WASHINGTON (CN) - A title insurer cannot dismiss a $23 million lawsuit from the new owners of the luxury St. Regis Hotel who had to shelve expansion plans when construction ran into a literal brick wall, a federal judge ruled.
16th & K Hotel LP bought the St. Regis hotel in 2005 with an eye toward an extensive expansion project. Over the next three years, it hired surveyors, bought the neighboring lot and townhouse, and took out a $172 million title insurance policy with Commonwealth Land Title Insurance.
The policy provided an interest for Barclay's Capital Real Estate as a mezzanine lender because the company took out its own $135 million policy with Commonwealth a year earlier.
By late Aril 2008, however, after three years of expansion work, the project comes to a screeching halt when workers literally hit a 12-inch-wide wall dividing the townhouse and an office building next door. Somehow the surveyors had overlooked the wall, which made the second parcel of land "substantially useless."
St. Regis' owner said the oversight put an end to the project and left it $23 million in debt.
Meanwhile, Barclays had asked Commonwealth to reimburse its losses, foreclosed on the property and sold it at public auction for $25 million in March 2011, according to 16th & K.
The hotel owner filed suit shortly thereafter against Landmark-Fleet Surveyors, surveyor Bruce Landes and Commonwealth Land Title Insurance Company for breach of contract and negligence.
Commonwealth moved to dismiss, arguing that current complaint leaves the door open for more lawsuits because 16th & K failed to name Barclays as a defendant.
Commonwealth said its policy stipulates first payment to the mortgage lenders, making them necessary parties.
U.S. District Beryl Howell disagreed, saying "neither of the plaintiff's lenders is required for the court to grant complete relief among the parties to this action."
"The fact that if the plaintiff's claim against the defendant Commonwealth is successful, the plaintiff's lenders may be entitled to payment from the proceeds of the owner's policy, does not mean that relief is incomplete or inadequate among the existing parties," he added.
By filing suit, 16th and K is actually protecting Barclay's interests since such interest "is wholly contingent on the success of the plaintiff's claim," according to the 15-page decision.
Howell also rejected the claim that leaving Barclay's out opens Commonwealth to future litigation.
"Commonwealth should have no concern regarding a 'double' or 'multiple' recovery against it because liability under the owner's policy is limited to the amount owed to the plaintiff," he wrote. "In other words, defendant Commonwealth owes no more to the plaintiff's lenders than is owed to the plaintiff."
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