Schwartz v. Commonwealth Land Title Insurance Co.

• Decision Date: 20 February 1974
• Docket Number: Civ. A. No. 71-2566.
• Citation: 374 F. Supp. 564
• Parties: Harlan SCHWARTZ and Daniel T. Danzi, Jr. on behalf of themselves and all others similarly situated v. COMMONWEALTH LAND TITLE INSURANCE COMPANY et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

374 F. Supp. 564

Harlan SCHWARTZ and Daniel T. Danzi, Jr. on behalf of themselves and all others similarly situated v. COMMONWEALTH LAND TITLE INSURANCE COMPANY et al.

Civ. A. No. 71-2566.

United States District Court, E. D. Pennsylvania.

February 20, 1974.

COPYRIGHT MATERIAL OMITTED

S. Gerald Litvin, Dennis H. Eisman, Philadelphia, Pa., for plaintiffs.

Franklin Poul, Robert W. Sayre, Bancroft D. Haviland, Arsen Kashkashian, Jr., Gilbert B. Abramson, Gerald A. Dennehey, Theodore W. Flowers, Arnold Levin, Philadelphia, Pa., Robert James Jackson, Chester, Pa., Jeffrey A. Less, George F. Shinehouse, Jr., Eugene F. Brazil, Philadelphia, Pa., Harold Patton, Levittown, Pa., Rod J. Pera, Harrisburg, Pa., John C. Christie, Jr., Chicago, Ill., for defendants.

OPINION AND ORDER

EDWARD R. BECKER, District Judge.

I. Preliminary Statement

This is an antitrust case. Before us are the motions of all defendants to dismiss the complaint for failure to state a claim upon which relief can be granted, under F.R.Civ.P. 12(b)(6). Defendants are title insurance companies or agents, and the rating bureau for Pennsylvania title insurance companies. Plaintiffs are two individuals who sold real property to buyers who purchased title insurance on that property from some of the defendants. At issue is the fee charged to plaintiffs and other sellers of real estate at closings held in the defendants' offices. This seller charge¹ was instituted in 1967 by the companies to cover part of the expense of performing services inuring to the benefit of the seller, consisting generally of the mechanical arrangements incident to a sale of real property.² Prior to that time the title companies' entire charge for insurance and services was paid by the buyer.

Because the seller charge, like all other title insurance rates, was set at a level agreed upon by all the companies through their rating bureau, the basis of plaintiffs' complaint is that in instituting the seller charge, the defendants conspired to fix prices in violation of section 1 of the Sherman Act, 15 U.S.C. § 1.³ For purposes of the motion to dismiss, of course, the facts pleaded in the complaint are taken as true. Succinctly stated, the relevant allegations are that the defendants agreed among themselves to charge a fixed fee from any seller of real estate whose buyer purchased title insurance from a title company doing business in Pennsylvania, where the closing took place in Pennsylvania, in violation of the antitrust laws. The complaint seeks injunctive relief and treble damages for members of a class of plaintiffs consisting of all persons who paid the seller charge to any of the defendants.

The sole ground underlying the motions to dismiss presently before us is that the seller charge, like the title companies' rates charged to buyers, is exempt from the Sherman Act prohibition by virtue of the McCarran-Ferguson Act of 1945.⁴ Basically, that statute leaves the states free to regulate "the business of insurance" and exempts such business from the Sherman Act, Clayton Act, and Federal Trade Commission Act to the extent that such business is regulated by state law. The broad issues raised by these motions are, accordingly, (1) whether the seller charge is comprehended within the term "the business of insurance," and (2) whether the seller charge is "regulated by state law." Before we directly address these issues, a review of the regulation of title insurance in Pennsylvania will be helpful.

II. The Statutory Scheme For Regulation of Title Insurance in Pennsylvania

The title insurance industry in Pennsylvania is pervasively regulated by the Insurance Department ("Department") pursuant to statute in the manner hereinafter described.⁵

All title insurance companies transacting title insurance business within Pennsylvania must be incorporated under Pennsylvania title insurance law or licensed by the Department of Insurance to transact title insurance business in Pennsylvania, 40 Pa.Stat.Ann. §§ 910-1(3), 910-4, 910-22.

Domestic and foreign corporations are subject to stringent financial requirements. These requirements cover such areas as the minimum capital of the insurance company, impairment of capital, and paid-in initial surplus, §§ 910-5, 910-6. Reserves against unearned premiums and unpaid losses are regulated, as are the types of investments into which a title insurance company may place its capital, §§ 910-14 to 910-18, 910-32 to 910-35.

The Commissioner of Insurance is empowered to examine all changes in control of the ownership of title insurance companies and to satisfy himself of the character, experience, and financial responsibility of those acquiring control, and that the change will not jeopardize the public interest, § 910-53. Similarly, all proposed mergers and consolidations of domestic title insurance companies with either domestic or foreign title insurance companies and the corporate acquisitions of domestic companies must be filed with and approved by the Commissioner, §§ 910-51, 910-52.

The power of title insurance companies to insure titles is statutorily defined, § 910-8. There are also further statutory restrictions on their business. They are prohibited from guaranteeing the payment of mortgages on real property, §§ 910-9, 910-10; from engaging in the banking business, § 910-11; from acting as a trustee, guardian, or similar fiduciary, § 910-12; and from issuing insurance other than title insurance, § 910-13. The foregoing regulation aimed primarily at the structure and powers of title insurance companies is accompanied by extensive regulation of their title insurance operations.

Before issuing a policy, every title insurance company must conduct a title search, and the abstract of title or search report must be preserved for at least 20 years after issuance of the policy, § 910-7. The form of title policies is subject to disapproval by the Commissioner, 40 Pa.Stat.Ann. § 477b.

All agents for title insurance companies must be licensed by the Commissioner, § 910-26. They must keep their books and records, which are open to the Commissioner, in such a form that the Insurance Department can readily ascertain whether the law is being complied with, and they must reply promptly in writing to the Department's inquiries:

The rates a title company charges are fully regulated. Every classification, rule, plan, schedule of fees, and commission must be filed with the Department for its approval, § 910-37. Every rate filing must be accompanied by a statement of justification, which becomes a public record after the rate becomes effective, § 910-38. In reviewing the filing, the Commissioner must consider a number of factors including, inter alia, the past and prospective loss experience of the company, expenses, revenues, and a reasonable margin for profit. Under the law, rates may not be higher than necessary to enable title insurance companies to pay their expenses and losses and to make a reasonable profit, § 910-39. Determination of what is a "reasonable" profit must include (1) the rates of profit of other industries, (2) the desirability of rate stability, (3) the necessity of growth in assets in times of prosperity to protect the financial solvency of title insurance companies in times of depression, and (4) the necessity for earning sufficient dividends to induce capital to be invested in title insurance companies, § 910-39.

A procedure for departmental review of the filings is set out, including hearings, a statement of reasons for a disapproval, and the opportunity to withdraw a filing, § 910-40. Moreover, public disclosure of all pertinent information is required to be made to any insured affected by a rate who has requested such information and each insurance company must afford aggrieved persons a reasonable opportunity to present their grievances, § 910-44.

The Commissioner must, and does, provide rules and statistical plans, in as much form and detail as is necessary. These rules and plans are used by each title insurance company in reporting, on an annual basis, the composition of its business, and the loss and country-wide expense experience of it and its title insurance underwriters. The Commissioner may also require the recording and reporting of expense experience items which are specially applicable to Pennsylvania and not susceptible of determination by prorating country-wide expense experience, § 910-46.

The Commissioner regulates trade practices of the insurance companies as well, 40 Pa.Stat.Ann. §§ 1151-1162. He has authority over misrepresentations and false advertising, boycotts, intimidation, coercion, and other unfair trade practices by title insurance companies.

The statutory frame of reference clearly contemplates uniformity in title insurance company charges and joint action by the companies in connection therewith. Title insurance companies are authorized to form rating associations, which are licensed by the Commonwealth and are themselves subject to thorough regulation. The Commissioner can issue a license to a rating organization on finding that it is competent, trustworthy, and otherwise qualified, and that its constitution or articles, and its by-laws, rules, and regulations conform with the requirements of law. The duration of a license is three years. Rating organizations must furnish the Department with lists of their subscribers. All changes in the above items must be promptly reported to the Department. The association must permit any non-member title insurance companies to become subscribers to its rating services on a reasonable basis and the refusal to admit a title insurance company to subscriber status may be reviewed by the Commissioner, who has the power to order admission. Section 910-41.

Cooperation among rating organizations and among title insurance companies is specifically authorized by statute, not only in ratemaking, but in other matters within the scope of the title insurance article, §...