Title Insurance Class Action: Fourth Circuit Affirms Decertification and Dismissal Based on Failure to Exhaust Administrative Remedies

Posted on August 11, 2011 by Wystan M. Ackerman

A recent Fourth Circuit opinion highlights the importance of exploring the possibility that plaintiffs in a class action may have an administrative remedy in the state insurance department, which they may have to exhaust before suit.

Mitchell-Tracey v. United General Title Insurance Company, 2011 U.S. App. LEXIS 15952 (4th Cir. Aug. 2, 2011) was a statewide class action alleging that a title insurer failed to provide proper discounts when property owners purchased a second title insurance policy on the same property, typically when they refinanced their mortgage.  (This is a hot issue in title insurance class actions, see my post earlier this week about another one of these cases.)  A class was certified by the Maryland federal court in this case, but then the Fourth Circuit issued an opinion in another similar case holding that the named plaintiffs were required to exhaust administrative remedies with the insurance commissioner, where a key issue was interpretation of the rate filings and the insurance commissioner had the statutory authority to interpret them.

In insurance class actions, sometimes it’s obvious that there is an administrative remedy and primary jurisdiction argument.  That was probably true here where a rate filing was directly in issue.  In other cases, there is a potential argument based on an administrative remedy, but the potentially applicable statute or regulation is obscure or rarely invoked.  In some instances, the insurer may prefer to litigate than potentially throw the issue into a regulatory proceeding.  What is important here is for insurers and their counsel to remember to explore this issue whenever it might apply, and recognize that the argument might exist in circumstances where, at first blush, you would not expect it to be a viable argument. 

First Class Certification Ruling in Insurance Class Action After Wal-Mart Finds No Commonality

Posted on August 09, 2011 by Wystan M. Ackerman

I recently came across the first class certification ruling I’ve seen in an insurance case since the Supreme Court decided Wal-Mart (see my prior blog post).  The court strongly applied the new standard for commonality and found a lack of commonality, even though the same judge had previously found most of the class certification elements (except for adequacy of representation) satisfied in a very similar case prior to Wal-Mart.  So far, so good – this federal district court applied Wal-Mart as I expected it to be applied in insurance cases, and denied certification.

In Corwin v. Lawyers Title Insurance Company, 2011 U.S. Dist. LEXIS 84232 (E.D. Mich. Aug. 1, 2011), the plaintiff alleged that she was overcharged for a title insurance policy when she bought it as part of a “short sale” transaction (owing more than her property was worth, she sold it to the bank).  She claimed, for herself and a putative class of Michigan property owners, that under rate manuals she was entitled to a discounted rate because she had bought a prior policy on the same property.  Id. at *1-4.  She claimed that, although she had not presented evidence of the prior policy, the insurer had the burden of determining whether prior insurance existed.  She claimed the insurer could do this through a title search.  Id. at *5.  This kind of issue is fairly common in title insurance class actions – see my prior posts regarding a Sixth Circuit decision and a Western District of Washington decision in similar cases.

Judge Dawson, who decided this case, had previously found all of the class certification elements, except for adequacy of representation by the named plaintiff, were satisfied in Hoving v. Lawyers Title Insurance Company, 256 F.R.D. 555 (E.D. Mich. 2009).  He changed his mind here, though, based substantially on Wal-Mart:

[T]he Court [in Wal-Mart] quoted this language: “What matters to class certification . . . is not the raising of common ‘questions’—even in droves—but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.”

In this case, the plaintiff's proposed class consists of all individuals who purchased title insurance during specified time periods and were charged the basic rate. No absent class member can recover under the unjust enrichment theory, however, unless he or she can establish that there was a previous title policy issued on the specific property in question. Such proof is uniquely individualized; it cannot be established on a classwide basis. Therefore, instead of liability being established “in one stroke,” it would take an assessment of each transaction to determine if the absent class member qualified for the discount rate. Finding that the defendant failed to make a proper inquiry would not establish that the title company was unjustly enriched by charging the basic rate absent proof that the seller's property was insured previously. In order to make that determination, each transaction would have to be examined. As a consequence, the plaintiff cannot satisfy the requirement of Rule 23(a)(2) because, although there are questions common to the absent class members and the plaintiff that must be decided before liability is established, the critical inquiry without which liability cannot attach requires individualized determination.

 Id. at *16-18 (citation omitted; emphasis added).

This decision highlights how Wal-Mart has fundamentally changed the law on class certification.  If there is a key issue that requires individual determination, the basic requirement of commonality is not satisfied, let alone predominance (which the court here also found was not satisfied).   

 

Title Insurance Class Actions: Arbitration As A New Defense Strategy After AT&T Mobility v. Concepcion

Posted on July 07, 2011 by Wystan M. Ackerman

Law360 alerted me to one of the first significant decisions applying the Supreme Court’s opinion in AT&T Mobility v. Concepcion (see my blog post about the Concepcion decision) – the Northern District of California decision in In re California Title Insurance Antitrust Litigation, No. 08-01341 JSW, slip op. (N.D. Cal. June 27, 2011).  (I don’t have a cite or link to this slip opinion online, so e-mail me if you would like a copy.) 

This case involves antitrust claims that the defendants, who allegedly dominate the title insurance market in California and nationwide, allegedly manipulated and controlled prices and fixed prices at unfairly high rates.  There were arbitration provisions either in the title insurance policies or the loan documents.  (The opinion is not particularly clear with respect to how arbitration provisions in loan documents would apply but the court concludes they would.)

The court grants a motion to compel arbitration, explaining that Concepcion “held that courts must compel arbitration even in the absence of the opportunity for plaintiffs to bring their claims as a class action.”  (Slip op. at 4.)  The plaintiffs argued that the defendants had waived their right to arbitration by not raising it earlier in the case, but the court concluded that, prior to Concepcion, such an argument would have been futile under the California Supreme Court’s Discover Bank rule.  The court also found that the plaintiffs had failed to show prejudice from the failure to raise the arbitration issue earlier.  The court notes that Concepcion still allows plaintiffs to raise “generally applicable contract defenses” to arbitration agreements that do not focus on the fact that the agreement is an arbitration agreement.  It does not appear that such a defense was raised by the plaintiffs in this case, however.

The takeaway I see here is that title insurance companies (and other insurers) involved in pending class actions should consider seeking to compel an arbitration of the named plaintiffs’ claims, even if the litigation is substantially advanced.  It may not be too late to take advantage of Concepcion.   

Insurance Rating Class Action: Sixth Circuit Decision Highlights Several Lessons Broadly Applicable to Insurance Class Actions

Posted on May 24, 2011 by Wystan M. Ackerman

A new Sixth Circuit opinion in two putative class actions involving rates for title insurance demonstrates several lessons generally applicable to insurance class actions.  In Randleman v. Fidelity National Title Insurance Company, the plaintiffs claimed that title insurers failed to provide proper discounts for refinancing of mortgages.  The applicable Ohio rate manual provided that “[w]hen a refinance loan is made to the same borrower on the same land, the following [discounted] rate will be charged . . . provided the Insurer is given a copy of the prior policy, or other information sufficient to enable the Insurer to identify such prior policy . . . .”  (Emphasis added.)  The named plaintiffs, when they refinanced their mortgages, did not ask for a discount or submit evidence to their title insurer of the existence of a prior policy.  The district court in Randleman initially certified a class, on the theory that if Fidelity National was aware that the transaction was a refinancing, that would mean in nearly all instances that a prior title insurance policy had been issued (the court assumed that lenders would not finance a property without title insurance).  After certification, Fidelity National was able to establish, by taking depositions of lenders, that Ohio lenders often rely on attorneys’ opinion letters or title guarantees in lieu of title insurance.  Based on this new evidence, the district court decertified the class.  In a companion case (Hickman), class certification was denied for similar reasons.  The Sixth Circuit affirmed the denial of class treatment because: (a) the class proposed in Randleman was an improper “fail-safe” class; (b) determining whether defendants had notice of a prior title policy, which was necessary for class members to establish an entitlement to a discount, required an individualized analysis and thus predominance was not satisfied; and (c) a proposed subclassing plan would not solve the lack of predominance.

I see several key takeaways from this decision: 

  • Sometimes defendants need to take extensive discovery in a class action.  Discovery in class actions is frequently one-sided, with the plaintiffs attempting to take extensive discovery from the defendant, and the defendant taking no affirmative discovery except for deposing the named plaintiffs.  But there are times when defense counsel needs to think outside the box and consider taking discovery from third parties or from members of the proposed class.  Here, the defendants apparently did not take discovery from the lenders until after the judge certified the class, but they were permitted to take this discovery later and were fortunate enough to convince the judge to change his mind about certification. 
  • Watch out for fail-safe class definitions.  The Sixth Circuit explained that the class the district court initially certified was an improper “fail-safe class” because the class was defined as people who were entitled to receive a discount but did not receive one.  The Sixth Circuit wrote that this is improper because “[e]ither the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.”  It is not unusual for plaintiffs to propose a fail-safe class.  Here, it appears this was overlooked in the district court. 
  • Whether subclassing can overcome a lack of predominance remains an open issue.  This opinion describes a vague proposal for subclassing involving identifying which lenders required title insurance, followed by a trial on unidentified class-wide issues.  The Sixth Circuit says this would not overcome predominance, although it does not provide a detailed explanation of its reasoning, and it declines to weigh in on a circuit split on whether a subclassing plan can overcome predominance.

 

Title Insurance Class Action: Certification Denied Without Prejudice in Class Action Against First American Title Insurance Company

Posted on May 19, 2011 by Wystan M. Ackerman

This is my first post on developments in title insurance class actions.  One hot-button issue in this area is whether insureds are properly receiving discounts on title insurance policies when mortgages are refinanced.  In one of these cases, the U.S. District Court for the Western District of Washington recently denied class certification, although without prejudice to filing a new motion for certification.

In Boucher v. First American Title Insurance Company, the plaintiffs’ theory is that First American was purportedly supposed to provide a 50% discount from its filed rates where a mortgage was being refinanced, and failed to do so in some cases.  The court wrote a fairly lengthy opinion that essentially concludes that plaintiffs failed to take enough discovery to be able to accurately estimate the size of their proposed class or demonstrate a means by which the class could be identified.  The court, however, gives the plaintiffs another chance to take more discovery and then file another motion for class certification.

What puzzles me here is why the court was so generous to plaintiffs’ counsel.  By the time a motion for class certification has been fully briefed and argued (and in some cases an evidentiary hearing conduced), it should be rare that the plaintiffs are allowed another bite at the apple.  Discovery and briefing in these cases requires substantial efforts by both parties and the court, and to allow a “do-over” where the plaintiffs, after taking discovery, failed to even demonstrate a method to identify the class or the size of the class seems somewhat inequitable.  The opinion says that the parties will not have to re-brief issues that were previously briefed, but substantial new issues likely will be raised after further discovery.

There may be no way for an insurer to avoid this result where the court is inclined to be generous to plaintiffs’ counsel, but one way to try to avoid this is to encourage the court to set a schedule that provides for a clearly-defined cutoff for class-related discovery before a motion for class certification is filed.