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Fidelity
National to Acquire Chicago Title
On August 1, 1999, Fidelity National Financial, Inc., based in Irvine,
California, announced that it had signed an agreement to purchase Chicago
Title Corporation, located in Chicago, Illinois, for approximately $1,200,000,000,
or $52.00 per share of Chicago Title common stock. Both corporations are
traded on the New York Stock Exchange; Fidelity under the symbol FNF,
and Chicago under the symbol CTZ. It is anticipated that the closing will
occur in the f irst quarter of the year2000.
In a statement issued at the time the announcement was made, William P.
Foley, 11, Chairman and CEO of Fidelity, made the following comments:
"The addition of Chicago Title's operations, products and skills
to Fidelity's industry-leading productivity strengths will result in the
creation of a pre-eminent competitor in the title insurance industry.
The new company will also be a premier player in the rapidly growing area
for real estate information services, accommodating customers that may
desire 'onestop-shopping' for all of their service needs.
"Following the closing of the transaction, we fully intend to maintain
the Chicago Title and Fidelity National title insurance brands and run
the two operations separately. This will allow Chicago Title employees
and customers to enjoy the expanded benef its and opportunities of being
a part of a market leader, without losing any of the qualities that make
Chicago Title such a successful company. ... The merger will also significantly
benef it our title agents, policyholders and employees as Fidelity will
have one of the strongest capital positions in the industry."
Concurrently with Mr. Foley's statement, John Rau, President and CEO of
Chicago Title made the following remarks:
"Chicago Title and Fidelity have very compleimentary business mixes
and market positions. These factors, as well as the good fit between Chicago
Title and Fidelity management, will enable us to capture the value created
by the merger. We are especially excited by the benefits this creates
for our agents and the opportunity it gives our employees."
The transaction is subject to approval by the shareholders of both corporations,
regulatory authorities and other customary conditions. The combined enterprise,
which will bear the Fidelity National Financial name, will have approximately
1,000
off ice locations across the country, and a gross revenue base (including
agency revenue) of over $3,200,000,000. Following the merger, Fidelity
National Financial will be the largest title insurer in the United States.
Nevertheless, as noted above, the two companies will continue to be operated
separately.
In 1998, Fidelity reported total revenue (on a GAAP basis) of $1,300,000,000,
and net income of $108,000,000, while Chicago's total revenue (on a GAAP
basis) was $1,900,000,000, with net income of $97,000,000. Fidelity had
a total of 7,400 employees nationwide, while Chicago employed over 10,500,
located in 340 offices. Fidelity's cash and marketable securities were
$561,800,000, and Chicago's were $1,327,200,000. Title claims reserves
were $224,500,000 for Fidelity and $618,800,000.00 for Chicago.
Today, Fidelity and Chicago are acknowledged to be (respectively) the
fourth and third largest title insurers in the nation. Following the merger,
the combined Fidelity / Chicago enterprise will be the nation's largest
title insurer, ranking f irst in over 20 states (including California,
Illinois, Texas, New Jersey and New York), and second in nine states (including
Ohio, Virginia, Maryland and Connecticut). Based on 1998 figures, total
combined revenues of the post-merger entity will be over $3,200,000,000,
while premiums will be $2,300,000,000, representing 30% of the total net
premiums for policies underwritten by all title insurers. By contrast,
First American and Land America (Lawyers Title and Commonwealth Land)
each underwrote 21.2 % of the total net premiums in 1998, while Stewart
Title and Old Republic underwrote (respectively) 10.1% and 6.4% in that
year.
In New Jersey, Fidelity National administers a network of over 80 agents
from Its state headquarters in Tinton Falls. According to f igures compiled
by the New Jersey Land Title Insurance Rating Bureau ["NJLTIRB"]
for 1998, It has underwritten policies aggregating over $6,106,000,000,
representing 8.42 % of the total New Jersey title insurance market. Chicago
Title operates branch off ices in Hackensack, Roseland, East Brunswick,
Toms River and Moorestown, as well as a state headquarters office in Iselin,
from which a network of over 85 Chicago and Ticor agents is administered.
According to the NJLTIRB's 1998 figures, the combined total of liability
assumed for Chicago and Ticor was in excess of $19,425,000,000, which
represents 26.8 % of the total New Jersey market. As noted above, Chicago
/ Ticor and Fidelity National will continue to be operated separately
after the merger. Thus, the combination of the corporations will not affect
the companies' customers.
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Perpetuities Reconsidered:
The Trust Modernization Act of 1999
The Legislature has enacted the Trust Modernization Act of 1999, P.L.1999,
c. 159, effective July 8,1999 ["TMA/99"). One of the stated
purposes of the Act is to permit the creation of so-called dynasty trusts;
ie., trusts of unlimited duration. To further that end, the Act contains
wording which purports to: (a) abolish the common-law Rule Against Perpetuities;
and (b) repeal the Uniform Statutory Rule Against Perpetuities ["USRAP"],
currently codified as N.J.S.A. 46:2F-1 et seq. However, the repealer is
apparently prospective only See §13 (to be codified as N.J.S.A. 46:2F-9)
and §16b. Nevertheless, TMA/ 99 contains the following wording in
§14 (to be codified as N.J.S.A. 46:2F-10):
a. (1) A future interest is void if it suspends the power of alienation
for longer than the permissible period. The power of alienation is the
power to convey to another an absolute fee in possession of land, ...
. The permissible period is within 21 years after the death of an individual
or individuals then alive.... b. The power of alienation is suspended
when there are no persons then alive who, alone or in combination with
others, can convey an absolute fee in possession of land . ..... It thus
appears that TMA/99, having repealed the commonlaw and [previously-enacted]
statutory Rule, has substituted a new formula which is similar to that
which was previously in effect.
Nevertheless, the reference to suspension of the power of alienation is
confusing. There is a common-law doctrine known as the Rule Against Restraints
on Alienation, which is perhaps distantly-related to the Rule Against
Perpetuities. Yet while the Rule Against Perpetuities proscribes interests
which vest too remotely (as explained in more detail below), the restraint
on alienation doctrine prohibits attempts to limit the ability of the
owner of a fee simple estate to transfer or convey the realty freely.
For example, a clause in deed which purports to prohibit the grantee from
subsequently conveying the realty to a certain person or class of persons
is probably void, as it is repugnant to the estate granted. See Wrubel
Realty Corp.v.Wrubel, 138 N.J. Eq. 466 (Ch. 1946). It seems fairly clear
from the text of the statute, however, that TMA/ 99's restriction on the
suspension of the power of alienation is in fact a replacement for the
Rule Against Perpetuities, rather than a restatement of the Rule Against
Restraints on Alienation.
What is the significance of this legislative enactment as it regards perpetuities?
Why has the Legislature seen fit - within the last decade - to enact a
statutory version of the Rule [USRAP] in order to replace the common-law
version, and then to repeal the statutory version (albeit prospectively)
in favor of a new statutory version? In an effort to answer these questions,
It may be helpful to review briefly the nature and effect of this legal
principle.
The Rule Against Perpetuities is a common law doctrine which was first
articulated in the Duke of Norfolk's Case, 3 Ch. Cas. 1(1681), aff'd 3
Ch.Cas.53 (1685). It seeks to protect the system of land ownership against
interests which vest too remotely. The classic formulation of the Rule
is:
No interest is good unless it must vest, if at all, not later than twenty-one
(21) years after some life in being at the creation of the interest.
Gray on Perpetuities, §201 (4th Ed. 1942). The purpose of the rule
is clearly a laudable one, for without it, property could be kept out
of the stream of commerce for an indefinite period of time. On the other
hand, the rule's inflexiblity and highly technical nature have plagued
lawyers for centuries. Cases involving the validity of a devise or conveyance
vis-a-vis the rule usually turn on the problem of the so-called "measuring
lives"; ie., the life (or lives) in being at the creation of the
interest.
For example, a bequest made to "my descendants who shall be living
twenty-one (21) years after the death of all lineal descendants of Queen
Victoria now living" is valid, even though at the time of the testator's
death there were over 100 such descendants! In re Villar [11929], 1 Ch.
243. But if the scrivener had omitted the phrase "now living",
the gift would not have been valid, because some of the descendants of
Queen Victoria might have been born after the testator's death, and would
therefore have failed to be in existence at the creation of the interest
(i.e., the date of death of the testator). Thus, an inadvertent error
in draftsmanship may cause the intent of a testator or settlor to be frustrated.
For more information, see Leach, "Perpetuities in a Nutshell",
Harvard Law Rev., Vol. LI, No. 4 (Feb. 1938).
Various solutions have been proposed to the rule's many pitfalls. However,
the most obvious (its outright abolition) is not desirable, because it
would then become too easy to restrain the free transferability of property,
which would in turn have a negative impact on our socio- economic system.
Another alternative is the enactment of legislation (such as USRAP) which
attempts to "reform" or otherwise modify the common-law rule.
Prior to 1991, the rule was in force in New Jersey because our various
state Constitutions have accepted the common law of England (as it stood
in 1776) as part of our legal system. N.J. Const., Art. XXII (1776); Art.
X (1844); Art. XI, §1, ¶3 (1947). The Rule was part of the common
law of England as it existed in 1776.2 Blackstone's Commentaries, 173
(8th Ed.); In re Lattout's Will, 87 N.J. Super. 137 (App. Div. 1965).
Until 1991, our courts relied on English and NewJersey precedents to decide
cases arising thereunder. But in that year, USRAP was enacted in this
State. Under the statute, the general common-law formulation of the rule
was retained, subject to certain modifications, which permit the "saving"
of some transactions which would otherwise be violative of the rule. Although
a detailed analysis of USRAP is beyond the scope of this article, several
significant sections of the statute should be kept in mind.
First, subject to certain narrow exceptions, USRAP does not apply to nondonative
transfers. In other words, it applies only to donative transfers, such
as wills or trusts, but not to commercial transactions, such as options.
Second, USRAP does not apply, in general, to interests created before
it took effect (July 3,1991). Third, USRAP "supersedes" the
commonlaw rule against perpetuities.
Although, as discussed above, the repeal of USRAP is prospective in operation,
the actual statutory language is more complex.. Section 13 of TMA/99 [N.J.S.A.
46:2F-9] states:
No interest created in real or personal property shall be void by reason
of any rule against perpetuities, whether the common law rule or otherwise.
The common law rule against perpetuities shall not be in force in this
State. [Emphasis added.]
Yet section 16b states that N.J.S.A. 46:2F-I through -8
(USRAP) "... are repealed but shall continue to apply to interests
created prior to the effective date of this act to the extent provided
in subsection b. of section 15 of this act". [Emphases added.] Thus,
§§ 13 and 16b must be read in conjunction with §15b [N.J..S.A.
46:2F-11b].
Although the wording of §15b is difficult to comprehend, it appears
that its intent is to preserve the ability of a court to .reform"
a disposition in a will, trust or other instrument which may violate of
the Rule. Even prior to the enactment of USRAP, our courts had begun to
deviate from a rigid and inflexible application of the Rule, suggesting
that a document could be "reformed" to comply with its requirements,
so that the intent of the parties would not be frustrated. See Mazzeo
v. Kartman, 234 N.J. Super. 223 (App. Div. 1991).
USRAP to some extent formalized that process by its inclusion of the ninety-year
"wait-and-see" provision, N.J.S.A. 46:2F-la(2), which was used
in Matter of Wold, 310 N.J. Super 382 (Ch. Div. 1998) to validate a disposition
of property which might otherwise have vested too remotely. Under one
possible interpretation of §1 5b, let us assume that a scheme of
distribution created when USRAP was in effect violated the Rule, but could
nevertheless have been "saved" under the "wart-and-see"
provision of USRAP. That portion of USRAP can still be applied to save
the scheme, even though USRAP has been repealed.
In any event, it is not entirely accurate to state that TMA/ 99 repeals
USRAP prospectively. Furthermore, the portions of TMA/99 which deal with
USRAP seem unnecessarily complicated. Section 15b is almost certain to
engender future litigation over its meaning and application.
How will all of this work? We have had the benef it of 300 years of judicial
decisions interpreting and refining (but not necessarily simplifying)
the common-law version of the Rule. This was followed by less than one
decade of a statutory version (USRAP), which was judicially construed
only twice. Now the old statutory Rule has been replaced by a new one,
which is called by another name. Changing the name of the Rule does not,
of course, make it easier to deal with, although it might make attorneys
feel better.
In sum, we will not know if our perpetuities problems have been resolved,
in whole or in part, until we gain experience in working with the latest
statutory scheme, and receive the benefit of future judicial interpretation
thereof.
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Condominium Liens Construed
Two recent decisions have construed different aspects of N.J.S.A. 46:8B-21,
the portion of the Condominium Act., which discusses the ability of the
association to record and enforce a lien for unpaid charges. In the first,
Loigman v. Kings Landing Cono. Ass'n, 324 N.J. Super. 97 (Ch. Div. 1999),
a unit owner filed suit against the association, arguing that the filing
of the lien violated the terms of the New Jersey Condominium Act ["NJCC"],
N.J.S.A. 468B-1 at seq., as well as the Fair Debt Collection Practices
Act ["FDCPA], 15 U.S.C. §1692. The association recorded the
lien without first informing the unit owner that it intended to do so,
despite receipt of a letter f rom the owner stating that he disputed the
claim and prior to providing the owner with an analysis of the debt claimed
to be due.
The Chancery Division noted that the NJCA merely requires that the association
may record a lien "upon proper notice to the appropriate unit owner".
N.J.S.A. 46:8B-21 a. It does not define the phrase "proper notice".
Judge Fisher rejected the association's contention that the notice requirement
was satisfied by Its letter to the unit owner demanding payment of the
amount claimed to be due. He noted that it has been held that the recording
of alien is a "form of taking", in that It "destroys the
ability of a property holder to convey marketable title". Accordingly,
he found that constitutionally-mandated due process requires that where
an entity is given the ability by statute to file a lien in an ex parte
fashion, timely notice must be given to the property owner. The court
therefore ordered the lien discharged of record.
Turning next to the association had violation the FDCPA, the court agreed
with plaintiff that "...a claim for the payment of condominium assessments
falls within the scope of the FDCPA". Judge Fisher also found that
the actions of the association's attorney in attempting to collect the
debt were covered by the statute as well. Accordingly, he held that once
the unit owner disputed the amount claimed to be due, FDCPA barred the
association from once the unit owner the amount claimed to be due, FDCPA
barred the association from taking further action to enforce the debt
by causing the lien to be recorded. The court concluded that ordering
the lien to be discharged of record was an apprropriate rememdy for the
association's breach of the statute.
In Chase Manhattan v. Spina, 325 N.J. Super. 42 (Ch. Div. 1998), aff'd
o.b. sub nom. Chase Manhattan v. Heritage Sq. Ass'n, 325 N.J. Super.1
(App. Div. 1999), the court was called upon to construe the priority of
a mortgage vis-as-vis a subsequently-filed condominium lien, where a statutory
amendment had apparently afforded the condominium lien lim ited priority.
As the court put it, "the question presented is whether the condominium's
lien, perfected after the effective date of April 1, 1996 [amending N.J.S.A.
46:8B-21 ] has priority over a first mortgage recorded and perfected prior
to the enactment of [the amended statute].
The first purchase-money mortage to Chase Manhattan was executed, delivered
and record in 1992. At that time, N.J.S.A. 46:8B-21 merely provided that
one who acquired title to a unit as the result of the foreclosure of a
first mortgage would hold free of the association's lien for unpaid charges
accruing prior to such acquisition of title. But the Legislature subsequently
amended the statute by enacting P.L. 1994, c. 345, §6 effective April
1, 1996, to allow the association to as
sert a [limited] priorty over a mortgagee under certain circumstances.
The text of the amendment concluded: 'This act shall take effect on [April,
1, 1996] and shall not apply to or affect liens perfected prior to the
amendment. Accordingly, the association could not take advantage of the
amendment to assert a [limited] priorty over over the lien held by the
mortgagee. To hold otherwise would lead to an unjust result, with constitutional
implications. Thus, the court entered judgment in favor of Chase Manhattan.
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Surrogate's Court Statutes Revised
The Legislature has enacted P.L. 1999, c.70, effective April 22, 1999,
which revises and consolidates various statutory provisions relating to
surrogate's. The act, which will be codified as N.J.S.A. 2B:14-1 at seq.,
repeals various sections of Title 2A, and attempts to place laws relating
to the office of surrogate together in an orderly fashion. The surrogate
is a constitutional officer; Art VII, §219 of the New Jersey Constitution
(1947) refers to the election of surrogates for a five (5), year term.
Although the new statute refers to the surrogate as "...both the
Judge and Clerk of the Surrogate's Court", N.J.S.A. 2B14-1, surrogates
are not (strictly speaking) judges, in that they cannot exercise discretionary
authority. For example, if a dispute arises concerning the validity of
a will offered for probate, the matter must be referred to Superior Court.
N.J.S.A. 3B:2-5; R. 482. Thus, they are sometimes referred to as quasijudicial
off iciers.
The surrogate performs the important functions of issuing letters testamentary
and of administration, N.J.SA. 3B:3-17; 3B:10-1, and of keeping records
relating to estates. N.J.S.A. 2B:14-6 requires each surrogate to maintain
such documents as [certain] orders and judgments and trusteeship; and
wills. The surrogate also serves as Deputy Clerk of the Superior Court,
Chancery Division, Probate Part. R. 4:83.
"Title Talk" is published periodically by Chicago Title and
Ticor Title Insurance Companies, and is distributed free of
charge to their customers and friends.
Steven G. Day, Esq., Regional Manager, Publisher
Lawrence J. Fineberg, Esq., State Counsel, Editor
Chicago Title Insurance Company
Ticor Title Insurance Company
111 Wood Avenue South
Iselin (Woodbridge Twp.), New Jersey 08830
(732) 205 - 0055 Fax (732) 205 - 0330
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