Antitrust Law Daily Wrap Up, ANTITRUST—DDC: Loan Guarantor Did Not Have Antitrust Standing to Pursue Claims Against Title Insurance Companies, (Mar 4, 2013)

By Tobias J. Gillett, J.D., LLM.

A guarantor of a loan to a development company lacked antitrust standing to bring a lawsuit challenging an alleged conspiracy between title insurance companies to include a liability limitation in their title insurance policies that prevented the development company’s full recovery under a title insurance policy, the federal district court in Washington, D.C. has ruled (Klein v. American Land Title Assn., March 1, 2013, Walton, R.). The guarantor’s injury, although sufficient for Article III standing, was too remote to grant him antitrust standing.

Levy Gardens Partners 2007 L.P. took out loans from First NBC Bank and the Louisiana Office of Community Development to fund construction of a multi-family housing development, with Henry L. Klein as a guarantor of the loans. Levy Gardens purchased three title insurance policies from Commonwealth Land Title Insurance Co., one each in the names of the lenders and one in the name of Levy Gardens, that would insure the entities against title defects.

Ultimately, a zoning ordinance prevented construction of the housing development, and Levy Gardens sued Commonwealth seeking reimbursement for the losses it incurred. In that litigation, Section 8 of the insurance policy was found to limit Levy Gardens’ recovery to the diminution in value of the property stemming from the 1985 zoning ordinance, rather than permitting recovery of all losses caused by the ordinance.

Klein then filed a putative class action complaint against three title insurers, a holding company owning interests in title insurers, and an industry trade group on behalf of himself and “all other similarly-situated guarantors of loans as to which the members of the title insurance industry have issued ALTA loan policies” with Section 8 liability limitation. He asserted that the defendants had conspired to include the limitation in violation of the antitrust laws. The defendants moved to dismiss on the basis of lack of Article III and antitrust standing.

The court first explained that Article III standing requires (1) “an ‘injury in fact’ that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.”

The court concluded that Klein satisfied this standard. His millions of dollars in debts to Levy Gardens’ lenders qualified as an injury in fact, and the injury was “fairly traceable” to the insurers’ alleged conduct in conspiring to include the liability limitation in all title insurance policies. Finally, his injury could be redressed through an award of monetary damages to Klein.

However, the court determined that Klein did not possess antitrust standing. The court explained that, in addition to injury-in-fact, an antitrust plaintiff must also show the injury affected the plaintiff’s business or property and was “the kind of injury the antitrust laws were intended to prevent.” Court could consider “the directness of injury, whether the claim for damages is speculative, the existence of more direct victims, the potential for duplicative recovery and the complexity of apportioning damages,” among other factors. The court noted that “courts routinely hold that guarantors lack antitrust standing where their injury is derivative of a corporate-debtor’s injury, reasoning that such harm is incidental and not a direct result of anticompetitive conduct.”

The court concluded that Klein’s injury was “too remote to qualify as an antitrust injury.” The purchasers of title insurance policies would have been the targets of the alleged conspiracy, not loan guarantors like Klein. His injuries were directly caused by Levy Garens’ inability to pay its loans, and were merely indirect, consequential results of the Section 8 liability limitation. Therefore, Klein had not alleged an antitrust injury.

Moreover, the court refused to consider Klein’s additional theories of liability based on an “unlawful tying arrangement” and “common law fraud,” because he had raised those claims in his briefs in opposition to the motion to dismiss, rather than in his complaint. Therefore, the court granted the motion to dismiss.

The case is Civil Action No. 12-1061 (RBW).

Attorneys: David Blair Killalea (Manatt, Phelps & Phillips, LLP) for American Land Title Association. Kevin J. Arquit (Simpson Thacher & Bartlett LLP) for Fidelity National Financial Group. James Ian Serota (Greenberg Traurig) for First American Title Insurance Co. David Marion Foster (Fulbright & Jaworski LLP) for Stewart Title Guaranty Co. David G. Greene (Locke Lord LLP) for Old Republic Title Insurance Co.

Companies: American Land Title Association; Fidelity National Financial Group; First American Title Insurance Co.; Stewart Title Guaranty Co.; Old Republic Title Insurance Co.; Levy Gardens Partners 2007 L.P.

Cases: Antitrust DistrictofColumbiaNews