S&M Homes, LLC v. Chicago Title Insurance Co. , 623 F. App'x 722 ( 2015 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0311n.06
No. 14–5407
FILED
UNITED STATES COURT OF APPEALS May 01, 2015
FOR THE SIXTH CIRCUIT DEBORAH S. HUNT, Clerk
S&M HOMES, LLC, )
)
Plaintiff-Appellant, )
ON APPEAL FROM THE UNITED
)
STATES DISTRICT COURT FOR
v. )
THE WESTERN DISTRICT OF
)
TENNESSEE
CHICAGO TITLE INSURANCE COMPANY, )
)
Defendant-Appellee. )
)
BEFORE: KETHLEDGE and WHITE, Circuit Judges; LUDINGTON, District Judge.
HELENE N. WHITE, Circuit Judge. Plaintiff-Appellant S&M Homes, LLC (“S&M
Homes”), brought a multi-count action against Defendant-Appellee Chicago Title Insurance
Company (“Chicago Title”) in state court, alleging that Chicago Title’s fee structure associated
with “title searches” in Shelby County, Tennessee, violates Tennessee law. S&M Homes sought
to certify and represent a class of similarly situated individuals. Chicago Title removed the
action to the district court and, after discovery, moved for summary judgment, arguing that its
fee structure was fully disclosed to, approved by, and mandated by applicable state regulators.
Chicago Title also objected to S&M Homes’s proposed class certification.
The district court granted Chicago Title’s motion for summary judgment, dismissed S&M
Homes’s motion to certify a class as moot, and, in the alternative, found that the putative class
failed to meet the standards of Federal Rule of Civil Procedure 23. S&M Homes appeals, and
we AFFIRM the district court’s order granting Chicago Title’s motion for summary judgment.

The Honorable Thomas L. Ludington, United States District Court for the Eastern District of Michigan,
sitting by designation.
No. 14–5407
S&M Homes v. Chicago Title
I.
Chicago Title, an insurance company incorporated in Nebraska with its principal place of
business in Florida, is an authorized title-insurance company in Tennessee. In August 2011,
S&M Homes ordered a title search from Chicago Title on a property S&M Homes was selling in
the City of Memphis, Shelby County, Tennessee. Chicago Title completed the title search,
which involved compiling a large number of documents regarding the property’s history of
ownership, and invoiced S&M Homes $391.50 for a title-insurance policy as well as an
additional $300 “title search” fee.
Alleging that the separate $300 fee violates Tennessee law, S&M Homes brought a three-
count complaint against Chicago Title in the Chancery Court of Shelby County, Tennessee.
S&M Homes sought to certify a class of similarly situated individuals; namely, “all persons and
entities who paid a title search fee to [Chicago Title in Shelby County] since at least December
22, 2006.” Based on the allegations in the complaint, Chicago Title removed the action to the
District Court for the Western District of Tennessee pursuant to the Class Action Fairness Act of
2005, 28 U.S.C. § 1332(d)(2)(A), which applies where the proposed class consists of at least 100
members and the remedy sought is over $5 million in damages.1
II.
A.
In reviewing the district court’s grant of summary judgment we must construe all
reasonable inferences in favor of S&M Homes. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). The question is “whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
1
This amount was not expressly stated in the complaint, but based on the allegations of “tens of thousands
[of class members] for each year,” and the $300 harm to each member, Chicago Title calculated that S&M Homes
was seeking at least $15 million in compensatory damages alone.
-2-
No. 14–5407
S&M Homes v. Chicago Title
prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52 (1986). As
the district court recognized, and both parties agree, S&M Homes’s claim presents a pure legal
issue: whether Chicago Title’s August 2011 “title search” constitutes an “abstract of title” as
that phrase is defined by the Tennessee insurance laws and regulations. The district court
concluded that it does and we review that decision de novo. Road Sprinklers Fitters Local
Union No. 669, U.A., AFL-CIO v. Dorn Sprinkler Co., 669 F.3d 790, 793 (6th Cir. 2012).
B.
Rather than regulate each aspect of the title-insurance market directly, the Tennessee
legislature authorized the Tennessee Commissioner of Insurance “to make reasonable rules and
regulations as are or may be necessary for the administration of [the laws regulating title-
insurance companies].” Tenn. Code Ann. § 56-35-122. To that end, the Commissioner has set
forth certain rules and regulations for title-insurance companies, such as Chicago Title. Tenn.
Comp. R. & Regs. 0780-01-12. In Tennessee, it is well settled that regulations promulgated
pursuant to statutory authority have the force and effect of law. Swift v. Campbell, 159 S.W.3d
565, 571–72 (Tenn. 2004) (citing Kogan v. Tenn. Bd. of Dentistry, 2003 WL 23093863, at *5–6
(Tenn. Ct. App. Dec. 30, 2003)); see also Furlough v. Spherion Atlantic Workforce, LLC, 397
S.W.3d 114, 125–26 (Tenn. 2013).
To comply with Tennessee regulations, a title insurer is required to file and maintain a
schedule of its services and rates with the Tennessee Commissioner of Insurance. Tenn. Code
Ann. § 56-35-111(a). It must file the “risk rate” to be applied in counties with fewer than
275,000 residents. Tenn. Comp. R. & Regs. 0780-01-12-.02(1)(d). In counties with between
275,000 and 700,000 residents, the title insurer must file and charge an “all-inclusive rate,” as
defined below. Tenn. Comp. R. & Regs. 0780-01-12-.02(1)(a). In counties with more than
-3-
No. 14–5407
S&M Homes v. Chicago Title
700,000 residents, such as Shelby County, the title insurer is required to file and charge “[a]n all
inclusive rate, except for charges for abstracts of title,” Tenn. Comp. R. & Regs. 0780-01-12-
.02(1)(b) (emphasis added), and must file a rate schedule that includes the separate rate for
preparing an abstract of title, id. at 0780-01-12-.02(2).
Under the regulations, and pertinent to all Tennessee counties with more than 275,000
residents, “all inclusive rate” is defined as:
the aggregate consideration paid, or to be paid to a title insurance
company, a title insurance agency, a title insurance agent, an
approved attorney for a title insurance company, or any
combination thereof in conjunction with the issuance of such
company’s commitment, binder or policy of title insurance for
those functions embraced by the definition of “risk rate” in Tenn.
Code Ann. § 56-35-102(a)(8), and for those matters such as
abstracting, record search and the examination or determination of
insurability in conjunction with the issuance of such commitment,
binder or policy . . . and other matters related to assumption of a
title insurance risk.
Tenn. Comp. R. & Regs. 0780-01-12-.01(2). Under this definition, the “all-inclusive rate”
includes the “risk rate,” as well as the fee for abstracting, record searching, and other matters
related to examining the property’s insurability.
After a rate schedule is filed, “[t]he commissioner shall within sixty (60) days after the
receipt of any filing disapprove any rate the commissioner determines to be unfair, unjust or
unfairly discriminatory.” Tenn. Code Ann. § 56-35-111(d)(1). Once the rates are effective, the
insurer must charge rates “in accordance with filings or rates that are in effect for the title
insurance company as provided in [the approved rate schedule],” id. at § 56-35-111(b), and it is
prohibited from making “any rate change except in accordance with the schedule of rates which
is in effect for said title insurance company as provided in § 56-35-111,” Tenn. Comp. R. &
-4-
No. 14–5407
S&M Homes v. Chicago Title
Regs. 0780-01-12-.03. Chicago Title filed a rate schedule effective June 23, 2011, which was in
force during the relevant transaction with S&M Homes.
C.
In Shelby County (and other counties with more than 700,000 residents), Chicago Title
must charge an all-inclusive fee, except that it may charge an additional fee for preparing an
“abstract of title.” Tenn. Comp. R. & Regs. 0780-01-12-.02(1)(b). An “abstract of title” is
defined as “a history of title to real property or an interest therein for a given period of time
consisting of a listing, summary, copy or some combination thereof of documents or matters
affecting said title and imparting constructive notice under the laws.” Tenn. Comp. R. & Regs.
0780-01-12-.01(3). It appears that the Commissioner anticipated variations in nomenclature
regarding “abstracts of title”:
[E]very title insurance company which proposes to do business in
any county in this state having a population of more than 700,000
. . . shall file with the Commissioner a schedule of rates for
abstracts of title, however denominated, to be made in
contemplation of the issuance of each and every commitment,
binder or policy of title insurance to be issued by the company . . .
whether such abstracts of title be made from a title plant or from
the public records.
Tenn. Comp. R. & Regs. 0780-01-12-.02(2) (emphasis added). Thus, regardless of the name
used, if Chicago Title produces a property’s “history of title” “for a given period of time,”
consisting of a “listing, summary, copy or some combination thereof of documents or matters,”
and these “documents or matters” are deemed to impart “constructive notice under” Tennessee
law, it may charge separately for this compilation as it constitutes an “abstract of title.” See id.
Chicago Title’s 2011 rate schedule set forth a $200 base charge for a residential “title
search,” subject to “additional charges for searches involving complex or time-consuming
matters . . . [or for] copies of lengthy restrictions or easements.” The $300 title-search fee
-5-
No. 14–5407
S&M Homes v. Chicago Title
charged to S&M Homes was comprised of a $200 base charge, plus an additional $100 charge
based on the volume of documents included in the search—over 200 pages of documents
including tax information, deeds, deeds of trust, mortgage history, bankruptcy filings, trustee
registrations, foreclosure-sale information, easement contracts, easement-subordination
agreements, neighborhood covenants, land-plat profiles, and civil warrants. Many of these
documents are, as a matter of Tennessee law, capable of imparting “constructive notice.” Tenn.
Code Ann. § 66-24-101 (stating that, among other documents, deeds, deeds of trust, mortgages,
and bankruptcy petitions impart constructive notice in Tennessee). Therefore, under the
applicable regulation, the instant “title search” constitutes an “abstract of title,” Tenn. Comp. R.
& Regs. 0780-01-12-.01(3), for which Chicago Title could charge separately, Tenn. Comp. R. &
Regs. 0780-01-12-.02(1)(b).
D.
On appeal, S&M Homes does not parse the wording of the regulations, but instead argues
that the district court’s interpretation: (1) eradicates the distinction between title searches and
title abstracts in Tennessee; (2) alters Tennessee common law by eliminating tort liability for title
abstractors; (3) effectively cedes power to the Commissioner by determining that the regulation
converts title searches into title abstracts; (4) ignores that Chicago Title has argued, in other
jurisdictions, that document compilations incident to title searches do not constitute title
abstracts; and (5) “virtually nullifies a Tennessee tax statute that taxes title search fees on Shelby
County real estate but does not tax fees for title abstracts.”2 We do not find these arguments
persuasive, and address them in turn.
2
In passing, S&M Homes engages with the definition of “abstract of title” and suggests that the abstract of
title itself must impart constructive notice under the law. Because Chicago Title’s compilation of documents did not
itself impart constructive notice, argues S&M Homes, it is not an abstract of title. As indicated above, the better
-6-
No. 14–5407
S&M Homes v. Chicago Title
1.
S&M Homes first argues that “the district court effectively wiped out the distinction in
Tennessee law between title searches and title abstracts when it held that the Defendant’s search
of its own data base going back only five years constituted a title abstract.” We first observe that
S&M Homes’s characterization of the search is incorrect. Although the chain of title only went
back five years, the search included documents going back well more than five years; it includes,
for example, an easement from 1980, as well as many documents from the early 2000s. Further,
Chicago Title looked well beyond its own database, as many of the records come from the
Shelby County Register’s office. Second, S&M Homes has not established that the distinction it
cites even exists. But assuming it does, the regulation clearly encompasses the title-search report
prepared here. This argument fails.
2.
S&M Homes next argues that prior to the district court’s interpretation of the regulation
at issue, “title abstracts, as opposed to title searches, were governed by Tennessee common law
that imposed liability on the abstractor for the abstractor’s negligence in searching the entire
chain of title.”3 Although not expressly stated, S&M Homes implies that abstractors cannot be
held liable for negligence in preparing a simple title search.
reading of the regulation is that the compilation must be composed of documents or matters that give constructive
notice, it need not itself impart notice.
3
Although merely illustrative, this issue was squarely addressed by the Nebraska Supreme Court:
We now hold that a title insurance company which renders a title report and also
issues a policy of title insurance has assumed two distinct duties. In rendering
the title report the title insurance company serves as an abstractor of title and
must list all matters of public record adversely affecting title to the real estate
which is the subject of the title report. When a title insurance company fails to
perform its duty to abstract title accurately, the title insurance company may be
liable in tort for all damages proximately caused by such breach of duty. A title
insurance company's responsibility for its tortious conduct is distinct from the
insurance company’s responsibility existing on account of its policy of
insurance. Different duties and responsibilities imposed on the title insurance
-7-
No. 14–5407
S&M Homes v. Chicago Title
S&M Homes cites two cases in support of this proposition, both over one-hundred years
old, Equitable Building & Loan Ass’n v. Bank of Commerce & Trust Co., 102 S.W. 901 (Tenn.
1907) and Dickel v. Nashville Abstract Co., 89 Tenn. 431 (Tenn. 1890). These cases do, indeed,
support the proposition that a company that prepares an abstract of title omitting defects that
would be disclosed by a properly prepared abstract is liable for damages suffered as a result.
These cases do not, however, address the distinction between title abstracts and title searches
implied in S&M Homes’s argument, nor do these cases suggest that a company issuing the type
of report issued here would not be subject to liability. Moreover, it appears that Tennessee
courts allow negligence claims against title-search providers, subject to limitations agreed upon
by the parties. See Singer v. Highway 46 Props., LLC, 2014 WL 4725247, at *4 (Tenn. Ct. App.
Sept. 23, 2014) (slip op.) (rejecting a negligence suit against a title-search company that
performed a pre-closing title search because any duty the title insurer owed was to a third party,
not plaintiff); Island Props. Assocs. v. Reaves Firm, Inc., 413 S.W.3d 392, 396–97 (Tenn. Ct.
App. 2013); Vestal v. Lawler, 66 S.W.3d 866, 871 (Tenn. Ct. App. 2001). Thus, S&M Homes’s
underlying premise is unsupported.
Further, to the extent there was a distinction at common law between abstracts of title and
title searches, it is clear that a validly enacted statute or regulation may alter the common law.
See, e.g., Hodge v. Craig, 382 S.W.3d 325, 338 (Tenn. 2012) (“[W]hen the General Assembly
has acted to occupy an area of the law formerly governed by the common law, the statute must
company, therefore, can be the basis for separate causes of action-one cause of
action in tort and another in contract.
Heyd v. Chicago Title Ins. Co., 354 N.W.2d 154, 158–59 (Neb. 1984). We note this only to show that jurisdictions
have been moving away from the traditional view that abstractors are liable only for breach of contract. See also 1
Am. Jur. 2d Abstracts of Title §§ 15–31.
-8-
No. 14–5407
S&M Homes v. Chicago Title
prevail over the common law in the case of conflict.” (citing Knoxville Outfitting Co. v.
Knoxville Fireproof Storage Co., 22 S.W.2d 354, 355 (Tenn. 1929))).
3.
S&M Homes next argues that the district court’s interpretation effectively ceded power to
the Commissioner by interpreting the regulation in such a way as to convert title searches into
title abstracts in violation of Tennessee law. S&M Homes argues that the Tennessee statutes
governing the Administration of State Departments, Tenn. Code Ann. §§ 4-4-101 et seq., and the
Tennessee Administrative Procedures Act (“APA”), Tenn. Code Ann. §§ 4-5-101 et seq., restrict
an agency’s authority to alter or create law in Tennessee. Specifically, S&M Homes points to §
103 of both Chapters to argue that the district court’s interpretation renders the regulation at
issue invalid, presumably because it “alters” Tennessee common law.
Section 103 of the Administrative Procedures Act expressly states that it “shall be given a
liberal construction and any doubt as to the existence or the extent of a power conferred shall be
resolved in favor of the existence of the power.” § 4-5-103(a). Subsequent sections of the APA
set forth the rulemaking authority of agencies within the state. §§ 4-5-201 et seq. The
Commissioner has the authority, under the APA, to make rules as provided by statute. As stated
above, the Tennessee legislature authorized the Commissioner “to make reasonable rules and
regulations as are or may be necessary for the administration of [the laws regulating title-
insurance companies].” Tenn. Code Ann. § 56-35-122.4 And, § 103 of Chapter 4 authorizes the
Commissioner to promulgate regulations “not inconsistent with the law.” § 4-4-103.
4
S&M Homes may petition the Commissioner to amend or repeal the regulation. Tenn. Code Ann. § 4-5-
201(a). It may also challenge the regulation’s validity to the Department of Insurance, § 4-5-225, and appeal that
decision to the Tennessee state-court system, see, e.g., Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 842
(Tenn. 2008).
-9-
No. 14–5407
S&M Homes v. Chicago Title
S&M Homes offers no reason for us to conclude that the regulations at issue were not
properly promulgated, and, under the APA, Tennessee’s attorney general and reporter are
required to “review the legality and constitutionality of every rule filed . . . and shall approve or
disapprove of rules based upon the attorney general’s determination of the legality of such
rules.” § 4-5-211. The regulation at issue has been in effect since as early as 1984; we may
assume that the Attorney General reviewed its legality and approved it as written. See id. Thus,
the regulation at issue has the force and effect of law. See Swift, 159 S.W.3d at 571–72 (citation
omitted); see also Furlough, 397 S.W.3d at 125–26. Nor does S&M Homes establish that the
regulations are inconsistent with the law under the circumstances that they were authorized by
the Legislature. The district court’s interpretation of the regulation as written does not
unlawfully cede power to the Commissioner.
4.
Next, citing two cases, S&M Homes argues that Chicago Title itself recognizes that the
title searches it conducts incident to issuing title-insurance policies are not abstracts that would
subject it to liability. The first case, Soifer v. Chicago Title Co., 114 Cal. Rptr. 3d 1 (Cal. Ct.
App. 2010), involved an attempt to hold Chicago Title liable based on email answers to
questions regarding the seniority status of various loans pertaining to the foreclosed properties
Soifer contemplated bidding on; Soifer did not seek or request a title-insurance policy or abstract
of title. The California court concluded that the California Insurance Code intentionally
modified the common-law rule that had held a preliminary title report to be the equivalent of an
abstract of title, subjecting the title insurer to liability in negligence. The court further explained:
We summarized the impact of the Legislature’s enactment of
Insurance Code, sections 12340.10 and 12340.11, “[t]he
Legislature can set public policy for a state through its enactments,
and here the Legislature has determined to make a formal
- 10 -
No. 14–5407
S&M Homes v. Chicago Title
distinction between an ‘abstract of title’ and a policy of title
insurance. It is only in connection with the latter document that a
‘preliminary report’ of title is issued. No longer will these two
separate and distinct transactions be intermingled as they have
been by prior case law. A preliminary report, for which little or no
charge is made, is merely the inducement to purchase a title policy.
It will no longer be treated or considered to have the legal
consequence of an abstract of title. If a current representation as
to the status of title is required then an abstract can be ordered
and separately purchased. The effect of section 12340.10 is to
make clear that a person who contracts for the written
representation known as an ‘abstract of title’ will receive all of the
rights associated with that written representation. Such a purchased
and express representation can be relied upon. If negligently
prepared, the abstractor obviously would be exposed to all liability
which normally flows from the consequences of professional
malpractice.”
Id. at 6 (internal citations omitted; emphasis in original). Because this case specifically
addresses the California Insurance Code, it has no bearing here.
In the second case, Chicago Title Insurance Co. v. Commonwealth Forest Investors, Inc.,
494 F. Supp. 2d 1332 (M.D. Fla. 2007), Chicago Title issued a title-insurance policy to
Commonwealth, and an encumbrance not disclosed in the title search was subsequently
discovered. Commonwealth sued Chicago Title for breach of contract and negligence. The case
focused on the specific language of the policy and Florida’s statutory requirements for insurance
companies. Looking to the terms of the title-insurance policy, the court dismissed the negligence
claim under Florida’s interpretation of the economic-loss rule, on the basis that “Commonwealth
presumably knew its potential damages when it decided to purchase the Title Policy with its
specified limit on recovery of damages for title defects.” Id. at 1337. In so doing, the court
limited Commonwealth’s possible recovery to the terms of the policy. There is no discussion or
suggestion that the case would have been handled differently if it had involved an abstract of
- 11 -
No. 14–5407
S&M Homes v. Chicago Title
title, and Chicago Title did not defend the suit by asserting that it had merely prepared a search
rather than an abstract.
Neither case supports S&M Homes’s argument that Chicago Title would characterize the
search at issue here as a title search as opposed to an abstract of title. This argument fails.
5.
Finally, S&M Homes argues that by conflating title searches with abstracts of title, the
district court’s holding allows Chicago Title (and other title-insurance companies) to avoid
paying Tennessee’s “risk rate” tax. Chicago Title disagrees, arguing that services such as
abstracting and record searching are expressly excluded from the amount taxed by the “risk rate”
tax, and thus the district court’s opinion has no effect on Tennessee’s tax. Our understanding is
consistent with Chicago Title’s.
Tennessee’s “risk rate” tax requires title-insurance companies to pay a tax of 2.5% on “all
risk rate charges collected by it.” Tenn. Code Ann. § 56-35-107(a). A “risk rate” charge is the
“aggregate consideration paid . . . for the insurance liability assumed under the policy of title
insurance . . . exclusive of all other charges incident to the issuance of . . . the policy for
abstracting, record searching, certificates as to the record title to real estate, escrow and closing
services, or other related services. . . .” Tenn. Code Ann. § 56-35-102(8) (emphases added).
Thus, the tax does not distinguish between charges for an abstract of title, a title search, or other
ancillary services. All such charges are excluded from the risk rate. The Tennessee title-
insurance-company regulations refer to the “risk rate” amount as “a portion of the [all-inclusive
rate], which shall be the risk rate for the purposes of the tax payable under the provisions of [§
56-35-107],” thus further showing that the risk rate is only a portion of the all-inclusive rate.
Tenn. Comp. R. & Reg. 0780-01-12-.02(1)(c).
- 12 -
No. 14–5407
S&M Homes v. Chicago Title
In this case, Chicago Title need not pay a tax on the abstracting charge because that
charge has expressly been excluded from the definition of “risk rate.” Tenn. Code Ann. § 56-35-
102(8) (“exclusive of all other charges . . . for abstracting, record searching. . .”). As Chicago
Title’s common-sense reading of the statute points out, our holding does not “nullify” the “risk
rate” tax; rather, it simply recognizes that Tennessee law only taxes the actual “risk rate”
revenue, not the revenue received for ancillary services.
III.
In sum, although Chicago Title called the report for which the separate $300 fee was
charged a “title search,” not an “abstract of title,” it nonetheless falls within the Tennessee
regulation’s definition of “abstract of title.” We AFFIRM the district court’s grant of summary
judgment to Chicago Title and denial of S&M Homes’s class-certification motion as moot.5
5
We need not determine whether S&M Homes’s motion for class certification should have been granted.
We have previously held that “denial of class certification does not divest federal courts of jurisdiction.” Metz v.
Unizan Bank, 649 F.3d 492, 500 (6th Cir. 2011) (citing cases from the Seventh, Ninth, and Eleventh Circuits).
Thus, we have jurisdiction to address the merits of S&M Homes’s claim notwithstanding that jurisdiction is entirely
premised on the CAFA. See id. (“Congress did not base CAFA jurisdiction on a civil action being ‘certified’ as a
class action, but instead on an action being ‘filed under’ the rule governing class actions.”).
- 13 -