$1.6 million awarded in Scottsdale land-use suit

A battle over responsibility for a failed commercial development in north Scottsdale involving allegations of fraud, bad faith and breach of contract was resolved last week when a jury ordered defendant First American Title Insurance Co. to pay the plaintiff companies, the Equitable Troon H LLC and the Equitable Troon K LLC, about $1.6 million in damages.

The case was tried in Maricopa County Superior Court last week before a nine-member jury, said Dennis Wilenchik, a Phoenix attorney who represented the plaintiffs.

The legal conflict began with the 2005 purchase of two properties adjacent to the upscale Troon North community in north Scottsdale by an investment group known as Morgan-Sklugan LLC. Investors in the project included John Vatistas, then-owner of Camelback Title Agency in Phoenix, who now is co-owner of Russ Lyon Sotheby's International Realty in Scottsdale.

Timothy Barton, First American Title's Phoenix attorney in the dispute, did not return calls seeking comment Wednesday afternoon.

The investment group hired Camelback Title to perform due diligence on the properties for purposes of buying and developing a commercial center that would have included shops and restaurants, according to the plaintiffs.

They also sought and procured title insurance through First American, a publicly traded company based in Santa Ana, Calif., and one of the nation's largest title insurers.

Title insurance covers financial losses incurred because of "defects" in the title to a property.

A defect is anything that lowers a property's value or calls into question the validity of the insured titleholder's claim to it.

In this case, Morgan-Sklugan's investors learned after purchasing the land that it was subject to the Troon North homeowners association's covenants, codes and restrictions, a fact not disclosed before the sale.

Wilenchik said it was a revelation that stopped the project dead in its tracks and prompted the investors to file an insurance claim with First American.

According to court documents, First American's position on the legitimacy of the claim changed a number of times.

It initially denied the claim and then agreed to honor it, but finally argued that the claim was invalid.

Wilenchik said the title company's numerous reversals appeared to be part of a strategy to wear out his clients, who refused to go away.

At one point, the title company even filed a counterclaim arguing that Troon H and Troon K were not covered under the policy because of an error in early court documents listing them as Arizona companies, when in fact they were incorporated in Nevada.

That argument was dropped shortly thereafter, Wilenchik said.

On Friday, the jury awarded the plaintiffs $627,000 for breach of contract, $200,000 for acting in bad faith, and $750,000 in punitive damages.

Wilenchik said the case is significant because title-insurance companies rarely are found guilty of acting in bad faith, a legal concept that means to act with malicious or deceitful intent.

"I was pretty thrilled with it," he said of the verdict. "They (the investors) bought insurance and paid their premiums. Their claim should have been covered."

by J. Craig Anderson The Arizona Republic Dec. 9, 2010 12:00 AM





$1.6 million awarded in Scottsdale land-use suit