Case Nos. 08-56536, 08-56538In the court below: CV 07-03795 SJO (FFMx) (C.D. Cal.)

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IN THEUNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT______________________________________

DENISE P. EDWARDS,

Individually and on Behalf of All Others Similarly Situated,

Plaintiff/Appellant,

v.

THE FIRST AMERICAN CORPORATION, and

FIRST AMERICAN TITLE INSURANCE COMPANY,

Defendants/Appellees.____________________________________

_____________________________________________________________REPLY OF NATIONAL ASSOCIATION OF INDEPENDENT LAND TITLE AGENTS

TO OPPOSITION OF DEFENDANTS-APPELLEES TO NAILTA’S MOTION FOR LEAVE TO FILE BRIEF AS AMICUS CURIAE

IN SUPPORT OF PLAINTIFF-APPELLANT AND IN FAVOR OF REVERSAL _____________________________________________________________

Gregory W. Happ* Mary Dryovage Ohio Supreme Court Reg. No. 0008538 State Bar No. 112551Texas Supreme Court Reg. No. 0936500 Law Offices of Mary Dryovage238 West Liberty Street 600 Harrison Street, Suite 120,Medina, OH 44256 San Francisco, CA 94107Telephone (330) 723-7000 Telephone: (415) 593-0095Facsimile (330) 725-8804 Fax. (415) 593-0096e-mail gregoryhapp@msn.com Email: mdryovage@igc.org

Attorneys for Amicus Curiae,National Association of Independent Land Title Agents

*Counsel of record. Petition for Admission pending.

The National Association of Independent Land Title Agents (“NAILTA”)

submits this reply memorandum in support of its motion for leave to file a brief

amicus curiae. The opposition filed by Defendants-Appellees First American

Corporation and First American Title Insurance Company (cited as “Opp. ____”

and “First American”) consists largely of arguments on the merits of NAILTA’s

brief (which are properly reserved for First American’s main brief), or ad hominem

attacks on NAILTA,1 rather than any plausible argument that NAILTA should be

denied leave to file as amicus.2 NAILTA’s motion should be granted.

I. NAILTA’S ROLE AS A NATIONAL SPOKESMAN FOR INDEPENDENT TITLE AGENTS.

NAILTA seeks to participate as amicus curiae based on the accepted and

recognized principle that – to quote First American’s own authority – NAILTA has

a “unique perspective, or information, that can assist the court of appeals beyond

what the parties are able to do.” Nat’l Org. for Women, Inc. v. Scheidler, 223 F.3d

1 See, e.g., Opp. 15-16 (asserting that the proposed brief variously “misrepresents the organization itself,” and “offers baseless assertions” and “political advocacy”); Opp. 8 (claiming that amicus “seeks to infect this case”).2 A rare exception is First American’s claim that NAILTA’s brief should be stricken because, First American claims, it was submitted a day late on March 12, eight days (rather than seven days) after Plaintiff/Appellant Denise Edwards’s main brief was filed on March 2. See Fed. R. App. P. 29(e) and 26(a)(2). But according to this Court’s docket entries, Ms. Edwards’ brief was actually filed on March 5, not March 2, and NAILTA’s brief is thus timely. See Dkt. Entry #21 (“Opening Brief filed by Denise P. Edwards.”). On March 2, Ms. Edwards merely “[s]ubmitted . . . [her] opening brief for review,” see Dkt. Entry #18, which Rule 29(e) does not address.

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615, 617 (7th Cir. 2000), citing Ryan v. Commodity Futures Trading Comm'n, 125

F.3d 1062, 1063 (7th Cir. 1997); United States v. Boeing Co., 73 F. Supp. 2d 897,

900 (S.D. Ohio 1999), cited at Opp. 3, 15. 3

NAILTA, as amicus curiae, should be judged not by First American’s

subjective standard of whether NAILTA has been in existence long enough to

merit its place in the industry4, but rather on the objective standard of its ability to

provide the Court with a “unique perspective” and “unique information” on the

title insurance industry from the viewpoint of independent title agents. NAILTA’s

members formed the organization to address the neglected perspective of

independent land title agents across the United States. No other national

organization, to NAILTA’s knowledge, dedicates its entire organizational

document to the condition of the independent land title agent. See

www.nailta.org/Nailta_Bylaws.pdf (visited 3/31/09). As a result, it appears that

NAILTA’s perspective is, in fact, unique. 5

3 See also: NOTE: AMICI CURIAE IN THE FEDERAL COURTS OF APPEALS: HOW FRIENDLY ARE THEY?, 55 Case W. Res. L. Rev. 667 (2005). 4 First American provides no threshold to support its argument that NAILTA is not a spokesperson for the title insurance industry other than to say that NAILTA is newer, and smaller, than other industry associations. But that is the whole point of NAILTA’s “independent” membership, intended to represent title insurance agents, title insurance underwriters, industry stakeholders, and even some who are authorized agents for First American. 5 The fact that NAILTA’s members are currently centered east of the Mississippi River (Opp. 2) should weigh in favor of – not against -- amicus status: the case sub judice involves a real estate transaction that occurred in Ohio and nearly sixty percent (60%) of all title insurance business in the United States is conducted in

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First American’s opposition brief seeks to marginalize NAILTA and its

members by denigrating the role of independent land title agents and also by

attacking those individual members of NAILTA who have participated in this

appeal. First American goes even further to use its opposition brief as a means to

exploit the briefing schedule by spending roughly thirteen of the seventeen total

pages to argue issues unrelated to whether NAILTA’s proposed brief should be

accepted for filing.

Contrary to First American’s position, the job of amicus curiae is not to

relitigate the underlying case, but to explain the narrative of the underlying case in

a broader industry and legal context. NAILTA’s proposed brief accomplishes this

goal.

II. NAILTA’S AUTHORITY FOR ITS PROPOSED BRIEF AMICUS CURIAE.

First American’s claim that NAILTA has cited no reliable sources for its

position is plainly false. NAILTA’s proposed brief brings to this Court’s attention

the results of at least eight significant studies, reports and publications relative to

the current status of the title insurance industry in the United States, produced by

sources as diverse as the U.S. Department of Justice, the California Insurance

Commissioner, state bar associations, trade journals, Congressional oversight

states east of the Mississippi.

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hearings, an economist, and a public accounting firm.6 Similarly, the Plaintiff-

Appellant’s Brief highlighted two more important studies performed by the U.S.

Government Accountability Office in 2006 and 2007 which dealt specifically with

the issue of competition in the title insurance industry. 7

Each of these analyses concluded that the title insurance industry was highly

concentrated and that certain anti-competitive practices, including captive title

insurance agreements like those present in the case sub judice, enhanced inequities

in the marketplace. Therefore, to characterize NAILTA’s position as stated in its

proposed brief as “unsupported” or “unreliable” (Opp., pg. 4) is patently absurd

when there are almost a dozen separate government and non-governmental studies

concurring with NAILTA’s position.

III. FIRST AMERICAN MISREPRESENTS THE DIFFERENCE BETWEEN LEGAL EXCLUSIVITY AND ILLEGAL EXCLUSIVITY IN THE TITLE INDUSTRY.

Contrary to First American’s suggestion, NAILTA does not espouse the

belief that all exclusive agreements in the title industry are illegal. In fact, many

such agreements exist whether by virtue of contractual negotiations between title

underwriter and title agency or as a result of the fact that some title agents prefer to

6 [See: Proposed NAILTA Brief Amicus Curiae, Table of Authorities, pgs. (iii) – (iv)].7 GAO, Title Insurance: Preliminary Views and Issues for Further Study, GAO-06-569T (Washington, DC: Apr. 26, 2006); GAO, Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers, GAO-07-401 (Washington, DC: April 13, 2007).

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have only one underwriter. What makes an exclusive agreement illegal (and

threatens both consumers and independent title agents) is the pairing of exclusivity

with some form of kickback, referral fee, or “thing of value.”

In the case sub judice, the question is not whether simple exclusivity is

proper or improper, but whether the exclusive arrangement in which a kickback or

thing of value was offered and exchanged violates RESPA. First American is

unconvincing in its effort to block NAILTA from commenting on the harm this

practice has caused in the title insurance industry. NAILTA’s concern is the

damage that is ultimately done to the consumer and the title insurance industry

when a title insurance underwriter pays an existing title agency in order to gain

exclusivity and greater market share. NAILTA’s belief, based in part on the

studies cited above and in part on its members’ own experience, is that when a

company like First American engages in these “captive” kickback arrangements

with their agents, the independent judgment of the title agent to direct a consumer

to a specific underwriter is impaired to the detriment of consumers and the

industry. NAILTA’s concern in this regard is buttressed by First American’s

testimony in this proceeding that it is typically the title agent who determines

which title insurer is going to be underwriting title insurance,8 which is

commonplace in the industry.

8 See ER 52 (Plaintiff/Appellant’s Brief) (Jones Dep. at 47).

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IV. THE FACT THAT FIRST AMERICAN IGNORED ITS OWN STATED PRACTICES IN OHIO IS HIGHLY RELEVANT TO THE ISSUES PRESENT IN THIS CASE.

NAILTA’s position is that a title insurance purchaser is entitled to a title

insurance policy backed by a title search with more stringent standards, and that

growing concentration and anti-competitive conduct in the industry have lowered

title underwriting standards.9 This position is directly relevant here because it

addresses the damage these practices have on both individual consumers and the

title industry as a whole.10

First American, in a March 30, 2005 underwriting memorandum circulated

to all of its title agents in Ohio, adopted a new “streamlined standard” for

residential real property which sharply reduced the historic standards for searching

real estate titles and scheduling easements and restrictions which are exempted

from coverage of the title insurance policy. Excerpts of the memorandum appear

below:

9 First American’s claim that the Ohio board, the OTIRB, has somehow sanctioned this practice (Opp. 7-8) is misleading in the extreme. OTIRB has responsibility for setting rates, not underwriting standards. Even so, the cited OTIRB statements apply only to “reissued” title policies, and assume that the original title search was complete and comprehensive. For the reasons explained in text, First American’s new “streamlined” standards – a direct result of industry concentration – make this assumption highly unlikely10 The claim that Ms. Edwards could not identify defects in First American’s work (Opp. 5) is a classic case of misdirection – she bought her home in 2006 and has not yet been forced to make a claim on her title insurance!

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“NEW OHIO SEARCH STANDARDS

For years First American has been a leader in innovation in the title insurance industry. One of the areas First American has pioneered has been streamlined searching. After many years and much experience in this area on a nationwide basis, we have formulated the following standards for use in Ohio. These guidelines balance increased productivity, continued value for our product, and minimum claims expectations.

Ohio Search Standards (Introduced March, 2005)

1. Residential RefinancesA. One owner search for vesting and liens.B. No exam necessary for easements and restrictions.C. Use the phrase “Easements and restrictions of record” in Schedule B of both the commitment and policy.

2. Residential SalesA. One owner search for vesting and liens.B. For platted properties search back to the filing of the plat for easements and restrictions.C. For unplatted properties each examiner must use his or her experience and judgment to search back far enough to discover any easements, restrictions, rights of way or mineral rights affecting the property.

3. Residential and Commercial ForeclosuresA. One owner search for vesting and liens.B. Use the phrase “Easements and restrictions of record” in the encumbrance section of the title.

4. CommercialA. Full exam for vesting, liens, easements, restrictions, rights of way and mineral rights.” 11

The Ohio Land Title Association has declared: “The very heart of the title

insurance industry is the search.”12 First American’s claim that a title policy once

11 Http://www.nailta.org/news.html (visited on March 31, 2009).12 Principles of Ohio Real Estate Titles, Ohio Land Title Association, (4th Edition, 2007), pg. 30.

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issued “supersedes and makes irrelevant” the underwriting process, which includes

the title search (Opp. 6), is simply inconsistent with the very foundation of land

title insurance which remains the stated goal of risk elimination.13

“Risk elimination” through a stringent title search and title examination is of

considerable benefit to both a purchaser of real property and a mortgage lender.

The more “stringent” or “thorough” the title examination, the less likely it is that

title claims will result.

First American disagrees, asserting that if its actions had caused “a decline

in . . . quality . . . , one would expect to see burgeoning claims against title

policies.” (Opp. 8) But the recent claims history of First American shows exactly

that. Since 2005, First American’s claims losses have dramatically increased, and

the company is now paying out more in claims losses than at any time in its

history.14 These claims losses signal defects in the title insurance underwriting

process which result from anti-competitive conduct and lesser underwriting

standards. Anti-competitive conduct and lesser underwriting standards have

injured both consumers and the title insurance industry as a whole.

If First American’s contention -- that “current owner” searches are merely

updates from prior “thorough” searches – were correct, it would be unusual to see a

13 Id. at pg. 17.14 Compare http://www.alta.org/industry/07ALL/07-FirstAmerican.pdf to http://www.alta.org/industry/08-03/form9-firstAmerican.pdf (both visited March 30, 2009).

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significant rise in claims losses because, under First American’s theory, the prior

“thorough” search would have naturally uncovered all of the defects and

encumbrances on title. However, the year-end 2008 claims loss data tells a

different story.

According to First American’s 2008 financial data, First American paid a

record $411 million in claims losses and allocated loss expenses for title policies

written in 2005 and over $413 million dollars in claims losses and allocated loss

expenses for title policies written in 2006 (i.e., the real estate transactions closed in

the year written).15 So far, First American has paid more than $354 million in

claims losses and allocated loss expenses for title policies written in 2007.16

Because claims typically lag the date of closing by several years at least, the 2005-

2007 claims loss data is likely to rise even more.

To put these claims losses into perspective, First American’s claims losses

and allocated loss expenses combined together from the three-year period 2005 to

2007 exceed the total claims losses and allocated loss expenses from the six-year

period 1999 to 2004 by more than $300 million. Thus, according to First

American’s own financial data, claims losses since 2005 have far more than

doubled, just as First American imposed its “streamlined” title search guidelines.

15http://www.firstam.com/ekcms/uploadedFiles/firstam_com/Investors/ Financial_Information/2008_statutory_report.pdf (visited March 30, 2009).16 Id.

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V. CONCLUSION

First American’s opposition is nothing more than an attempt to relitigate its

defense against the Plaintiff-Appellant, rather than an argument against permitting

NAILTA leave to participate as amicus curiae. NAILTA’s motion for leave

should be granted because NAILTA is the only national organization in the United

States suitable to provide this Court with a unique perspective on how the business

practices at issue here impact consumers and the title insurance industry as a

whole.

Respectfully submitted,

/s/ Gregory W. Happ /s/ Mary DryovageGregory W. Happ* Mary Dryovage Ohio Supreme Court Reg. No. 0008538 State Bar No. 112551Texas Supreme Court Reg.No. 0936500 Law Offices of Mary Dryovage238 West Liberty Street 600 Harrison Street, Suite 120,Medina, OH 44256 San Francisco, CA 94107Telephone (330) 723-7000 Telephone: 415 593-0095Facsimile (330) 725-8804 Fax. 415 593-0096e-mail gregoryhapp@msn.com Email: mdryovage@igc.org

Attorneys for Amicus Curiae,National Association of Independent Title Agents

*Counsel of record. Petition for Admission pending.

CERTIFICATE OF SERVICE

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I hereby certify that on the ______ day of April, 2009, I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system.

Participants in the case who are registered CM/ECF users will be served by the appellate CM/ECF system.

I further certify that some of the participants in the case are not registered CM/ECF users. I have mailed the foregoing document by First-Class Mail, postage prepaid, or have dispatched it to a third party commercial carrier for delivery within 3 calendar days, to the following non- participants.

/s/ Mary DryovageMary Dryovage State Bar No. 112551Law Offices of Mary DryovageHarrison Street, Suite 120,San Francisco, CA 94107Email: mdryovage@igc.org

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