First American Title Company Of South Dakota v. South Dakota Land Title Association

Lynn, Jackson, Shultz & Lebrun, P.C., Donald R. Shultz, Gene N. Lebrun, Rapid City, S.D., Burns & Figa, P.C., Hugh A. Burns, Phillip S. Figa, Denver, Colo., for appellants.

Mark V. Meierhenry, Atty. Gen., Jeffrey P. Hallem, Asst. Atty. Gen., Pierre, S.D., for state appellees.

Schmidt, Schroyer, Colwill & Zinter, P.C., Gary F. Colwill, Ronald G. Schmidt, Pierre, S.D., for appellees South Dakota Land Title Ass'n, Fall River Abstract Co., Charles E. Clay, Custer Title Co., Betty J. Gould, Haakon County Abstract Co., Keith Emerson, Wayne Roe and Charles Nass.

Before HEANEY and FAGG, Circuit Judges, and HANSON,* Senior District Judge.

HANSON, Senior District Judge.

This antitrust case concerns alleged anticompetitive private and regulatory restraints on the South Dakota abstracting and title insurance businesses. Plaintiffs/appellants, First American Title Company of South Dakota and First American Title Insurance Company of South Dakota, contend that they were the victims of a price-fixing conspiracy, frivolous and sham litigation, and a conspiracy to devise and enforce statutes and regulations which served to restrain trade in the abstracting and title insurance businesses, all in violation of sections 1 and 2 of the Sherman Act.1 15 U.S.C. §§ 1 and 2. Defendants/appellees are the South Dakota Land Title Association (the Association), a professional association of South Dakota abstracters; the South Dakota Abstracters' Board of Examiners (the Board of Examiners), the state board which regulates the business of abstracting; and various individual South Dakota abstracters and title companies. The district court also permitted the joinder of the State of South Dakota as a defendant pursuant to a motion by the Board of Examiners.

Following a bifurcated bench trial on the issue of liability, the district court entered judgment for defendants. The court found that there was insufficient evidence to support a conclusion that a private price-fixing conspiracy existed among defendant abstracters and their title companies. The court further concluded that plaintiffs' remaining antitrust claims were barred by the McCarran-Ferguson Act, the Noerr-Pennington doctrine, and the state action doctrine. The First American companies appeal these holdings and we affirm.

South Dakota pervasively regulates the business of abstracting and insuring land titles. See SDCL chs. 36-13 (Abstracters of Title) and 58-25 (Title Insurance Rates and Policies). Until July 1, 1979, South Dakota required that no foreign insurance company could issue a title insurance policy on property in South Dakota unless the policy was countersigned by a licensed abstracter who was doing business in the county where the property was located. SDCL § 58-25-16.2

In order to do business in a particular county in South Dakota, an abstracter, among other requirements, must have an approved abstract plant showing "in a sufficiently comprehensive form, all instruments affecting the title to real estate which are of record or on file in the office of the register of deeds...." SDCL § 36-13-10. The Board of Examiners, whose duty it is to "carry out the purposes and enforce the provisions of" the statutes governing abstracting and to "make such rules and regulations as may be necessary to carry out the purposes of those statutes," SDCL § 36-13-6, defines by regulation what constitutes "sufficiently comprehensive form" for an abstract plant's records. In part, this long-standing regulation requires that the plant contain

a complete index showing every instrument recorded in the register of deeds' office in the county wherein [the abstracter] proposes to operate, properly listed against the specific property which it affects, and also a separate index showing all recorded instruments which do not affect specific property. This index ... must be made from an actual check of each page of each book of recorded instruments in said office, and in no case will a copy or film of the numerical index in the register's office be accepted.

ARSD § 20:36:04:01.

One of the First American companies' contentions is that the requirement that an abstracter's index be "made from an actual check of each page of each book of recorded instruments" imposes a financially-prohibitive burden upon anyone who wishes to open a competing abstract plant in a given county. See Part IV infra. The regulation's anticompetitive effect, according to appellants, is reflected by the current situation in South Dakota in which most counties have only one licensed abstracter, except for the more populated counties, which have two.

Walter J. Linderman became a licensed abstracter in Pennington County, South Dakota in 1973 and formed First American Title Company of South Dakota in 1974. Linderman's title company served as a local agent for a foreign title insurance company, First American Title Insurance Company of California. In his dual capacity as abstracter and title insurance agent, Linderman was qualified to countersign title insurance policies on property located in Pennington County; but in insuring title on property outside Pennington County, Linderman was required to obtain the countersignature of that county's licensed abstracter and pay the resulting fee.

The anomoly in SDCL § 58-25-16 which required only foreign insurance companies to obtain countersignatures from abstracters on title insurance policies led Linderman to form a domestic title insurance company in December 1978--First American Title Insurance Company of South Dakota. This would have enabled Linderman to issue title insurance policies on property in any South Dakota county without obtaining a countersignature from that county's licensed abstracter.

This was not to be, however, because in the ensuing legislative session, the South Dakota legislature amended SDCL § 58-25-16 by deleting the word "foreign," thus extending the countersignature requirement to all title insurance policies, whether they be issued by a foreign or domestic insurance company.3

Defendants' opposition to Linderman's formation of a domestic title insurance company and their support for the amendments to § 58-25-16 form bases for two of the First American companies' antitrust claims. It is claimed that defendants engaged in frivolous and sham litigation in violation of the Sherman Act by appealing to state court the administrative decision by the Division of Insurance to grant a certificate of authority to First American Title Insurance Company of South Dakota. It is further claimed that defendants engaged in unlawful anticompetitive conduct by lobbying in support of the amendments to § 58-25-16, which included the deletion of the word "foreign" from the statute.

Following the amendment to the countersignature statute, the alleged anticompetitive conspiracy continued in 1979 in the context of a controversy over whether the Division of Insurance or the Board of Examiners had the authority to set countersignature fees. The Board of Examiners already had at that time clear authority to "establish a schedule of fees for doing business" under chapter 36-13 relating to abstracters' services. SDCL § 36-13-25. The countersignature requirement, however, is in chapter 58-25, which regulates title insurance, a business overseen by the Division of Insurance and its director. SDCL § 58-2-21. The First American companies claim that defendants wanted the Board of Examiners to control countersignature fees to insure that they would be sufficiently high to stem the proliferation of title insurance in South Dakota. Presumably, the Board of Examiners' interest in setting high fees would be greater because three of its four members are required to be abstracters. SDCL § 36-13-1.

Following an opinion by the South Dakota Attorney General that the Division of Insurance had authority to set counter-signature fees, the Association brought an ultimately unsuccessful state court action attacking the jurisdictional basis for this authority. Fall River County Abstract Company v. Knutson, (6th Judicial Circuit Court, Hughes County, S.D., November 6, 1979, Judge Robert A. Miller). A basis for the state court ruling was the conclusion that the countersigning of a title insurance policy was purely a ministerial act because South Dakota law did not require any affirmative act by the abstracter before signing. During the 1979 South Dakota legislative session, defendants successfully lobbied the state legislature to pass laws which ensured that the countersigning of a title insurance policy was to be more than a ministerial act and which specifically gave the Board of Examiners the authority to set countersignature fees.4 The litigation and lobbying by defendants on the countersignature fee issue are alleged to be further unlawful anticompetitive acts.

Although the Board of Examiners did in 1980 obtain authority to establish countersignature fees, no fee schedule ever regulated countersignature fees during the life of the First American Title Insurance Company of South Dakota. It is claimed that Linderman, as the agent for this company, was the victim of a private price-fixing conspiracy by the individually-named defendant abstracters and title companies in 1979 and 1980. Allegedly, these defendants conspired to fix countersignature fees at a level of 50% of the title insurance policy's premium. It is claimed that this private price-fixing conspiracy, coupled with the statutory changes, forced Linderman to dissolve First American Title Insurance Company of South Dakota in May 1980.

First American's5 initial claim on appeal--that the district court erred in finding insufficient evidence of a private conspiracy to fix prices for countersignature fees--need not long detain us. It is, of course, well-established that price-fixing is a per se violation of § 1 of the Sherman Act. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218, 60 S.Ct. 811, 841, 84 L.Ed. 1129 (1940). In this case the district court concluded that evidence of a conspiracy to fix countersignature fees at 50% of the title insurance policy premium was "equivocal" and "not sufficient." First American failed to prove the presence of a conspiracy among the individual abstracters and title companies named as defendants, and further failed to prove that the countersignature fees charged by these defendants were fixed at a level of 50% of the policy premium. It would serve no purpose for this court to reiterate the district court's discussion which reflects careful consideration of the evidence. See First American Title Co. v. South Dakota Land Title Association, 541 F.Supp. 1147, 1154-56 (D.S.D.1982). We hold that substantial evidence in the record supports the district court's findings; nowhere are we left with the "definite and firm conviction that a mistake has been committed" with regard to these findings. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948).

First American next contends that the district court erred in holding that the Noerr-Pennington doctrine insulates defendants from antitrust liability for their lobbying and litigation activities. The Noerr-Pennington doctrine generally holds that the Sherman Act does not apply to joint efforts by groups seeking to exercise their first amendment right to petition the government, whether it be a petition to the legislature, an administrative agency, or the courts. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); Eastern Railroad Conference v. Noerr Motor Freight, 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961). Furthermore, such joint efforts "do not violate the antitrust laws even though intended to eliminate competition." Pennington, supra, 381 U.S. at 670, 85 S.Ct. at 1593. But an exception to the doctrine does hold that the Sherman Act applies if the joint action "is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor." Noerr Motor Freight, supra, 365 U.S. at 144, 81 S.Ct. at 533.

First American initially attacks the district court's holding that lobbying by defendants in favor of the amendment to SDCL § 58-25-16 which resulted in deletion of the word "foreign" from the statute was activity which fell "squarely within the confines of the Noerr-Pennington Doctrine." First American Title Co., supra, 541 F.Supp. at 1157. We do not understand First American to argue the sham exception in attacking this holding. Indeed, such a claim would not prevail. As the district court concluded, "This is a classic case of a group of persons petitioning their government for relief and receiving the relief they request." Id. Cf. Alexander v. National Farmers Organization, 687 F.2d 1173, 1195 (8th Cir.1982), cert. denied, --- U.S. ----, 103 S.Ct. 2108, 2110, 77 L.Ed.2d 313, 314 (1983) ("The sham exception generally involves governmental contacts which are not a genuine attempt to influence official decision making, but instead are merely an attempt to interfere directly with the business relationships of a competitor.").

Rather First American claims that the Noerr-Pennington doctrine does not apply because a state agency--the Board of Examiners--was an alleged conspirator along with the private party defendants in seeking amendment to the countersignature statute. First American relies on Duke & Co. v. Foerster, 521 F.2d 1277, 1281-82 (3d Cir.1975), in arguing for application of this coconspirator exception to the Noerr-Pennington doctrine. In Duke & Co., plaintiff alleged that municipal corporations which owned the Pittsburgh Civic Arena, Three Rivers Stadium, and the Pittsburgh International Airport conspired with private corporations which operated these facilities to boycott malt beverages manufactured by plaintiff. The court of appeals reversed the district court's dismissal of the complaint, holding in part that the Noerr-Pennington doctrine did not shield defendants from antitrust liability.

Both Noerr and Pennington involved suits against private parties who had allegedly conspired to influence governmental action. In neither case was it alleged that the governmental entity had collaborated to promote the conspiracy. Where the complaint goes beyond mere allegations of official persuasion by anticompetitive lobbying and claims official participation with private individuals in a scheme to restrain trade, the Noerr-Pennington doctrine is inapplicable.

Duke & Co., supra, 521 F.2d at 1282 (emphasis in original).

We do not quarrel with the court's conclusion in Duke & Co. that the Noerr-Pennington doctrine did not apply. In our view, however, Noerr-Pennington was inapplicable because of the nature of the conduct alleged in the complaint, not because of the nature of the parties involved.6 The anticompetitive conduct alleged in the complaint in Duke & Co. was a boycott of plaintiff's product; clearly an alleged anticompetitive boycott is not first amendment conduct which the Noerr-Pennington doctrine was formulated to protect. The Court made this distinction in Noerr Motor Freight.

We think it equally clear that the Sherman Act does not prohibit two or more persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint or a monopoly.... [S]uch associations ... bear very little if any resemblance to the combinations normally held violative of the Sherman Act, combinations ordinarily characterized by an express or implied agreement or understanding that the participants will jointly give up their trade freedom, or help one another to take away the trade freedom of others through the use of such devices as price-fixing agreements, boycotts, market-division agreements, and other similar arrangements.

Id., 365 U.S. at 136, 81 S.Ct. at 529. Thus the Court made clear that "[t]he proscriptions of the Act, tailored as they are for the business world, are not at all appropriate for application in the political arena." Id., 365 U.S. at 141, 81 S.Ct. at 531. Duke & Co. and the instant case are embodiments of the Court's distinction. Whereas Duke & Co. involved allegations of anticompetitive government activity in the business world, the instant case concerns government activity in the political arena. We therefore hold that Duke & Co. is distinguishable on its facts.

First American further contends that defendants' lobbying campaign should not be protected by Noerr-Pennington because it involved "a misuse of the lobbying process" through false statements and inaccuracies that were made by defendants to the state legislature. The focus of this complaint appears to be a letter that the Board of Examiners sent to members of the South Dakota legislature explaining the Board's understanding of the then-current requirements for becoming a licensed abstracter and stating the Board's fear that failure to amend the countersignature statute could conceivably result in a domestic title insurance company issuing policies without performing a title search. The district court made no specific findings in this regard, but to characterize these statements as "misrepresentations" and to withhold Noerr-Pennington protection on account of this would result in undermining the doctrine itself. This letter, which contained at most mild political hyperbole, was well within the bounds of traditional political activity which Noerr-Pennington was established to protect. Cf. Westborough Mall, Inc. v. City of Cape Girardeau, 693 F.2d 733, 746 (8th Cir.1982), cert. denied, --- U.S. ----, 103 S.Ct. 2122, 77 L.Ed.2d 1303 (1983) (holding that illegal or fraudulent actions employed in conjunction with legitimate lobbying went beyond traditional political activity protected by Noerr-Pennington ).

Even assuming that misrepresentations may have appeared in the Board's letter, this would not preclude application of the Noerr-Pennington doctrine--at least in the context of legislative lobbying. The Supreme Court in California Motor Transport made the following comments regarding the bounds of constitutionally-protected conduct in the political arena:

The political campaign operated by the railroads in Noerr to obtain legislation crippling truckers employed deception and misrepresentation and unethical tactics. We said:

"Congress has traditionally exercised extreme caution in legislating with respect to problems relating to the conduct of political activities, a caution which has been reflected in the decisions of this Court interpreting such legislation. All of this caution would go for naught if we permitted an extension of the Sherman Act to regulate activities of that nature simply because those activities have a commercial impact and involve conduct that can be termed unethical." 365 U.S., at 141 [81 S.Ct. at 531].

Id. 404 U.S. at 512, 92 S.Ct. at 612.

Finally, we note that First American had equal access to the legislature to lobby against the amendment and to correct any "misrepresentations" which may have been made by defendants. Accordingly, we hold that the district court properly applied the Noerr-Pennington doctrine to defendants' activities in lobbying the South Dakota legislature to amend the countersignature statute.

First American also attacks the district court's application of the Noerr-Pennington doctrine to the state court litigation which arose during the period when Linderman formed and operated his domestic title insurance company. First American claims that certain defendants in two instances engaged in baseless and sham litigation intended to harass and interfere with First American's business relations. The Association opposed the granting of a certificate of authority by the Division of Insurance to First American Title Insurance Company of South Dakota and appealed the subsequent grant of the certificate to state court. This appeal resulted in affirmance of the Division of Insurance's decision to grant the certificate. Also, in Fall River County Abstract Co. v. Knutson, supra, the Association and the Fall River County Abstract Company sought a writ of prohibition in state court to prohibit the director of the Division of Insurance from establishing a fee schedule for the countersigning of title insurance policies. First American Title Insurance Company of South Dakota intervened in this litigation as a defendant. The district court held that the Noerr-Pennington doctrine protected the Association and the Fall River County Abstract Company from antitrust liability for their participation in these actions.

It is established that "[t]he right of access to the courts is indeed but one aspect of the right of petition"; accordingly, groups do not violate the Sherman Act by "us[ing] the channels and procedures of state and federal agencies and courts to advocate their causes and points of view respecting resolution of their business and economic interests vis-a-vis their competitors." California Motor Transport, supra, 404 U.S. at 510-11, 92 S.Ct. at 611-12. The sham exception to this doctrine holds that litigation of baseless claims which "may be characterized as a sham cover for what is really just an attempt to directly interfere with the business relations of a competitor," is subject to scrutiny under the Sherman Act. Alexander v. National Farmers Organization, supra, 687 F.2d at 1200; see California Motor Transport, supra, 404 U.S. at 513, 92 S.Ct. at 613.

In Alexander v. National Farmers Organization, supra, the parties initiated reciprocal antitrust actions arising out of competition in the milk industry between the NFO and certain large midwest dairy cooperatives. The court held that certain lawsuits initiated by the other dairy cooperatives against NFO were not actionable under the antitrust laws by application of the Noerr-Pennington doctrine, even though "the litigation directly against NFO was intended in part to hamper NFO's ability to compete." Id., 687 F.2d at 1200. The court concluded that "[t]here were genuine disputes regarding NFO's solicitation methods," id.; thus the sham exception did not apply.

Similarly in this case we do not doubt that the litigation was intended in part to hamper First American's ability to carry on the title insurance business with a domestically-formed company. But both causes of action also involved genuine disputes. The controversy over who was the proper party to establish a countersignature fee schedule was certainly genuine. When the Association lost in the judicial forum, it continued to assert its position before the South Dakota legislature and ultimately achieved the result it sought--the Board of Examiners was vested with authority to establish the fee schedule.

Likewise, the Association's effort to prevent Linderman's domestic title insurance company from receiving a certificate of authority to operate in South Dakota was not a baseless claim or sham cover for an attempt to interfere with First American's business.7 The Association had a genuine interest in preventing a domestic title insurance company from operating in South Dakota--at least while South Dakota law had the effect of permitting a domestic insurance company to issue title insurance policies without securing a title search from an abstracter who was licensed in the county where the property to be insured was located.8 Clearly the Association had a first amendment right of access both to the administrative and the judicial forums to press its opposition. We discern no abuse of these processes which was intended to produce an illegal result. Cf. California Motor Transport, supra (in which the Court held that the sham litigation exception applied to allegations that defendants abused administrative and judicial processes to produce the illegal result of barring plaintiffs from access to the agencies and courts). We thus affirm the district court's application of the Noerr-Pennington doctrine to these litigation episodes.

First American also challenges the district court's application of the state action doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). First American's rather unclear claims in its complaint state that defendants violated the Sherman Act by "enforc[ing] and attempt[ing] to enforce" the countersignature statute (SDCL § 58-25-16) and the regulation setting out the requirements for an abstract plant (ARSD § 20:36:04:01), as well as that defendants violated the Sherman Act by attempting to establish a fee schedule for countersignatures pursuant to SDCL § 36-13-25. The district court held that these particular claims were barred from federal antitrust scrutiny on account of the state action doctrine under which federal law impliedly defers to "state action" when the state program at issue satisfies certain requirements. P. Areeda & D. Turner, Antitrust Law p 207 at 58 (1978).

It appears, however, that First American shifted its focus somewhat during the course of the district court proceedings by dropping its challenge to defendants' authority to establish a countersignature fee schedule and arguing that the Sherman Act preempts the countersignature statute and certain regulations. See Clerk's Record (C.R.) at 74-75. The district court did not address this particular argument. The challenged regulations are those setting out the abstract plant requirements (ARSD § 20:36:04:01), requiring the abstracter to search both the official records and the abstracter's title plant before countersigning a title insurance policy (ARSD § 20:36:07:01), and requiring that the search on behalf of a title insurer be made under the direction of the licensed abstracter (ARSD § 20:36:07:02).

First American claimed before the district court that the challenged statute and regulations produce the following anticompetitive effect. The challenged provisions impose a rigorous abstract plant requirement which must be satisfied in each county in which an abstracter seeks to be licensed to do business. ARSD § 20:36:04:01. Coupled with this is the countersignature requirement, which states that a title insurance policy must be countersigned by an abstracter who is licensed in the county where the property to be insured is located. SDCL § 58-25-16. Because First American has satisfied the state's abstract plant requirements only in Pennington County, the anticompetitive effect is to prevent First American from performing title searches on a statewide basis, which in turn prevents First American from countersigning title insurance policies on a statewide basis.

First American reiterates this argument on appeal and adds that a further anticompetitive result of the regulatory scheme is to create a horizontal division of territories under which each abstracter is assured of a monopoly of the abstracting business in the county where the abstracter is licensed to operate. See United States v. Topco Associates, Inc., 405 U.S. 596, 608, 92 S.Ct. 1126, 1133, 31 L.Ed.2d 515 (1972) ("One of the classic examples of a per se violation of § 1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition.") We take this latter argument to be directed mainly at the abstract plant requirement which states that the plant must contain an index and that the index "must be made from an actual check of each page of each book of recorded instruments in [the register of deeds'] office, and in no case will a copy or film of the numerical index in the register's office be accepted." ARSD § 20:36:04:01.9 According to First American, these anticompetitive effects require preemption of the challenged statute and regulations under the Sherman Act.

In arguing for preemption, First American claims neither to seek "any sweeping repudiation of state statutory and regulatory provisions," nor to "seek a finding of unconstitutionality of any state statutes." Brief of First American at 43. On the contrary, the result of a successful preemption attack upon a state statute is that the statute is stricken down as unconstitutional under the Supremacy Clause. See, e.g., Seagram & Sons v. Hostetter, 384 U.S. 35, 45, 86 S.Ct. 1254, 1260-61, 16 L.Ed.2d 336 (1966). Accordingly, it is clear that First American is making a facial challenge to the above-indicated statute and regulations which are said to conflict with the Sherman Act. We also clarify that although First American's preemption argument appears to be directed against all defendants without differentiation, the only defendants against whom the argument necessarily can be directed are the State of South Dakota and the Board of Examiners. The state (in the form of its legislature) and the Board promulgated and enforce10 the challenged statute and regulations; consequently, it is they who would be enjoined from enforcing the challenged aspects of the regulatory scheme if First American were to prevail. We trouble to clarify these points because they are important to our ensuing discussion of the preemption/state action issues.

A due regard for federalism led the Supreme Court to create what is referred to as the state action doctrine in Parker v. Brown, supra. A raisin producer attempted to use the Sherman Act in Parker to strike down a marketing program enacted by the California legislature to create price supports for raisins. The Court assumed that the program would have violated the Sherman Act if it had been devised and carried out by private individuals or corporations. But because the marketing program "derived its authority ... from the legislative command of the state," id., 317 U.S. at 350, 63 S.Ct. at 313, the program was not prohibi