Howland v. First American Title Ins. Co.

• Decision Date: 06 March 2012
• Docket Number: Nos. 11–1816,11–1817.,s. 11–1816
• Citation: 672 F.3d 525
• Parties: Janice M. HOWLAND and Scott Tegtmeyer, individually and on behalf of all others similarly situated, Plaintiffs–Appellants, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

672 F.3d 525

Janice M. HOWLAND and Scott Tegtmeyer, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,

v.FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant–Appellee.

Nos. 11–1816

11–1817.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 24, 2011.Decided March 6, 2012.

J. Timothy Eaton (argued), Attorney, Shefsky & Froelich, Ltd., Chicago, IL, Stephen M. Tillery, Attorney, Korein Tillery, St. Louis, MO, for Plaintiff–Appellant and Intervenor–Appellant.

Brian J. Murray (argued), Attorney, Jones Day, Chicago, IL, for Defendant–Appellee.

Before SYKES and TINDER, Circuit Judges, and DeGUILIO, District Judge.^*DeGUILIO, District Judge.

First American Title Insurance Company sells title insurance to consumers in Illinois through its attorney title agent program, in which it pays the consumer's real estate attorney to conduct a title examination and determine whether the title is insurable. Plaintiffs contend that the payment is designed to compensate for referrals, not actual services, and that First American's program violates Section 8 of the Real Estate Settlement Procedures Act (“RESPA”), which prohibits kickbacks and fee splitting. The district court twice denied class certification under Federal Rule of Civil Procedure Rule 23(b)(3), concluding that an individual determination of liability would be required for each class member. We agree. Class actions are rare in RESPA Section 8 cases, and this is no exception.

I.

Title insurance protects real estate buyers and lenders against losses caused by defects in a property's title. Consumers can purchase title insurance directly from a title insurance company, but generally they purchase it from a real estate professional acting as a “title agent” for the insurer. In Illinois, where attorneys typically represent consumers in real estate transactions, those attorneys often also serve as title agents for title insurance companies.

First American sells title insurance both directly to consumers and through attorney title agents. It also maintains a “title plant” database containing up-to-date copies of recorded documents and public records. When a title insurance purchase is made directly from First American, in-house attorneys get title search materials from the title plant, examine those materials, and determine whether the title is insurable.

When an attorney agent sells the policy, however, First American contracts with that attorney, rather than its in-house attorneys, to conduct a title examination and determine insurability. Until September 2005 (when the class-definition cuts off), First American would provide its attorney agents with a search package containing raw data from the title plant about the property and parties and a “search summary sheet” that summarized parts of the data and listed essential information, such as the legal description of the property, the last known grantee on the most current deed, and open liens. It also listed any potential issues with the title readily identified (without additional examination or research) by a computer or First American employee. The attorney agent would then conduct his title examination; according to the agency contract, this required examining the information that First American provided as well as any other relevant information that might caution against insuring the title. And although the agency contract authorized the agent only to conduct a title examination on First American's behalf, agents sometimes performed other services, including providing documentation to clear exceptions in the policy and waiving exceptions on First American's behalf and assuming liability for the waiver.

Based on the examination, the agent would make any necessary additions, deletions, or changes to the search summary sheet. If the information in the summary was correct and complete, however, the agent would make no changes. The agent would then sign the search summary sheet, indicating his approval. First American next prepared a title insurance commitment based on the information in the returned search summary sheet, which was then approved by the agent and distributed to the parties.

On May 9, 2007, Douglas Sharbaugh filed this suit against First American, claiming that the practices outlined above constitute an illegal kickback in violation of RESPA, the Illinois Title Insurance Act, and the Illinois Consumer Fraud Act. He sought to represent a class of all individuals injured by the alleged violations. Six months later, Janice Howland replaced Sharbaugh as the named plaintiff.

Howland then moved the district court to certify a class “of all people who purchased, sold or mortgaged real property in the State of Illinois and who paid for a title insurance policy from the Defendant, any part of which premium was then shared with an attorney who did not perform ‘core title agent services' separate from attorney services in exchange for such fee.” The district court reasoned that although certain questions under RESPA were common to the class, it could not ultimately determine whether each transaction was a violation without a transaction-specific inquiry to determine what services (core and otherwise) the agent provided and whether the compensation paid was unreasonably high and thus amounted to a kickback. Therefore, it concluded, the individual issues predominated over common ones and the case was not suited for class treatment. It denied the motion for class certification and a subsequent motion for reconsideration.

Howland next sought to amend her proposed class definition to add two additional limitations, namely (1) that the search summary sheet that the agent returned “made no changes or additions to the information transmitted by First American” and (2) that First American paid “the full amount of compensation called for under the agency agreement or contract.” The district court noted that the new definition might alleviate some of the individual inquiries necessary, but concluded that it did not eliminate the need for a transaction-specific inquiry to determine liability: the unaltered search summary sheet was not evidence that an agent performed no core title agent services, merely that those services were not documented because they did not entail changes to the search summary sheet. The district court denied the second motion for class certification and then a motion to reconsider.

The case then proceeded on Howland's individual claims. Once discovery was completed, First American moved for summary judgment. Rather than respond, Howland accepted an offer of judgment for her individual claim, while purportedly reserving the right to appeal the denial of class certification. ¹ The district court entered judgment on March 9, 2011. Three weeks later, putative class member Scott Tegtmeyer was granted leave to intervene. Both Howland and Tegtmeyer filed timely notices of appeal, challenging the district court's denial of class certification.

II.

Because Rule 23 generally entrusts the certification of class-action lawsuits to the broad discretion of the district court, this Court will reverse a certification decision only when it finds an abuse of discretion. See Ervin v. OS Rest. Servs., Inc., 632 F.3d 971, 976 (7th Cir.2011). Legal questions, however, are always reviewed de novo because a district court abuses its discretion if it applies an incorrect law. Id. To certify a class under Rule 23(b)(3), as the plaintiffs seek, they must establish (not merely allege) that the elements of Rule 23(a) are met, including the existence of common issues, and further that those common issues predominate over individual issues and that a class action would be a superior method of adjudicating the claims. Wal–Mart Stores, Inc. v. Dukes, –––U.S. ––––, 131 S.Ct. 2541, 2548–49 & n. 2, 180 L.Ed.2d 374 (2011). In this case, the district court denied class certification because it believed that individual inquires would be necessary to determine liability in favor of each class member and thus that Rule 23(b)(3) was not satisfied. It did not reach the issue of whether the other criteria of Rule 23(b)(3) and Rule 23(a) were met. The district court reached the only reasonable conclusion on certification, and thus did not abuse its discretion.

A.

RESPA was enacted in 1974 with the goal of ensuring that consumers “are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country.” 12 U.S.C. § 2601(a). Congress sought to accomplish this by mandating certain disclosures to help consumers become better shoppers for settlement services and by prohibiting “kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.” Id. § 2601(b).

Section 8 of RESPA and its implementing regulations combat the latter concern. Section 8(a) prohibits any person from giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding” that the payee will refer business in exchange for the payment. 12 U.S.C. § 2607(a). Section 8(b) likewise prohibits the payment or receipt of “any portion, split, or percentage of any charge made ... other than for services actually performed.” Id. § 2607(b). Section 8 also, however, enumerates certain conduct or transactions that do not violate the statute. Two are relevant here. First, Section 8(c)(1)(B) applies specifically to title agents, protecting payments “by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance.” Id. § 2607(c)(1)(B). Second, Section 8(c)(2) applies generally to “the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually...