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Schwartz v. Lawyers Title Insurance Co.

January 14, 2010

MITCHELL SCHWARTZ, ET AL., PLAINTIFFS,
v.
LAWYERS TITLE INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Slomsky, J.

OPINION

TABLE OF CONTENTS

I. Introduction...........................................................................................................................2

II. Factual Background..............................................................................................................3

A. The Rate Manual in Pennsylvania.............................................................................4

B. Schwartz Transaction................................................................................................7

C. Burnside Transaction....................................................................................................7

D. The Scheme to Defraud................................................................................................8

III. Standard of Review...............................................................................................................9

IV. Discussion.............................................................................................................................10

A. § 910-44(b) of TICA Does Not Bar Plaintiffs From Pursuing a Private Right of Action Before Exhausting Administrative Remedies.............................................10

B. Plaintiffs State a Valid RICO Claim........................................................................14

I. The Association-in-Fact Enterprise and the Distinctiveness Requirements........................................................16

a. Plaintiffs Sufficiently Allege a "Person" Distinct From the "Enterprise".........................................................17

b. Plaintiffs Sufficiently Allege an Organized "Enterprise" Structure........................................................21

c. Plaintiffs Sufficiently Allege an "Enterprise" Distinct From the Pattern of Racketeering Activity......................................23

II. Plaintiffs Sufficiently Allege Predicate Acts of Mail and Wire Fraud........25

a. The Scheme to Defraud......................................................................26

i. The HUD-1 Statement Furthers the Scheme to Defraud.....27

ii. Defendant Owed Plaintiffs a Duty to Disclose.....................29

b. Use of Mail or Wires.......................................................................30

c. Fraudulent Intent.............................................................................31

III. Plaintiffs' Claim is Not Pre-empted by the McCarran-Ferguson Act............32

C. Plaintiffs Assert a Viable Claim Under UTPCPL...................................................32

D. Plaintiffs' Remaining Claims May Proceed.............................................................35

I. Fraudulent Misrepresentation......................................................................35

II. Negligence...................................................................................................35

III. Unjust Enrichment......................................................................................37

V. Conclusion...........................................................................................................................37

I. INTRODUCTION

Before the Court is a case arising from an alleged fraudulent scheme in which Defendant Lawyers Title Insurance Company ("Lawyers"), through various title agents, misrepresented the amount of money due and owing for title insurance.*fn1 The crux of Plaintiffs' allegations is that Defendant overcharged thousands of Pennsylvania homeowners who purchased title insurance by charging a default "basic" rate of insurance rather than a special discounted "reissue" or "refinance" rate, which applied to the kind of title insurance required of a homeowner as part of a mortgage transaction. Through this alleged scheme, Defendant received considerable revenue to which it was not entitled.

Plaintiffs, individually and on behalf of others similarly situated, commenced this action on February 26, 2009. An Amended Complaint (Doc. No. 21) was filed on June 15, 2009.*fn2 Plaintiffs allege in the Amended Complaint that Defendant, through its title agents, engaged in the scheme described above as part of an ongoing racketeering enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Additionally, Plaintiffs claim Defendant employed unfair or deceptive acts prohibited by the Pennsylvania Unfair Trade Practices Act and Consumer Protection Law ("UTPCPL"). Plaintiffs also assert claims of fraudulent misrepresentation, negligence, and unjust enrichment, which stem from the RICO and UTPCPL counts.

Currently before the Court is Defendant Lawyers' Motion to Dismiss Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), filed July 20, 2009 (Doc. No. 23). Plaintiffs filed their Opposition in Response to Motion to Dismiss on August 24, 2009 (Doc. No. 25). On September 3, 2009, Lawyers filed a Reply in Support of the Motion to Dismiss (Doc. No. 27). On October 7, 2009, the Court held a hearing on Defendant's Motion. For reasons that follow, the Court will deny the Motion to Dismiss in its entirety.

II. FACTUAL BACKGROUND

This case is one of many cases brought against title insurance companies in which allegations are made of a pervasive pattern of overcharging for title insurance inconsistent with statutory rates. The parties cite and discuss several certified class actions filed within the last few years in which homeowners allegedly were overcharged for title insurance in Pennsylvania. The three related cases presently before this Court involve three separate title insurance companies. Individual plaintiffs in each case are different. However, each suit alleges the same basic grievance: unbeknownst to insurance purchasers, title insurance companies systematically misrepresented the amount of money due and owing for title insurance by failing to disclose that purchasers who paid an overcharged amount at settlement were entitled to a discounted rate based on the history of the property being insured.

A. The Rate Manual in Pennsylvania

In Pennsylvania, title insurance rates are regulated by the Title Insurance Companies Act, 40 P.S. § 910 (1999) ("TICA"). TICA requires that title insurance rates be approved by and filed with the Insurance Commissioner of the Commonwealth of Pennsylvania. 40 P.S. § 910-37(a). As a title insurance company selling title insurance in Pennsylvania, Defendant is obligated not to "charge any fee for any policy or contract of title insurance except in accordance with filings or rates which are in effect for said title insurance company." 40 P.S. § 910-37(h). Defendant has received approval for its rates as a member of Title Insurance Rating Bureau of Pennsylvania ("TIRBOP"), an agency licensed by the Pennsylvania Insurance Department. (Pl. Am. Compl., ¶26.) TIRBOP publishes title insurance rates in a Manual ("Manual"). The Manual sets forth a schedule of rates for members of TIRBOP and is filed with and approved by the Pennsylvania Insurance Department in accordance with the Insurance Company Law of 1921, 40 P.S. § 910-41. As a member of TIRBOP, Defendant is required to abide by the rates set forth in the TIRBOP Manual. (Id.) The TIRBOP introduction states:

The provisions of this Manual are binding upon all members and subscribers of TIRBOP and their agents and must be used on and after the effective date hereof unless a specific deviation from this Manual has been filed by an individual member or subscriber company with, and approved by, the Pennsylvania Insurance Department.

Section 2.1 of the Manual, as amended through August 1, 2005, requires that "[a]ll Charges for title insurance coverage provided by the approved policies and endorsements must be made as set forth in this Manual."

Title insurance companies and title agents calculate a prospective purchaser's rate depending on the amount of the loan and the last date on which title insurance was purchased for the property. (Id. at ¶27.) There are three possible rates - Basic Rate, Reissue Rate, and Refinance Rate. The default Basic Rate is the highest allowable rate for title insurance and is described in Section 5.50 of the Manual. (Id. at ¶28.) Certain purchasers, however, qualify for a special discounted rate if title insurance had been purchased for the property within the previous ten (10) years. (Id.) Depending on when the purchaser previously bought title insurance, the purchaser is eligible for the Reissue Rate (90% of the Basic Rate) or the Refinance Rate (80% or 70% of the Reissue Rate). (Id. at ¶ ¶29-31.)

Prior to August 1, 2005, under the TIRBOP Manual, purchasers of title insurance had the burden to provide evidence of an earlier title insurance policy in order to trigger the special discounted rate. (Id. at ¶32.) The Manual was amended in 2005 and placed the burden on the title insurer or its agent to conduct a title search on the property, which included an investigation of the existence of prior title insurance, and to issue the insurance rate based on the findings. Plaintiffs argue that as of August 1, 2005, the purchaser no longer had the burden to provide affirmative evidence of a previous policy. (Id. at ¶36.) The Manual, as amended on August 1, 2005, contained revisions to Sections 5.3 (REISSUE RATE) and 5.6 (REFINANCE AND SUBSTITUTION LOANS), and added a new section, 2.8. Sections 2.8, 2.9, 5.3, and 5.6 now provide as follows:

2.8 Sections 5.3, 5.4 and 5.6 of this Manual provide that reduced rates are applicable when evidence of previous insurance is provided within a specific period of time. As evidence of previous insurance, an Insurer shall rely upon:

(a) the recording (within the period of time specified within the applicable Section of the Manual) of either:

(1) a deed to a bona fide purchaser ...


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