Petition — Surety Title Insurance Agency, Inc. v. Virginia State Bar

IN THE MICHAEL RODAK, JR., CLERK _

Supreme Court of the United States i

OCTOBER TERM, 1977

No. ZZ-1510

SURETY TITLE INSURANCE AGENCY, INC.,

Petitioner,

Vv.

VIRGINIA STATE BAR,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ALAN B. MORRISON

Suite 700

2000 P Street, N.W.

Washington, D.C. 20036

(202) 785-3704

ROBERT B. HUMMEL

1229 19th Street, N.W.

Washington, D.C. 29036

(202) 872-6761

Attorneys ,ur the Petitioner

a ood

THE CASILLAS PRESS, INC.—1717 K Sereet. N. W.—Washington, 0. C.-2273-1220

(i)

TABLE OF CONTENTS

OPINIONS BELOW

JURISDICTION .

QUESTION PRESENTED

STATEMENT OF THE CASE .

REASONS FOR GRANTING THE WRIT .

CONCLUSION

APPENDIX A (Court of Appeals Opinion)

APPENDIX B (District Court Opinion) .

APPENDIX C (District Court Order)

APPENDIX D (Court of Appeals Order)

TABLE OF AUTHORITIES

Cases:

Bates v. State Bar of Arizona,

433 U.S. 350 (1977) .

Cantor v. Detroit Edison Co.,

428 U.S. 579 (1976) .

City of Lafayette v. Louisiana Power & Light Co.,

__US. __, 46 U.S.L.W. 4265 (March 29, 1978) .

32a

(ii)

Commonwealth v. Jones & Robins, Inc.,

186 Va. 30, 41 S.E.2d 720 (1947)

Fashion Originators’ Guild v. Federal Trade Comm.,

312 U.S. 457 (1941) .

Goldfarb v. Virginia State Bar,

421 U.S. 773 (1975)

Hicks v. Miranda,

422 U.S. 332 (1975) .

Parker v. Brown,

317 U.S. 341 (1943) .

Railroad Comm. of Texas v. Pullman Co.,

312 U.S. 496 (1941) .

Ricci v. Chicago Mercantile Exch.,

409 U.S. 289 (1973) .

Younger v. Harris,

401 U.S. 37 (1971)

Vendo Co. v. Lektro-Vend Corp.,

433 U.S. 623 (1977) .

Statutes:

The Sherman Act,

15 U.S.C. § 15

15 U.S.C. $ 26

28 U.S.C. $1337 .

28 U.S.C. § 12541).

28 U.S.C. § 1292(a(1)

i

ao oo & 759

10

(iii)

Page

Virginia Code § 54-44 . 3

Other:

Virginia State Bar, Disciplinary Rule 3-101 . . . . . . 3,4

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No.

SURETY TITLE INSURANCE AGENCY, INC.,

Petitioner,

v.

VIRGINIA STATE BAR,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

OPINIONS BELOW

The opinion of the District Court is reported at 431 F.

Supp. 298 (E.D. Va. 1977) and is reproduced beginning at

page 7a of the Appendix. The opinion of t \e Court of

Appeals is not yet reported, and is reproduced beginning

at page la. No opinion was issued in connection with

the order of the Court of Appeals denying rehearing and

rehearing en banc. (32a).

mm

2

JURISDICTION

The judgment of the Court of Appeals was entered on

March 1, 1978. A timely petition for rehearing with sug-

gestion for rehearing en banc was denied on April 3, 1978.

The jurisdiction of this Court is invoked under 28 U.S.C.

§1254(1). The jurisdiction of the District Court was in-

voked under 15 U.S.C. 8 15 and 26 and 28 U.S.C. § 1337.

QUESTION PRESENTED

In a federal antitrust action, when an issue is presented

as to the applicability of the state action exemption under

Parker v. Brown, 317 U.S. 341 (1943), does the doctrine

of abstention require a federal court to refer the question

to the local state courts for their views?

STATEMENT OF THE CASE

Petitioner, a small local agency engaged in the business

of selling title insurance for out-of-state insurance companies,

filed this action against respondent Virginia State Bar (the

“State Bar”) on April 26, 1976, in the United States Dis-

trict Court for the Eastern District of Virginia, seeking

treble damages and an injunction under the Sherman Act,

15 U.S.C. 8 15 & 26. In order to reduce the cost to

consumers and to provide a better product for less money,

petitioner decide to sell title insurance directly to home-

buyers and not to utilize the intermediary services of an

attorney, as is customary m Virginia. However, the State

Bar, in a series of Unauthorized Practice of Law opinions

(“UPLs’’), purported to include such direct sales of title

insurance by non-lawyers in the definition of the practice

3

of law.! Because those unilaterally-imposed Bar restrictions

seriously interfered with petitioner’s business, it filed this

antitrust action.

In 1938 the Virginia legislature had authorized the Vir-

ginia Supreme Court to define the practice of law, which

it promptly did with the assistance of the Bar and an op-

portunity for public comment. Those definitions have not

been amended or supplemented since then, but the State

Bar has issued a number of UPLs, which claim to interpret

these definitions, and which have as their primary purpose

‘he deterrence of lay persons from engaging in the conduct

which the Bar contends constitutes the practice of law. The

Bar issues such opinions by a majority vote of its elected

governing body, the Bar Council, with no public participa-

tion, with no rules of evidence or procedure, and with no

examination of, let alone active supervision over, the pre-

paration or substance of any UPL by the Virginia Supreme

Court. Because the unauthorized practice of law in Virginia

is a misdemeanor, Va. Code § 54-44, the desired effect of

deterring competition has occurred, and until petitioner be-

gan its business, no one had attempted to traverse the bounda-

ries that the State Bar had established in the three UPLs

relevant to this case.

In the real estate area particularly, the Bar has another

powerful weapon. Disciplinary Rule 3-101, which is bind-

ing on all attorneys in Virginia, prohibits any attorney from

participating in any transaction in which a lay person is en-

gaging in conduct which the Bar contends constitutes the

unauthorized practice of law. The Virginia Supreme Court

has ruled that only a member of the Bar may prepare a

| See UPLs 17, 43, and 44 (12a-14a).

4

real estate deed,? and therefore an attorney must partici-

pate in every sale of a residence. Because the Bar, through

DR 3-101, has directed its members to withhold their ser-

vices in any transaction in which a lay person is violating

any of their UPLs, attorneys are obliged not to prepare the

necessary deed if persons such as petitioner deal directly with

homebuyers in thé sale of title insurance, contrary to UPLs

17, 43, and 44. Thus, although the Virginia Supreme Court

has never spoken on the relationship between the practice of

law and the sale of title insurance, the State Bar on its own

has issued opinions the purpose and effect of which are to

keep this lucrative business for its members.

Following the filing of an amended complaint in the Dis-

trict Court, full discovery was undertaken, and a detailed

stipulation with 34 exhibits was submitted by the parties

on cross-motions for summary judgment on the issue of

liability under the antitrust laws. On April 25, 1977,

Judge Mehrige granted petitioner’s motion for summary

judgment and entered an order enjoining respondent “from

issuing any further opinions or documents purporting to

define the practice of law and [directing it] to expunge

from its records all such prior opinions . . . .”’ (30a-31a).

The Court analyzed the conduct of respondent, including

the process by which UPLs are issued, and concluded that

it constituted both a group boycott and an attempt to

monopolize under sections | and 2 of the Sherman Act,

under both the per se and rule of reason tests. (15a-18a).

In reaching that result, the Court recognized that the UPL

process “places attorneys in the unique posture of being

able to define the extent of their own monopoly.” (27a).

2 Commonwealth v. Jones & Robins, Inc., 186 Va. 30, 41 S.E.2d

720 (1947).

5

Next, it carefully considered the claimed state action

exemption under Parker v. Brown, 317 U.S. 341 (1943),

and concluded that, although the Virginia Supreme Court

had approved the Bar’s rules which provide for the issuance

of UPLs, respondent was not entitled to an exemption be-

cause “‘not only is the Unauthorized Practice of Law opin-

ion process tenuously related to the state interest it pur-

ports to advance, but it operates in a decidedly anticom-

petitive fashion offensive to notions of basic fairness. It

does not act to advance the consumer interest, but merely

that of the attorney. It is neither necessary to, nor are its

anticompetitive effects reasonable in light of, the justifying

state interest.’’ (28a-29a). The Court declined to rule at

that time on the availability of damages in light of the

pendency before this Court of Bates v. State Bar of Arizona,

433 U.S. 350 (1977), but did enter the injunctive relief

requested, and that order was appealed pursuant to 28

U.S.C. § 1292(a)(1).

In the Fourth Circuit, respondent submitted a detailed

brief raising a series of objections to the merits of the

decision below. Petitioner filed its brief answering each of

those points, and respondent filed a reply in which it added

several new arguments, including one rejected by the Dis-

trict Court (8a, n.3), that the Court should abstain to await

the outcome of a state-court civil action, which was brought

shortly before the hearing on the motions for summary

judgment in the District Court, and which alleged that pe-

titioner was engaged in the unauthorized practice of law

by selling title insurance directly to homebuyers. At the

request of respondent, because of the importance of the

case, the Court of Appeals held oral argument on an ex-

pedited basis on October 4, 1977.

On March 1, 1978, the Court issued an opinion written

by Senior District Judge Thomsen, joined in by Circuit

Judges Russell and Hall, which vacated the decision below

and remanded the case “‘with instructions to withhold fur-

ther action until the final decision of the Supreme Court

of Virginia in the case filed by the Attorney General against

the plaintiff herein. . . .” (6a). Without discussing the

merits of petitioner’s antitrust claims, the Court of Appeals

proceeded directly to the Parker issue. It quoted from,

but did not discuss, this Court’s decisions in Bates v. State

Bar of Arizona, supra, and Cantor v. Detroit Edison Co.,

428 U.S. 579 (1976), which indicate that the relationship

between organizations such as the State Bar and the State

itself (in this case the Virginia Supreme Court) in the ac-

tivity under challenge (here the UPL opinion issuing process)

was a vital aspect of the state action defense. It mention-

ed in passing this Court’s decision in Goldfarb v. Virginia

State Bar, 421 U.S. 773 (1975), which involved a similar

state action claim by this very respondent, but did not

even note the seminal decision in Parker itself. Then the

Court observed:

In the instant case the role of the Supreme Court

of Virginia is not so clear. It is unfortunate that

Virginia has not adopted a statute or rule which

would permit us to certify this question of state

law, crucial to a decision in this case, to the

highest court of the State of Virginia. (Sa).

The Court then pointed to the pending action in the Cir-

cuit Court of Virginia Beach and observed that the decision

in that case “will have to deal with the respective roles of

the Supreme Court of Virginia and [respondent] in the

adoption and enforcement of the disciplinary rules and

other issues presented by the case at bar.” (6a). From

that assertion, the Court concluded, without citation to

any authority, that the federal courts should withhold

judgment “until the Virginia courts have had an opportu-

nity to decide the disputed questions of state law.” Jd.

A timely petition for rehearing, with a suggestion for re-

hearing en banc, was filed on March 15, 1978, and denied

without opinion on April 3, 1978.

REASONS FOR GRANTING THE WRIT

The decision of the Court of Appeals represents a funda-

mental deviation from prior decisions of this and every

other court that have considered the applicability of the

state action exemption. Although the court below does

not use the term “abstention,” it has applied a new form

of it, for which it provided neither citation nor analysis,

in order to help it resolve the state action issue under

Parker v. Brown, supra. Although the meaning and effect

of state laws have been in dispute and of crucial importance

in cases such as Cantor v. Detroit Edison Co., supra, and

City of Lafayette v. Louisiana Power & Light Co., U.S.

__, 46 U.S.L.W. 4265 (March 29, 1978), the court below

is the first tribunal to suggest that these questions could

be resolved, or their resolution in any way aided, by an

interpretation by state courts of the scope of the antitrust

_ exemption. Moreover, since the state courts cannot finally

resolve any issue in the antitrust case, it is apparent that

the abstention ordered here is a different kind from that

employed in any previous decision.

That the abstention ordered is a different variety from

that involved in such cases as Younger v. Harris, 401 U.S.

37 (1971) and its progeny, is apparent from an analysis of

the issues in the federal and state cases here. Although

8

Younger-type abstention was urged upen both the District

Court and the Court of Appeals by respondent, it is appli-

cable only if the issue on which abstention is based is

identical to one pending in a state court. However, it is

undisputed that in this instance the state court action does

not involve the relationship between the State Bar and the

Supreme Court of Virginia in the issuance of UPLs, but is

solely concerned with whether petitioner violated the Su-

preme Court’s definitions of unauthorized practice, not the

Bar’s UPLs. Moreover, regardless of whether the issues

were identical, this Court has made it clear, most recently

in Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 637-

38 n. 8, and 662 (1977), that a plaintiff's violation of

state laws is irrelevant in determining its right to recover

damages resulting from a defendant’s violation of the anti-

trust laws. As this Court said in Fashion Originators’ Guild

v. Federal Trade Comm., 312 U.S. 457, 468 (1941): “...

even if [the charge which the antitrust defendants made

against those whose activities they were boycotting] were

an acknowledged tort under the law of every state, that

situation would not justify petitioners in combining together

to regulate and restrain interstate commerce in violation of

Federal law.”’ In addition, the state court action here in-

volves different parties, and it was commenced nearly eight

months after the antitrust action was brought and after the

hearing on the issue of liability had been scheduled. Com-

pare Hicks v. Miranda, 422 U.S. 332 (1975).

Thus, it is apparent that the ruling of the Court of Ap-

peals does not depend on the existence of a prior action

in a state court. Since no standards were offered by the

Court to indicate in what circumstances abstention would

be required, it must be assumed that an independent suit

must be brought in state court seeking a declaratory judg-

9

ment (or perhaps, more precisely, an advisory opinion) as

to the applicability of state law in every case of a claimed

Parker exemption, even in civil enforcement actions brought

by the Department of Justice. That kind of “abstention”

will produce inordinate delays in enforcing the federal anti-

trust laws since plaintiffs will be at the mercy of state

court backlogs as a precondition to proceeding with their

federal actions. Such delays are particularly indefensible

in cases such as this where there was a fully stipulated

record, clearly establishing the relation between the State

Bar and the Virginia Supreme Court for purposes of the

state action defense.

Conceivably, the result might be tolerable if the state

courts could decide anything, but there is no state law

question involved in this antitrust case, let alone a disposi-

tive one. Thus, after securing the judgment of the highest

court of Virginia, which itself created the State Bar and

established its rules on issuing UPLs, the case must return

to the federal courts because the question to be decided

is one of federal law, i.e., are the anticompetitive activities

of the State Bar shielded from the federal antitrust laws

because of the involvement of a sovereign state in them?

See Parker v. Brown, supra; Cantor v. Detroit Edison Co.,

supra, 428 U.S. at 592-97. Therefore, the abstention em-

ployed here cannot be analogized to that in Railroad Comm.

of Texas v. Pullman Co., 312 U.S. 496 (1941), where this

Court permitted a federal action to be deferred pending

potentially determinative proceedings in a state court, since

the state case here cannot resolve the Parker issue no matter

what its views are on the state law questions. Moreover,

even if the unauthorized practice issue is decided in peti-

tioner’s favor in the state courts, so that it will be free to

conduct its title insurance business free of the State Bar’s

10

boycott, its treble damage claim based on past acts of the

State Bar will remain, and that will require a full antitrust

determination in order to resolve. The futility of the ap-

pellate court’s direction to abstain is further underscored

by the fact that the state courts have no independent juris-

diction to determine the merits of antitrust cases. See,

e.g., Vendo Co. v. Lektro-Vend Corp., supra, 433 U.S. at

632 and 664 n. 38, and the cases cited therein.?

The decision of the Fourth Circuit severely interferes

with the vital Congressional objective of furthering the

private and public enforcement of the antitrust laws. It

will impose enormous burdens of cost and delay on all

antitrust plaintiffs and will create a new, uncertain, and

never before suggested role for state courts in the antitrust

area. Because of the potentially disastrous effects that this

decision will have on antitrust enforcement, and because

of the opportunities it presents for wholesale avoidance of

difficult questions by federal judges who will find in the

decision below an excuse to refer matters to the state

courts, this Court should grant the petition.

3 Nor would reference under the doctrine of primary jurisdiction

authorized in Ricci v. Chicago Mercantile Exch., 409 U.S. 289 (1973),

be proper. That doctrine applies only if Congress has enacted the

other legislation (409 U.S. at 300), if the reference will be of “ma-

terial aid in resolving the immunity question” (409 U.S. at 302),

and where there are disputed factual issues relating to “the customs

and practice of the industry and of the unique marketplace involved”

on which the agency’s views (not a court’s) are likely to be helpful

(409 U.S. at 305).

1]

CONCLUSION

For the reasons set forth above, the petition for a writ

of certiorari should be granted. In addition, because the

decision below is so lacking in authority and deviates so

far from accepted principles of antitrust law, summary

disposition would also be appropriate.

Respectfully submitted,

ALAN B. MORRISON

Suite 700

2000 P Street, N.W.

Washington, D.C. 20036

(202) 785-3704

ROBERT B. HUMMEL

1229 19th Street, N.W.

Washington, D.C. 20036

(202) 872-6761

Attorneys for the Petitioner

April 21, 1978

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 77-1703

VIRGINIA STATE BAR,

Defendant-Appellant,

v.

SURETY TITLE INSURANCE AGENCY, INC.,

Plaintiff-Appellee.

Appeal from the United States District Court for the Eastern

District of Virginia, Richmond Division. Robert R. Merhige, Jr.,

District Judge

Argued October 4, 1978 Decided March 1, 1978

Before RUSSELL and HALL, Circuit Judges, and THOMSEN,*

Senior District Judge

John Hardin Young, Assistant Attorney General, and Anthony

F. Troy, Attorney General of Virginia, for Appellant; Alan B.

Morrison (Robert B. Hummel and Stephen W. Bricker, on

brief) for Appellee.

*Of the United States District Court for the District of Mary-

land, sitting by designation.

2a

Thomsen, Senior District Judge

Surety Title Insurance Agency, Inc. (Surety) filed this action

against the Virginia State Bar (VSB) in the district court,

claiming that certain advisory opinions issued by the VSB,

coupled with the threat of disciplinary proceedings against

those attorneys who disregard the advisory opinions, ille-

gally restrain commerce in tne area of title insurance and

constitute an illegal group boycott and an attempt to mono-

polize, in violation of sections 1 and 2 of the Sherman Act,

15 U.S.C. 8 1 and 2. The district court noted:

“Plaintiff does not challenge either the definition

of the practice of law as enunciated by the Su-

preme Court of Virginia nor the correctness of

any particular ethical or unauthorized practice of

law opinion. Rather, it is the method by which

these opinions are issued that is alleged to be in

violation of the federal antitrust laws.”

Surety Title Insurance Agency, Inc. v. Virginia State Bar, 431

F. Supp. 298, 300 (E.D. Va. 1977).

The VSB contended below and contends here that the re-

lief requested is barred, inter alia, by the state-action exemp-

tion to the Siierman Act.

Cross motions for summary judgment on the issue of lia-

bility were filed, accompanied by a stipulation of facts, which

included references to the appropriate statutes,' rules of the

Supreme Court of Virginia? and opinions of the VSB.?

| Va. Code Ann. 8§ 54-48 and 49 (Repl. Vol. 1974); see also § 54-44.

2 See, inter alia, Rules of the Supreme Court of Virginia, 171 Va.

xvii; 205 Va. 1038, et seq.; 216 Va. 1062, 1141, 1143, 1146-47, 1173-

74.

3 Unauthorized Practice of Law Opinions Nos. 17 (1942), 43 (1974),

and 44 and 46 (1975); and Ethics Committee Opinion 177 (1975).

3a

After argument, the district court concluded that the state

action exemption is not available to the VSB in this case.

The court noted, however, that the defense to monetary lia-

bility may be available to the VSB on notions of fairness;

with respect to that issue the court said:

“The issuing of the opinion resulting in the anti-

competitive activity here was required by the

state. The Court will request that the parties ad-

dress this issue further after the Court and coun-

sel have the benefit of the Supreme Court’s opinion

in the case of Bates v. State of Arizona which is

anticipated before the Court’s current term ends

in June.” 431 F. Supp. at 309.4

The decision in Bates v. State Bar of Arizona, U.S.

, 97 S. Ct. 2691 (1977), was indeed rendered on

4 The following order was entered by the district court:

“For the reasons stated in the Memorandum of the Court this day

filed and deeming it proper so to do, it is ADJUDGED AND ORDERED

as follows:

(1) Defendant’s motion for summary judgment be, and the same

is hereby denied; and

(2) The motion of the plaintiff for summary judgment be, and

the same is hereby, in part, granted in the following respects: (a) the

issuance by defendant of opinions [or] similar documents purporting to

define the practice of law is unlawful and in the instant case is vio-

lative of Sections 1 and 2 of the Sherman Act, 15 US.C. & 1 and 2;

(b) the defendant, Virginia State Bar, its officers, agents and employees

be, and they are hereby, enjoined from issuing any further opinions or

documents purporting to define the practice of law and said defendant

is directed to expunge from its records all such prior opinions; further,

the defendant, Virginia State Bar, through its appropriate officer shall

forthwith notify its membership of said expungement.

“All other matters in issue are hereby continued.”

4a

June 27, 1977. After distinguishing Goldfarb v. Virginia

State Bar, 421 U.S. 773 (1975), the Court held flatly that

“the challenged restraint [in Bates] is the affirmative com-

mand of the Arizona Supreme Court under its Rule 27(a)

and 29(a) and its Disciplinary Rule 2-10 (b). That Court is

the ultimate body wielding the State's power over the prac-

tice of law, see Ariz. Const. Art. 3; Jn re Bailey, 30 Ariz.

407, 248 P. 29 (1926), and, thus, the restraining is ‘com-

pelled by direction of the State acting as a sovereign.” 421

U.S., at 791.” (Slip. opinion p. 8), 97 S. Ct. at 2697. The

Court added a footnote (#11) at that point in the Bates

opinion, as follows: “We note, moreover, that the Court’s

opinion in Goldfarb concluded with the observation that

‘fiJn holding that certain anticompetitive conduct by law-

yers is within the reach of the Sherman Act we intend no

diminution of the authority of the State to regulate its

professions.’ 421 U.S. at 793. Allowing the instant Sher-

man Act challenge to the Disciplinary Rule would have pre-

cisely that undesired effect.” =» ~U.S. at __—_—s(slip opin-

ion p. 8), 97 S. Ct. at 2697.

After analyzing Cantor v. Detroit Edison Co., 428 U.S.

579 (1976), the Court said: “Here, the appellants’ claims

are against the State. The Arizona Supreme Court is the

real party in interest; it adopted the rules, and it is the

ultimate trier of fact and law in the enforcement process.

In re Wilson, 106 Ariz. 34, 470 P.2d 441 (1970). Al-

though the State Bar plays a part in the enforcement of

the rules, its role is completely defined by the court; the

5a

to protect the pul. “ndeed, this Court in Gold-

farb acknowledged see ‘[t]he interest of the

States in regulating lawyers is especially great

since lawyers are essential to the primary gov-

ernmental function of administering justice,

and have historically been “officers of the

courts.” ’ 421 U.S. at 792. See Cohen »v. Hur-

ley, 366 U.S. 117, 123-124 (1961). More spe-

cifically, controls over solicitation and advertis-

ing by attorneys have long been subject to the

State’s oversight. Federal interference with a

State’s traditional regulation of a profession is

entirely unlike the intrusion the Court sanc-

tioned in Cantor.” U.S. (slip opin-

ion p. 10), 97 S. Ct. at 2698.

“Finally, .... The disciplinary rules reflect

a clear articulation of the State’s policy with

regard to professional behavior. Moreover, as the

instant case shows, the rules are subject to point-

ed re-examination by the policy maker — the

Arizona Supreme Court — in enforcement pro-

ceedings. Our concern that federal policy is being

unnecessarily and inappropriately subordinated to

state policy is reduced in such a situation; we

deem it significant that the state policy is so

clearly and affirmatively expressed and that the

State’s supervision is so active.” Id.

appellee acts as the agent of the court under its continu- In the instant case the role of the Supreme Court of Vir-

ous supervision.” US. at (slip opinion p. 9). ginia is not so clear. It is unfortunate that Virginia has not

97 S. Ct. at [2] 697. Further distinguishing Cantor, the Court adopted a statute or rule which would permit us to certify

on this question of state law, crucial to a decision in this case,

to the highest court of the State of Virginia. However, as

“In contrast, the regulation of the activities the district court noted in a footnote to its opinion: “Sub-

of the bar is at the core of the State’s power

6a

sequent to the filing of this action, the Attorney General

of Virginia filed a Bill of Complaint against the plaintiff

charging it with the unauthorized practice of law. The Bill

and subpoena issued by the Clerk of the Circuit Court of

Virginia Beach were served on the plaintiff on December 16,

1976. A challenge to the substance of the State Bar’s

opinions on the unauthorized practice of law as they relate

to title insurance may be expected in the state court pro-

ceeding.”” 431 F. Supp. at 300 n.2. We are advised that

no decision has yet been rendered in that case, but coun-

sel have sent us copies of the pleadings therein, and stated

that the matter will be set for a docket call in April 1978.

The decision in that case, at nisi prius and on appeal, will

have to deal with the respective roles of the Supreme Court

of Virginia and the VSB in the adoption and enforcement

of the disciplinary rules and other issues presented by the

case at bar. We believe that it would be in accord with

appropriate federal-state relations for the federal courts to

withhold final decision on the issues presented by this case

until the Virginia courts have had an opportunity to de-

cide the disputed questions of state law. on

We, therefore, vacate the order of the district court, and

remand the case with instructions to withhold further ac-

tion until the final decision of the Supreme Court of Vir-

ginia in the case filed by the Attorney General of Virginia

against the plaintiff herein, referred to in footnote 2 of

the opinion of the district court, unless the Attorney Gen-

eral is responsible for any unreasonable delay in such de-

cision.

Vacated and Remanded,

with instructions.

7a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

[Filed April 25, 1977]

SURETY TITLE INSURANCE )

AGENCY, INC., )

Plaintiff, )

v. ) Civil Action

) No. 76-0180-R

VIRGINIA STATE BAR, )

Defendant. )

MEMORANDUM

Plaintiff, Surety Title Insurance Agency, Inc. (Surety),

brings this action under Sections | and 2 of the Sherman

Act, 15 U.S.C. 8 1 and 2, to redress injuries to its busi-

ness allegedly incurred by virtue of actions of the defen-

dant, Virginia State Bar. Plaintiff seeks monetary, injunc-

tive and declaratory relief. Jurisdiction is attained pursu-

ant to 15 U.S.C. 8 15 and 26 and 28 U.S.C. § 1337. The

matter comes before the Court on cross-motions for sum-

mary judgment as to liability. The issues have been briefed

and argued by counsel, and the matter is ripe for disposi-

tion.

The gist of the plaintiff's complaint is an allegation that

the defendant’s practice of issuing advisory opinions relating

to ethics and the unauthorized practice of law, coupled with

8a

the threat of disciplinary proceedings, ! illegally restrain com-

merce in the area of title insurance. Specifically, the plain-

tiff maintains that the defendant’s actions constitute an ille-

gal group boycott and an attempt to monopolize in viola-

tion of Sections | and 2 of the Sherman Act, 15 U.S.C.

8 1 and 2. Plaintiff does not challenge either the defini-

tion of the practice of law as enunciated by the Supreme

Court of Virginia nor the correctness of any particular

ethical or unauthorized practice of law opinion.” Rather,

it is the method by which these opinions are issued that

is alleged to be in violation of the federal antitrust laws.

A description of the opinion issuing process as it relates to

3

! Rules of the Supreme Court of Virginia, Part Six, Rule 6:11,

DR 3-101(A) subjects attorneys to disciplinary action should they

“aid a non-lawyer in the unauthorized practice of law.” 216 Va.

1090 (1976).

: Subsequent to the filing of this action, the Attorney General

of Virginia filed a Bill of Complaint against the plaintiff charging

it with the unauthorized practice of law. The Bill and subpoena

issued by the Clerk of the Circuit Court of Virginia Beach were

served on the plaintiff on December 16, 1976. A challenge to

the substance of the State Bar’s opinions on the unauthorized

practice of law as they relate to title insurance may be expected

in the state court proceeding.

3 Thus, there is no question of state law presented in this case

which would call for the invocation of the exceptional doctrine of

abstention. Colorado River Water Conservation Dist. v. United

States, US. , 44 U.S.L.W. 4372, 4376 (U.S., March 24, 1976).

Moreover, resolution of the issues presented in this case would not

interfere with the action brought by the Attorney General of Vir-

ginia against the plaintiff. The two actions simply present different

issues. Thus, Younger v. Harris, 401 U.S. 37 (1971) and its progeny

are not applicable. See Consumers Union of United States, Inc. v.

American Bar Ass'n, __F. Supp.___ ,C.A. No. 75-0105-R, SJ. Op.

11-15 (E.D. Va. 1976).

9a

title insurance is appropriate to provide the factual predi-

cate for the Court’s conclusions.

The Supreme Court of Virginia is legislatively empowered

to define what constitutes the practice of law. Va. Code

Ann. § 54-48(a) (Repl. Vol. 1974). Pursuant to this stat-

ute and its inherent authority, the Supreme Court of Vir-

ginia in 1938 defined the practice of law, in pertinent part,

as follows:

“Generally, the relation of attorney and client

exists, and one is deemed to be practicing law,

whenever he furnishes to another advice or serv-

ice under circumstances which imply his possession

and use of legal knowledge or skill.

Specifically, the relation of attorney and client

exists, ana one is deemed to be practicing law,

whenever —

(1) One undertakes for compensation, direct

or indirect, to advise another, not his regular em-

ployer, in any matter involving the application of

legal principles to facts or purposes or desires.

(2) One, other than as a regular employee act-

ing for his employer, undertakes, with or without

compensation, to prepare for another legal instru-

ments of any character, other than notices or con-

tracts incident to the regular course of conducting

a licensed business. . . .”

Rules of the Supreme Court of Virginia, Part Six, Rule 6:1,

216 Va. 1062 (1976). This definition was first drafted by

a special subcommittee of attorneys. The Supreme Court

ordered release of the proposed definition and solicited pub-

lic comments. These comments brought about one addition

10a

tc the proposed definition. The definition as adopted in

1938 remains unchanged today.

The Supreme Court was also authorized to create the

Virginia State Bar “to act as an administrative agency of

the Court for the purpose of investigating and reporting

the violation of such rules and regulations as are adopted

by the Court under the article for such proceedings as may

be necessary.”” Va. Code Ann. § 54-49 (1974 Repl. Vol.)

The defendant, Virginia State Bar (State Bar), was created

pursuant to this authority by the Rules of the Supreme

Court of Virginia (Rules of the Court) in 1938. Each at-

torney practicing law in Virginia is required by statute and

the Rules of the Court to be a member of the State Bar.

Va. Code Ann. § 54-49 (1974 Repl. Vol.); Rules of the

Supreme Court of Virginia, Part Six, Rule 6:1V, 4 2, 216

Va. 1141 (1976). The powers of the State Bar have been

delegated by the Supreme Court of Virginia to a Council

comprised of at least one attorney elected from each judi-

cial circuit in Virginia and six attorneys appointed at large

by the Supreme Court of Virginia. The current President,

President-elect, and immediate past President of the State

Bar serve as ex officio members of the Council. Rules of

the Supreme Court of Virginia, Part Six, Rule 6:1V, q 5,

216 Va. 1143 (1976). The Council currently consists of

fifty-six elected or appointed members and the three ex

officio members.

When the Virginia Supreme Court established the State

Bar, it also promulgated rules governing the Bar’s organiza-

tion and government as well as those relating to the Coun-

cil. Among the various powers vested in the Council is the

power to render advisory opinions. Rules of the Supreme

Court of Virginia, Part Six, Rule 6:1V, 4 9(i), 216 Va.

1146 (1976). Any active member of the State Bar may

lla

solicit an advisory opinion “on any question of contem-

plated professional conduct of such member, and upon such

application the Council, or a Committee of the Council ap-

pointed for the purpose, shall render such an opinion. In

the event the opinion is rendered by a Committee, such

member shall have the right of appeal to the Council.”

Rules of the Supreme Court of Virginia, Part Six, Rule

6:1V, ¢ 10, 216 Va. 1147 (1976). The by-laws of the

Council establish five-member committees, appointed by the

President from its membership, for both Legal Ethics and

Unauthorized Practice of Law. Rules of the Supreme Court

of Virginia, Part Six, Rule 6:V, Art. VIII and IX, 216 Va.

1173-1174 (1976).

The advisory opinions are not rendered in an adjudica-

tive or adversarial’context. The advisory opinions relating

to the unauthorized practice of law are deemed to be of

general application. Accordingly, the State Attorney Gen-

eral has advised State Bar members that the Virginia Con-

flict of Interest-Act, Va. Code Ann. § 2.1-352, does not

preclude a practicing attorney from voting with respect to

an advisory opinion concerning the unauthorized practice

of law. Opinion of the Attorney General of the State

of Virginia (July 24, 1974). There is also no provision

made for review by any Court of the Unauthorized Prac-

4 Thus, Council members who engage either in a real estate-

oriented practice or represent title companies were permitted to

pass on the question of whether issuing title insurance constitutes

the practice of law. As discussed infra, this issue can be of con-

siderable economic concern to both the attorneys and their clients.

The only disqualification that was mandated by the Council was

that of Council member Edward R. Parker who had formerly

represented the Northern Virginia Lawyers Association in the

proceedings which led to the issuance of UPL opinions 43 and

44, which are central to this case. See note 5, infra.

12a

tice of Law opinions. An amendment to the rules govern-

ing the State Bar to allow for judicial review of advisory

opinions was proposed, but rejected by the State Bar in

1938. Accordingly, no opinion of the Ethics Committee

or the Unauthorized Practice of Law Committee has ever

been presented to or approved by the Supreme Court of

Virginia. In short, advisory opinions are issued by lawyers

in response to questions submitted by lawyers and no pro-

vision is made to inject the participation of non-interested

parties into the process.

The area of unauthorized practice of law pertinent to

the instant litigation relates to the activities of title insur-

ance companies such as the plaintiff. In 1942, the Unau-

thorized Practice of Law Committee issued its opinion No.

17 in response to the following inquiry:

“Should definition [sic] of practice of law be

changed so that title companies should certify

the validity of real estate and personal property

titles?”

The opinion, adopted by the Council, recommended that

the definition of the practice of law not be amended so

as to allow title insurance companies to certify titles. This

opinion is premised upon the belief that the certification

of a title constitutes the practice of law within the mean-

ing of the definition articulated by the Supreme Court of

Virginia. The absence of an attorney-client relationship be-

tween the company and a prospective purchaser of title in-

surance was viewed to be a source of potential abuse which

greatly outweighed the possible benefits accruing to the pub-

lic should title insurance companies be permitted to certify

titles.

The Committee considered the problems associated with

title insurance compai«-es again in 1973. This consideration

13a

stimulated much debate* within the profession and resulted in

the issuance by the Committee of two opinions which were

adopted by the Council. Unauthorized Practice of Law Opin-

ion 43 states that a tithe company would be engaging in the

unauthorized practice of law should it issue a title insurance

policy to a non-lawyer based upon a title examination con-

ducted by lay employees of the company. This conclusion

rests upon the proposition that issuing title insurance con-

stitutes the rendering of a legal opinion as to the sufficiency

of a title and is taken to be such by a lay person. The un-

derlying proposition was deemed to be unaffected by the

title insurance company’s disclaimer, to be issued with each

commitment, policy or binder, to the effect that:

THIS IS A TITLE INSURANCE (COMMITMENT)

(POLICY) (BINDER) AND IS NOT A TITLE OPIN-

ION. THERE MAY BE MATTERS OF RECORD

OR NOT OF RECORD WHICH AFFECT THE PRO-

PERTY DESCRIBED IN SCHEDULE A, WHICH ARE

NOT LISTED IN SCHEDULE B, AND WHICH THE

5 A title insurance company proposed to provide title binders

(commitments to insure) to attorneys for a set fee on the basis

of title searches and abstracts conducted by the title company’s

employees. After reviewing the abstract, the attorney could then

certify the title to the title insurance company and the home

buyer and the company would issue commitment to insure. This

proposal was opposed by the Northern Virginia Lawyers Associa-

tion. The contending forces presented the issues to the UPL

Committee which proposed UPL opinion 41. The Council held

an open meeting on proposed UPL 41 on October 26, 1973, at

which time it was decided that the opinion should be broken

down into two opinions which subsequently became UPL 43

and 44. Opinions 43 and 44 were adopted June 20, 1974. The

latter opinion was not made effective until the adoption of

Ethics Opinion 177 which, along with UPL Opinion 46 was

adopted January 24, 1975.

14a

COMPANY HAS DETERMINED TO ACCEPT AS

AN UNDERWRITING RISK.

The proposed practice, falling within the Virginia Supreme

Court’s general definition of the practice of law coupled

with the absence of an attorney-client relationship and ac-

companying ethical protections, was deemed to present an

unacceptable risk to the unwary consumer. Unauthorized

Practice of Law Opinion 44 holds that upon the request of

an attorney, a title insurance company may search a title

and furnish such title information to the attorney and issue

a commitment, or binder to insure, to whomever the request-

ing attorney may designate. The presence of an attorney in

the transaction, so that opinion holds, “eliminates the evils

against which the proscription is directed: reliance by lay-

man upon services which are implicitly offered to him as

the product of legal knowledge or skili.” Related to Opin-

ion 44 was Ethics Opinion 177 which outlines an attorney’s

responsibility in situations arising under Opinion 44. The

Unauthorized Practice of Law Opinion 46 was also adopted

at the same time. That opinion approves of title companies

providing the results of their title searches directly to cus-

tomers with staff counsel who request the information. The

Unauthorized Practice of Law Opinions 44 and 46 as well

as the Ethics Committee Opinion 177 became effective on

January 25, 1975.

The plaintiff was organized in November of 1975 in order

to act as an agent on behalf of out-of-state companies sell-

ing title insurance directly to home buyers. The plaintiff

operates its business largely within the Tidewater area of

Virginia. The plaintiff proposes to lower the cost of title

insurance by eliminating the services of an attorney in a

transaction between the purchaser of such insurance and the

title insurance company. The purchaser of title insurance

15a

would deal directly with the plaintiff and would be able to

look only to the plaintiff if there were a defect in the title.

The plaintiff currently utilizes attorneys in conducting title

searches, but admittedly plans to utilize trained lay person-

nel should it prevail in this action. It is uncontroverted

that the plaintiff's business approach would result in the con-

sumer receiving greater services than presently offered at a

substantially lower cost. For example, the affidavits and ex-

hibits filed in this cause indicate that the consumer could

save as much as $211.00 on the charges typically made in

the Tidewater area for title insurance on a $30,000 home.

The contemplated savings for such insurance on a $60,000

and $100,000 home are stated to be $491.00 and $871.00,

respectively. It is further represented that additional serv-

ices such as surveying the tract would be included in the

insurance package.

In regard to the instant controversy, there are two essen-

tial elements involved in the transfer of real estate. First,

a deed must ve prepared. The Supreme Court of Virginia

has held that only an attorney may prepare this document.

Commonweaih v. Jones & Robins. 186 Va. 30, 41 S.E.2d

720 (1941). The plaintiff has no quarrel with that decision.

Secondly, title insurance is generally required by a lender

as a condition of the loan obtained whenever financing is

necessary. See Goldfarb v. Virginia State Bar, 421 U.S. 773,

784 (1975). The plaintiff proposes to sell title insurance

directly to the consumer and thereby exclude the attorney

and, concomitant therewith, the attorney’s fee, from the in-

surance transaction. The advisory opinions issued by the

defendant state that this exclusion of the lawyer places the

transaction in contravention of the prohibition agzinst the

unauthorized practice of law. Unauthorized Practice of Law,

Opinion No. 17, August 5, 1942; Unauthorized Practice of

Law, Opinion No. 43, June 20, 1975. The Supreme Court

16a

of Virginia, however, has not yet expressed its view on the

subject. The defendant’s opinions, nonetheless, raise the

powerful spectre of disciplinary action to any attorney who

participates in a real estate transaction wherein the title in-

surance is Obtained without the services of a lawyer. See

Goldfarb, supra, 421 U.S. at 791, n.21. The net effect,

predictably, is that attorneys, who are essential to the plain-

tiffs business, refuse to prepare deeds in transactions where

the plaintiff provides the title insurance under its proposed

method of doing business. Indeed, only ten of the approxi-

mately two hundred to three hundred attorneys contacted

by the plaintiff expressed any interset in performing serivces

for it.

To paraphrase Goldfarb, a more classic illustration of a group

boycott is difficult to conjure. See United States v. General

Motors Corp., 384 U.S. 127, 145-46 (1966); Silver v. New

York Stock Exchange, 373 U.S. 341, 347 (1963); Radiant

Burners v. Peoples Gas Co., 364 U.S. 656, 659 (1961); Klor’s

v. Broadway-Hale Stores, Inc., 359 U.S. 207, 211 (1959); As-

sociated Press v. United States, 326 U.S. 1, 12-14 (1945);

Fashion Originator’s Guild v. FTC, 312 U.S. 457 (1941).

The opinion issuing process has also resulted in the attempted

extension of a monopoly from an area sanctioned by the

Supreme Court of Virginia (drafting titles) to an area which

that Court has yet to address (title insurance). There is,

moreover, no question but that the transfer of real estate

in Virginia involves and substantially affects the flow of com-

merce between the states.© See Goldfarb, supra, 421 U.S.

6 In addition to plaintiff, there are numerous other agencies/

title insurance companies doing business in the Tidewater area.

Of the three largest companies, two are headquartered outside

of Virginia (Chicago Title Insurance Company and Pioneer Title

Insurance Company), and the net proceeds from all sales of those

(Continued)

17a

at 783-85. There is similarly no disputing that the defen-

dant’s issuance of Unauthorized Practice of Law opinions

has had an anticompetitive effect, if not purpose.’ Accord-

o (Continued)

two companies are transmitted to their headquarters outside of

Virginia. None of the other title insurance agencies or title insur-

ance companies offers packages of services similar to those of

plaintiff.

During the calendar year 1975, the United States Department of

Housing and Urban Development, which is headquartered in Wash-

ington, D.C., acting pursuant to 12 U.S.C. § 1706c, insured the

mortgages on | 342 single family homes in the Tidewater area in

the amount of $32,769,650. In fiscal year 1976, acting pursuant

to 38 U.S.C. $1810, the United States Veterans Administration,

which is also headquartered in Washington, D.C., guaranteed loans

on 5,410 homes in the Tidewater area in the amount of $179,952,

858. Most of the homes for which plaintiff has written title insur-

ance have been homes on which there was either a Veterans Ad-

ministration guarantee or insurance from the Housing and Urban

Development Department. In Virginia, as elsewhere, title insur-

ance is generally required by lenders in order to obtain a loan

for the purchase of a home.

7 The Court, at this juncture, is not in a position to reach any

conclusion with regard to the intent of the defendant. There are

sufficient indications in the record, however, to question whether

the UPL opinions concerning title insurance were based entirely on

considerations of public interest. UPL Opinion 17 decries title in-

surance companies of © .epriving the resident attorneys of a large

volume of such practice in which they would otherwise be em-

ployed.” Briefs submitted by the Northern Virginia Lawyers Asso-

ciation in connection with UPL Opinions 41, 43 and 44 warned of

title insurance companies placing in jeopardy the position of the

attorney in real estate transactions. In considering UPL Opinion

41, a Council member stated “[N]o one has to tell us what it

feels like to have one’s practice threatened by this type of thing.”

The opposition to title insurance companies issuing policies without

the services of an independent lawyer was characterized by another

as a concern over taking “bread out of our mouths.” Council Meet-

ing of the Virginia State Bar, In Re: UPL Opinion Number 41, pp.

10, 16 (October 26, 1973).

18a

ingly, the Court is satisfied that the conduct in issue, if ac-

complished by a wholly private enterprise, would violate

both Sections | and 2 of the Sherman Act.®

The defendant contends that it is exempt from federal

antitrust laws under the doctrine set out in Parker v. Brown,

317 U.S. 341 (1943).9 In Parker v. Brown, state officials

were held to be immune from liability under the federal an-

titrust laws for activity which would have constituted a vio-

lation of those laws had it been the product of private ac-

tion. At issue in Parker was a legislatively mandated market-

ing program whose purpose was to restrain price competition

in the raisin industry.

The Supreme Court explicated the Parker doctrine in two

recent cases. In Goldfarb v. Virginia State Bar, supra, the

8 Group boycotts are said to be per se violations of the Sherman

Act. Silver v. New York, supra, 373 U.S. at 347 and cases cited

therein. There is a split of authority as to whether the per se or

rule of reason test should be applied to substantive antitrust claims

involving the practices of professions. Compare United States v.

National Society of Professional Engineers, __F.2d__ , No. 76-

1023 (D.C. Cir. March 14, 1977) with Feminist Women’s Health

Center, Inc. v. Mohammad, 415 F. Supp. 1258, 1263 (N.D. Fia.,

1976). The Court need not reach this precise issue as it con-

cludes that the practice in question can not withstand the less de-

manding rule of reason analysis.

9 The Parker doctrine is frequently articulated in terms of being

an “exemption” from the antitrust laws. See, e.g., Goldfarb v. Vir-

ginia State Bar, supra, 421 U.S. at 780. The doctrine, however, is

founded on the concept that the Sherman Act was never intended

to apply to all state action in the first instance. See Handler, The

Current Attack on the Parker v. Brown State Action Doctrine, 76

Col. L. Rev. 1, 9 (1976). It is also clear that the doctrine predates

Parker v. Brown. See Olsen v. Smith, 195 U.S. 332, 344-45 (1904).

The Court, for the purposes of consistency, adopts the terminology

utilized by the Goldfarb Court.

19a

Court found a minimum fee schedule maintained by the

State and local bar associations and enforced through the

prospects of disciplinary action and professional norms to

constitute a classic illustration of price fixing. In rejecting

the state action immunity asserted by the defendants, the

Court noted

“[T]he threshold inquiry in determining if an anti-

competitive activity is state action of the type the

Sherman Act was not meant to proscribe is whether

the activity is required by the State acting as sover-

eign. . . Here we need not inquire further into the

state action question because it cannot fairly be

said that the State of Virginia through its Supreme

Court Rules required the anticompetitive activities

of either respondent ... It is not enough that

. anticompetitive conduct is ‘prompted’ by state

action; rather, anticompetitive activities must be

compelled by direction of the State acting as a

sovereign.” Goldfarb v. Virginia State Bar, supra,

421 U.S. at 790-791 (citations omitted and em-

phasis added).

The most recent Supreme Court pronouncement in this

area was in Cantor v. The Detroit Edison Co.,__US.__,

44 U.S.L.W. 5357 (U.S. July 6, 1976). In Cantor, the

defendant utility provided light bulbs to its customers

and included the costs of same in its operating costs. As

a result of this practice, the rates approved by the Michi-

gan Public Service Commission reflected the costs of the

light bulbs. The practice was both approved by and un-

alterable without the consent of the Michigan State Public

Service Commission. This Commission was legislatively em-

powered to regulate the distribution of electricity. Six Jus-

tices concurred to the effect that the state action exemption

from the antitrust laws was inapplicable. A plurality of four

20a

Justices rested this holding on the fact that the practice

was wholly, or at least predominantly, private conduct ini-

tiated by a non-public entity. Mr. Chief Justice Burger

concurred in part, preferring to base the decision solely on

the absence of a state policy governing the distribution of

light bulbs. Mr. Justice Blackmun concurred in the judg-

ment on the grounds that the anticompetitive harms of

the practice outweighed its benefits.

The precise scope of the state action exemption is not

entirely clear. It does appear that Goldfarb and Cantor

narrow the applicability of the Parker-doctrine from what was

once viewed as its parameters. See, e.g., Litton Systems, Inc.

v. Southwestern Bell Telephone, Inc., 539 F.2d 418, 423

(Sth Cir. 1976). The Court’s footnote 17 in Goldfarb

also indicates that practices of professions are not to be

viewed in precisely the same manner as the practices of

other business activities. Goldfarb v. Virginia State Bar,

supra, 421 U.S. at 787 n.17.'° Just how the antitrust

laws apply to the regulation of professions is an evolving

area of law.

10 That footnote reads:

The fact that a restraint operates upon a profession as dis-

tinguished from a business is, of course, relevant in deter-

mining whether that particular restraint violates the Sherman

Act. It would be unrealistic to view the practice of profes-

sions as interchangeable with other business activities, and

automatically to apply to the professions antitrust concepts

which originated in other areas. The public service aspect,

and other features of the professions, may require that a

particular practice, which could properly be viewed as a

violation of the Sherman Act in another context, be treated

differently. We intimate no view on any other situation

than the one with which we are confronted today.

2la

The Fifth Circuit Court of Appeals reasons that the ex-

emption applies only when the anticompetitive restraint in

issue lies within the intent of the authorizing mandate of

the State. City of Lafayette v. Louisiana Power & Light

Co., 532 F.2d 431, 434 (Sth Cir. 1976). Thus, that Court

reasoned that the minimum fee schedule in Goldfarb would

have enjoyed immunity if the Virginia Supreme Court had

required the same, and such action fell within the scope of

its authority to regulate the practice of law. City of Lafa-

yette v. Louisiana Power & Light Co., supra, 532 F.2d at

434 fn. 7 and 8. A similar approach has been adopted by

the Third Circuit Court of Appeals. Duke & Company, Inc.

vy. Foerster, 521 F.2d 1277, 1280 (3d Cir. 1975).

The Ninth Circuit Court of Appeals addressed the state

action exemption issue in the context of professional regu-

lation. That Court interpreted Cantor and Goldfarb as

meaning that “to survive a Sherman Act challenge a parti-

cular practice, rule, or regulation of a profession, whether

rooted in tradition or the pronouncements of its organiza-

tions, must serve the purpose for which the profession

exists, viz. to serve the public. That is, it must contribute

directly to improving service to the public. Those which

only suppress competition between practitioners will fail to

survive the challenge. This interpretation permits a harmo-

nization of the ends that both the professions and the Sher-

man Act serve.”” Boddicker v. Arizona State Dental Ass'n,

___-F.2d ___, 1977-1 Trade Case 4 61,258 at 70,797

(9th Cir. Jan. 6, 1977) (footnotes omitted). Recently, the

11 The Fourth Circuit Court of Appeals in a post-Cantor and

Goldfarb case found Parker v. Brown to be inapplicable where the

State took no action to compel the defendant to engage in the al-

leged illegal action. Ballard v. Blue Shield of Southern West Vir-

ginia, F.2d __ , No. 75-1982, Sl. Op. at 11-12 (4th Cir. October

19, 1976.

22a

District of Columbia Circuit Court of Appeals, while not

ruling on the state exemption issue, intimated that anticom-

petitive practices of professions taking the form of ethical

rules might survive a Sherman Act challenge where such

practices are “‘narrowly confined to interdiction of abuses.”

United States v. National Society of Professional Engineers,

__ -F.2d.__, No. 76-1023, SI. Op. at 11 (D.C. Cir. March

14, 1977).

From these cases, the Court cautiously discerns the follow-

ing analytical principles applicable to the instant controversy.

The “threshold inquiry” is whether the contested activity is

compelled by the state acting as sovereign. Goldfarb v. Vir-

ginia State Bar, supra, 421 U.S. at 790. State authorization,

approval, encouragement, or participation in restrictive acti-

vity does not confer antitrust immunity. Cantor v. The De-

troit Edison Co., supra, __ U.S. __, 44 U.S.L.W. at 5361.

A negative answer to this threshold question terminates the

analysis and no immunity would be afforded the defendant.

Goldfarb v. Virginia State Bar, supra, 421 U.S. at 790-91:

Ballard v. Blue Shield of Southern West Virginia, ___F.2d

___, No. 75-1782 , Sl. Op. pp. 11-12 (4th Cir. Oct. 19,

1976). The use of the terms “threshold inquiry,” “‘state

action of the type the Sherman Act was not meant to pro-

scribe,” and “further inquiry” by the Goldfarb Court strongly

suggest that an affirmative answer demands further analysis.

Goldfarb v. Virginia State Bar, supra, 421 U.S. at 790. See

Robinson, Recent Antitrust Developments: 1975, 76 Col.

L. Rev. 191, 212 (1976).

Just what further analysis is required is admittedly not

entirely clear. The plurality opinion in Cantor in which the

Chief Justice joined states that an exemption from the anti-

trust laws is not available unless “that exemption was neces-

sary in order to make the regulatory act work, ‘and even

ee

— et ee Se en

23a

then only to the minimum extent necessary.’ ” Cantor v.

The Detroit Edison Co., U.S. __, 44 U.S.L.W. at 5362-

63. This approach, articulated in the context of what was

deemed to be private conduct, involves a determination

of whether the anticompetitive activity is necessary to ac-

complish the regulatory purpose of that agency. Mr. Justice

Blackmun articulated a slightly different standard in his con-

curring opinion.

“I would apply, at least for now, a rule of reason,

taking it as a general proposition that state-sanc-

tioned anticompetitive activity must fall like any

other if its potential harms outweigh its benefits.

This does not mean that state-sanctioned and pri-

vate activity are to be treated alike. The former

is different because the fact of state sanction

figures powerfully in the calculus of such harm and

benefits . . . I would assess the justifications of such

enactments in the same way as is done in equal pro-

tection review, and where such justifications are at

all substantial (as one would expect them to be in

the case of most professional licensing or fee-setting

schemes, for example. . .) I would be reluctant to

find the restraint unreasonable.”” Cantor v. The De-

troit Edison Co., _U.S. ___, 44 U.S.L.W. at 5666-

67.

The Ninth Circuit Court of Appeals phrased the analysis in

terms of whether the anticompetitive activity contributes di-

rectly to improving service to the public or only to suppress

competition. Boddicker v. Arizona State Dental Ass'n, su-

pra. These different formulations share the common thread

of focusing on the relationship between the anticcmpetitive

activity and the state interest it purports to advance. If

that relationship is tenuous, the activity must fall. See Sla-

24a

ter, Antitrust and Government Action: A Formula for Nar-

rowing Parker v. Brown, 69 Nw. L. Rev. 71, 104-109 (1974).

The Court is of the view that the issuance of Unauthor-

ized Practice of Law and Ethical opinions by the defendant

is compelled by the Commonwealth of Virginia. Acting pur-

suant to statutory’? and inherent’? authority, the Supreme

Court of Virginia has created the State Bar and promulgated

the rules and by-laws from which the Ethical and Unauthor-

ized Practice of Law opinion processes have emerged. The

State Bar, acting through its Council or the appropriate Com-

mittees, is required to render, at the request of a member,

advisory opinions on contemplated professional conduct. See

Rules of the Supreme Court of Virginia, Part Six, Rule 6:IV,

q 10, Rule 6:V, Art. VIII, IX and XIII, 216 Va. at 1147,

1173-74 (1976).'* These directives are not couched in the

12 Va. Code Ann. 8 54-48, 54-49(1974 Repl. Vol.).

13 Button v. Day, 204 Va. 547, 132 S.E.2d 292 (1963) cited in

Goldfarb v. Virginia State Bar, supra, 421 U.S. at 789 n.18.

14 Rule 6:IV, | 10 reads as follows:

10. Advisory Opinions.—Any active member of the Vir-

ginia State Bar may apply to the Council for an advisory

opinion on any question of contemplated professional con-

duct of such member, and upon such application the Coun-

cil, or a Committee of the Council appointed for the pur-

pose, shall render such opinion. In the event the opinion

is rendered by a Committee, such member shall have the

right of appeal to the Council. (Emphasis added). 216

Va. 1147 (1976).

Rule 6:V, Art. IX reads as follows:

ARTICLE IX

Committee on Unauthorized Practice of the Law

(Continued)

— ee eee

a on comes oe

25a

permissive “‘may,”” but rather are expressed in the mandatory

phrase “shall render such opinion”. Thus, unlike the light

bulb distribution system of Cantor or the minimum fee

schedule in Goldfarb, the issuance of opinions on the unau-

thorized practice of law is the product of the command of

the state.

The Court finds, nonetheless, that this practice must fall

under the antitrust laws. While cognizant that the advisory

opinion process enjoys the sanction of the state, the harms

of the system greatly outweigh its purported benefits. The

states have “‘a compelling interest in the practice of profes-

sions within their boundaries, and that as part of their power

to protect the public health, safety and other valid interests,

they have broad power to establish standards for licensing

practitioners and regulating the practice of professions.”

Goldfarb v. Virginia State Bar, supra, 421 U.S. at 792. Re-

14 (Continued)

A Standing Committee of five members of the Council, to

be appointed by the President and to be known as the Com-

mittee on the Unauthorized Practice of the Law, is hereby

created. All powers and duties of the Council with respect

to the unauthorized practice of law, not otherwise delegated

or reserved, shall be exercised and discharged by the Commit-

tee. (Emphasis added). 216 Va. 1173 (1976).

Rule 6:V, Art. XIII reads as follows:

ARTICLE XIII

All committees, District or Standing, shall refer to the

standing committees on Professional Ethics, Unauthorized

Practice of the Law, and Judicial Ethics, such questions

arising before them as are appropriate for opinion by the

respective committees, and such committees shall render

advisory opinion upon which the Committee asking same

shall act. (Emphasis added). 216 Va. 1179 (1976).

26a

stricting the practice of law to persons licensed by the state

is both a legitimate and necessary exercise of this power.

The underlying rationale behind this grant of a monopoly is

twofold: (1) it insures that persons rendering legal services

are qualified to do so; and (2) it subjects persons rendering

such services to the Virginia Code of Professional Responsi-

bility, Rules of the Supreme Court of Virginia, Part Six,

Rule 6:II, 216 Va. 1064 (1976). See Commonwealth v.

Jones & Robbins, 186 Va. 30, 41 S.E.2d 720 (1941); Rich-

mond Ass'n of Credit Men v. Bar Ass'n of Richmond, 167

Va. 327, 189 S.E. 153, 159-61 (1937); Bryce v. Gillespie,

160 Va. 137, 168 S.E. 653, 656 (1933). Both of these

considerations serve to advance the interest of the consum-

ing public by insuring the quality of legal services and im-

posing upon lawyers a degree of accountability to the state.

The Unauthorized Practice of Law opinion process, as it

presently operates, is not, in the Court’s view, sufficiently

related to those interests to justify its anticompetitive ef-

fects. Criminal sanctions are available to deter and punish

laymen who might engage or have engaged in the unauthor-

ized practice of law. Va. Code Ann. § 54-44.5 The advis-

ory Opinion process, moreover, cannot reasonably be said

to deter those from whom the public may need protection

as Only licensed attorneys may obtain these opinions. The

layman contemplating conduct which might constitute the

practice of law, and hence from whom the public needs

protection, has no access to the defendant’s advisory opin-

ion process. Thus, it would appear that the persons who

the State desires to deter and who have the greatest need

15 Additionally, the Attorney General is authorized to employ

special counsel to investigate and prosecute any person engaged in

the unauthorized practice of law. Va. Code Ann. § 2.1-125 (1973

Repl. Vol.).

a te

oA eet ne

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27a

for advisory opinions are excluded from the process pre-

sently under attack. It may be argued that the disciplinary

rule pertaining to aiding the unauthorized practice of law'®

generates a need for advisory opinions. The irony of this

argument is manifest. One facet of the practice of law is

advising clients as to the legality of a proposed course of

conduct. Thus, lawyers are reputed to possess special ex-

pertise in interpreting statutes and judicial decisions and ap-

plying the distilled principles of law to future actions. At-

torneys as a class, therefore, should be the last segment of

society in need of advisory opinions pertaining to the Vir-

ginia Supreme Court’s definition of the practice of law. To

contend that attorneys require these advisory opinions is to

deny the very expertise which serves as partial justification

for placing restrictions on who may practice law.

The Unauthorized Practice of Law opinion process places

attorneys in the unique position of being able to define the

extent of their own monopoly. It belabors the obvious to

point out that lawyers in general would financially benefit

from an expansive definition of the practice of law. The

danger is crystalized under the facts of the instant case.!”

An attorney engaged in a real estate oriented practice

stands to lose substantial fees should the issuance of title

insurance be held to lie outside the parameters of the

Virginia Supreme Court’s definition of the practice of law.

16 Rules of the Supreme Court of Virginia, Part Six, Rule II:

DR 3-101(A), 216 Va. 1090 (1976).

17 The Court’s remarks here should not be taken as a comment

on the merits of any particular UPL opinion or a suggestion of

ethical impropriety on the part of any member of the bar. The

Court is merely pointing out the anticompetitive dangers inherent

in the UPL opinion process.

28a

This direct pecuniary interest highlights the infirmity of

the system as it now operates. Gibson v. Berryhill, 411

U.S. 564, 578-79 (1973). The absence of judicial parti-

cipation aggravates the anticompetitiveness of the Unau-

thorized Practice of Law opinion process. The State Bar

rules make no provision for court review of such opinions.

All of the opinions issued to date have become effective

without the consideration or approval of the Supreme

Court of Virginia. Thus, that organ of the State vested

with responsibility for defining the practice of law has

yet to intimate its authoritative views on the title insur-

ance issue.

There is nothing in the instant record, moreover, that

indicates that either the legislature or the Supreme Court

of Virginia intended to restrain competition between law-

yers and laymen in areas which arguably do not lie with-

in the definition of the practice of law. The state policy

behind restricting the practice of law to licensed attorneys

is to protect the public and not, as was the case in Parker

v. Brown, to financially benefit a particular segment of

society. That intent is thwarted when, as here, the regu-

latory activity serves an anticompetitive end without neces-

sarily improving the services rendered to the consuming

public.

In summary, not only is the Unauthorized Practice of

Law opinion process tenuously related to the state interest

it purports to advance, but it operates in a decidedly anti-

competitive fashion offensive to notions of basic fairness.

It does not act to advance the consumer interest, but

merely that of the attorney. It is neither necessary to,

nor are its anticompetitive effects reasonable in light of,-

Re ht a ee ee

~

29a

the justifying state interest. Accordingly, the state action

exemption is not available to the defendant.'®

Both the plurality opinion and that of Mr. Justice Black-

mun in Cantor indicate a defense to monetary liability may

be available to a defendant based on notions of fairness.

Cantor v. The Detroit Edison Co., U.S. at__and__; 44

U.S.L.W. at 5361-63 and 5366 n.6. Cf. Feminist

Women’s Health Center, Inc. v. Mohammad, 415 F. Supp.

1258, 1263 (N.D. Fla. 1976). The Court believes that

this may be an appropriate case for such a defense. The

issuing of the opinion resulting in the competitive activity

here was required by the state. The Court will request

that the parties address this issue further after the Court

and counsel have the benefit of the Supreme Court’s

opinion in the case of Bates v. State of Arizona which

is anticipated before the Court’s current term ends in

June.

An appropriate order will issue.

/s/ ROBERT R. MERHIGE, JR.

Robert R. Merhige, Jr.

United States District Judge

Date: April 25, 1977

18 The defendant argues that the McCarran-Ferguson Act, 15

U.S.C. 8 1011-1013 exempts the-regulation of title insurance from

the antitrust laws. Title 15 U.S.C. $ 1012(b) grants the business

of insurance a qualified exemption from the Sherman Act. This

exemption is specifically limited by 15 U.S.C. § 1013(b) which pro-

vides: “Nothing contained in this chapter shall render the said

Sherman Act inapplicable to any agreement to boycott, coerce,

or intimidate, or act of boycott, coercion or intimidation.” The

Court is satisfied that the type of boycott involved herein is the

type condemned by the McCarran-Ferguson Act. See Ballard v.

Blue Shield of Southern West Virginia, __F.2d___ , No. 75-1982,

Sl. Op. pp. 9-10 (4th Cir. October 19, 1976).

a Ce

30a

APPENDIX C

IN THE

UNITED STATES DISTRICT COURT FOR

THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

SURETY TITLE INSURANCE AGENCY,

INC.,

Plaintiff, :

v. : Civil Action

: No. 76-0180-R

VIRGINIA STATE BAR, :

Defendant.

ORDER

For the reasons stated in the Memorandum of the Court

this day filed and deeming it proper so to do, it is ADJUDGED

AND ORDERED as follows:

(1) Defendant’s motion for summary judgment be, and

the same is hereby, denied; and

(2) The motion of the plaintiff for summary judgment

be, and the same is hereby, in part, granted in the following

respects: (a) the issuance by defendant of opinions or simi-

lar documents purporting to define the practice of law is

unlawful and in the instant case is violative of Sections 1

and 2 of the Sherman Act, 15 U.S.C. $8 1 and 2; (b) the

defendant, Virginia State Bar, its officers, agents and em-

ployees be, and they are hereby, enjoined from issuing

any further opinions or documents purporting to define

Oe Bt ew

3la

the practice of law and said defendant is directed to ex-

punge from its records all such prior opinions; further,

the defendant, Virginia State Bar, through its appropriate

officer shall forthwith notify its membership of said

expungement.

All other matters in issue are hereby continued.

Let the Clerk send copies of this Order and the accom-

panying Memorandum to all counsel of record.

Date: April 25, 1977

/s/ ROBERT R. MERHIGE, JR.

Robert R. Merhige, Jr.

United States District Judge

32a

APPENDIX D

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 77-1703

SURETY TITLE INSURANCE AGENCY, INC.,

Appellee,

v.

VIRGINIA STATE BAR,

Appellant.

ORDER

Upon consideration of the appellee’s petition for rehear-

ing and suggestion for rehearing en banc, and no judge

having requested a poll on the suggestion for rehearing en

It is ADJUDGED and ORDERED that the petition for

rehearing is denied.

Entered at the direction of Judge Russell for a panel

consisting of Judge Russell, Judge Hall, and Judge Thomsen.

For the Court,

/s/ William K. Slate, II

Clerk

—_— ——————

33a

A True Copy, Teste:

William K. Slate, Il, Clerk

By /s/ EMILY RUEGER

Emily Rueger

[Filed April 3, 1978]