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The Peoples Bank v. Troutman

Court of Appeals of Tennessee, Knoxville

July 27, 2015


Session April 14, 2015

Appeal from the Circuit Court for Campbell County No. 15102 Don R. Ash, Senior Judge

Gregory Brown and Lindsey E. Lyle, Knoxville, Tennessee, for the appellants, Conrad Mark Troutman and Troutman & Troutman, P.C.

Ronald C. Koksal and T. Michael Craig-Grubbs, Knoxville, Tennessee, for the appellee, The Peoples Bank.

Janet Strevel Hayes, Knoxville, Tennessee, and Mary Beth Haltom, Nashville, Tennessee, for the appellee, Old Republic National Title Insurance Company.

Thomas R. Frierson, II, J., delivered the opinion of the court, in which D. Michael Swiney and John W. McClarty, JJ., joined.



I. Factual and Procedural Background[1]

The plaintiff, The Peoples Bank ("the Bank"), extended a loan in the amount of $765, 000.00 to Norris Marina Group, LLC ("Norris"), in August 2008. Certain lots of real property owned by Norris or its principals were utilized as collateral to secure repayment of the loan. Prior to the closing of this loan, principals of Norris asked their attorney, Conrad Mark Troutman of Troutman & Troutman, P.C., as an agent of Old Republic National Title Insurance Company ("Old Republic"), to procure title insurance. Mr. Troutman was also contacted by Traci Todd, a Senior Vice President and Director of Lending for the Bank, and asked to prepare certain legal documents in connection with the loan's closing, including a "full title insurance policy, " a settlement statement, and a deed of trust. Via affidavit, Ms. Todd explained in part that a full title insurance policy was a condition of the loan to ensure that the bank maintained a valid first lien on the title to the collateral.

Mr. Troutman subsequently prepared a commitment for title insurance on behalf of Old Republic and provided it to Ms. Todd. The commitment for title insurance specifically identified the lien of a deed of trust existing in favor of Tennessee Investment Properties, LLC ("TIP"), which secured repayment of a promissory note in the amount of $4, 500, 000.00. The commitment document also provided that the TIP lien would have to be released or subordinated before the Bank's lien would hold a first lien position. Mr. Troutman asserts that he was never requested to prepare a release or subordination document with regard to the TIP lien. He instead expected that this task would be accomplished by someone else. According to Ms. Todd, she asked Mr. Troutman about the TIP lien before the closing and was told that a valid subordination agreement existed. Ms. Todd related that she relied upon Mr. Troutman's representation in electing to proceed with the loan closing. As the Bank points out, Mr. Troutman explained in his deposition that he merely assumed a subordination agreement existed because he was told by a principal of Norris prior to the loan closing that such a subordination agreement existed or was forthcoming.

Following the closing, Ms. Todd requested from Mr. Troutman a final certificate of title, demonstrating the Bank's lien to be in first position. Mr. Troutman testified that he forwarded this request to a title abstractor in his office, who prepared the requested document for his signature. The final certificate of title signed by Mr. Troutman on February 9, 2009, states as follows:

This is to certify that we are of the opinion that the exceptions with reference to the title in the within report have been corrected sufficiently to make the title merchantable. I find that of Deed of Trust from NORRIS MARINA GROUP, LLC to RAYMOND E. LACY, Trustee, dated August 21, 2008 to secure THE PEOPLES BANK in the amount of $765, 000.00, is of recorded in Deed Book 1486, Page 1238 in the Register's Office of Anderson County, Tennessee, having been recorded on August 21, 2008, at 8:30 a.m., and it is my opinion that this Deed of Trust constitutes a valid first lien upon the subject property.

In his deposition testimony, Mr. Troutman admitted that this final certificate of title was prepared without verification of the existence of a subordination agreement regarding the TIP lien. He also acknowledged that such lack of verification constituted a deviation from the standard of care by his office.

Three years after the loan closing, Norris defaulted in its payment of the loan. TIP subsequently foreclosed on its deed of trust. Upon discovering that it did not maintain a valid first lien on the title to the property, the Bank sued Mr. Troutman and his firm ("the Troutman Defendants") for legal malpractice on November 30, 2011. The Bank later filed a first amended complaint on February 14, 2012, and a second amended complaint on September 25, 2012. In the second amended complaint, the Bank named Old Republic as an additional defendant and for the first time asserted a breach of contract claim.

The Troutman Defendants and Old Republic respectively filed motions for summary judgment with regard to the Bank's claims. The trial court denied the Troutman Defendants' motion for summary judgment by order entered May 5, 2014. On May 14, 2014, the Bank filed a Notice of Voluntary Dismissal as to the Troutman Defendants. The court thereafter granted Old Republic's motion for summary judgment on May 19, 2014, concomitantly entering an order nonsuiting the Bank's claims against the Troutman Defendants. The Troutman Defendants filed a timely notice of appeal concerning the denial of their motion for summary judgment. The Bank also filed a timely notice of appeal regarding the grant of summary judgment in favor of Old Republic.

II. Issues Presented

The Troutman Defendants present the following issues for our review, which we have restated slightly:

1. Whether entry of an order of voluntary dismissal constitutes a final judgment permitting the Troutman Defendants to seek an appeal as of right regarding the denial of their motion for summary judgment.
2. Whether the trial court erred in denying the Troutman Defendants' motion for summary judgment when the Bank failed to identify an expert witness to address the professional standard of care.
3. Whether the trial court erred in granting the Bank's motion to file its third amended complaint.

The Bank raises the following additional issues:

4. Whether the trial court erred in finding that there were no disputed issues of material fact and that Old Republic was entitled ...

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