of
a principal-agent relationship is generally for the jury to decide” are not applicable because those
cases involved questions of agency not determined by written agreements. See Lincoln v. Fairfield-
Nobel Co., 257 N.W.2d 148, 150-51 (Mich. Ct. App. 1977); see also Meretta, 491 N.W.2d at 280-
81. Michigan courts have held that where an agency relationship is “defined by written agreement,
it is the province of the trial judge to determine the relationship.” Birou v. Thompson-Brown Co.,
241 N.W.2d 265, 268 (Mich. Ct. App. 1976) (citing Keiswetter v. Rubenstein, 209 N.W. 154 (Mich.
1926)).
The cases cited by Bergin Financial in which a court held that conducting real estate closings
was within the scope of an independent title insurance company’s agency do not support a
conclusion that Lincoln Financial had implied authority to close real estate transactions on behalf
of First American. In Ticor, the only other case cited by Bergin Financial that interprets Michigan
law, an independent agent had wrongly appropriated funds from an escrow account, and the title

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insurance company had become liable for the lost funds under closing protection letters. 2008 WL
2157046, at *3, *5. The title insurance company sued its agent, arguing that the agent was liable for
the funds that the title insurance company had paid pursuant to the closing protection letters. See
id. at *1. The district court concluded that the agent was liable because it owed the title insurance
company fiduciary duties, whether or not the agent was acting as an agent for the title insurance
company while conducting closings. Id. at *8. As an alternative basis for decision, the court also
found that the agent “conducted closings within the scope of its agency relationship with [the title
insurer],” id., notwithstanding a contractual provision limiting the scope of the agent’s authority to
conducting title insurance business. The court determined that the title insurance company had
produced clear and convincing evidence that the parties had waived or modified that contractual
limitation. Id. (citing Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 666 N.W.2d 251,
253-54 (Mich. 2003)). Bergin Financial does not argue contractual waiver or modification and does
not present evidence sufficient to support such a claim in this case. See Quality Prods., 666 N.W.2d
at 254 (“In cases where a party relies on a course of conduct to establish waiver or modification, the
law of waiver directs our inquiry and the significance of written modification and anti-waiver
provisions regarding the parties’ intent is increased.”). Ticor thus does not undermine our
conclusion that Lincoln Financial was not First American’s agent for the purpose of closing real
estate transactions. The other, non-Michigan, cases cited by Bergin also do not provide any basis
on which to disregard the rule stated by Flat Hots and Pal Properties that written agency agreements

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govern the scope of an agent’s authority. Lincoln Financial thus did not have actual
authority—express or implied—to close real estate transactions on First American’s behalf.
Bergin Financial has also not established that Lincoln Financial had apparent authority to
close real estate transactions as First American’s agent. Under Michigan law, apparent agency only
exists where “the alleged principal [has] made a representation that leads the plaintiff to reasonably
believe that an agency existed and to suffer harm on account of a justifiable reliance thereon.” Little
v. Howard Johnson Co., 455 N.W.2d 390, 394 (Mich. Ct. App. 1990); see Pal Properties, 2008 WL
5158894, at *3-4 (citing Chapa v. St. Mary’s Hosp.of Saginaw, 480 N.W.2d 590, 592 (Mich. Ct.
App. 1991)). Bergin Financial relies upon a website printout from June 2007 to establish that First
American made a representation that could justify a reasonable belief that an agency relationship
existed. This evidence is not sufficient for two reasons. First, the evidence itself was not
authenticated and there is no evidence that the website existed in this form in 2002. Second, there
is no evidence that anyone from Bergin Financial ever saw this website or that Bergin Financial
relied upon this alleged representation. As in Pal Properties, Bergin Financial has not produced any
evidence that it had any contact with First American before or during the closing of the relevant
transactions. See 2008 WL 5158894, at *4. Absent evidence of a representation made by First
American and relied upon by Bergin Financial, Bergin Financial cannot establish apparent agency.
First American is therefore not liable for Lincoln Financial’s actions as a closing agent.
Bergin Financial also presented no evidence sufficient to establish First American’s direct
liability for civil conspiracy. In addressing this issue, Bergin Financial repeats its claim that Lincoln

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Financial notified First American that Lincoln Financial was under investigation for the ABN
Scheme and that the Bergin loans were similar to the ABN loans. These conclusions are debatable,
but regardless of their truth, these assertions are insufficient to establish that First American was
involved in a conspiracy to defraud Bergin Financial. In a civil conspiracy case, “[t]he agreement,
or preconceived plan, to do the unlawful act is the thing which must be proved.” Temborius v.
Slatkin, 403 N.W.2d 821, 828 (Mich. Ct. App. 1986). Bergin Financial stresses that for such a claim,
“[d]irect proof of agreement is not required,” that “[i]t is sufficient if the circumstances, acts and
conduct of the parties establish an agreement in fact,” and that “conspiracy may be established by
circumstantial evidence and may be based on inference.” Id. Even so, none of the evidence even
inferentially supports First American’s involvement in a civil conspiracy. Bluhm’s testimony could
be construed to support a conclusion that Lincoln Financial notified First American of the
investigations into the ABN Scheme, but there is no evidence that Bluhm notified First American
that he had been involved in that scheme as opposed to merely having failed to detect and prevent
it. For this reason, Bergin Financial has not produced sufficient evidence of First American’s
knowledge of the fraud at issue in this case, and certainly has not produced sufficient evidence that
First American conspired to defraud Bergin Financial.
Bergin Financial does not assert that First American is directly liable on either Bergin
Financial’s fraud, negligent misrepresentation, or RICO claims.

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Lincoln Financial was not First American’s agent for the purpose of closing real estate
transactions, and Bergin Financial has not produced sufficient evidence of direct misconduct by First
American. We therefore AFFIRM the judgment of the district court.

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