First American Title Company of South Dakota and First American Title Insurance Company of South Dakota v. South Dakota Land Title Association, South Dakota Abstracter's Board of Examiners, Black Hills Land and Abstract Company, Dennis O. Murray, Security Land and Abstract Company, Glen M. Rhodes, Fall River County Abstract Company, Charles E. Clay, Custer Title Company, Betty J. Gould, Haakon County Abstract Company, Keith Emerson, Wayne Roe, and Charles Nass

Citations: 714 F.2d 1439; 1983 U.S. App. LEXIS 24992Docket: 82-1753

Court: Court of Appeals for the First Circuit; August 11, 1983; Federal Appellate Court

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In the case of First American Title Company of South Dakota v. South Dakota Land Title Association, the plaintiffs, First American Title Company and First American Title Insurance Company, allege violations of antitrust laws, claiming they were subjected to a price-fixing conspiracy, sham litigation, and restrictive statutes and regulations that hindered competition in the South Dakota abstracting and title insurance markets, in violation of the Sherman Act. The defendants include the South Dakota Land Title Association, the South Dakota Abstracters' Board of Examiners, and various individual abstracters and title companies. 

After a bifurcated bench trial on liability, the district court ruled in favor of the defendants, finding insufficient evidence of a private price-fixing conspiracy. Additionally, the court determined that the plaintiffs' antitrust claims were precluded by the McCarran-Ferguson Act, the Noerr-Pennington doctrine, and the state action doctrine. The court's judgment is being appealed by First American. 

The regulatory framework in South Dakota requires that foreign insurance companies must have their title insurance policies countersigned by a licensed local abstracter. Abstracters must maintain an approved abstract plant that comprehensively records all instruments affecting real estate titles. The Board of Examiners is responsible for enforcing these regulations and defining the standards for adequate record-keeping.

The regulation mandates that an abstract plant maintain a comprehensive index of all recorded instruments affecting specific properties, which must be derived from a thorough examination of each page in the register of deeds' office, explicitly rejecting copies or films of existing numerical indices. This requirement is argued to create a financial barrier for new abstracters, contributing to a monopolistic environment where most South Dakota counties have only one licensed abstracter. 

Walter J. Linderman, who became a licensed abstracter in 1973 and established First American Title Company of South Dakota, faced challenges due to a law requiring foreign title insurance companies to obtain countersignatures from local abstracters for policies issued outside their own counties. In response, Linderman created a domestic title insurance company in 1978 to bypass this requirement, but subsequent legislative amendments extended the countersignature requirement to include domestic companies. 

The First American companies allege that opposition from defendants to Linderman's domestic company formation, along with their support for legislative amendments, constitutes antitrust violations under the Sherman Act. They claim this opposition involved frivolous litigation against the Division of Insurance's decision to grant a certificate of authority to Linderman's company and engaged in anticompetitive lobbying efforts. Additionally, disputes arose regarding who had the authority to set countersignature fees, with claims that defendants aimed to have fees set high enough to deter competition in the title insurance market, supported by the composition of the Board of Examiners, which included abstracters.

An opinion from the South Dakota Attorney General affirmed that the Division of Insurance had the authority to set countersignature fees, leading to a state court action by the Association challenging this jurisdiction. The court ruled that countersigning a title insurance policy was a ministerial act under South Dakota law, requiring no affirmative action by the abstracter. In response, defendants lobbied successfully during the 1979 legislative session to redefine the countersigning act and grant the Board of Examiners the authority to establish fees, actions claimed to be unlawful anticompetitive acts. Despite the Board obtaining this authority in 1980, no fee schedule was implemented for countersignature fees during the existence of the First American Title Insurance Company of South Dakota. It is alleged that Linderman, as the agent for this company, became a victim of a private price-fixing conspiracy among individual abstracters and title companies, which fixed fees at 50% of the title insurance premium, ultimately leading to the dissolution of the company in May 1980.

On appeal, First American claimed the district court erred in finding insufficient evidence of a price-fixing conspiracy, which is a per se violation of the Sherman Act. The court found the evidence equivocal and inadequate to establish a conspiracy or fixed fee levels. The court upheld the district court's findings as supported by substantial evidence, rejecting claims of error.

First American also contested the district court's application of the Noerr-Pennington doctrine, which shields defendants from antitrust liability for lobbying and litigation activities aimed at government entities. This doctrine allows for joint efforts to petition the government without violating antitrust laws, even if the intent is to suppress competition.

The Sherman Act may apply if joint action is merely a façade to interfere with a competitor's business relationships. First American contests the district court's finding that the defendants' lobbying to amend SDCL 58-25-16 was protected under the Noerr-Pennington Doctrine, arguing instead that the involvement of a state agency as a conspirator negates this protection. This argument references Duke, Co. v. Foerster, where the court found that the Noerr-Pennington Doctrine did not shield defendants from antitrust liability due to allegations of collusion with government entities to boycott a competitor's products. 

In this case, the Noerr-Pennington Doctrine, which protects entities lobbying for governmental action, does not apply when there are allegations of official participation in a conspiracy to restrain trade, as opposed to merely influencing governmental decisions. The distinction is made that anticompetitive conduct such as a boycott does not fall under the First Amendment protections intended by the Noerr-Pennington Doctrine. The Court emphasized that while individuals may lobby together for legislative changes affecting competition, such activities differ fundamentally from the agreements typically deemed violations of the Sherman Act, which involve explicit or implicit agreements to limit trade freedoms. Thus, the Sherman Act's prohibitions are not suitable for political lobbying contexts.

Duke, Co. and the current case illustrate a distinction in the Court's approach, with Duke, Co. pertaining to anticompetitive government actions in business, while the present case addresses government actions in the political sphere. First American argues that the defendants' lobbying efforts should not receive Noerr-Pennington protection due to alleged false statements made to the South Dakota legislature. The focus is on a letter from the Board of Examiners to the legislature that expressed concerns about title insurance practices and the potential risks of not amending the countersignature statute. The district court did not make specific findings regarding these statements, but labeling them as "misrepresentations" could undermine the Noerr-Pennington doctrine, which is designed to protect traditional political activities. Even if the Board's letter contained misrepresentations, this would not negate the application of the Noerr-Pennington doctrine in legislative lobbying contexts, as established by precedent. The Supreme Court has indicated that political activities, even if unethical, should not be regulated under antitrust laws simply because they have a commercial impact. Additionally, First American had the opportunity to lobby against the amendment and address any inaccuracies, supporting the district court's application of the Noerr-Pennington doctrine to the defendants' lobbying efforts.

First American also contests the district court's application of the Noerr-Pennington doctrine concerning state court litigation initiated during Linderman's operation of his title insurance company. First American alleges that certain defendants engaged in sham litigation to disrupt its business. The Association challenged the Division of Insurance's decision to grant First American a certificate of authority, which was ultimately upheld by the state court. Furthermore, in another case, the Association and a local abstract company sought a writ of prohibition against the Division of Insurance regarding the establishment of a fee schedule for countersigning title insurance policies.

First American Title Insurance Company of South Dakota intervened as a defendant in the case, where the district court ruled that the Noerr-Pennington doctrine shielded the Association and Fall River County Abstract Company from antitrust liability related to their actions. The right to access courts is a component of the right to petition, allowing groups to engage in legal processes to advocate for their business interests without violating the Sherman Act. The sham exception to this doctrine applies to baseless claims aimed at undermining a competitor's business relationships. In the case of Alexander v. National Farmers Organization, the court determined that antitrust lawsuits initiated by dairy cooperatives against the NFO were protected under the Noerr-Pennington doctrine, despite their intent to hinder competition. Similarly, in the present case, the litigation against First American was partly aimed at impeding its business but also involved genuine disputes, such as the authority over countersignature fee schedules. The Association's actions to prevent a domestic title insurance company from operating in South Dakota were deemed legitimate, reflecting its genuine interest in regulatory compliance. The district court found no abuse of legal processes intended to achieve an illegal outcome, affirming the application of the Noerr-Pennington doctrine. Furthermore, First American challenged the application of the state action doctrine from Parker v. Brown, claiming violations of the Sherman Act related to the enforcement of the countersignature statute and related regulations, albeit with unclear allegations.

The district court ruled that specific claims were exempt from federal antitrust review due to the state action doctrine, which allows federal law to defer to state programs that meet certain criteria. First American modified its argument during proceedings, no longer contesting the defendants' authority to set countersignature fees but asserting that the Sherman Act preempts the countersignature statute and related regulations. The contested regulations include requirements for abstract plant standards and procedures for title insurance policy countersignatures. First American contended these regulations create anticompetitive effects by imposing stringent abstract plant requirements, limiting its ability to conduct title searches and countersign policies statewide, as it only meets these requirements in Pennington County. The company argued that the regulatory framework effectively establishes territorial monopolies for licensed abstracters in each county, which is a classic per se violation of antitrust laws. First American's appeal reiterates this argument and claims that the anticompetitive effects necessitate the preemption of the state statute and regulations under the Sherman Act. The company clarified it does not seek to invalidate state laws generally but aims to have the conflicting statute declared unconstitutional under the Supremacy Clause, indicating a facial challenge to the statutes in question.

First American's preemption argument is specifically directed at the State of South Dakota and the Board of Examiners, as these entities are responsible for enacting and enforcing the contested statute and regulations. If First American succeeds, it would seek to enjoin these two from enforcing the challenged regulatory aspects. The document underscores the significance of these points in the context of preemption and state action issues. 

The state action doctrine, established by the Supreme Court in Parker v. Brown, allows states to enact regulations that could otherwise violate antitrust laws, provided these regulations are clearly articulated and reflect a state policy to regulate rather than allow unfettered business freedom. The Court emphasized that Congress does not intend to nullify state authority lightly. 

Legislative enactments and state supreme court actions qualify as state actions in their sovereign capacity. However, state agencies or subdivisions do not inherently qualify as exercising sovereign power; instead, their actions must demonstrate a clear state policy to avoid antitrust scrutiny, supported by an adequate state mandate for such activities.

A governmental entity's authority to act in a specific area can create a mandate when the legislature has contemplated the actions in question. Conduct by a private party may receive state action immunity if it aligns with a "clearly articulated and affirmatively expressed" state policy and is "actively supervised" by the state. The state action doctrine, developed by the Court based on federalism principles, allows the Sherman Act to coexist with state economic regulations. Without this doctrine, the Sherman Act would preempt conflicting state regulations. 

The Sherman Act preempts a state statute only when there is an irreconcilable conflict between federal and state regulatory schemes. The court must first determine if California's wine pricing plan violates the Sherman Act. Assuming it does, the Court outlines a framework for analyzing conflicts between state regulatory schemes and the Sherman Act. A state statute may be condemned under antitrust laws if it mandates conduct that is always a violation or if it pressures a private party to violate the antitrust laws. 

If the statute does not fall into the per se violation category, it must be examined under the rule of reason, which considers the specific circumstances of economic practices, making it difficult to deem the statute facially inconsistent with federal antitrust laws. The case of Rice illustrates that a state statute allowing liquor distillers to designate wholesalers was seen as a vertical nonprice restraint, which is not inherently a Sherman Act violation. Thus, the Court found no irreconcilable conflict between the state statute and the Sherman Act, indicating that preemption did not apply. The resolution of the preemption issue negated the need to evaluate the statute's validity under the Parker v. Brown doctrine. 

In applying these principles to the current case, specific conclusions are drawn based on the established framework.

The district court determined that South Dakota's regulation of abstracting, specifically the abstract plant requirement, was protected under the state action doctrine from scrutiny under the Sherman Act. The court applied the Midcal criteria, which are relevant only for assessing the immunity of private parties under the state action doctrine, not the state’s own regulations. First American argued that the strict abstract plant requirement creates an irreconcilable conflict with the Sherman Act by limiting competition and establishing territorial divisions. However, the court found that the regulation does not constitute a per se violation of the Sherman Act, as it does not mandate conduct that is always illegal under the Act. The example of Linderman, who was able to establish a licensed abstracting business despite the requirement, illustrated that no such conflict exists.

Even if a conflict were assumed, the court noted that South Dakota's regulatory scheme exhibits a clear state policy favoring regulation over unrestricted business practices, thereby invoking the state action doctrine to prevent preemption by the Sherman Act. The statute in question, SDCL 58-25-16, although part of the title insurance regulations, also governs abstracting. The countersignature requirement ensures that a qualified professional conducts a thorough title search before property transactions. First American's main objection was to the limitations on searching official county records outside of Pennington County, arguing that this requirement serves only to hinder competition. The state justified the abstract plant requirement by citing the poor condition of county records, which necessitates a meticulous review to maintain accurate indexing.

Judicial review does not extend to assessing the wisdom of South Dakota's regulation of abstracting businesses; rather, it focuses on whether such regulations displace competition in favor of state control. The South Dakota Supreme Court upheld the state's authority to regulate abstracters' fees, recognizing the essential role of abstracting in real property transactions and the necessity of legislative oversight to prevent monopolistic practices. South Dakota's extensive regulation, including price fixing for abstracters' services, reflects a deliberate choice to prioritize regulation over competition in this sector.

First American contends that the regulations issued by the Board of Examiners do not constitute state action. However, the court affirms that these regulations, which mandate specific practices for abstracters, fall within the legislative intent to regulate the profession. The statutory requirements for maintaining comprehensive abstract plants and conducting thorough record examinations are intended to ensure the integrity of property titles and are supported by the Board's regulations, which clarify the necessary standards for compliance.

The Board mandates that searches related to the countersignature requirement be conducted by a licensed abstracter in the property's county to prevent improper delegation to unlicensed individuals. The statutory framework for abstracting supports the Board's regulations, which are considered actions authorized by the South Dakota legislature. The state action doctrine provides immunity for subordinate agency decisions, even without explicit legislative commands, allowing discretion in regulatory actions. First American argues that these regulations lack legislative compulsion, seeking to deny them state action immunity, referencing cases from the Ninth and Fifth Circuits. However, this circuit disputes that view, asserting that a sufficient state mandate exists when the legislature allows a governmental entity to act in a specific domain. The court concludes that the Sherman Act does not conflict with the regulations, and even if it did, the state action doctrine protects these provisions from antitrust challenges. Although the regulations have anticompetitive effects on First American’s business operations, such effects do not invalidate them under the Sherman Act. Consequently, the district court's judgment is affirmed.

The document outlines various actions and legal obligations related to title insurance policies in South Dakota. Key points include:

1. **Price Fixing**: The parties are accused of fixing prices for abstractor countersignatures on title insurance policies.
2. **Frivolous Litigation**: There are allegations of engaging in unmeritorious litigation, specifically appealing a decision by the South Dakota Director of Insurance to grant a certificate of authority to First American Title Insurance Company and participating in the case of *Fall River County Abstract Company v. Knutson*.
3. **Legislative Influence**: The parties reportedly attempted to influence the enactment of legislation (S.L. 1979, ch. 345) that amended SDCL 58-25-16, which mandates that title insurance policies include abstractor countersignatures.
4. **Enforcement of Statutes**: The actions include attempts to enforce SDCL 58-25-16 and ARSD 20:36:04:01, which govern the requirements for title insurance policies.
5. **Fee Schedule Establishment**: There was an attempt to establish a fee schedule for countersignatures by abstractors.
6. **Publicity Campaign**: A campaign aimed at influencing government action is described as a sham intended to disrupt the business relationships of the plaintiffs.
7. **Legal Requirements**: SDCL 58-25-16 prohibits foreign insurance companies from issuing title insurance without the countersignature of a qualified abstractor. The statute, amended in 1979, mandates that the countersignature is contingent upon compliance with other specific statutory requirements.
8. **Abstractor Verification**: The newly enacted SDCL 36-13-26.1 states that an abstractor's countersignature verifies that they have provided the insurer with a report based on a title examination.
9. **Regulatory Framework**: The Board of Examiners is tasked with establishing fees and requirements for abstractors, and regulations require a thorough title search before countersigning policies, emphasizing the need for timely cooperation from abstractors.

These points highlight the regulatory landscape governing title insurance in South Dakota, the legal challenges faced by the plaintiffs, and the legislative changes aimed at ensuring compliance and protection in the title insurance process.

Appellants are collectively referred to as "First American." The circuit has rejected reliance on the Duke Co. coconspirator exception, citing its criticism, and indicated that the co-conspirator exception is generally unworkable. Under SDCL 58-6-8, the Division of Insurance's director must hold a hearing to assess whether granting authority to engage in the insurance business serves the public interest. The Association raised concerns that untrained individuals could issue title insurance policies without proper supervision, a situation exacerbated by SDCL 58-25-16, which initially only required foreign insurance companies to have a licensed abstracter's countersignature. The Association's appeal to the South Dakota Supreme Court was abandoned after the amendment of the statute extended its requirements to domestic companies.

First American argues that the abstract plant requirement imposes prohibitive costs and grants existing abstracters monopoly power over title services. However, no evidence was presented at trial regarding the actual costs of establishing an abstract plant per ARSD 20:36:04:01. Unauthorized abstracting is classified as a petty offense under SDCL 36-13-9, and the Board of Examiners can seek injunctions against such activities. Violating the countersignature requirement under SDCL 58-25-16 is a Class 2 misdemeanor. The state's economic regulations may potentially conflict with federal interests, particularly regarding interstate commerce protections under the Commerce Clause. Various Supreme Court cases are referenced to illustrate the complexities involved in balancing state regulations and federal interests.

Uncertainty exists regarding the applicability of the second Midcal criterion—active state supervision—to municipalities and state subdivisions, as the Supreme Court did not address this in Community Communications Co. v. City of Boulder. In the current case, the court concludes that Boulder’s moratorium ordinance fails to meet the 'clear articulation and affirmative expression' requirement, thus avoiding the question of whether it needs to satisfy the 'active state supervision' test. The Eighth Circuit has ruled that state supervision is not necessary for municipal conduct, citing reasons such as political accountability of municipal officials, redundancy of requiring state oversight, and potential erosion of local governance. Conversely, the Ninth Circuit in Ronwin mandated that actions by a state committee must be actively supervised to avoid Sherman Act scrutiny. The court also noted that specific conduct by a distiller is not automatically exempt from Sherman Act review despite the lack of condemnation of the statute itself. Furthermore, it is established that states can reasonably regulate businesses for general welfare under their police power. The court does not need to consider an alternative ruling regarding the countersignature statute's exemption under the McCarran-Ferguson Act. Finally, First American's claims under Section 2 of the Sherman Act are dismissed due to insufficient evidence of monopolization, and the Noerr-Pennington doctrine provides immunity from claims related to lobbying and litigation activity.