Klein v. American Land Title Association , 926 F. Supp. 2d 193 ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_______________________________________
)
HENRY L. KLEIN, PRO SE, AND ON )
BEHALF OF ALL OTHERS SIMILARLY )
SITUATED, )
)
Plaintiff, )
)
v. ) Civil Action No. 12-1061 (RBW)
)
AMERICAN LAND TITLE ASSOCIATION, )
et al., )
)
Defendants. )
_______________________________________)
MEMORANDUM OPINION
Plaintiff Henry L. Klein, an attorney proceeding pro se, brings this putative class action
against defendants American Land Title Association (“ALTA”), Fidelity National Financial
Group (“Fidelity”), First American Title Insurance Company (“First American”), Stewart Title
Guaranty Company (“Stewart Title”), and Old Republic Title Insurance Company (“Old
Republic”), challenging a title insurance policy drafted by ALTA and widely-utilized by title
insurers. See Amended Complaint (“Am. Compl.”) ¶¶ 8-14. Currently before the Court is the
defendants’ motion to dismiss. Upon careful consideration of the parties’ submissions, 1 the
Court concludes for the following reasons that the defendants’ motion must be granted.
1
In addition to the filings already identified, the Court considered the following submissions in rendering its
decision: the Defendants’ Memorandum of Law in Support of Joint Motion to Dismiss Plaintiff’s Amended
Complaint (“Defs.’ Mem.”); Klein’s Unified Opposition to Joint Rule 12(b)(6) Motion to Dismiss, Deemed a Rule
56 Motion for Summary Judgment, and Cross-Motion for Summary Judgment; the Defendants’ Memorandum of
Law in Further Support of Joint Motion to Dismiss and in Opposition to Plaintiff’s Cross-Motion for Partial
Summary Judgment; Klein’s Reply to Defendants’ Memorandum of Law “. . . in Further Support of Joint Motion to
Dismiss . . .” and in Opposition to Plaintiff’s Cross-Motion for Partial Summary Judgment and Enhanced Request
for Oral Argument (“Klein’s Reply”); Klein’s Supplement to Complainant’s Reply to Defendants’ Memorandum of
Law “. . . in Further Support of Joint Motion to Dismiss . . .” and in Opposition to Plaintiff’s Cross-Motion for
(continued . . . )
1
I. BACKGROUND
The following factual recitation is taken from the amended complaint and the undisputed
facts in the record. Klein is a member of Levy Gardens Partners 2007 L.P. (“Levy Gardens”).
Am. Compl. ¶ 12. Levy Gardens owned property in New Orleans, Louisiana (the “Property”),
on which it planned to construct a 100-unit multifamily housing development in the wake of
Hurricane Katrina. Id. ¶ 15. To finance the project, Levy Gardens obtained loans from First
NBC Bank and the Louisiana Office of Community Development (the “Community
Development Office”). See id. ¶ 8; Defs.’ Mem. at 3. Klein is a “guarantor of [the] two loans.”
Am. Compl. ¶ 8.
In connection with the two loans, on October 7, 2008, Levy Gardens purchased three title
insurance policies from Commonwealth Land Title Insurance Company (“Commonwealth”), a
subsidiary of Fidelity National and a non-party to this case. See id. ¶¶ 8, 12 n.2. Two of those
policies are at issue here: Loan Policy No. L-14-0005193, issued in favor of First NBC Bank,
and Loan Policy No. L-14-0005195, issued in favor of the Community Development Office
(collectively, the “Lender Policies”). 2 Id. The Lender Policies are form-policies that were
drafted by ALTA and are widely-used by title insurance companies in the United States. 3 See id.
¶¶ 8-9. The policies insured First NBC Bank and the Community Development Office against
title defects. See Defs.’ Mem., Declaration of Patrick T. Shilling, Exhibit (“Ex.”) 1 (Loan Policy
(. . . continued)
Partial Summary Judgment and Enhanced Request for Oral Argument (“Klein’s Suppl. Reply”); the Defendants’
Supplemental Memorandum of Law in Further Support of their Joint Motion to Dismiss.
2
Levy Gardens also purchased an owner’s title insurance policy from Commonwealth on October 7, 2008. Am.
Compl. ¶ 12 n.2. Klein makes clear that he is “not seek[ing] any relief” regarding the owner’s policy in this case.
Id.
3
According to its website, ALTA “is responsible for the forms upon which nearly all title insurance is written in the
United States.” ALTA Standards & Forms, http://www.alta.org/standards/index.cfm (last visited Feb. 21, 2013).
2
of Title Insurance for Policy Number L14-0005193) and Ex. 2 (Loan Policy of Title Insurance
for Policy Number L14-0005195). The policies also included zoning endorsements that, subject
to certain conditions, covered losses incurred in the event that the Property was not zoned to
permit a multifamily housing development as of October 7, 2008. Am. Compl. ¶ 15.
As it turned out, a zoning ordinance passed in 1985 prohibited multifamily dwellings on
the Property. Id. ¶ 17. In subsequent litigation, a Louisiana state court enjoined Levy Gardens
from completing the project due to the 1985 zoning ordinance. See Levy Gardens Partners 2007,
L.P. v. Commonwealth Land Title Ins. Co., __ F.3d __, __, 2013 WL 376068, at *2-3 (5th Cir.
2013) (outlining the procedural history of the state court litigation). Levy Gardens then sued
Commonwealth in Louisiana federal court, seeking reimbursement under its title insurance
policy for the losses it incurred as a result of the zoning restriction. See id. at __, *3. The
district court held, and the Fifth Circuit affirmed, that although Levy Gardens was entitled to
coverage under the insurance policy, Section 8 of the policy limited Levy Gardens’ recovery to
the diminution in value of the Property attributable to the 1985 zoning ordinance, rather than
covering all losses caused by the ordinance (“Section 8 liability limitation”). Id. at __, *3, *9.
Klein instituted this lawsuit on June 26, 2012. The defendants are title insurers (First
American, Stewart Title, and Old Republic), a holding company that owns interests in title
insurers (Fidelity), and an industry trade group (ALTA). See Defs.’ Mem. at 1. Klein brings this
action 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” that include the
Section 8 liability limitation. Am. Compl. ¶ 9. His amended complaint consists primarily of
excerpts from the Louisiana litigation between Levy Gardens and Commonwealth, and a
rambling narrative criticizing the title insurance industry. He does not label his claims or
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segregate them into separate counts, so it is difficult to discern what causes of action he is
asserting. As best as the Court can tell, however, he appears to allege that the defendants
conspired to include the “deceptive and misleading” Section 8 liability limitation in title
insurance policies in violation of federal antitrust laws, namely the Sherman Act, 15 U.S.C. § 1(2006), and Clayton Act, 15 U.S.C. § 15 (2006). 4 See id. ¶¶ 3, 14, 85.
The defendants have now moved to dismiss pursuant to Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6).
II. STANDARDS OF REVIEW
A. Rule 12(b)(1) Motion to Dismiss
Rule 12(b)(1) allows a party to move to dismiss “for lack of subject-matter jurisdiction.”
Fed. R. Civ. P. 12(b)(1). When a defendant moves to dismiss under Rule 12(b)(1), “the
plaintiff[] bear[s] the burden of proving by a preponderance of the evidence that the Court has
subject matter jurisdiction.” Biton v. Palestinian Interim Self-Gov’t Auth., 310 F. Supp. 2d 172,
176 (D.D.C. 2004); see Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). A court
considering a Rule 12(b)(1) motion must “assume the truth of all material factual allegations in
the complaint and ‘construe the complaint liberally, granting [a] plaintiff the benefit of all
inferences that can be derived from the facts alleged.’” Am. Nat’l Ins. Co. v. FDIC, 642 F.3d
1137, 1139 (D.C. Cir. 2011) (citation omitted). “Although ‘the District Court may in appropriate
cases dispose of a motion to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. P.
12(b)(1) on the complaint standing alone,’ ‘where necessary, the court may consider the
complaint supplemented by undisputed facts evidenced in the record, or the complaint
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Klein also alleges that his antirust claims are not barred by the McCarran-Ferguson Act or the filed rate doctrine.
E.g., Am. Compl. ¶¶ 14, 113. The Court construes these allegations not as independent claims for relief, but rather
as preemptive responses to the defendants’ anticipated defenses.
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supplemented by undisputed facts plus the court’s resolution of disputed facts.’” Coal. for
Underground Expansion v. Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (citations omitted).
B. Rule 12(b)(6) Motion to Dismiss
A Rule 12(b)(6) motion tests whether the complaint “state[s] a claim upon which relief
can be granted.” Fed. R. Civ. P. 12(b)(6). “To survive a motion to dismiss [under Rule
12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the
plaintiff pleads factual content that allows the court to draw [a] reasonable inference that the
defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). While
the Court must “assume [the] veracity” of any “well-pleaded factual allegations” in the
complaint and draw all inferences in the plaintiff’s favor, conclusory allegations “are not entitled
to the assumption of truth.” Id. at 679. “‘In determining whether a complaint states a claim, the
court may consider the facts alleged in the complaint, documents attached thereto or incorporated
therein, and matters of which it may take judicial notice.’” Abhe & Svoboda, Inc. v. Chao, 508
F.3d 1052, 1059 (D.C. Cir. 2007) (citation omitted).
III. ANALYSIS
The defendants move to dismiss the amended complaint on the grounds that Klein lacks
both Article III and antitrust standing. Defs.’ Mem. at 8-12. The Court will address each
argument in turn. 5
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Although the defendants raise lack of antitrust standing as their first ground for dismissal, the Court must assess
Article III standing before considering antitrust standing. Ross v. Bank of Am., N.A. (USA), 524 F.3d 217, 222 n.1
(2d Cir. 2008) (citing Kochert v. Greater Lafayette Health Servs., 463 F.3d 710, 714-16 (7th Cir. 2006)). In
addition, the Court will evaluate Article III standing under Rule 12(b)(1) and antitrust standing under Rule 12(b)(6).
See Nat’l Ass’n of Home Builders v. EPA, 667 F.3d 6, 16 (D.C. Cir. 2011) (dismissal for lack of Article III standing
(continued . . . )
5
A. Article III Standing
“Because Article III limits the constitutional role of the federal judiciary to resolving
cases and controversies, a showing of standing ‘is an essential and unchanging’ predicate to any
exercise of [federal] jurisdiction.” Fla. Audubon Soc’y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir.
1996) (en banc) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). “[T]o
satisfy Article III’s standing requirements, a plaintiff must show (1) it has suffered 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.” Friends of the Earth, Inc. v. Laidlaw Envt’l Servs., 528 U.S. 167, 180-81 (2000)
(quoting Lujan, 504 U.S. at 560-61).
Klein premises standing upon his status as a guarantor of loans for which the lenders
obtained ALTA title insurance policies containing the Section 8 liability limitation. Am. Compl.
¶ 8. He claims that as a result of “the deceptive practices carried out via the [defendants’]
parallel use of ALTA forms,” he is “in default for millions of dollars in guarantees and has been
bankrupted.” Klein’s Reply at 2 (emphasis omitted).
The Court finds these allegations sufficient to demonstrate Article III standing at this
stage of the proceedings. Klein’s alleged harm—owing millions of dollars in guarantees to Levy
Gardens’ lenders and being forced into bankruptcy—qualifies as an injury in fact. See Danvers
Motor Co. v. Ford Motor Co., 432 F.3d 286, 293 (3d Cir. 2005) (“Monetary harm is a classic
form of injury-in-fact. Indeed, it is often assumed without discussion.” (citing Adams v. Watson,
(. . . continued)
reviewed under Rule 12(b)(1)); Andrx Pharms., Inc. v. Biovail Corp. Int’l, 256 F.3d 799, 805 (D.C. Cir. 2001)
(dismissal for lack of antitrust standing reviewed under Rule 12(b)(6)).
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10 F.3d 915, 920-25 & n.13 (1st Cir. 1993)). This injury is fairly traceable to the defendants’
challenged conduct, insofar as Klein would not have to pay the guarantees but for the Section 8
liability limitation, which he claims the defendants unlawfully conspired to include in all title
insurance policies. And this monetary injury could be redressed by an award of damages to
Klein, one of the types of relief requested in his complaint. See Am. Compl. ¶ 113. True, as the
defendants note, Klein did not purchase and was not insured under the Lender Policies; he
merely served as a guarantor for loans disbursed by entities that were insured under the Lender
Policies. Defs.’ Mem. at 11. But this does not diminish his injury in the Article III sense.
Regardless of whether Klein had rights under the title insurance policies, he has asserted an
injury caused (albeit indirectly) by the defendants’ challenged conduct. The defendants’
arguments are more appropriately addressed under the rubric of antitrust standing, which has
more demanding requirements than Article III. See Ross v. Bank of Am., N.A. (USA), 524 F.3d
217, 224-25 (2d Cir. 2008) (“Antitrust standing demands a much more detailed and focused
inquiry into a plaintiff’s antitrust claims than constitutional standing.”); accord Kochert v.
Greater Lafayette Health Servs., 463 F.3d 710, 715 (7th Cir. 2006); Lucas Auto. Eng’g, Inc. v.
Bridgestone/Firestone, Inc., 140 F.3d 1228, 1232 (9th Cir. 1998); Florida Seed Co. v. Monsanto
Co., 105 F.3d 1372, 1374 (11th Cir. 1997).
B. Antitrust Standing
The District of Columbia Circuit has set forth the following standards governing antitrust
standing:
An antitrust plaintiff must establish an injury-in-fact or a threatened injury-in-fact
caused by the defendant’s alleged wrongdoing. Moreover, the injury must affect
the plaintiff’s business or property and must be the kind of injury the antitrust
laws were intended to prevent; it must flow from that which makes defendants’
acts unlawful. Additional factors to be considered in determining whether the
plaintiff has antitrust standing include: the directness of the injury, whether the
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claim for damages is speculative, the existence of more direct victims, the
potential for duplicative recovery and the complexity of apportioning damages.
Andrx Pharms., Inc. v. Biovail Corp. Int’l, 256 F.3d 799, 806 (D.C. Cir. 2001) (internal
quotation marks, citations, and alterations omitted); see also Atl. Richfield Co. v. USA Petro.
Co., 495 U.S. 328, 334 (1990) (antitrust injury must be “attributable to an anticompetitive aspect
of the practice under scrutiny”).
As the defendants point out, see Defs.’ Mem. at 9-10, 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, see, e.g.,
Florida Seed, 105 F.3d at 1376; Lovett v. Gen. Motors Corp., 975 F.2d 518, 521 (8th Cir. 1992);
Stein v. United Artists Corp., 691 F.2d 885, 896 (9th Cir. 1982); see also G.K.A. Beverage Corp.
v. Honickman, 55 F.3d 762, 766-67 (2d Cir. 1995) (“[A] party in a business relationship with an
entity that failed as a result of an antitrust violation has not suffered the antitrust injury necessary
for antitrust standing.”); Sw. Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass’n, 830
F.2d 1374, 1378 (7th Cir. 1987) (“Merely derivative injuries sustained by employees, officers,
stockholders, and creditors of an injured company do not constitute ‘antitrust injury’ sufficient to
confer antitrust standing.” (citation omitted)).
The Eighth Circuit’s decision in Lovett is particularly instructive. There, the owner and
debt-guarantor of a car dealership brought an antitrust action against General Motors Corporation
(“GM”) on his own behalf. 975 F.2d at 519-21. Seeking to show that he suffered an “antitrust
injury,” the plaintiff asserted “that as a result of GM’s antitrust violations,” his car dealership
“was not delivered motor vehicles,” and “was forced out of business and into bankruptcy; and as
a direct consequence of this, . . . [he] lost virtually everything of value that he owned, his
personal and business reputation were ruined and deficiency judgments were entered against
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him.” Id. at 521 (internal quotation marks and citation omitted). The Eighth Circuit was not
convinced by this argument. While acknowledging that the plaintiff “undoubtedly suffered
injuries as a result of GM’s actions,” the court found that those
injuries were a derivative consequence of [the car dealership’s] injuries. None of
the injuries were inflicted directly on [the plaintiff] by GM’s alleged
anticompetitive conduct. Instead, the injuries are a direct result of [the car
dealership’s] failure. [The plaintiff’s] own explanation of his injuries shows that
[the car dealership] was the target of GM’s anticompetitive activity and that [the
plaintiff’s] injuries are simply an indirect result. In sum, [the plaintiff’s] damages
are incidental to the alleged antitrust activity and not the type of loss Congress
intended to prevent with the antitrust laws.
Id. at 521 (citations omitted). The court added that its conclusion that the plaintiff “lack[ed]
federal antitrust standing” was “in harmony with the numerous cases routinely denying antitrust
standing to a corporation’s sole shareholders, officers, employees, lessors, guarantors, and
creditors.” Id. (collecting cases) (emphasis added).
Here, as in Lovett, the link between the challenged anticompetitive behavior and Klein’s
injuries is too remote to qualify as an antitrust injury. The focal point for Klein’s antitrust claim
is the Section 8 liability limitation that the defendants allegedly conspired to include in title
insurance policies. Yet, the targets of this purported anticompetitive activity are the purchasers
of the title insurance policies and those insured thereunder, for those are the entities that are
denied insurance coverage as a result of the challenged conduct. Klein, meanwhile, is several
steps removed from the alleged anticompetitive scheme. As a mere guarantor for a debtor (Levy
Gardens) that purchased the title insurance policies, Klein’s injuries (i.e., his guarantor liability
and bankruptcy) were not directly caused by denials of title insurance coverage. Rather, his
injuries were a direct result of Levy Gardens’ inability to pay its loans, much like the plaintiff’s
injuries in Lovett were attributable to the car dealership’s failure. While there may be some
causal connection between Klein’s injuries and the Section 8 liability limitation—as the Court
9
acknowledged above in the Article III standing context—mere “consequential injury is not an
antitrust injury.” Lovett, 975 F.2d at 521 (citation omitted); see also Associated Gen.
Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 545 (1983)
(“[A]llegations of consequential harm resulting from a violation of the antitrust laws . . . are
insufficient as a matter of law.”). Indeed, Klein “must have been ‘the target of the
anticompetitive activity, ‘not one, who has merely suffered indirect, secondary, or remote
injury.’” Lovett, 975 F.2d at 520-21 (citation omitted) (emphasis added). Because Klein has
asserted only consequential harm attributable to anticompetitive conduct, he has not alleged an
antitrust injury.
Klein cites no authority undermining this conclusion. Instead, he responds to the
defendants’ argument that his injuries are “too indirect” by claiming that the position ignores the
“realities” of his business and property damage. Klein’s Suppl. Reply at 2-3. This misses the
point. To repeat, Klein may have suffered harm in his capacity as a guarantor, but that harm
does not have a close enough connection to the alleged anticompetitive conduct to qualify as an
antitrust injury. Nor can Klein survive the defendants’ motion to dismiss by offering “a ‘naked
assertion’ of antitrust injury,” for “the Supreme Court has made clear [that this] is not enough; an
antitrust claimant must [instead] put forth factual ‘allegations plausibly suggesting (not merely
consistent with)’ antitrust injury.” NicSand, Inc. v. 3M Co., 507 F.3d 442, 451 (6th Cir. 2007)
(quoting Twombly, 550 U.S. at 557).
Klein also seeks to avoid dismissal by raising new theories of liability in his opposition
briefs, none of which are fairly stated in the amended complaint. See Klein’s Reply at 6-11
(asserting antitrust claim based on “unlawful tying arrangement”); Klein’s Suppl. Reply at 3-4
(same); Klein’s Reply at 2 (arguing that his “allegations of common-law fraud provide standing
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independent of ‘anti-trust injury’”). These efforts are unavailing because “‘[i]t is axiomatic that
a complaint may not be amended by the briefs in opposition to a motion to dismiss.’” McManus
v. Dist. of Columbia, 530 F. Supp. 2d 46, 74 n.25 (D.D.C. 2007) (citation omitted); accord
Morgan Distrib. Co. v. Unidynamic Corp., 868 F.2d 992, 995 (8th Cir. 1989); Commw. of Pa.
ex. rel Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d Cir. 1988); Car Carriers, Inc. v. Ford
Motor Corp., 745 F.2d 1101, 1107 (7th Cir. 1984), cert. denied, 470 U.S. 1054 (1985).
Consistent with this principle, the Court will not sanction Klein’s improper attempts to
reformulate his claims via his opposition briefs. 6
IV. CONCLUSION
For the foregoing reasons, the Court concludes that Klein has Article III standing, but
lacks antitrust standing. Accordingly, the defendants’ motion to dismiss is granted.
SO ORDERED this 1st day of March, 2013. 7
REGGIE B. WALTON
United States District Judge
6
Even if the Court were to address the merits of Klein’s newly-raised arguments, it would still grant the defendants’
motion. Regarding the “tying” claim, Klein lacks antitrust standing to assert such a claim because he is neither a
purchaser who was forced to buy the tied product nor a competitor who is restrained from entering the market for
the tied product. See Sports Racing Servs. v. Sports Car Club of Am., Inc., 131 F.3d 874, 887 (10th Cir. 1997).
Klein has likewise failed to state a claim for “common law fraud” with respect to the Section 8 liability limitation,
given that he did not purchase the Lender Policies and has not otherwise alleged that he took an “action in reliance”
upon the defendants’ alleged misrepresentations. See Va. Acad. of Clinical Psychologists v. Grp. Hosp. & Med.
Servs., Inc., 878 A.2d 1226, 1233 (D.C. 2005). The claim also fails because it is not pleaded with particularity, as
required by Federal Rule of Civil Procedure 9(b). See United States ex rel. Williams v. Martin-Baker Aircraft Co.,
389 F.3d 1251, 1256 (D.C. Cir. 2004) (discussing Rule 9(b)’s particularity requirement for fraud claims).
7
The Court will contemporaneously issue an Order consistent with this Memorandum Opinion.
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