FIRST AMERICAN TITLE CO., ETC. v. SD LAND, ETC.

• Decision Date: 08 June 1982
• Docket Number: No. CIV 80-5076.,CIV 80-5076.
• Citation: 541 F. Supp. 1147
• Parties: FIRST AMERICAN TITLE COMPANY OF SOUTH DAKOTA and First American Title Insurance Company of South Dakota v. SOUTH DAKOTA LAND TITLE ASSOCIATION, South Dakota Abstracters Board of Examiners, Black Hills Land and Abstract Company, Dennis O. Murray, Security Land and Abstract Company, Glen M. Rhodes, Fall River County Abstract Company, Charles E. Clay, Custer Title Company, Betty J. Gould, Haakon County Abstract Company, Keith Emerson, Wayne Roe and Charles Nass.
• Court: U.S. District Court — District of South Dakota

541 F. Supp. 1147

FIRST AMERICAN TITLE COMPANY OF SOUTH DAKOTA and First American Title Insurance Company of South Dakota v. SOUTH DAKOTA LAND TITLE ASSOCIATION, South Dakota Abstracters Board of Examiners, Black Hills Land and Abstract Company, Dennis O. Murray, Security Land and Abstract Company, Glen M. Rhodes, Fall River County Abstract Company, Charles E. Clay, Custer Title Company, Betty J. Gould, Haakon County Abstract Company, Keith Emerson, Wayne Roe and Charles Nass.

No. CIV 80-5076.

United States District Court, D. South Dakota.

June 8, 1982.

COPYRIGHT MATERIAL OMITTED

Donald R. Shultz, Rapid City, S. D., for plaintiffs.

Gary F. Colwill, Asst. Atty. Gen., Mark V. Meierhenry, Atty. Gen., Pierre, S. D., E. James Hood, Spearfish, S. D., Keith R. Smit, Sturgis, S. D., for defendants.

MEMORANDUM OPINION

BOGUE, Chief Judge.

This matter is an antitrust suit brought under sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and tried before this Court on June 15, 16, 17 and 19 of 1981. Plaintiffs are First American Title Company of South Dakota, which is a South Dakota company presently doing business within South Dakota, and First American Title Insurance Company of South Dakota, which operated in South Dakota until May, 1980, when the company was voluntarily dissolved. The Defendants include the South Dakota Land Title Association (SDLTA), which is an unincorporated association of land title abstractors in South Dakota, and the South Dakota Abstracters' Board of Examiners (SDABE), which is a South Dakota state agency under the South Dakota Department of Commerce. See SDCL ch. 36-13. SDABE regulates real estate title abstractors in the state of South Dakota. The remaining Defendants are Western South Dakota abstract companies and individual licensed abstractors, all of whom are members of Defendant SDLTA and some of whom are members of Defendant SDABE. The State of South Dakota has also been joined as a defendant pursuant to a motion of SDABE.

Plaintiffs allege the Defendants have engaged in a conspiracy in restraint of trade and have also monopolized, attempted to monopolize, and engaged in a conspiracy to monopolize, all in violation of §§ 1 and 2 of the Sherman Act. The basic allegations in Plaintiffs' complaint are found in ¶¶ 21(a) through (h). Plaintiffs allege that the Defendants conspired to: (a) fix the price to Plaintiffs of abstractor countersignatures on title insurance policies; (b) engage in frivolous and sham litigation by appealing the decision of the South Dakota Director of Insurance to grant a certificate of authority to Plaintiff First American Title Insurance Company to do business in South Dakota; (c) engage in frivolous and sham litigation by participating in the case of Fall River County Abstract Company v. Knutson, (6th Judicial Circuit Court, Hughes County, S.D., Nov. 6, 1979, Judge Robert A. Miller, presiding); (d) engage in efforts to influence the enactment of S.L. 1979, ch. 345, amending SDCL 58-25-16, which had the effect of requiring all title insurance policies issued in the state to contain the countersignature of an abstractor; (e) enforce and attempt to enforce SDCL 58-25-16; (f) attempt to establish a fee schedule for countersignatures to be provided by abstractors on title insurance policies; (g) enforce and attempt to enforce ARSD § 20:36:04:01; (h) engage in a publicity campaign directed against the Plaintiffs, ostensibly directed toward influencing government action, which campaign was a sham to cover an attempt to interfere with the business relationships of the Plaintiffs.

The licensing of abstractors in South Dakota is governed by SDCL 36-13. That chapter created Defendant SDABE to act as the state agency to regulate the abstracting business in South Dakota.

Most South Dakota counties have only one abstract firm. Plaintiffs have attempted to show that this condition was created by SDABE regulations which, Plaintiffs have alleged, make it financially prohibitive to open a competing abstract plant in any county. Plaintiffs have further alleged that it is the goal of Defendants SDABE and SDLTA to maintain the status quo so as to shield SDLTA members from competition within their individual counties.

Plaintiff First American Title Company was organized by Walter J. Linderman and began operating in Pennington County, South Dakota in 1974. It acted as the local agent for a foreign title insurance company. Under South Dakota law in effect at that time, a countersignature by a licensed abstractor or abstract company was required on all title insurance policies issued by foreign title insurance companies. Linderman, through First American Title Company, could countersign policies on property in Pennington County. However, in other counties countersignatures had to be obtained from other abstractors for a price which in Plaintiffs' opinion was too high.

Because a countersignature was not required on domestic title insurance policies, Linderman decided to organize a domestic title insurance company. By doing this he could issue title insurance policies throughout the state without the necessity of an abstractor's countersignature. Linderman incorporated Plaintiff First American Title Insurance Company in December, 1978, for this purpose.

Plaintiffs claim that the Defendants were opposed to Linderman's establishing a domestic title insurance company and united in an attempt to thwart his efforts. The first step allegedly taken by Defendants was intense lobbying which resulted in South Dakota law being changed so as to make it necessary for all title insurance policies, both foreign and domestic, to be countersigned by an abstractor. This again made it necessary for Linderman's First American Title Insurance Company to obtain countersignatures from other abstractors on policies dealing with property outside Pennington County.

The second step allegedly taken by Defendants to damage Plaintiffs' business was SDLTA's opposition to First American Title Insurance Company's application for a certificate of authority to do business in the state. Plaintiffs charge that SDLTA had no justification for attacking First American Title Insurance Company's application and did so just to harass Plaintiffs. The application was granted by the South Dakota Director of the Division of Insurance. This decision, however, was then appealed to state court and was affirmed. Plaintiffs allege that the sole purpose of this appeal was to harass and competitively injure First American Title Insurance Company.

Plaintiffs charge that the conspiracy against them continued after the statute regarding countersignatures on title insurance policies was changed in 1979. After this statutory change, the South Dakota Attorney General held that the Division of Insurance, and not Defendant SDABE, had the authority to hold hearings to adopt a rule to fix the countersignature fee that could be charged by abstractors. According to Plaintiffs, Defendants opposed this ruling because they feared the Division of Insurance would set the fees too low and there would then be a widespread proliferation of title insurance throughout the state. To regain control for SDABE, SDLTA commenced litigation to attack the jurisdictional basis for the right of the Division of Insurance to set the countersignature fees. The court disagreed, ruling that the Division of Insurance did have this authority.

While the Fall River County Abstract Company, supra, decision was pending on appeal, Plaintiffs charge that Defendants successfully lobbied the legislature to give the authority to establish a fee schedule to SDABE. This law, which amended SDCL 36-13-25,¹ became effective July 1, 1980. Another statute dealing with abstractor countersignatures was also enacted in 1980.² This statute declared that an abstractor's countersignature on a title insurance policy was a verification that the abstractor had performed a title search on the property involved.³

Plaintiffs charge that after all these legislative changes were made, Linderman experienced numerous problems obtaining countersignatures for title insurance policies issued outside of Pennington County. The Plaintiffs have claimed that abstractors sought to charge fifty percent of the policy premium for providing the countersignatures. Plaintiffs have also charged that the various abstractors contacted about countersigning First American Title Company's title insurance policies communicated with other abstractors in the state to establish a fee schedule for countersignatures in the absence of any such statute or regulation governing such fees. Plaintiffs charge that as a result of these legislative changes and the resulting problems First American Title Insurance Company had with obtaining countersignatures, Plaintiff First American Title Insurance Company was no longer able to exist financially and was dissolved in May, 1980.

In a nutshell, Plaintiffs allege that the activities of the Defendants were meant to harass and injure them. It is further claimed that this harassment allegedly led to the failure of First American Title Insurance Company and has obstructed Plaintiff First American Title Company from conducting title work in counties other than Pennington County.

All of the Defendants have cited three major areas of law in support of their opposition to Plaintiffs' allegations: The McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq.; the Noerr-Pennington doctrine; and the so-called state action doctrine. In addition, Defendants SDABE and the state of South Dakota have alleged immunity under the eleventh amendment.

This Court will analyze each of these areas of the law as they apply to the eight allegations of Plaintiff's complaint.

McCARRAN-FERGUSON ACT

The McCarran-Ferguson Act⁴ was passed in response to the decision of the United States Supreme Court in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944)...