Alliance Title closure still haunts valley

Friday, April 4, 2008

Alliance Title closure still haunts valley Silicon Valley / San Jose Business Journal – by Sharon Simonson

The long arm of California law is reaching out to tap the shoulder of Alliance Title Co. and its Colorado parent Mercury Companies Inc.

The once-booming, Campbell-based title insurer abruptly closed its doors at the end of last year. But its ghostly existence continues to haunt the valley.

Landlords across the South Bay have sued the company for failure to pay rent. Former employees allege they were dismissed without notice, and not compensated for unused vacation time and earned commissions. Former managers have struggled to get promised bonuses and deferred compensation.

Now the state’s Labor Commissioner, in what observers say is a relatively rare step for the office, is suing Alliance and Mercury to collect what the state of California alleges is more than $21 million owed to former Alliance workers.

More than 150 employee claims have been filed with the state’s Department of Industrial Relations since Dec. 13, the day the title company was shuttered.

“It’s not all that common for employers to shut down without paying their vacation entitlements or expense reimbursement to employees. It’s not an every day occurrence and certainly not on the scale here,” says David Baltar, the Labor Commissioner attorney handling the case.

The state Labor Commissioner is responsible for enforcing the wage and hour provisions of the California Labor Code.

At the same time, the state Department of Insurance has issued a cease-and-desist order to Alliance that forbids the transfer of any Alliance assets out of California without the commissioner’s consent. The order also prohibits Alliance from pursuing any new business ventures that would expose its assets to risk.

The Department of Insurance in California is responsible for making sure that insurance companies operating in the state can pay insurance claims.

Alliance’s net worth — assets minus liabilities plus required financial reserves — was a negative $50.6 million at the end of last year, according to the cease-and-desist order.

Title insurance business is quite profitable. Alliance’s parent, Mercury, reported annual sales in 2007 of more than $1 billion, according to Hoovers Online. Its businesses include escrow and mortgage services as well as title.

Mercury, a privately held company founded in 1946, is owned by the Paul Hauptman family.

Mercury does not underwrite title policies. Instead, it is an “agent” or broker that relies on other companies to insure the policies it writes.

Title insurance is important because it assures real-estate buyers and lenders that the seller of a property has clear ownership, or title, and can transfer a property legally.

Alliance abandons business

The Department of Insurance was keenly interested in Alliance’s decision to stop operating, says Mike Vera, a former divisional president for Alliance in the East Bay who oversaw 40 offices and 450 employees.

The day the company closed its doors, the department had representatives on hand at the company’s corporate accounting office in Gilroy to ensure that Alliance properly processed escrow money from home sales, mortgage refinancing, property taxes and the like, he says. During housing’s boom years, as much as $100 million might have passed through trust accounts overseen by Alliance on any given day, Vera adds.

The company’s December closing “created a nightmare for existing escrows,”

Vera says.

Tiffany Horrell, a 37-year-old Alliance worker for five years, concurs.

Horrell is one of the workers who filed a claim with the Labor Commissioner to seek what she says is $1,400 in unpaid wages.

“It was just amazing the way it all went down,” she says. “It was pretty shocking. There were escrows that were left hanging. That is very personal because you are dealing with someone’s home.”

Checks and cash, which title companies are normally prohibited from handling, were not filed properly, she says.

Most disappointing to her was the company’s decision not to pay workers, when the employees had made Alliance “immense” amounts of money, Horrell says.

California dreams squelched

Besides Alliance, Mercury owns Financial Title, which continues to do business in California and Santa Clara County. Other California businesses with ties to Mercury include Oakland’s Mercury Exchange Inc., which handles real estate transactions designed to defer taxable capital gains, and Southern California’s Investors Title Co., which specializes in commercial and industrial properties.

Mercury operated mortgage company NexGen Lending Inc. in California for four years but left the state in late 2006, according to public record. The company also was a startup investor in Cupertino’s Intero Real Estate Services, a residential and commercial brokerage started by Gino Blefari and several co-founders. Blefari and his partners, including Bob Moles, purchased Mercury’s interest in Intero last year.

At the peak of its Santa Clara County operations, Alliance had 400 employees in more than a dozen offices from Gilroy to Los Gatos, and a large Campbell headquarters.

Donna Dell, a former California Labor Commissioner, says the agency will have to work to establish that Mercury is responsible for Alliance’s actions and the payment of disputed wages.

“There is a lot of precedent in going after a parent company,” she says.

The state will have to prove that Mercury had some bearing on the management of the employees’ daily lives, she adds.

Dell left the office more than two years ago and has no special insight into the Alliance case.

In her mind, given recent press coverage of the mortgage-lending and real estate businesses, she says,”It was probably inevitable that someone was going to take a close look at the industry. I suspect that part of the interest by the Labor Commissioner is going to be about this particular employer but also giving other companies notice.”

Mercury is not the only title company under the microscope. One of its largest underwriters, First American Title Insurance Co. of Santa Ana, is being “audited or investigated” by multiple government agencies, according to First American Title Insurance’s annual report.

The annual report, published in February, does not specify if those activities relate to Mercury or Alliance. The company declined comment.

SHARON SIMONSON can be reached at (408) 299-1853 or at ssimonson@bizjournals.com.

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3 comments for “Alliance Title closure still haunts valley

  1. grooks
    April 9, 2008 at 12:33 pm

    Yes, it still haunts me too!

  2. sgilchrist
    December 28, 2008 at 11:20 am

    Hello:
    I haven’t peeked at your blog in over a year! Same ole, same ole when it comes to the Title biz, huh? It’s a shame that that the Mercury boys are getting away with it all. Take care!

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