Scott et al v. First American Title Insurance Co.

Filing 101

MEMORANDUM OPINION & ORDER: It is ordered that, 1) 84 Plaintiffs' MOTION to Certify Class is hereby DENIED; 2) Defendant's 98 MOTION for Leave to file Notice of Supplemental Authority is hereby GRANTED, the authority of which was consi dered and analyzed in the Court's decision herein; and 3) Within twenty (20) days from the date of this Order (9/20/2011), Plaitiffs shall file a Status Report indicating how they intend to proceed going forward. More specifically, plaintiffs shall notify the Court whether they intend on pursuing their claims on an individual basis or seek an appeal of the Court's denial of their motion for class certification. Signed by Judge David L. Bunning on 8/31/2011.(TED)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON
CIVIL ACTION NO. 07-52-DLB-CJS
GREGORY R. SCOTT, ET AL.

vs.

PLAINTIFFS

MEMORANDUM OPINION & ORDER

FIRST AMERICAN TITLE INSURANCE COMPANY

DEFENDANT

*************
Named plaintiffs Gregory and Alicia Scott have filed a proposed class action
Complaint, seeking civil damages from Defendant First American Title Insurance Company
(First American), on behalf of those persons who paid a title insurance premium to
Defendant that exceeded the premium permitted by the rate schedules it had on file with
the Kentucky Department Office of Insurance (DOI). Plaintiffs claim that they and the
putative class members were overcharged for title insurance and seek to recover the
excess premium charges collected “due to [First American’s] failure to adhere to its own
rate schedule.” (Compl. ¶ 2). Specifically, Plaintiffs seek certification of the following class
under Federal Rule of Civil Procedure 23(b)(3):
All persons or entities who own or owned real estate in Kentucky, who
in the last ten years financed a mortgage on said Kentucky property,
the title to which was insured in connection with a prior mortgage, and
who paid a title insurance premium to First American that exceeded
First American’s Rate Schedule filed with the Kentucky Department
of Insurance, within the five years preceding the filing of the
Complaint to the present.

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Of the twelve causes of action alleged in their Complaint, Plaintiffs seek class
certification of only five: (1) unjust enrichment, (2) recovery under Kentucky’s Consumer
Protection Act, (3) general liability under Kentucky’s statute dealing with adherence to filing
rates, (4) general liability under Kentucky’s statute penalizing illegal dealing in premiums,
and (5) general liability under Kentucky’s statute forbidding deceptive practice in the
business of insurance.
This matter is before the Court on Plaintiffs’ Motion to Certify Class (Doc. # 84). The
motion having been fully briefed (Docs. # 89, 93), and after review of the parties’
supplemental filings (Docs. # 94, 95, 97-100), the matter is ripe for review. For the reasons
stated herein, and because liability cannot be determined on a classwide basis, but only
through an individual analysis of each residential refinance transaction falling within the
class period, Plaintiffs’ motion is denied.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case originates from a refinance transaction that occurred on November 19,
2004. The Scotts are Kentucky homeowners that refinanced the mortgage on their home
through a mortgage broker who obtained a loan for them through Southstar Funding, LLC
(Southstar). (Doc. # 1, Ex. B). Defendant First American is a national title insurance
underwriter that issues title insurance policies in Kentucky through a network of
independent title insurance agents. The law firm of Nielson & Sherry P.S.C., who is not
named as a defendant, was the independent Kentucky title agent that issued Southstar’s
lender’s policy for the Scotts’ November 2004 refinance.

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Title Insurance Generally
In a residential purchase or refinance transaction, the buyer as well as the lender
providing the mortgage need a guarantee that the buyer will have clear ownership of the
property.

“Title insurance is designed to provide that guarantee by agreeing to

compensate the lender (through a lender’s policy) or buyer (through an owner’s policy) up
to the amount of the loan or the purchase price, respectively.” General Accounting Office’s
Report on Title Insurance, April 2006 (2006 GAO Report). An owner’s policy insures the
owner/purchaser against defects in the seller’s title. By contrast, a lender’s policy insures
the mortgage lender’s security interest against title defects as well as priority of the
mortgage lien; thus, the insured is the lender and the policy is provided directly to it.
Notwithstanding the benefit to the lender, the financing package the borrower receives
usually requires him or her to pay for the title examination and the premium for the new
loan policy. However, some lenders offer “no cost” refinances in which the lender bears
the cost of the title insurance premium to encourage borrowers to refinance.
Title insurance is sold primarily through use of title agents. Before issuing a policy,
an agent inspects the title’s history by searching public records such as deeds, mortgages,
wills, and divorce decrees. Because public records are usually available only locally, the
use of local title agents is desirable. The title insurance premium is paid only once—at the
time of sale or refinance—and agents retain or are paid a portion of the premium amount
as compensation for their title search work and as commission. (2006 GAO Report).
Agents then remit the remaining premium amount to the title company. Because the title
insurance policy is not recorded, a borrower’s chain of title does not reveal whether a prior
mortgage transaction was insured by an owner’s or lender’s policy, if at all. In fact, title
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insurance policies usually do not issue until one to two months after closing; a copy is then
sent to the lender and to the insurer. The borrower ordinarily does not receive a copy of
the policy purchased.
The vast majority of states regulate the title insurance industry though their own
state insurance departments. Kentucky is no exception. Title insurers are statutorily
required to file their rates with the Kentucky Department of Insurance (DOI) pursuant to
Kentucky Revised Statute § 304.22-020. Every title insurer must file its schedule of
premium rates before selling title insurance within the state; those rates must further be
approved by the DOI. Id. To do this, First American tenders its rate manual to the DOI for
approval. Once approved, the insurer has a duty to comply with the filed and approved
rates. Id. All subsequent amendments must also be filed with and approved by the DOI.
Id. Under the applicable First American Kentucky Rate Manual, a transaction is not entitled
to any discounted insurance rate unless title to the property was previously insured. (Doc.
# 1, Ex. A) (Doc. # 89, Ex. D).
Kentucky Mortgage Transaction Practices
Title insurance is not the only method used to protect lenders or buyers against
defects in title. Lenders’ protect their lien interest using a variety of other products. For
instance, Defendants proffered evidence that Kentucky lenders Guardian Savings Bank
and Union Savings Bank, Franklin Bank & Trust Company, The Bank – Oldham County,
Inc., Bedford Loan & Deposit, and South Central Bank, all regularly order attorneys’ title
opinions to protect their respective interests. An attorney title opinion does not insure, but
rather, informs a client of record defects in title so the client has the opportunity to remedy
them or reject the transaction. Title Insurance Law § 1:18. To render this opinion, the
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attorney conducts an analysis of the record instruments that may affect the claim of title
through to the present owner. Defendants further proffered evidence that numerous
lenders throughout Kentucky, including Northern, Eastern, Western, and Central Kentucky,
do not require title insurance and either allow for alternatives to title insurance or do not
require title insurance at all. (Doc. # 89, Exs. 5-7, 10, 12, 13, 15, 16).
First American’s Kentucky Rates
First American provides a variety of title premium rates depending on the level of
risk it bears to insure the titled property. Relevant here are First American’s Basic,
Reissue, and Substitution rates. Both the Reissue and Substitution rates are discounted
rates from the basic insurance rate and are offered in real estate transactions that satisfy
specific requirements. During the alleged class period (March 2002 – March 2007), three
different First American rate manuals were effective at different times: the 1996, 1999, and
2007 Rate Manuals. (Doc. # 89, Ex. 1D) (Doc. # 84, Ex. 14, 15). At the time the Scotts’
refinanced their home, a lender’s policy was entitled to the Substitution Rate if the following
was met:
a substitution loan is made by a lender to the same borrower on the same
property, the title to which was insured by any title insurance company
licensed to do business in Kentucky in connection with the original loan.
(Doc. # 84, Ex. 15). If the original loan was insured within eight or ten years—as is the
case with the Scotts’ original loan—the lender received a discounted rate assessed either
on a sliding scale or through the application of a flat rate. (Id.). The Reissue Rate applied
if:
the owner of property of which application is made for mortgage title
insurance has been insured by an Owner’s or Leasehold Owner’s Policy
issued by any title insurance company licensed to do business in Kentucky
covering the same property within 10 years prior to such application.
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(Id.).
“While the Reissue Rate for Mortgage Polices and the Substitution Rate both
provide a discount to lender[s] purchasing mortgage policies, the Substitution Rate applies
when the prior qualifying policy is a mortgage policy and the Reissue Rate for Mortgage
Polices applies if the prior qualifying policy was an owner’s policy.” (Doc. # 84, Ex. 17).
In other words, a reissue rate is inapplicable in a residential refinance transaction where
the borrower is not refinancing for the first time. In an effort to take advantage of
historically low mortgage rates, the Scotts refinanced their home mortgage four separate
times: in July 2002, March 2003, May 2004, and November 2004.

(Compl. ¶ 25).

Accordingly, the discount rate applicable to the Scotts’ November 2004 refinance would
have been First American’s filed Substitution Rate, not its Reissue Rate.
In an attempt to simplify its Substitution Rate, First American intended to replace its
sliding-scale premium schedule, included in its 1996 Rate Manual, with a flat discounted
rate.1 However, due to a clerical oversight, First American failed to include the amended

1

The 1996 Substitution Rate contained a sliding scale discount under which title policies issued in
connection with refinance transactions were entitled to a greater discount if the previous policy was issued
more recently:
Age of Original Loan
3 years or under
From 3 to 4 years
From 4 to 5 years
From 5 to 6 years
From 6 to 7 years
From 7 to 8 years
8 years or over

Rate
30% of regular rate
40% of regular rate
50% of regular rate
60% of regular rate
70% of regular rate
80% of regular rate
100% of regular rate

(Doc. # 84, Exs. 14, 17). Under the 1999 Substitution Rate, by contrast, a refinance transaction was entitled
to a 50% discount of the regular rate—across the board—provided the original policy was issued within the
last ten (10) years.

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rate schedule with its 1999 amended Rate Manual; thus, the 1999 Substitution rate was
never properly approved or on file with the DOI.2 (Doc. # 84, Ex. 17).
Under the 1999 Substitution Rate, a larger number of residential refinance
transactions qualified for the discount than under the sliding scale rate in effect in 1996.
In essence, the 1999 Substitution Rate was an inclusive rate more favorable to borrowers
in that it applies to transactions involving original policies that are up to ten years old,
where the 1996 rate applied a discount only up to eight years. Although not filed with the
DOI, First American disseminated its 1999 Substitution Rate to its direct operations as well
as to agents who were instructed to implement the 1999 Rate beginning in October 1999.
(Id.).
During the relevant class period, a majority of First American’s insurance policies
in Kentucky were issued though independent agents. (Doc. # 89, Ex. 2 at ¶ 4). First
American trains its agents through a series of seminars, bulletins, and other materials. The
company also provides on-site visits and on-call service. (Id. at ¶ 6). In a transaction
involving an independent title agent, First American does not have knowledge of or
connection to its insured until the premium is remitted via its independent agent. It further
has no role in calculating or collecting the premium from the customer. It is First American
agents that determine the applicability of a discounted rate in any given transaction.
The information First American receives regarding the underlying real estate
transaction for each policy issued is limited. First American has used the data repository
and titled production system, First American Direct Operations (FAST), to store data
2

First American filed a Corrective Substitution Rate Filing to the Kentucky DOI dated March 4, 2008.
(Doc. # 84, Ex. 17). Additionally, it was only the 1996 Substitution Rate that was not properly amended. First
American adequately amended its 1996 Reissue Rate by filing its 1999 Reissue amendment in its 1999 Rate
Manual. (Id.).

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relative to policies issued directly. FAST maintains the following information: the policy
amount, premium amount, borrower name and address, and identity of the lender for each
real estate transaction stored. FAST includes a field to allow users to identify whether the
policy was issued in connection with a refinance, but the field is not mandatory. However,
during the class period, FAST did not contain fields that allowed users to indicate whether
the Basic, Reissue, or Substitution Rate was applied or whether a prior title insurance
policy existed. (Id. at ¶ 5). For each policy issued, FAST also contains the policy image,
the title commitment, and search notes. If First American’s direct operations performed the
closing, FAST also retains the closing file, including the HUD-1 Settlement Statement. (Id.
at ¶ 6). However, the scanned images in the repository are not searchable. FAST was
used in its direct operation branches in Kentucky since 2002. (Doc. # 89, Ex. 3).
To track information on individual agents in Kentucky, First American used the title
agents remittance database, WINGS, from 2003-2007. Unlike FAST, WINGS is not a title
policy production system; its capability is limited to agent remittance and tracking of funds
received. (Id. at ¶ 7). Upon remitting First American’s percentage of the title insurance
premium, Kentucky agents would also forward some limited information relative to the
policy issued. Although WINGS had the capability to capture certain information—such
as the agent’s name, the lender, amount of coverage, etc.—Kentucky agents inconsistently
reported such information. Agents reported on a transaction-by-transaction basis, and the
information varied based on the level of detail employed by the reporting agent. (Id. at ¶
8). WINGS, however, does not contain fields for the property address, the borrower’s
name, whether a prior mortgage existed, whether the prior mortgage was insured, or when
a prior policy was issued. (Id. at ¶ 9). WINGS does provide a data field to indicate whether
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a policy was issued at the Reissue or Substitution rate, but it reveals such information only
to the extent that each individual agent reported the information.

(Id. at ¶ 10).

Furthermore, the system is unable to identify those transactions that although entitled to
a discounted rate, the rate was never applied.
The Named Plaintiffs
In connection with their November 2004 refinance transaction, the Scotts were
required to pay the premium for a title insurance policy that insured Southstar’s interest as
lender. A lender chooses the insurer of its policy, and as such, Southstar chose First
American and directed First American title agent, Nielson & Sherry, to perform a title
examination, issue the lender’s policy of title insurance, and perform closing services for
Plaintiff’s refinance transaction. Even though this was not the Scotts’ first refinance, their
mortgage broker requested that Nielson & Sherry issue the lender’s policy at the Reissue
Rate, which they received. Plaintiffs allege that First American via Nielson & Sherry failed
to charge them the greater discounted Substitution Rate for the lender’s policy, which
amounted to a rate overcharge in excess of $200.3 At the time of the Scotts’ November
2004 refinance, First American’s 1996 Substitution Rate was still on file and approved by
the DOI, given its failed attempt to properly file the 1999 amendment.
The named Plaintiffs claim that the putative class members were charged incorrect
rates in two ways: (1) First American failed to adequately train and oversee that its
independent agents were charging the correct rate (i.e. charging a discounted rate instead
of the Basic Rate or a higher discounted rate); and (2) it failed to properly file the 1999 rate

3

Plaintiffs allege they should have been charged $207.30 using the Substitution Rate approved and
on file with the DOI on November 19, 2004, but instead were charged $421.80. (Compl. ¶¶ 21-23).

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amendments with the DOI, which replaces the 1996 Rate Manual. (Doc. # 84 at 14).
Plaintiffs specifically allege they were overcharged as a result of both errors, but
acknowledge that some putative class members may have been overcharged due to the
faulty rate filing only. (Doc. # 84 at 14 n.13). The cornerstone of Plaintiffs’ claims, and of
class certification, is their contention that any homeowner who had a prior mortgage within
ten (10) years of refinancing on the same property is entitled to a discounted title premium
rate from Defendant First American based on the presumption that a prior mortgage is
determinative of a prior title insurance policy.
II. ANALYSIS
A.

Standard of Review
Federal district courts have broad discretion in determining whether class

certification is appropriate. Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir.
1988). However, the Supreme Court has made clear that, when faced with a motion for
class certification, district courts should conduct a “rigorous analysis” of the Rule 23
factors, General Telephone Co. of Southwest v. Falcon, 457 U.S. 147 (1982), with the
burden of establishing a sufficient basis for sustaining the motion borne by plaintiff, Senter
v. General Motors Corp., 532 F.2d 511, 522 (6th Cir. 1976). It is often “necessary for the
court to probe behind the pleadings before coming to rest on the certification question.”
Falcon, 457 U.S. at 160; see also Weathers v. Peters Realty Corp., 499 F.2d 1197, 1200
(6th Cir. 1974) (“[O]rdinarily the determination should be predicated on more information
than the pleadings will provide.”).
Rule 23, then, is more than a mere pleading standard, rather the movant must
“affirmatively demonstrate his compliance with [Rule 23].” Wal-Mart Stores, Inc. v. Dukes,
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131 S.Ct. 2541, 2551 (2011); see also In re Am. Med. Sys., Inc., 75 F.3d 1069, 1086 (6th
Cir. 1996) (hereafter cited as In re AMS) (the burden of establishing all of the necessary
requirements rests on the party seeking class certification). Finally, although a trial court
may not inquire into the merits of a claim, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 17778 (1974), the “rigorous analysis” required under Rule 23 will inevitably “entail some
overlap with the merits of the plaintiff’s underlying claim.” Wal-Mart Stores, 131 S.Ct. at
2551.
B.

Rule 23 Requirements
A plaintiff seeking to certify a class must meet all four requirements of Rule 23(a)

and one of the Rule 23(b) requirements. Rule 23(a) identifies four threshold requirements
for class certification commonly referred to as numerosity, commonality, typicality, and
adequacy of representation, which means (1) the class must be so numerous that joinder
of all members is impracticable; (2) there exist questions of law or fact common to the
class; (3) the claims or defenses of the named representatives are typical of the claims and
defenses of the entire class; and (4) the named representative will fairly and adequately
protect the interests of the class. Fed. R. Civ. P. 23. An adequate basis for each
prerequisite must be pled and supported by the facts. Weathers, 499 F.2d at 1200.
Rule 23(b)(3) class certification, which the Plaintiffs seek here, is appropriate if the
issues common to the class predominate over those affecting individual members. Fed.
R. Civ. P. 23. Under this subsection, the class action must also be the most appropriate
vehicle for litigating the claims presented. F. R. Civ. P. 23(b)(3); Bremiller v. Cleveland
Psychiatric Inst., 879 F. Supp. 782, 797 (N.D. Ohio 1995).

“The predominance

requirement is satisfied unless it is clear that individual issues will overwhelm the common
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questions and render the class action valueless.” In re Cardizem CD Antitrust Litig., 200
F.R.D. 297, 307 (E.D. Mich. 2001) (quoting In re NASDAQ Market-Makers Antitrust Litig.,
169 F.R.D. 493, 517 (S.D.N.Y. 1996)).
1.

“Rigorous Analysis” of the Rule 23(a) Factors

The crux of this case involves Rule 23(a)(2)’s commonality requirement, and
ultimately, if any common issues exist, whether such issues predominate for purposes of
Rule 23(b)(3).
(I)

Commonality

Rule 23(a)(2) requires the existence of "questions of law or fact common to the
class." As the Supreme Court recently observed in its landmark decision Wal-Mart Stores,
Inc. v. Dukes, the language of Rule 23(a)(2) is “easy to misread, since ‘[a]ny competently
crafted class complaint literally raises common ‘questions.’” 131 S.Ct. at 2551 (quoting
Richard A. Nagaredea, Class Certification in the Age of Aggregate Proof, N.Y.U. L. Rev.
97, 131-32 (2009)). Recitation of common questions alone is insufficient to obtain class
certification. What the rule demands is “the capacity of a classwide proceeding to generate
common answers apt to drive the resolution of the litigation.” Id. (emphasis in original).
Thus, a class action may be appropriate where the "issues involved are common to the
class as a whole and when they turn on questions of law applicable in the same manner
to each member of the class" such that the common issue may be litigated for all members
in an "economical fashion." Falcon, 457 U.S. at 155 (quotations omitted and emphasis
added).
While there need only be one common issue, that issue must not be at too great a
level of generalization or abstractness. Sprague v. Gen. Motors Corp., 133 F.3d 388, 397
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(6th Cir.) (en banc), cert. denied, 524 U.S. 923 (1998). “[T]he mere fact that questions
peculiar to each individual member of the class remain after the common questions of the
defendant’s liability have been resolved does not dictate the conclusion that a class action
is impermissible.” Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir. 1988).
The existence, though, of just any common question is inadequate because “at a
sufficiently abstract level of generalization, almost any set of claims can be said to display
commonality.” Sprague, 133 F.3d at 397. What is necessary is a common issue of
resolution of which will advance the litigation. Id.
Here, the Court’s inquiry into commonality necessarily overlaps with Plaintiffs’ merits
contention that First American engaged in a pattern of fraud that resulted in Defendant’s
unjust enrichment, which ultimately hinges on Plaintiffs’ claimed entitlement to a
discounted rate of title insurance in the first instance. However, the only pervasive pattern
Plaintiffs convincingly establish is First American’s practice of allowing title agents to
assess the borrower’s entitlement to and apply the appropriate discount rate in each of its
real estate transactions. First American left it to independent agents—who had the access
to borrowers’ closing files—to review each individual case file and determine whether a
prior existing policy was issued for the same property such that a title insurance discount
was appropriate.
Plaintiffs have identified the following as common questions:
(1)
(2)
(3)
(4)

whether Defendant and its agents systematically collected premiums from
Class members in amounts not permitted under their approved rate filings;
whether Defendant failed to properly train/or audit its agents in Kentucky;
whether Defendant disseminated the 1999 Substitution Rate and instructed
its agents to follow it despite it not having been filed with the Kentucky DOI;
whether Defendant ensured that each consumer received the lowest rate to
which he or she was entitled;
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(5)
(6)

whether Defendant was unjustly enriched by its improper conduct; and
whether Plaintiffs and members of the Class have sustained damages and
the proper measure of such damages.

(Doc. # 84 at 22). Plaintiffs assert the central common question is whether the Class was
entitled to the discounted rates on file; the other side of this coin is invariably whether First
American was unjustly enriched. (Id.). This inquiry, however, cannot be determined in
“one stroke” for all class members without inspection of individualized proof. Wal-Mart
Stores, 131 S.Ct. at 2551 (citing Nagaredea, Class Certification, 84 N.Y.U. L. Rev. at 13132) (a common contention capable of classwide resolution “means that determination of
its truth or falsity will resolve an issue that is central to the validity of each one of the claims
in one stroke.”) (emphasis added).
Far from resolving the entitlement issue in one stroke, the resolution of whether a
putative class member qualified for a discount that he or she failed to receive requires
highly individualized fact-based inquiries into each borrowers’ relevant real estate
transactions because discounts are applicable under First American’s rate scheme only
if title to the property was previously insured. Plaintiffs unconvincingly argue that existence
of a prior mortgage transaction—which is publicly recorded and easily ascertainable—is
sufficient for the trier of fact to conclude a property’s title was previously insured. In other
words, Plaintiffs allege that because the majority of real estate transactions in Kentucky
require title insurance, a presumption of a prior title policy should be inferred from the mere
existence of prior mortgage transaction. (Doc. # 84 at 3-4).
Plaintiffs’ recognition that “virtually” all real transactions require title insurance,
necessarily exposes the deficiency of their request that title insurance be presumed
purchased for any prior mortgage. If not all real estate transactions require title insurance,
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than the mere existence of a prior mortgage transaction cannot adequately identify all
members of the proposed class: those who were overcharged title insurance based on
their entitlement to a discount for having previously purchased title insurance within a
certain look-back period (i.e. ten years). The Court will not draw this impermissible
inference that Plaintiffs themselves acknowledge—not in so many words—would result in
an over inclusive class definition. The record establishes that Kentucky, as well as its
lenders, does not require the purchase of title insurance in every real estate transaction.
(Doc. # 89, Exs. 4-6, 9, 15). Given the variation in mortgage products purchased in
Kentucky, the Court agrees with Defendant that the “existence of a mortgage is not a proxy
for title insurance.” (Doc. # 89 at 2). Nielson & Sherry alone testified that from 2002
through the present, title insurance was not issued in approximately 75% of the
transactions it closed. (Doc. # 84, Ex. 6 at 88:4-22). Moreover, the evidence First
American tendered to the Court made clear its data repository does not conclusively
indicate prior policy information, nor does it have the capability to identify those individuals
that were charged the basic rate despite having had a prior policy on the same property’s
title. Determining the existence of a prior title insurance policy would certainly require
individualized inquiry into each closing transaction and undermines Plaintiffs’ position that
Rule 23's commonality requirement is satisfied in this instance.
Particularly relevant in convincing the Court that commonality has not been met is
the stark reality that not only are there no common answers to the question of liability, but
there exists no common method for resolving the liability question. To resolve the overage
issue, the trier of fact not only has to determine whether a borrower was entitled to a
discount not received, but whether the borrower in fact paid a rate that “exceeded First
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American’s Rate Schedule filed with the Kentucky Department of Insurance.” (Doc. # 84,
Class Definition). This would require examination of each borrower’s closing file because
—for a certain percentage of Kentucky borrowers—the rate on file with the DOI during the
class period would actually result in a less favorable title insurance premium. Unique to
the Scotts’ case is that the 1996 Substitution Rate (i.e. the rate on file with the DOI when
the Scotts refinanced in 2004) resulted in a more favorable premium rate than if the 1999
Substitution Rate were applied. However, this is not the case for an obvious percentage
of Kentucky borrowers.
The calculation can be summarized the following way. Prior to First American’s
1999 amendments, it calculated its Substitution Rates on a sliding scale. See note 1
supra. The scale would require a borrower to pay a larger percentage of the basic rate
depending on how recently the borrower had refinanced. In other words, the discount rate
declined consistent with the age of the previous policy. Because the Scotts refinanced only
six months prior to their November 2004 refinancing, they qualified for a 70% reduction
from the basic rate. (Doc. # 1 at ¶ 23). The 1999 Substitution Rate replaced the 1996
sliding scale with a flat rate discount—if the previous refinance transaction occurred within
the last ten years, borrowers were entitled to a 50% discount of the regular rate.
Accordingly, under the 1999 Substitution Rate the Scotts would pay 20% more than the
rate they claim they were entitled to receive based on the 1996 Rate Manual on file with
the DOI in 2004. Although the 1996 Substitution Rate results in a more favorable discount
for the Scotts, it is easy to see how the 1999 Substitution Rate would result in more
favorable premium rates for a large percentage of borrowers.

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For instance, for any borrower whose original loan was older than six years, the
discount under the 1996 Substitution Rate would have required them to pay a percentage
of the basic rate above and beyond the 50% discount offered under the 1999 Substitution
Rate.4 The 1999 Substitution Rate also allowed borrowers to collect the discount for a
previous loan for up to ten year whereas the 1996 rate required borrowers to pay the basic
rate if the prior policy was more than eight years old. Thus, its entirely possible given that
First American disseminated its 1999 rates at the time it filed its amendment, that a large
segment of borrowers actually ended up paying less (i.e. the 1999 Substitution Rate) for
title insurance, than the filed rates demanded (i.e. the 1996 Substitution Rate).
The moral of the story: there is no common method for ascertaining those members
falling within the class parameters. Even if the Court were inclined to rely on the
presumption Plaintiffs advocate—that a prior mortgage transaction is indicative of a prior
title insurance policy—the Court would still need to conduct an individualized inquiry of
each borrower’s refinance transaction to determine whether a particular borrower is indeed
part of the class (i.e. paid a premium that exceeded the rate amount on file with the DOI).
The varying results produced under the sliding scale of the 1996 Substitution Rate serve
to underscore the difficulty of determining liability on a classwide basis. The trier of fact
would have to conduct a case-by-case inquiry into each borrower’s circumstance to
determine which rate they paid, and whether the rate they paid was actually more favorable

4

Age of Original Loan
From 5 to 6 years
From 6 to 7 years
From 7 to 8 years

Rate
60% of regular rate
70% of regular rate
80% of regular rate

(Doc. # 84, Ex. 14, 17). Thus, suppose the premium under the basic rate was $200, if a borrowers original
loan age was seven years old, he or she would be required to pay $160 under the 1996 Substitution Rate,
however, under the 1999 amended rates a borrower would only pay $100.

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or less favorable than the rate on file with the DOI. If a title agent was instituting the 1999
Substitution Rate, while the 1996 Substitution Rate was still on file, a number of borrowers
likely paid less than the scheduled rates filed with the DOI. There simply do not exist
“questions of law applicable in the same manner to each member of the class" such that
the common issue may be litigated for all members in an "economical fashion." Falcon,
457 U.S. at 155 (emphasis added). Commonality serves as a “guidepost[ ] for determining
whether under the particular circumstances maintenance of a class action is economical,”
and here, it is not. Id. at 158 n.13. Accordingly, Plaintiffs fail to meet Rule 23(a)(2)’s
commonality requirement.
One final matter regarding commonality deserves brief comment. Plaintiffs argue
in their opposition to Defendant’s notices of supplemental authority (Docs. # 95, 100) that
Defendant impermissibly challenges the commonality requirement in its supplemental
briefing, which it allegedly failed to do in its initial opposition to Plaintiffs’ motion to certify.
This argument lacks merit.
Just as a new issue may not be raised for the first time in a reply brief, Seay v.
Tenn. Valley Auth., 339 F.3d 454, 481 (6th Cir. 2003), the same is true for a new issue
raised in supplemental briefing. Although Defendant relied heavily on “typicality” and
“predominance” vernacular in challenging Plaintiff’s motion for class certification, this
reliance is not dispositive of the substantive legal issues actually challenged. The Sixth
Circuit recognizes that the “commonality and typicality requirements of Rule 23(a) tend to
merge.” Ball v. Union Carbide Corp., 385 F.3d 713, 728 (6th Cir. 2004) (quoting Rutherford
v. City of Cleveland, 137 F.3d 905, 909 (6th Cir. 1998)), and further that Rule 23(a)(2)’s
commonality requirement parallels Rule 23(b)(3) in that both require scrutiny of a common
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question. Rule (b)(3) simply “contains the more stringent requirement that common issues
‘predominate’ over individual issues.” In re AMS, 75 F.3d at 1084. In arguing against
predominance, Defendants never assert that common issues to the class actually exist.
In fact, Defendants argue that although Plaintiffs attempt to identify common “duty”
questions, they fail to set forth any method for resolving such questions on a classwide
basis; an argument that most assuredly challenges Rule 23(a)(2)’s commonality
requirement at its core. (Doc. # 89 at 2).
From the outset, Defendant has argued that despite “common questions” regarding
whether a potential class member was entitled to a discount, that question could not be
resolved without individualized inquiry. (Doc. # 89) (Defendants specifically argued in their
response in opposition that there exists no common proof for establishing the existence
of a prior title insurance policy and that Plaintiffs failed to offer a common course of
conduct by First American that can be analyzed absent individualized review of each
borrower’s closing file). Nothing contained in Defendant’s supplemental filing substantively
changes its original argument presented in opposition, and thus, the Court properly
considers Defendants arguments contained in its supplemental briefings. (Docs. # 94, Ex.
1, # 98, Ex. 1).
2.

Rule 23(b)

In addition to satisfying the prerequisites of Rule 23(a), the class must satisfy at
least one subsection of Rule 23(b) to warrant certification. Stout v. J.D. Byrider, 228 F.3d
709, 717 (6th Cir. 2000), cert. denied, 531 U.S. 1148 (2001); Sprague, 133 F.3d at 397.
Plaintiffs seek certification of a (b)(3) class. Rule 23(b)(3) provides that an action may be
maintained as a class action if the court finds that questions of law or fact common to the
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members of the class predominate over any questions affecting only individual members,
and the class action, as a procedural mechanism, is superior to other available methods
for the fair and efficient adjudication of the controversy. In other words, to satisfy (b)(3),
“a plaintiff must establish that the issues in the class action that are subject to generalized
proof . . . predominate over those issues that are subject only to individualized proof.”
Beattie v. CenturyTel, Inc., 511 F.3d 554, 564 (6th Cir. 2007) (quoting Rustein v. Avis RentA-Car Sys., Inc., 211 F.3d 1228, 1233 (11th Cir. 2000)). The inherent protections of a
(b)(3) class include: predominance, superiority, mandatory notice, and the right to opt out.
Wal-Mart Stores, 131 S.Ct. at 2558.
Plaintiffs argue that because “the focus [in this case] is on Defendant’s conduct, the
questions of law and fact predominate over any individual issues that may arise.” (Doc.
# 84 at 33). Plaintiffs are mistaken. To resolve whether First American was unjustly
enriched, the trier of fact must focus on each prospective class members’ real estate
transaction as well as the rates applied by each independent title agent.
Plaintiffs are adamant that where the issue of liability is common to the entire class,
such issues will predominate. Although an accurate statement of the law generally,
Plaintiffs are mistaken that liability is a common issue as it relates to each putative class
member in this case. While the issue of whether class members were overcharged a title
insurance premium may—at some level of broad generality—be common to the class,
determining whether an overage actually occurred is an individualized inquiry, subject to
individualized proof. In their motion to certify, Plaintiffs preemptively argue that three cases
out of Ohio that either declined to certify or decertified a previously certified class involving
overages of title insurance premiums, are meaningfully distinguishable. (Doc. # 84 at 34)
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(citing Chesner v. Stewart Title Guar. Co., No. 1:06CV00476, 2009 WL 585823 (N.D. Ohio
Jan. 9, 2009) (decertifying a class); Randleman v. Fidelity Nat’l Title Ins. Co., 264 F.R.D.
298 (N.D. Ohio 2009) (decertifying a class); and Macula v. Lawyers Title Ins. Corp., 264
F.R.D. 307 (N.D. Ohio 2009) (declining to certify a class)). Though on appeal at the time
Plaintiffs filed their motion for class certification, the Sixth Circuit affirmed the district court’s
decision in Randleman to decertify just weeks after Plaintiffs’ motion. Randleman v.
Fidelity Nat’l Title Ins. Co., --- F.3d ---, 2011 WL 1833198, at *8 (6th Cir. 2011).
The issue on appeal was whether the district court abused its discretion when it
concluded common issues did not predominate in the Randleman class. It was only
through independent review of each closing transaction that a trier of fact could ascertain
whether borrowers were improperly denied a title insurance discount, and thus,
predominance under (b)(3) failed, the Circuit concluded. Plaintiffs contend Randleman has
little applicability to the case at bar. The Court disagrees.
In an effort to minimize its import, Plaintiffs divert the Court’s attention to the socalled “notice” requirement contained in Ohio’s Title Insurance Rate Manual otherwise not
included in Kentucky’s Rate Manual. In Ohio, borrowers are entitled to a title insurance
discount when “the Insurer is given a copy of the prior policy, or other information sufficient
to enable the Insurer to identify such prior policy upon which reissue is requested.”
Randleman, 2011 WL 1833198, at *1. Plaintiffs seemingly assert the lack of this notice
requirement in Kentucky’s rate manual is dispositive, so much so that Randleman and its
progeny fail to offer this Court any “useful guidance” on the certification question. (Doc.
# 84 at 34).

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Although ultimately unconvincing, Plaintiffs argument is not completely unfounded;
Randleman contains some perplexing dicta relative to the notice issue. The Sixth Circuit
acknowledged that “a district court might be within its discretion to certify [a title insurance]
class,“ “[i]f the rate rules provided a discount to anyone who previously purchased title
insurance, and [the rate rules] did not contain a notice requirement.” 2011 WL 1833198,
at *6. Notably, though, the Circuit did not conclude that a court should certify a class in the
absence of a notice requirement, only that it might be within in its discretion to do so. This
dicta is hardly a ringing endorsement that certification is proper in the absence of a notice
requirement. The Court undertook its discussion in an attempt to distinguish the case
before it from Daffin v. Ford Motor Co., 458 F.3d 549 (6th Cir. 2006), a case the
Randleman plaintiffs relied upon to argue for certification. Daffin, however, is not justifiably
analogous to warrant any meaningful comparison.
The Sixth Circuit in Daffin affirmed a district court’s certification of a class of plaintiffs
who owned vehicles containing an allegedly defective throttle body. Although some of the
members of the class had yet to experience any difficulty with their actual throttle body, the
court was content to certify the class on the theory that, if found defective, every member
of the class would have experienced an “injury” for breach of an express warranty. Id. at
552-54. Once liability was decided on a classwide basis, potential members could
establish their membership in the class by tendering proof they owned a 1999 or 2000
Mercury Villager minivan. Central to the court’s conclusion, was its finding that individuals
who owned the car were “injured” even if they had not personally experienced a stuck
throttle body. This finding is significant and meaningfully distinguishable from both
Randleman and the case before this Court.
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Whether all 1999 and 2000 Mercury Villager minivans contained a defective throttle
bottle was a common liability question, the answer of which was not dependent upon a
particular class member’s individual circumstances. In other words, the resolution was not
dependent on individual inquiries into each car owner’s experience. It therefore made
sense to allow a person to establish membership in the class after-the-fact through
presentment of title (i.e. after it was established whether the throttle body was indeed
defective.). Here, as in Randleman, the issue central to Plaintiffs claims is whether the
putative class members were wrongly denied a title insurance discount and subsequently
paid a premium that exceeded filed rates; put differently, whether First American was
unjustly enriched. This is not an inquiry common to the class, but rather, is instead
dependent upon a review of each potential class member’s specific real estate transaction.
Liability turns on a series of individualized questions: (1) did the potential class member
purchase a prior title insurance policy on the same property at the time of refinance?; (2)
what year did the potential class member purchase that policy?; and (3) what premium rate
was the potential class member charged at refinance? “[C]lass issues cannot predominate
when the resolution of those common issues in the plaintiff’s favor could not result in a
finding of liability against the defendant on a classwide basis.” Corwin v. Lawyers Title Ins.
Co., --- F. Supp. 2d ---, 2011 WL 3346824, at *7 (E.D. Mich. Aug. 1, 2011); see also
Randleman, 2011 WL 1833198, at *6 (“The only way to resolve these particular claims and
establish whether [the title insurer] improperly refused to give the refinance discount is to
consider what [it] knew about each individual transaction at the time it issued a policy by
examining each individual transaction.”).

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The issue of class membership is further complicated by the fact that here, unlike
in Daffin, most potential plaintiffs would not be able to simply present a copy of the lender’s
policy they purchased because the lender’s policy is issued directly to the lender and is not
publicly recorded. Accordingly, not only is proof of prior insurance central to resolution of
the issue of unjust enrichment, it is also not usually within the asserted class member’s
possession (i.e. contrast that with a vehicle owner who possesses his or her title). Thus,
in this Court’s view, the notice requirement does not meaningfully change the certification
analysis in the title insurance context. Regardless of any notice requirement, under both
Kentucky and Ohio rate manuals, the existence of prior title insurance is a necessary
prerequisite for borrowers to qualify for the claimed discount. Corwin v. Lawyers Title
Insurance Company, --- F. Supp. 2d ---, 2011 WL 3346824 (E.D. Mich. 2011), is
persuasive on this point.
The proposed class in Corwin consisted of those persons who were allegedly
entitled to but did not receive a discounted rate on title insurance. The applicable Michigan
rate manual, like Kentucky, did not contain a notice or presentment requirement that
obligated the borrower to present his or her prior policy before application of the discount.
Nonetheless, the district court concluded that plaintiffs failed to satisfy Rule 23(a)(2)’s
commonality requirement and (b)(3)’s predominance requirement. Id. at *6-7. Likewise,
the Court finds that the requirements of commonality and predominance fail
notwithstanding a “presentment of policy” requirement in the Rate Manual itself. Id. at *6-7.
Apart from an individualized inquiry into each residential refinance transaction within the
class period, there is no common method for identifying which transactions were insured
by a previous policy. The rate manual further makes clear that borrowers’ entitlement to
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a discount arises from the existence of a previous title insurance policy. Certifying a (b)(3)
class for those who paid a premium that “exceeded” filed rates necessitates an intensive
fact-finding mission into the circumstances of each borrowers’ refinancing transaction.
Neither the predominance nor superiority requirements are satisfied here; the
predominance of common versus individual issues has not been established by Plaintiffs.
There is simply no evidence that a classwide determination of liability on Plaintiffs’ alleged
theories would be possible. Cox v. Am. Synthetic Rubber Co., 2008 WL 5381909, at *6
(W.D. Ky. Dec. 18, 2008).5
Plaintiffs, in their supplemental briefing, argue against the relevance of Corwin to
the instant action. (Doc. # 100). Specifically, Plaintiffs contend that Corwin “misses the
mark in its application of Rule 23's commonality provisions,” because it “confuses easily
addressed issues of manageability, with commonality.” (Id. at 2). This contention is
unavailing.
To deflect the significance of the Corwin decision, Plaintiffs minimized the glaring
difficulty of resolving this litigation in one stroke. To do so, Plaintiffs again fall back on their
ill-conceived premise: existence of a prior policy may be presumed in most instances. (Id.
at 3). And, absent this presumption, Plaintiffs advocate that class adjudication is still the
superior procedural mechanism because individualized inquiry into each closing
transaction does not eviscerate the commonality requirement, which they believe is met
because objective methods for determining prior existence of a policy. Plaintiffs’ argument
simply defies logic.

5

In view of the Court’s conclusions that the proposed class fails to satisfy the commonality and
predominance requirements of Rule 23(a) and (b)(3), the Court need not address whether Plaintiffs have
satisfied the remaining Rule 23(a) criteria for class certification.

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Whether objective methods exist to assess liability is not the inquiry. The inquiry is
whether there is an objective touchstone common to the class for resolving the inquiry in
the first instance. Here, there is not. The Court cannot determine whether First American
was unjustly enriched as a result of its failure to properly file the 1999 Substitution Rate
amendments through one collective inquiry. As discussed previously, in some transactions
First American likely overcharged borrowers while simultaneously undercharging others.
Although individualized inquiry touches on the issue of manageability, that reality does not
foreclose its relevance to Rule 23's commonality requirement. The level of individualized
inquiry required in this case is cancerous to a finding of commonality; there is no common
method for resolving to whom Defendant is liable. And again, common questions alone
will not suffice to establish the Rule 23(a)(2) requirement. Of course, borrowers who
refinanced during 2002-2007 may need identical questions resolved: was I overcharged
for title insurance given First American’s clerical error in its schedule of rates? But, the
answer to this question is not ripe for class consideration. Its resolution depends too
heavily on individualized proof and circumstances.
Moreover, Plaintiffs are conveniently silent on the issue of predominance. Their
silence seems a tacit recognition that the depth with which each closing file must be
examined to even begin resolving issues of unjust enrichment signals the insurmountable
nature of 23(b)(3) certification. That individualized proof is necessary to determine whether
a borrower was overcharged for title insurance renders impotent the virility of the class
action in this case. Accordingly, the Court finds Corwin persuasive in support of its
conclusion that neither the commonality nor predominance requirements of Rule 23 have
been satisfied here.
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III. CONCLUSION
In conclusion, and for the reasons stated herein, IT IS ORDERED that:
(1)

Plaintiffs’ Motion to Certify Class (Doc. # 84) is hereby denied;

(2)

Defendant’s Motion for Leave to File Notice of Supplemental Authority (Doc.
# 98) is hereby granted, the authority of which was considered and analyzed
in the Court’s decision herein; and,

(3)

Within twenty (20) days from the date of this Order, Plaintiffs shall file a
status report indicating how they intend to proceed going forward. More
specifically, Plaintiffs shall notify the Court whether they intend on pursuing
their claims on an individual basis or seek an appeal of the Court’s denial of
their motion for class certification.

This 31st day of August, 2011.

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