Attorney prevails in malpractice lawsuit | Virginia Lawyers Weekly

The Court of Appeals of Virginia dismissed a legal malpractice lawsuit against a real estate closing attorney, holding that the circuit court did not err in sustaining the attorney’s demurrer.

The appellants, a couple represented by the attorney when they purchased a piece of land encumbered by a gas lease, claimed the attorney’s title examination failed to discover the gas lease and the gas company’s plans for new drilling.

But Judge Lisa M. Lorish said the couple “already had actual notice of the gas lease” and failed to state a cause of action for legal malpractice.

Lorish’s opinion in Miller v. Malcolm (VLW 024-7-134) was joined by Judges Doris Henderson Causey and Kimberley Slayton White.

Property

Mark and Rhonda Miller sought to purchase 162 acres in Bristol. Saltville Gas Storage, LLC held a gas lease on the property. During the pre-purchase property inspection, the Millers noted a portion of the land that was fenced in and contained “equipment pertaining to [a] gas injection well.”

The Millers’ real estate agent advised the pair that there were no plans for more wells in the area. The couple closed on the property in February 2018. Their closing attorney, W. Derek Malcolm, performed a title search on the property and collected from the Millers for the search and closing services.

Less than three weeks later, Saltville Gas sent the Millers a letter. The company wanted to drill two new wells on the property and sought permission to survey a portion of the land. Saltville Gas shortly thereafter surveyed the land and began construction on a new gas injection site.

While construction was underway, the Millers were forced to live in a motel for some of the project, which lasted several months.

The Millers filed a complaint in Washington County Circuit Court nearly four years after closing, alleging Malcolm breached his duty of care as their closing attorney. Specifically, the couple alleged that Malcolm failed to discover and report the gas lease that Saltville Gas held during his title examination.

Further breaches of duty by Malcolm alleged by the Millers include failure to contact the Federal Energy Regulatory Commission or the Virginia Department of Mines “‘to see if there was a gas well work permit issued for any gas well’ on the Property” and an alleged failure to contact the property’s prior owners to determine if Saltville Gas used the gas well and to obtain an affidavit of non-development and non-production.

The Millers sought $250,000 in damages and attorneys’ fees, claiming that “but for Malcolm’s failure to discover and disclose the gas lease on the Property, and his failure to discover the future plans of the lessee, the Millers would not have purchased the property” and their property value decreased after the Saltville Gas expansion.

Malcolm demurred, arguing the couple failed to state a cause of action as “the duties enumerated by the Millers were outside the scope of Malcolm’s role as a closing attorney.” He said the Millers were aware of the gas lease on the property prior to purchase, and “his failure to investigate or disclose the gas lease did not affect their decision to buy the property.”

The circuit court sustained Malcolm’s demurrer, finding that the Millers did not state a cause of action as they were aware of the gas lease prior to purchase, and that Malcolm “did not have a duty to go beyond his role as a title examiner.”

The Millers appealed.

Appeal

While the Millers successfully pleaded that Malcolm had a duty to both perform a title search and to report the existence of the gas lease, the couple “have failed to plead any basis for a broader duty to uncover the future plans of the gas company,” Lorish pointed out.

The Millers had pleaded the existence of a legal duty — established by contract — stating that Malcolm was hired for the purposes of closing the real estate transaction on the property on their behalf, providing a title opinion on the property and acting as the title insurance agent.

“Malcolm’s duties to the Millers were defined by, and therefore limited to, the contract between them,” Lorish wrote. “As pleaded, that duty included closing the real estate transaction, providing a title opinion, and acting as the title insurance agent to obtain a title insurance policy.”

Under the purchase agreement for the Bristol property, if the title examination revealed “‘a title defect of character that can be remedied by legal action or otherwise within a reasonable time,’ the Millers would have various rights as against the seller.” Those rights included negotiating with the seller, walking away from the transaction or waiving the defect and proceeding with no adjustment.

Because of this, the Millers argued that Malcolm’s duty as closing attorney included requiring him to “conduct a follow-up investigation about the effect of that lease far afield of merely uncovering what was recorded in the land records.” That duty, the couple asserted, included contacting agencies to determine if there was a gas well work permit issued.

In support, the Millers pointed to other states that maintain statutory provisions allowing “for the filing and recording of affidavits of non-production as evidence that a recorded lease has expired.”

Lorish rejected this argument.

“[T]he duties a title examiner may have to identify the existence, or non-existence, of such affidavits in the land records of those states are not relevant in Virginia where there is no similar statutory provision,” she wrote. “We find that the scope of representation, as pleaded by the Millers, was limited to closing the real estate transaction, which included undertaking an examination of the land records and providing a title opinion.”

The judge said the Millers “failed to plead the existence of any broader contractual relationship under which Malcolm agreed to perform additional tasks,” adding that the couple knew there was a gas lease on the property.

“If they wanted to expand Malcolm’s scope of representation to further investigate the possible future impact of that lease, they were free to contract with Malcolm for the same,” Lorish wrote.

Also at issue was whether the Millers pleaded a breach of duty that was the proximate cause of their alleged damages. The couple claimed the gas lease prevented them from obtaining “marketable title” to the property.

Lorish was unconvinced.

“Even assuming Malcolm’s incomplete title examination breached his duty of care, we find that the Millers failed to plead that his failure to discover and disclose the Saltville Gas lease during the title examination process was a proximate cause of their alleged harm,” she wrote.

Here, the Millers inspected the property, the lease was silent about future expansion and the couple “did nothing more to confirm whether this information was correct or not, such as expanding the scope of Malcolm’s representation,” the judge noted.

“As pleaded, the proximate cause of the harm the Millers have experienced from Saltville Gas’s expansion of the gas wells on the Property was the Millers’ own failure to do more due diligence, not Malcolm’s failure to disclose the lease,” Lorish wrote.

She affirmed the trial court’s decision to sustain the demurrer, finding the Millers “failed to state a cause of action for legal malpractice.”