Kathryn Marchetti and Jonathon Marchetti, Plaintiffs-Appellants,
Chicago Title Insurance Company and Fidelity National Title Insurance Company, Defendants-Appellees.
October 28, 2015
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 12 C 5985 -
Sharon Johnson Coleman, Judge.
Wood, Chief Judge, and Easterbrook and Hamilton, Circuit
EASTERBROOK, CIRCUIT JUDGE.
2008 Kathryn and Jonathon Marchetti purchased a parcel of
real estate in Cook County, Illinois, for $180, 000. Peotone
Bank and Trust lent them the entire price, plus $155, 000 to
pay for improvements that the Marchettis planned to make.
Jonathon Marchetti acted as buyer, real-estate broker (he had
a license from Illinois), mortgage broker, and general
contractor for the improvements. The Bank put up this $335,
000 notwithstanding the fact that, three months earlier,
Jonathon had been indicted for mortgage and wire fraud
regarding other real-estate transactions. He pleaded guilty
in August 2008.
transaction, too, was affected by fraud, though this time
Jonathon Marchetti was a victim. The parcel, which the
Marchettis nominally acquired from Seville Development
Corporation, actually was owned by an Illinois land trust
established for the benefit of Carla Lekich. A series of sham
transactions orchestrated by John Hodgman made it look as if
Seville held title. In 2010 Lekich and her trust filed suit,
seeking to quiet title in the parcel.
Title Insurance Company had issued a policy of title
insurance, promising to indemnify the Marchettis and Peotone
Bank if they suffered a loss from a problem in the title. The
maximum value of the policy is $198, 000. In 2010 the
Bank's successors (it had syndicated the loan after
making it) and Chicago Title had the property appraised. This
appraisal came in at $110, 000. Treating the Marchettis'
promise to pay as worthless, the Lender (as we call the
debt's post-syndication holders) agreed to accept $110,
000 from Chicago Title as full satisfaction. Lekich's
suit was settled and dismissed following this payment, plus a
release of the mortgage and a disclaimer by the Marchettis of
any interest in the parcel. Chicago Title became subrogated
to the Marchettis' claims against their predecessors in
the (fake) line of title. After Hodgman was indicted and
convicted, Chicago Title was able to obtain $37, 500 in
restitution. (The award was greater, but only $37, 500 was
would have thought that this brought matters to a close.
Lekich held clear title to the parcel. The Marchettis no
longer had the real estate-but they also no longer owed the
Lender a penny. They had put nothing into the deal and got
nothing out. The losers were the Lender (out of pocket about
$225, 000) and Chicago Title (out of pocket about $72, 500).
Nonetheless, the Marchettis took the offensive in this suit
under the diversity jurisdiction. They contend that Chicago
Title owes them $125, 500-the $37, 500 it collected from
Hodgman, plus the $88, 000 difference between the maximum
value of the policy and what it paid the Lender. Section
8(b)(ii) of the policy permits the owner to elect between the
property's value at the time the owner submits a claim
under the policy and its value when the claim is paid. The
Marchettis had the property appraised for $202, 000, and they
insist that the insurer thus had to disburse the policy's
$198, 000 maximum value-and, since it didn't, it did not
acquire their rights against Hodgman. Hence the demand for
$88, 000 ($198, 000 less the $110, 000 paid to the Lender)
plus the $37, 500 recovered from Hodgman.
district court was not persuaded and granted summary judgment
to Chicago Title. 2015 U.S. Dist. Lexis 4164 (N.D. Ill. Jan.
14, 2015). We're not persuaded either, and for the same
reason as the district court. The Marchettis treat the policy
as if it promised to pay owners the market value of the
property. But that's not what it says. The property's
market value matters only as one determinant of how much loss
the owner suffers. The policy covers only "actual
monetary loss or damage sustained or incurred by the Insured
Claimant". The loss the Marchettis suffered was zero,
because they had no equity interest in the property. They
paid nothing for it, and the $335, 000 loan substantially
exceeded the highest appraised value. (True, the Marchettis
made a down payment of $3, 000, but they reimbursed
themselves from the loan, which covered the full purchase
price.) Even an underwater property has some option value,
but the Marchettis do not argue that the option value of this
parcel was enough to give them a positive net interest.
the Marchettis appear to have turned a profit on the
transaction, because they did not perform all of the planned
work before they gave up their claim of ownership. The
Marchettis tell us that $100, 000 in renovation work was
done. Jonathon Marchetti was the contractor and may have
profited in that capacity, and at all events $100, 000 is
less than the construction-loan amount of $155, 000. In the
district court the Marchettis contended that they lost the
profits they had anticipated from renting the improved
property, but they have now acknowledged that the policy does
not cover consequential damages. They suffered no
capital loss, and that is all Chicago Title promised
to make good. Since Chicago Title relieved them of the burden
of the loan and mortgage, leaving them loss-free, it acquired
the Marchettis' claim against the fraud's perpetrator
and was entitled to collect from the restitution award.
was a loss on this transaction, but it was incurred entirely
by the Lender, which put in $335, 000 and got back $110, 000.
It is not complaining, however, about the difference between
$110, 000 and the policy limit of $198, 000, having settled
with Chicago Title. The Marchettis have no remaining
liability to the Lender, which gave them a complete release
as part of the settlement. Lekich and her trust did not give
the Marchettis a release, but they dismissed their suit, so
the Marchettis have the benefit of the judgment's
preclusive effect. If Lekich and the trust were to file a new