Ticor Title Ins. Co. v. F.T.C., 89-3787

• Citation: 922 F.2d 1122
• Decision Date: 12 March 1991
• Docket Number: No. 89-3787,89-3787
• Parties: , 1991-1 Trade Cases 69,293 TICOR TITLE INSURANCE COMPANY, Chicago Title Insurance Company, SAFECO Title Insurance Company (now known as Security Union Title Insurance Company), Lawyers Title Insurance Corporation and Stewart Title Guaranty Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1122

922 F.2d 1122

59 USLW 2433, 1991-1 Trade Cases 69,293

TICOR TITLE INSURANCE COMPANY, Chicago Title Insurance

Company, SAFECO Title Insurance Company (now known as

Security Union Title Insurance Company), Lawyers Title

Insurance Corporation and Stewart Title Guaranty Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 89-3787.

United States Court of Appeals, Third Circuit.

Argued Aug. 28, 1990.

Decided Jan. 9, 1991.

Order on Denial of Rehearing and

Rehearing In Banc March 12, 1991.

John C. Christie, Jr., Patrick J. Roach, Bell, Boyd & Lloyd, Washington, D.C., for petitioners Chicago Title Ins. Co. and SAFECO Title Ins. Co. (now known as Security Union Title Ins. Co.).

Robert E. Cooper, Gibson, Dunn & Crutcher, Los Angeles, Cal., and Phillip H. Rudolph, Gibson, Dunn & Crutcher, Washington, D.C., for petitioner Ticor Title Ins. Co.

John F. Graybeal (argued), John J. Butler, Parker, Poe, Adams & Bernstein, Raleigh, N.C., for petitioner Lawyers Title Ins. Corp.

David M. Foster, James N. Plamondon, Fulbright & Jaworski, Washington, D.C., for petitioner Stewart Title Guar. Co.

James M. Spears, Gen. Counsel, Jay C. Shaffer, Deputy Gen. Counsel, Ernest J. Isenstadt, Asst. Gen. Counsel, Leslie Rice Melman (argued), F.T.C., Washington, D.C., for respondent.

Heidi B. Hamman Shakely and Zella M. Smith, Asst. Counsels, Victoria A. Reider, Deputy Chief Counsel, Linda J. Wells, Chief Counsel, Com. of Pennsylvania, Ins. Dept., Harrisburg, Pa., for amicus curiae Com. of Pennsylvania, Ins. Dept.

Before HUTCHINSON and NYGAARD, Circuit Judges, and RE, Judge ^*.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

Five of the nation's largest title insurance companies, Ticor Title Insurance Company, Chicago Title Insurance Company, SAFECO Title Insurance Company (now operating under the name Security Union Title Insurance Company), Lawyers Title Insurance Corporation and Stewart Title Guaranty Company (collectively Ticor), petition for review of a final order of the Federal Trade Commission (FTC). In a forty-seven page majority opinion that formed the basis of the FTC's final order, the FTC held that the five title insurance companies engaged in "[u]nfair methods of competition" in violation of Sec. 5 of the Federal Trade Commission Act (FTC Act), 15 U.S.C.A. Sec. 45(a)(1) (West Supp.1990), when they collectively agreed to set rates for title search and examination services in six states. The final order found antitrust violations in Arizona, Connecticut, Montana, New Jersey, Pennsylvania and Wisconsin.

In its petition for review, Ticor does not dispute the FTC's holding that the horizontal price-fixing agreements among five of the nation's largest title insurance companies for title search and examination services at issue in this case were anti-competitive and unfair within the meaning of Sec. 5 of the FTC Act. Instead, Ticor advances four alternate arguments for reversal of the FTC's final order. Ticor's first argument is that the state action doctrine, which traces its origin to the Supreme Court's opinion in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), immunizes its challenged collective rate setting activities from antitrust liability. Ticor's second argument is that its challenged activities are exempt from the antitrust laws pursuant to Sec. 3(a) of the McCarran-Ferguson Act, 15 U.S.C.A. Sec. 1013(a) (West 1976). Ticor's third argument is that its activities constitute joint petitioning of state regulators immune from antitrust liability under the Noerr-Pennington doctrine. See Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965). Ticor's final and most abbreviated argument, taking up less than two pages of the ninety pages of briefing it submitted in this cause, is that the FTC's final order is void because its proceeding violated the doctrine of separation of powers since the FTC exercises executive power and yet is not subject to the executive branch's control. ¹

For the reasons set forth below, we hold that Ticor's collective rate setting for title search and examination services in these six states is immune from federal antitrust liability under the state action doctrine. As we examine in more detail below, the state action doctrine limits the reach of the FTC's enforcement jurisdiction. As a result, we find it unnecessary to address at any great length Ticor's other three arguments in favor of reversing the FTC's order. Thus, we will grant Ticor's petition for review and will vacate the FTC's final order.

I.

On January 7, 1985, the FTC issued an administrative complaint alleging that six ² of the nation's largest title insurance companies had engaged in "[u]nfair methods of competition" in violation of Sec. 5 of the FTC Act, 15 U.S.C.A. Sec. 45(a)(1) (West Supp.1990). ³

The alleged antitrust violation was the insurers' agreements collectively to set rates for title search and examination services. ⁴ At one time or another, these insurers set uniform rates for title search and examination services through private "rating bureaus" in thirteen states. The FTC did not challenge the insurers' collective formulation of uniform rates for insuring against the risk of loss from defective title. Thus, this aspect of title insurance is not before us.

The matter came before an administrative law judge (ALJ) who held hearings and took evidence. The ALJ issued an initial decision and proposed order on December 26, 1986. The ALJ found without merit the insurers' claims that the collective formulation of rates for title search and examination services is part of the "business of insurance" exempt from the FTC Act pursuant to Sec. 3(a) of the McCarran-Ferguson Act, 15 U.S.C.A. Sec. 1013(a) (West 1976). The ALJ also rejected the insurers' claim that the challenged conduct was protected from antitrust liability under the Noerr-Pennington doctrine as joint petitioning of state regulators in an attempt to influence state policy.

As to the insurers' remaining defense of state action, ⁵ the ALJ ruled that in Connecticut and Wisconsin the insurers' collective rate setting was not supervised at all and thus could not satisfy the "active supervision" requirement of the doctrine. The ALJ held that the insurers' price-fixing in Arizona, Idaho, Montana, New Jersey and Pennsylvania satisfied the two-pronged state action defense and was thus immune from antitrust liability. Finally, the ALJ ruled that with respect to Ohio, the FTC's complaint counsel, who prosecuted the case on behalf of the government, failed to prove that the insurers used their rating bureau to establish uniform rates for title search and examination services.

The insurers appealed the ALJ's initial decision to the FTC, and complaint counsel cross-appealed. On September 19, 1989, the FTC, through four commissioners, issued its final order and decision affirming in part and reversing in part the ALJ's decision. ⁶ It is the FTC's decision that is before us for review.

In its decision, the FTC independently considered the record, including the ALJ's initial decision and findings. With respect to the insurers' state action defense, the FTC rejected its application to New Jersey and Pennsylvania, finding that the relevant state statutes did not clearly articulate a policy to displace competition with regulation. ⁷ The FTC found that the contrary position that the state insurance departments in both states advanced was in conflict with the plain and unambiguous meaning of the relevant state statutes.

The FTC also rejected the state action defense as to Arizona, Connecticut, Montana and Wisconsin on the ground that the "active supervision" requirement of the state action doctrine was not satisfied. ⁸ The FTC dismissed the complaint's allegations concerning Idaho and Ohio. It split evenly over whether there was active supervision of the insurers' collective ratemaking in Idaho. It agreed with the ALJ that the FTC's complaint counsel failed to demonstrate a sufficient link between the collective filing of risk rates and fees for the insurers' search and examination services in Ohio.

Next, the FTC held that the insurers' collective formulation of charges for search and examination services was not part of the "business of insurance" and thus was not exempt from regulation under the FTC Act by reason of the McCarran-Ferguson Act. The FTC agreed with the ALJ that searches and examinations are services that persons and entities other than insurance companies commonly perform. Further, the FTC found that insurance companies themselves usually differentiate between the rates charged for indemnification against loss from non-record title defects (which the FTC viewed as the core function of title insurance) and the rates charged for tracking down title defects prior to writing the policy.

The FTC then went on to reject the insurers' claim that their collective ratemaking for search and examination services was immunized from antitrust regulation under the Noerr-Pennington doctrine. The FTC wrote that the challenged conduct was the type of commercial activity that has traditionally had its validity determined by the antitrust laws and was not "political activity with a commercial impact." Joint Appendix (Jt.App.) at 170.

The FTC's final order to cease and desist prohibits the insurers from fixing prices for title search and examination services in the six states where violations of law were found. However, the order contains a proviso that permits collective establishment of rates for search and examination services in any of these states if undertaken "pursuant to clearly articulated and affirmatively expressed state policy and where such collective activity is actively supervised by a state regulatory body." ⁹ Jt.App. at 125.

In their petition to this Court, the insurers ask u...