Petition — First American Title Co. of South Dakota v. South Dakota Land Title Ass'n

Supreme Court brief1984

Ask Donna

What actually matters in this document.

Text

— r @ 2 6 [ores wt TD vs

Supreme Court of the United tates ae

October Term, 1983 pope L. $T

CLERK

FIRST AMERICAN TITLE COMPANY OP"SUOUTH

DAKOTA and FIRST AMERICAN TITLE INSUR-

ANCE COMPANY OF SOUTH DAKOTA,

Petitioners,

vs.

SOUTH DAKOTA LAND TITLE ASSOCIATION,

SOUTH DAKOTA ABSTRACTERS’ BOARD OF EX-

AMINERS, BLACK HILLS LAND AND ABSTRACT

COMPANY, DENNIS O. MURRAY, SECURITY LAND

AND ABSTRACT COMPANY, ESTATE OF GLEN M.

RHODES, FALL RIVER COUNTY ABSTRACT COM-

PANY, CHARLES E. CLAY, CUSTER TITLE COM-

PANY, BETTY J. GOULD, HAAKON COUNTY AB-

STRACT COMPANY, KEITH EMERSON, WAYNE

ROE, CHARLES NASS, and STATE OF SOUTH DA-

KOTA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

ty.

Hvueu A. Burns

(Counsel of Record)

Purr S. Fica

Burns & Fiaa, P.C.

333 Steele Park

50 South Steele Street

Denver, Colorado 80209

Telephone: (303) 399-4636

Donatp R. Savitz

Lywy, Jacxsox, Suvitz & Lesrvuy, P.C.

First Federal Plaza, 8th Floor

9th and St. Joe

P. O. Box 8110

Rapid City, South Dakota 57701

Telephone: (604) 342-2592

Attorneys for Petitioners

November 1, 1983

COCKLE PRINTING CO. 2]11 Douglas St, Omaha 68102

QUESTIONS PRESENTED

1. What action must be taken by a state legislature

for antitrust immunity to attach to anticompetitive regu-

lations of a state agency?

2. Whether state action immunity exempts from anti-

trust attack the regulations of a state agency preventing

Petitioners from conducting their abstracting and title in-

surance business throughout the State of South Dakota,

where the South Dakota legislature has never stated an

intention to displace state-wide competition in the title

services business?

PARTIES TO THE PROCEEDINGS

Petitioner First American Title Company of South

Dakota is a company organized and doing business under

the laws of South Dakota. It acts as a local agent for a

foreign title insurance company, First American Title In-

surance Company of California. It is also a licensed ab-

stract company providing abstract services in Pennington

County, South Dakota. Petitioner First American Title

Insurance Company of South Dakota was a domestic South

Dakota title insurance company organized pursuant to

South Dakota law in June 1978. It was voluntarily dis-

solved in May 1980.

The Respondents include the South Dakota Land Title

Association (“SDLTA”), a trade association composed of

South Dakota abstracters, the South Dakota Abstracters’

Board of Examiners (“SDABE”), an agency of the State

of South Dakota, and various individuals and entities en-

gaged in the abstracting business within the state. These

individuals and entities consist of Dennis O. Murray, a

South Dakota abstracter, President of Respondent Black

Hills Land and Abstract Company, and a member of the

SDLTA:; Glen M. Rhodes, now deceased, who at the time

of trial was a South Dakota abstracter, President of Re-

spondent Security Land and Abstract Company, member

of the SDABE and former President of the SDLTA, and

whose estate has been substituted for him as a party;

Charles E. Clay, a South Dakota abstracter, the owner and

operator of Respondent Fal! River County Abstract Com-

pany, and a member of the SDLTA; Betty J. Gould, a li-

censed abstracter, President of Respondent Custer Title

Company, and a member of the SDLTA; Keith Emerson,

iii

a licensed abstracter, a co-owner of Respondent Haakon

County Abstract Company, and a member of the SDLTA;

Wayne Roe, a licensed abstracter, and a member and

President of the SDLTA at the time of trial; and Charles

Nass, Secretary-Treasurer of the SDLTA through the

pendency of the action, and the owner and operator of an

abstract company in Brookings, South Dakota.

After the commencement of the action, the SDABE

moved that the State of South Dakota be joined as a Re-

spondent in the action, which motion was granted without

objection of any party.

TABLE OF CONTENTS

Pages

Questions Presented ala i

Parties To the Proceeding «.. is a

Table of Contents ae atid cameat ht ae

i Ee Fe AE

Opinions Below 1

Jurisdiction 2. , ae

Statutory Provisions Involved .. aoe ae

Statement of the Case ... SEES ERRNO

Reasons for Granting the Writ nites ae

Conclusion a heccnleataas ae

Appendix:

Appendix A: Eighth Circuit Opinion, August 11,

1983 ts : App. 1

Appendix B: District Court Memorandum Opinion,

June 8, 1982 . App. 35

TABLE OF AUTHORITIES

Cases

California Retail Liquor Dealers’ Association v.

Mid-Cal Aluminum, Inc., 445 U.S. 97 (1980) —12,15

Community Communications Co., Inc. v. City of

Boulder, Colorado, 455 U.S. 40 (1982) 200 sd

Northern Pacific Railway Co. v. United States,

356 U.S. 1 (1958) 16

TABLE OF AUTHORITIES—Continned

Pages

Parker v. Brown, 317 U.S. 341 (1943) 8,12

Ronwin v. State Bar of Arizona, 686 F.2d 692

(9th Cir. 1981), cert. granted sub nom, Hoover

v. Ronwin, 103 S. Ct. 2084, 77 L. Ed. 2d 296 (1983)_10, 13

Schwegmann Bros. v. Calvert Distillers Corp.,

341 U.S. 384 (1951) . 12

United States v. Texas State Board of Public Ac-

countancy, 464 F. Supp. 400 (W.D. Tex. 1978),

modified, 592 F.2d 919 (5th Cir.), cert. denied,

444 U.S. 925 (1979) ) 12

United States v. Topeo Associates, Inc., 405 U.S.

596 (1972) ; 16

STATUTES

ARSD § 20:36 :04:01 i, 11, 13, 16

ARSD § 20:36:07 :01 5, 10, 12, 16

ARSD § 20:36:07 :02 5, 10, 12, 16

SDCL § 36-13-1 3,4

SDCL § 36-13-6 3, 16

SDCL § 36-13-10 4

SDCL § 36-13-26.1 4

SDCL § 58-25-16 4,5, 7,10

28 U.S.C. § 1254(1) 2

TABLE OF AUTHORITIES—Continued

Pages

Sherman Act:

15 U.S.C. $1 2,8

15 U.S.C. $2 2,8

McCarran-Ferguson Act:

15 U.S.C. $§ 1011-1015 : 8

No. 83-

In The

Supreme Court of the United States

October Term, 1983

FTRST AMERICAN TITLE COMPANY OF SOUTH

DAKOTA ‘and FIRST AMERICAN TITLE INSUR-

ANCE COMPANY OF SOUTH DAKOTA,

Petitioners,

vs.

SOUTH DAKOTA LAND TITLE ASSOCIATION,

SOUTH DAKOTA ABSTRACTERS’ BOARD OF EX-

AMINERS, BLACK HILLS LAND AND ABSTRACT

COMPANY, DENNIS 0. MURRAY, SECURITY LAND

AND ABSTRACT COMPANY, ESTATE OF GLEN M.

RHODES, FALL RIVER COUNTY ABSTRACT COM-

PANY, CHARLES E. CLAY, CUSTER TITLE COM-

PANY, BETTY J. GOULD, HAAKON COUNTY AB-

STRACT COMPANY, KEITH EMERSON, WAYNE

ROE, CHARLES NASS, and STATE OF SOUTH DA-

KOTA,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Petitioners First American Title Company of South

Dakota and First American Title Insurance Company of

South Dakota respectfully pray that a writ of certiorari

issue to review the judgment of the Court of Appeals

enterec August 11, 1983.

‘

OPINIONS BELOW

The Court of Appeals decision has not yet been re-

ported in the Federal Reporter, but it does appear at

1983-2 Trade Reg. Rep. (CCH) { 65,539 (8th Cir. 1983),

and is set forth in Appendix A, infra. The opinion of the

District Court is reported at 541 F. Supp. 1147 (D.S.D.

1982), 1982-2 Trade Reg. Rep. (CCH) { 64,849, and is set

forth in Appendix B, infra.

JURISDICTION

The judgment of the Court of Appeals was entered

on August 11, 1983. (Appendix A.) Jurisdiction of this

Court is invoked under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Sherman Act, Act of July 2, 1890, c. 647, 26 Stat. 209,

as amended:

Section 1 (15 U.S.C. §1):

Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

commerce among the several States, or with foreign

nations, is declared to be illegal... .

Section 2 (15 U.S.C. §2):

Every person who shall monopolize, or attempt

to monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the

trade or commerce among the several States, or with

foreign nations, shall be deemed guilty of a felony ....

STATEMENT OF THE CASE

This is a ease involving a South Dakota state agency

which governs the business of land title abstracting in

that state, and which consists principally of licensed

South Dakota abstracters. The agency, the SDABE, en-

acted regulations which have prevented Petitioners from

conducting their abstracting and title insurance busincsses

throughout the state, outside of Pennington County, South

Dakota. The issues raised in this Petition are limited

to whether these regulations which effectively prohibit

Petitioners from conducting their abstracting and title

insurance businesses outside of one county in South Da-

kota are immune from antitrust attack under the state

action immunity exemption, where the South Dakota Leg-

islature has never indicated an intention to displace state-

wide competition in the title services industry.

Factual Background

The facts essential to the questions presented for

review are not in dispute.

A. Pertinent State Statutes

The SDABE is authorized to “carry out the purposes

and enforce the provisions of” the statutes governing

abstracting and to “make such rules and regulations as

may be necessary to carry out the purposes of those stat-

utes, .. .” SDCL § 36-13-6. That agency consists of four

members appointed by the Governor. Prior to 1980, three

of the members of the board had to be licensed abstracters

who had been recommended for such appointment by the

Respondent trade association SDLTA within one year

prior to the date of their appointment. SDCL § 36-13-1.

Beginning July 1, 1980, two of the four abstracters on the

board must be members of the SDLTA, SDCL § 36-13-1,

as amended by 8. L. 1980 ch, 378,

South Dakota statutes govern the business of ab-

stracting and title insurance within the state. Until July

1, 1979, South Dakota required that no foreign insurance

company could issue a title insurance policy on property

in South Dakota unless the policy was countersigned by

a licensed abstracter who was doing business in the coun-

try where the property was located. SDCL 4§ 58-25-16.

Effective July 1, 1979, § 58-25-16 was amended to delete

the word ‘‘foreign’’, thus extending the countersignature

requirement to all title insurance policies, whether such

policies are issued by a foreign or domestic insurance

company.

In 1980, the South Dakota legislature enacted SDCL

§ 36-13-26.1, which states that ‘‘[a]n abstracter’s coun-

tersignature on a title insurance policy is verification that

the abstracter has furnished the insurer a report based

on the examination of record title and any other title in-

formation and services required by the insurer and § 36-

13-25”.

In order to do business in a particular county in

South Dakota, an abstracter, among other requirements,

must have an approved abstract plant showing ‘‘in a suf-

ficient!y comprehensive form, all instruments affecting the

title to real estate which are of record or on file in the

office of the register of deeds’’, which is the county clerk

and recorder’s office. SDCL § 36-13-10.

Ss >

B. Pertinent SDABE Reaulations

Regulations adopted by the SDABE, purportedly pur-

suant to statutory authority noted above, taken together,

prevent Petitioners from providing title services state-

wide in South Dakota. These regulations are as follows:

1. To countersign a title insurance policy, an ab-

stracter must have a private abstract plant in the South

Dakota county in which the property is located. ARSD

§ 20:36 :07 02° ;

2. The abstracter must search the conveyance records

in the abstracter’s own plant, as well as in the public coun-

ty register of deeds records. ARSD § 20:36:07:01°*; and

38. For an individual who is already licensed as a

skilled abstracter in South Dakota to develop his or her

*ARSD § 20:36:07:02.

Title search requirements.

The title search required for a commitment for or policy of title

insurance shall be made under the direction of an abstracter

licensed in the county in which the property is located, who

ee the title insurance policy pursuant to SDCL

-16.

The results of the search shall be forwarded to the agent

or company that is to issue the policy in the same order of

business as is normally conducted by the abstracter. Delays

in the search or reporting shall be cause for complaint and dis-

ciplinary proceedings by the abstracters’ board of examiners.

**ARSD § 20:36:07:01.

Title search required for countersignature.

An abstracter shall search the records contained in the abstrac-

ter’s plant and in the courthouse which relate to the property

being insured before he countersigns a policy of or commit-

ment for title insurance pursuant to SDCL 58-25-16,

own abstract plant in a county, the abstracter must go

through the prohibitively expensive and laborious process

of constructing the plant from an actual check of each

page of each book of recorded instruments in the county

copy or film of the numerical index in the register’s office

acceptable for the creation of a plant. ARSD § 20:36:04;

ef.

As two of the Respondents, Black Hills Land and

Abstract Company and Dennis 0. Murray, conceded at

page 4 of their appellate brief:

There is little competition among South Dakota

abstracters. There are about 70-72 abstract busi-

nesses in the state... . The four or five most popu-

lous counties in the state have two abstract firms.

The rest of the state’s abstracters have monopolies

in their respective counties. . .

This pattern of county-wide abstract companies

developed primarily because of the nature of the ab-

stracting business in the State of South Dakota... .

***ARSD § 20:36:04:01.

General requirement for books, records, and indexes.

Before any person, firm, or corporation shall be entitled to a

certificate of registration to engage in ae the

laws of South Dakota, he shall have an approved plant

containing the following:

(1) A complete index showing every instrument recorded

in the register of deeds office in county wherein he pro-

poses to te, listed inst the property

which it , and a A ee yee

instruments which do not a specific property. is index

may be compiled on cards, in bound books, orn lose lel

form, but must be made from an actual check of each

each book of recorded instruments in said a. office, and no

Sco ll a uur oF fin Ge eamiel Gales

office be accepted.

The Eighth Circuit, too, recognized this ‘‘current sit-

uation in South Dakota in which most counties have only

one licensed abs‘racter, except for the more populated

counties, which have two.” (App. A, p. App. 5).

C. Petitioners’ Dilemma

First American Title Company of South Dakota was

formed in 1974 by Walter J. Linderman, a licensed ab-

stracter in Pennington County, South Dakota (App. A,

p. App. 5). First American Title Company of South Da-

kota served as a local agent for a foreign title insurance

company First American Title Insurance Company of Cal-

ifornia (App. A, p. App. 5). In his dual capscity as ab-

stracter and title insurance agent, Mr. Linderman was

qualified to countersign title insurance policies on proper-

ty located in Pennington County; but when insuring title

on property outside of Pennington County, he was re-

quired to obtain the countersignature of that county’s li-

censed abstracter and pay the resulting fee due to South

Dakota statutes and SDABE regulations (App. A, p. App.

5).

Mr. Linderman also formed First American Insur-

ance in December 1978 to avoid the requirement in SDCL

§ 58-25-16 which did not require domestic title insurance

companies to obtain countersignatures from abstracters

on title insurance policies (App. A, pp. App. 5-6). The

law as written at that time enabled Mr. Linderman to issue

title insurance policies on property in any South Dakota

county without obtaining a countersignature from that

county’s licensed abstracter.

The SDABE, the SDLTA and their members lobbied

the South Dakota legislature to amend SDCL 4 58-25-16

to delete the word “foreign” thereby imposing the coun-

tersignature requirement upon domestic title insurance

companies as well as such foreign companies (App. A, pp.

App. 6, 13-14). As a result of the amendment, as well

as the SDABE regulations challenged here, Petitioners

were prohibited from countersigning their own title in-

surance policies or those of their out-of-state principal

without obtaining a countersignature from abstracters out-

side of Pennington County, South Dakota (App. A, p. App.

5).

D. Litigation Background

This antitrust action concerned alleged anti-competi-

tive regulatory and private restraints on the South Da-

kota abstracting and title insurance businesses. Petition-

ers contended below that they were the victims of a price

fixing conspiracy, frivolous and sham litigation, a con-

spiracy to devise and enforce statutes and regulations

which serve to restrain trade in the abstracting and title

insurance businesses, all in violation of Sections 1 and 2

of the Sherman Act, 15 U.S.C. §$1 and 2. The Respond-

ents (with the exception of the State of South Dakota)

were all alleged to be part of the conspiracy.

Following a bifurcated bench trial on the issue of lia-

bility, the district court entered judgment for defendants.

The court found there was insufficient evidence to sup-

port a conclusion that a private price-fixing conspiracy

existed among defendant abstracters and their title com-

panies. The court further concluded that plaintiffs’ re-

maining antitrust claims were barred by the McCarran-

Ferguson Act, 15 U.S.C. §§ 1011-1015, the Noerr-Penning-

ton doctrine and the state action anti-trust exemption first

enunciated in Parker v. Brown, 317 U.S. 341 (1943). The

Kighth Circuit affirmed. The questions presented here

relate only to one portion of the case as tried, decided

upon and appealed below.

REASONS FOR GRANTING THE WRIT

The Fighth Circuit in its opinion below recognized

that there is a fundamental difference between it and the

Ninth and Fifth Circuits regarding what constitutes state

legislative displacement of competition so as to immunize

state agency action from the federal antitrust laws. The

Eighth Circuit stated:

First American relies on cases from the Ninth

and Fifth Circuits in arguing that the challenged regu-

lations were not compelled by the South Dakota legis-

lature, thus they are not entitled to state action im-

munity. Ronwin v. State Bar of Arizona, 686 F. 2d

692 (9th Cir. 1981), cert. granted, 51 U.S. L.W. 3825

(May 16, 1983) (No. 82-1474); United States v. Texas

State Board of Accountancy, 464 F. Supp. 400 (W. D.

Tex. 1978), modified, 592 F. 2d 919 (5th Cir.) cert.

denied, 444 U.S. 925 (1979). Our above discussion

should indicate, however, that we are in fundamental

disagreement with our brethren in these circuits re-

garding application of the state action doctrine to state

agencies or subdivisions. In both these cases, the

courts cast the inquiry in mandatory terms — whether

the challenged action by the state agency was com-

pelled by the state legislature. In both cases there

were vigorous dissents putting forth the view adhered

to by this circuit: “that an adequate state mandate

for anti-competitive activities of cities and other sub-

ordinate governmental units exists when it is found

‘from the authority given a governmental entity to

operate in a particular area, that the legislature con-

templated the kind of action complained of.’” City

of Lafayette [v. Louisiana Power & Light Co.], 435

U.S. at 415.

(App. A, pp. App. 32-33). This case wou'd be an excellent

companion case to Ronwin v. State Bar of Arizona, 686 F.

2d 692 (9th Cir. 1981), cert. granted sub nom., Hoover v.

Ronwin, 103 8. Ct. 2084, 77 L. Ed. 2d 296 (1983), which this

Court has agreed to hear, and the holding of which the

Eighth Circuit is in fundamental disagreement. Petition-

ers here, of course, are in agreement in the Ronwin analysis

of the limited cloak of antitrust immunity afforded state

agencies.

In a nutshell, the problem of the regulations of Re-

spondent SDABE is as follows:

1. A title insurance company, such as Petitioner First

American Title Company of South Dakota, cannot issue

a title policy on real property in South Dakota without an

abstracter’s countersignature. SDCL 4 58-25-16. (Prior

to the 1979 Amendment, SL 1979, CH. 345, the counter-

signature requirement applied only to title insurance pol-

icies issued by out-of-state title insurance companies) ;

2. To countersign a title insurance policy, a licensed

abstracter in South Dakota must have a private abstract

plant in the county in which the property is located. ARSD

§ 20 :36 :07 :02;

3. An abstracter must search the conveyance records

in the abstracter’s own plant in the county, as well as in

the county register of deeds records. ARSD § 20:36:07 :01;

and

4. In order for an individual already licensed as a

skilled abstracter in South Dakota to develop his or her

own abstract plant in a county, the abstracter must go

through the prohibitively expensive and laborious process

of constructing the plant from an actual check of each page

of each book of recorded instruments in the county register

of deeds office, and in no case is the use of a copy or film

of the numerical index in the register’s office acceptable

for the creation of such a plant. ARSD § 20:36 :04:01.

The cumulative effect of these regulations is to pro-

hibit new entrants into a county to provide title services.

An abstracter such as First American Title Company of

South Dakota cannot countersign title policies outside of

the county where it maintains a licensed abstract plant,

even though it has qualified personnel and even though

there is no statutory requirement for an abstracter to

search a private abstract plant in order to provide a coun-

tersignature; an abstract company cannot construct an

authorized abstract plant in a county so that it can do

business there without engaging in the extremely costly

process of recreating all records in the county register of

deeds office. This is a prohibitively expensive process,

and as time goes on, ever more expensive because of ad-

ditional documents resulting from the continually grow-

ing history of conveyances. It has the effect of giving

existing abstracters monopoly power over title services

within their respective counties; and a title company

must obtain a countersignature from a local abstracter

regardless of how thoroughly and competently it does its

own title search of the county register of deeds records,

regardless of whether it engages an abstracter in an-

other county to act as an agent to do the necessary title

work, and regardless of how much or how little work, if

any, was done by the abstracter who provides the counter-

signature. Effective competition in the title services busi-

ness in South Dakota is thereby stifled by the SDABE.

The regulations relating to the countersignature law

and the regulations which require the laborious construc-

tion of an abstract plant and the countersigning of title

policies by local abstracters only, ARSD 4§§ 20:36 :04:01,

20:36 :07 :01, and 20:36:07:02, are pre-empted to the ex-

tent that Petitioners must obtain countersignatures

from other licensed abstracters. California Retail Ligq-

uor Dealers’ Association v. Mid-Cal Aluminum, Inc., 445

U.S. 97 (1980); Schwegmann Bros. v. Calvert Distillers

Corp., 341 U.S. 384 (1951); United States v. Texas State

Board of Public Accountancy, 464 F. Supp. 400 (W. D. Tex.

1978), modified, 592 F. 2d 919 (5th Cir.), cert. denied, 444

U.S. 925 (1979).

In Mid-Cal, the Supreme Court held that a California

retail price maintenance system affecting all wine pro-

ducers and wholesalers within the state was not entitled

to exemption from the antitrust laws. That decision estab-

lished two standards for antitrust immunity under Parker

v. Brown, 317 U.S. 341 (1943). First, the challenged re-

straint must be “clearly articulated and affirmatively ex-

pressed as state policy”; second, the policy must be “ac-

tively supervised” by the state itself. This standard was

recently affirmed in Community Communications Co., Inc.

v. City of Boulder, Colorado, 455 U.S. 40 (1982). The

price maintenance system at issue in Mid-Cal was denied

exempt status because it failed to satisfy the “active state

supervision”. In the City of Boulder case, this court held

that Boulder’s moratorium ordinance relating to cable tele-

vision construction did not satisfy the “clear articulation

and affirmative expression” criterion by a political sub-

division, thereby making the county ordinance subject to

antitrust scrutiny.

In the Texas State Board of Public Accountancy case,

that agency promulgated a rule prohibiting competitive

bidding among accountants. The District Court and the

Fifth Circuit both found that the prohibition violated See-

tion 1 of the Sherman Act. The District Court used and

the Fifth Circuit affirmed the following language:

Defendant relies upon the case of Parker v. Brown,

317 U S. 338, 63 S. Ct. 307, 87 L. Ed. 315 (1943), as

authority for its assertion that it is immune from the

provisions of the Sherman Act. Following the recent

ruling of the Supreme Court in City of Lafayette v.

La. Power & Light Co., [435 U.S. 389 (1978)], this

Court concludes that, “the Parker doctrine exempts

only anti-competitive conduct engaged in as au act of

government by the state as sovereign, or, by subdivi-

sions, pursuant to state policy to displace competition

with regulation or monopoly public service.” 435 U.S.

389, 413, 98 S. Ct. 1123, 1137, 55 L. Ed. 2d 364 (1978).

In this case, Rule 14 [prohibiting competitive bidding

by accountants] is not mandated by any state regula-

tion or action. Section 5 of the Accountancy Act

[providing that the Texas State ‘soard of Public Ac-

countancy “promulgate and may amend from time to

time, Rules of Professional Conduct appropriate to

establish and maintain a high standard of integrity

in the protession of public accountancy. . . .”] is

cast in permissive, not mandatory, language, and,

furthermore, only allows adoption of rules appropriate

for maintenance of high public standards of integrity

in the Accountancy profession. Nowhere in the Act

does the State as sovereign mandate the anti-competi-

tive conduct required by Rule 14, nor is such policy

dictated by the State. Additionally, it cannot be said

that Section 5 of the Act in any way concerns or con-

templates “the kind of action complained of” here.

435 U.S. 389, 415, 98 S. Ct. 1123, 1138, 55 L. Ed. 2d

364 (1978).

464 F. Supp. at 403-04.

In Ronwin, supra, the Ninth Circuit reversed the dis-

trict court’s dismissal of an antitrust claim against mem-

bers of the Arizona State Bar Committee on Examinations

and Admissions of the Arizona Supreme Court by an un-

successful applicant. The Court in refusing to give that

committee blanket state action antitrust immunity stated:

The fact that the Arizona Supreme Court has dele-

gated to the Committee the general authority to ex-

amine applicants to determine if they are qualified to

practice law and reviews the Committee’s recommen-

dations regarding admission does not alone clothe the

Committee’s unilateral grading policies with blanket

immunity from the antitrust laws. “The national pol-

icy in favor of competition cannot be thwarted by cast-

ing such a gauzy cloak of state involvement” over

actions of the Committee that were not affirmatively

expressed as state policy by the Arizona court. Midcal,

445 U.S. at 106, 100 S. Ct. at 943. As the Court em-

phasized in Goldfarb, “(ijt is not enough that, as the

... Bar puts it, anticompetitive conduct is ‘prompted’

by state action; rather, anticompetitive activities must

be compelled by direction of the State acting as a sov-

ereign.” 421 U.S. at 791, 95 S.Ct. at 2015. Accord,

Phonetele, Inc. v. American Telephone and Telegraph

Co., 664 F. 2d 716, 736 (9th Cir. 1981).

The fact that the Committee was established by

Supreme Court Rule and composed of members se-

lected from the Bar by the Arizona Supreme Court

is not, as defendants assert, dispositive in itself of

the state-action question. Although the defendanis in

the United States Supreme Court’s state-action deci-

sions were public bodies, or subdivisions of the state,

that did not end the Court’s analysis. The Court still

looked to see whether the challenged restraints were

clearly articulated and affirmatively expressed as

state policy and were actively supervised by the state

acting as sovereign. Thus, for instance, it was not

dispositive that the restraints challenged in Parker,

Orrin W. Foz, and Midcal were enforced, respectively,

by a state commission, a state board, and a state de-

partment. 317 U.S. at 344, 63 S. Ct. at 310; 439 U.S.

at 103, 99 S. Ct. at 408; 445 U.S. at 100, 100 S. Ct. at

940. In City of Lafayette, 435 U.S. at 408, 98 S. Ct.

at 1134, a plurality of the Court expressly rejected the

argument that the state-action exemption extends to

“all governmental entities, whether state agencies or

subdivisions of a State ... simply by reason of their

status as such.” This position has since been adopted

by a majority of the Court. See City of Boulder, —

U.S. at —, 102 S. Ct. at 842.

686 F’. 2d at 696-97 (footnote omitted).

In the instant case, there is no “clear articulation and

affirmative expression” by the state, as required in Mid-

Cal for antitrust immunity, that indicates the legislature

preters that holders of property use the services of ab-

stracters over title insurers. Nothing in South Dakota

law prohibits or inhibits competition in the abstracting

industry in South Dakota. There is also nothing in South

Dakota’s countersignature law which states that only ab-

stracters maintaining an abstract plant within a county (as

opposed to any qualified South Dakota abstracter) can

countersign title insurance policies within the county, or

that each abstract company must maintain a separate ab-

tract plant for each county in which it wishes to counter-

sign title policies and construct that plant at prohibitive

expense. Moreover, even if it could be argued that such

policies did exist and emanated from the state, there was

no evidence presented below that the state actively super-

vises such policy. Yet the Eighth Circuit has taken the

position that the SDABE regulations are immune from the

federal antitrust laws because the state simply authorized

the SDABE to act in the area of countersignatures, no

matter how anticompetitive the effect of its regulations.

South Dakota statutes do provide that the SDABE

may promulgate appropriate regulations. See SDCL 4 36-

13-6. However, nowhere does the state mandate or even

encourage the development of county-wide fiefdoms for

abstracter countersignatures on title insurance policies.

What we have here is an unlawful horizontal division of

territories created by the SDABE through its counter-

signature and abstract plant regulations. See United States

v. Topco Associates, Inc., 405 U.S. 596 (1972). The SDABE

itself is composed principally of the competitors which

benefit from this regulatory stifling of state-wide compe-

tition. Since the division by the -tate’s abstracters and

the SDABE with respect to countersignatures is a per se

violation of the Sherman Act, no economic justification

defense under the rule of reason is permissible. See North-

ern Pacific Railway Co. v. United States, 356 U.S. 1, 5

(1958).

The Petitioners are not asking for any sweeping re-

pudiation of state statutory and regulatory provisions.

Rather, Petitioners seek a determination that the Respond-

ents cannot enforce certain regulations, namely ARSD

§§ 20:36 04:01, 20:36:07 :01, and 20:36:07 :02, to the extent

that such regulations taken as a whole prevent qualified

and licensed abstracters in the State of South Dakota from

countersigning title insurance policies in any county within

the state after it conducts proper title work at the county

permit First American Title Company of South Dakota

to countersign title insurance policies for First American

Title Insurance Company of South Dakota (if reactivated)

or any other title insurance company, because it is already

a qualified and licensed abstracter. Such a finding would

also permit all other qualified and licensed abstracters

throughout the State of South Dakota, including many of

the Respondents, to countersign policies throughout the

state as well without constructing‘an abstract plant in each

county. Thus, such a finding would hot put the Petitioners

in any preferred status. Such a holdiyg would not permit

unlicensed abstracters to countersign pylicies, and would

not otherwise open up the title insurance or abstracting

business to incompetent or inexperienced people. To the

extent that the existing SDABE regulations prohibit Pe-

titioners from conducting business statewide in the man-

ner outlined above, they are pre-empted by the federal

antitrust laws.

CONCLUSION

For the foregoing reasons, a Writ of Certiorari should

be issued to review the judgment and opinion of the Court

of Appeals for the Eighth Circuit.

Dated November 1, 1983.

Respectfully submitted,

Burns & Fiaa, P.C.

Hvueu A. Burns

(Counsel of Record)

Puuur S. Fica

333 Steele Park

50 South Steele Street

Denver, Colorado 80209

Telephone: (303) 399-4636

Lynn, Jackson, Suuttz & Lesrvun, P.C,

Donavp R. Suvuttz

First Federal Plaza, 8th Floor

9th and St. Joe

P. O. Box 8110

Rapid City, South Dakota 57701

Telephone: (604) 342-2592

Attorneys for Petitioners

App. 1

APPENDIX A

UNITED STATES COURT OF APPEALS

For The Eighth Circuit

No, 82-1753

First American Title Company of South Dakota and First

American Title Insurance Company of South Dakota,

Appellants,

vs.

South Dakota Land Title Association, South Dakota Ab-

stracter’s Board of Examiners, Black Hills Land and Ab-

tract Company, Dennis O. Murray, Security Land end Ab-

stract Company, Glen M. Rhodes, Fall River County Ab-

stract Company, Charles E. Clay, Custer Title Company,

Betty J. Gould, Haakon County Abstract Company, Keith

Emerson, Wayne Roe, and Charles Nass,

Appellees.

Appeal from the United States District Court

for the District of South Dakota

Submitted: March 16, 1983

Filed: August 11, 1983

Before HEANEY and FAGG, Circuit Judges, and HAN-

SON,°* Senior District Judge

HANSON, Senior District Judge.

*The Honorable William C. Hanson, Senior District

for the Northern and Southern Districts of lowa, sitting

designation.

App. 2

This antitrust case concerns alleged anticompetitive

private and regulatory restraints on the South Dakota

abstracting and title insurance businesses. Plaintiffs/ap-

pellants, First American Title Company of South Dakota

and First American Title Insurance Company of South

Dakota, contend tliat they were the victims of a price-

fixing conspiracy, frivolous and sham litigation, and a

conspiracy to devise and enforce statutes and regulations

which served to restrain trade in the abstracting and title

insurance business, all in violation of sections 1 und 2 of

the Sherman Act.' 15 U.S.C. §§1 and 2. Defendants/

The district court’s memorandum opinion sets out plain-

tiffs’ basic allegations as follows:

Plaintiffs allege that the Defendants conspired to: (a)

fix the price to Plaintiffs of abstractor countersignatures on

title insurance policies; (b) engage in frivolous and sham

litigation by appealing the decision of the South Dakota

Director of Insurance to grant a certificate of authority to

Plaintiff First American Title Insurance Company to do

business in South Dakota; (c) engage in frivolous and sham

litigation by “evapo be the case of Fall River County

Abstract Company v. Knutson, (6th Judicial Cir. Circuit

Court, Hughes County, S.D., Nov. 6, 1979, Judge Robert

A. Miller, presiding); (d) engage in efforts to influence the

enactment of S. L. 1979, ch. 345, amending SDCL 58-25-16,

which had the effect of requiring all title insurance policies

issued in the state to contain the countersignature of an

abstractor; (e) enforce and attempt to enforce SDCL 58-

25-16; (f) attempt to establish a fee schedule for counter-

signatures to be provided by abstractors on title insurance

— —— = att A. enforce ARSD § 20:

704:01; { na ty campaign directed

against the Plaintitts ostensibly directed ae influenc-

ing government action, which was a sham to

cover an to interfere with the business

ships of Plai 1

First American Title Co. v. South Dakota Land Title Associ-

quan, 541 F. Supp. 1147, 1150 (D. S. D. 1982) (Bogue, Ch.

App. 3

appellees are the South Dakota Land Title Association

(the Association), a professional association of South

Dakota abstracters; the South Dakota Abstracters’ Board

of Examiners (the Board of Examiners), the state board

which regulates the business of abstracting; and various

individual South Dakota abstracters and title companies.

The district court also permitted the joinder of the State

of South Dakota as a defendant pursuant to a motion by

the Board of Examiners.

Following a bifurcated hench trial on the issue of

liability, the district court entered judgment for defend-

ants. The court found that there was insufficient evi-

dence to support a conclusion that a private price-fixing

conspiracy existed among defendant abstracters and their

title companies. The court further concluded that plain-

tiffs’ remaining antitrust claims were barred by the Mc-

Carran-Ferguson Act, the Noerr-Pennington doctrine, and

the state action doctrine. The First American companies

appeal these holdings and we affirm.

South Dakota pervasively regulates the business of

abstracting and insuring land titles. See SDCL chs. 36-13

(Abstracters of Title) and 58-25 (Title Insurance Rates

and Policies). Until July 1, 1979, South Dakota required

that no foreign insurance company could issue a title in-

surance policy on property in South Dakota unless the

policy was countersigned by a licensed abstracter who was

App. 4

doing business in the county where the property was lo-

cated. SDCL § 58-25-16.’

In order to do business in a particular county in

South Dakota, an abstracter, among other requirements,

must have an approved abstract plant showing ‘‘in a

sufficiently comprehensive form, all instruments affecting

the title to real estate which are of record or on file in

the office of the register of deeds ....” SDCL §36-

13-10. The Board of Examiners, whose duty it is to ‘‘car-

ry out the purposes and enforce the provisions of” the

statutes governing abstracting and to ‘‘make such rules

and regulations as may be necessary to carry out the

purposes of those statutes,” SDCL 4 36-13-6, defines by

regulation what constitutes ‘‘sufficiently comprehensive

form” for an abstract plant’s records. In part, this long-

standing regulation requires that the plant contain

a complete index showing every instrument recorded

in the register of deeds’ office in the county wherein

[the abstracter] proposes to operate, properly listed

against the specific property which it affects, and

also a separate index showing all recorded instru-

ments which do not affect specific property. This

index. . . must be made from an actual check of each

" 2Section 58-25-16 of the South Dakota Codified Laws pro-

vided:

No foreign insurance company shall issue any policy

of title insurance or certificate of title or other guarantee

of title, covering any property located within the state of

South Dakota, unless the same is countersigned by a per-

son, partnership or corporation, who has met the require-

ments of §§ 36-13-8 and 36-13-10. Violation of this sec-

tion is a Class 2 misdemeanor.

This statute was amended by the South Dakota legislature

in 1979. See Part | B infra.

App. 5

page of each book of recorded instruments in said

office, and in no case will a copy or film of the nv-

merical index in the register’s office be accepted.

ARSD § 20:36 :04:01.

One of the First American companies’ contentions is

that the requirement that an abstracter’s index be ‘‘made

from an actual check of each page of each book of re-

corded instruments’ imposes a financially-prohibitive bur-

den upon anyone who wishes to open a competing abstract

plant in a given county. See Part IV infra. The regula-

tion’s anticompetitive effect, according to appellants, is

reflected by the current situation in South Dakota in

which most counties have only one licensed abstracter,

except for the more populated counties, which have two.

Walter J. Linderman became a licensed abstracter in

Pennington County, South Dakota in 1973 and formed

First American Title Company of South Dakota in 1974.

Linderman’s title company served as a local agent for a

foreign title insurance company, First American Title

Insurance Company of California. In his dual capacity

as abstracter and title insurance agent, Linderman was

qualified to countersign title insurance policies on prop-

erty located in Pennington County; but in insuring title

on property outside Pennington County, Linderman was

required to obtain the countersignature of that county’s

licensed abstracter and pay the resulting fee.

The anomoly in SDCL § 58-25-16 which required only

foreign insurance companies to obtain countersignatures

from abstracters on title insurance policies led Linderman

to form a domestic title insurance company in December

App. 6

1978—First American Title Insurance Company of South

Dakota. This would have enabled Linderman to issue

title insurance policies on property in any South Dakota

county without obtaining a countersignature from that

county’s licensed abstracter.

This was not to be, however, because in the ensuing

legislative session, the South Dakota legislature amended

SDCL 4$ 58-25-16 by deleting the word ‘‘foreign,’’ thus

extending the countersignature requirement to all title

insurance policies, whether they be issued by a foreign

or domestic insurance company.’

Defendants’ opposition to Linderman’s formation of

a domestic title insurance company and their support for

the amendments to § 58-25-16 form bases for two of the

First American companies’ antitrust claims. It is claimed

that defendants engaged in frivolous and sham litigation

in violation of the Sherman Act by appealing to state

court the administrative decision by the Division of In-

surance to grant a certificate of authority to First Amer-

ican Title Insurance Company of South Dakota. It is

3The amended § 58-25-16 which became effective July 1,

1979, states:

No insurance company shall issue any policy of title

insurance or certificate of title or other guarantee of title,

covering any property located within the state of South

Dakota, unless the same is countersigned by a person,

partnership or corporation, who has met the requirements

of §§ 36-13-8 and 36-13-10 in the county in which the real

property is located, or maintains an abstract plant in the

county where the real property is located and meets the

requirements of chapter 36-13. A violation of this section

is a Class 2 misdemeanor.

The emphasized portion indicates language which was

added by amendment in 1979.

App. 7

further claimed that defendants engaged in unlawful anti-

competitive conduct by lobbying in support of the amend-

ments to § 58-25-16, which included the deletion of the

word ‘‘foreign” from the statute.

Following the amendment to the countersignature

statute, the alleged anticompetitive conspiracy continued

in 1979 in the context of a controversy over whether the

Division of Insurance or the Board of Examiners had the

authority to set countersignature fees. The Board of

Examiners already had at that time clear authority to

‘establish a schedule of fees for doing business’’ under

chapter 36-13 relating to abstracters’ services. SDCL

§ 36-13-25. The countersignature requirement, however,

is in chapter 58-25, which regulates title insurance, a busi-

ness overseen by the Division of Insurance and its direc-

tor. SDCL 458-2-21. The First American companies

claim that defendants wanted the Board of Examiners to

control countersignature fees to insure that they would

be sufficiently high to stem the proliferation of title in-

surance in South Dakota. Presumably, the Board of Ex-

aminers’ interest in setting high fees would be greater

because three of its four members are required to be ab-

stracters. SDCL § 36-13-1.

Following an opinion by the South Dakota Attorney

General that the Division of Insurance had authority to

set countersignature fees, the Association brough an ul-

timately unsuccessful state court action attacking the

jurisdictional basis for this authority. Fall River County

Abstract Company v. Knutson, (6th Judicial Circuit

Court, Hughes County, S. D., November 6, 1979, Judge

Robert A. Miller). A basis for the state court ruling was

the conclusion that the countersigning of a title insurance

App. 8

policy was purely a ministerial act because South Dakota

law did not require any affirmative act by the abstracter

before signing. During the 1979 South Dakota legislative

session, defendants successfully lobbied the state legisla-

ture to pass laws which ensured that the countersigning

of a title insurance policy was to be more than a minis-

terial act and which specifically gave the Board of Exam-

iners the authority to set countersignature fees.‘ The

litigation and lobbying by defendants on the countersig-

nature fee issue are alleged to be further unlawful anti-

competitive acts.

Although the Board of Examiners did in 1980 obtain

authority to establish countersignature fees, no fee sched-

‘The legislature enacted SDCL § 36-13-26.1, which states,

“An abstracter’s countersignature on a title insurance policy is

verification that the abstracter has furnished the insurer a re-

port based on the examination of record title and any other

title information and services required by the insurer and

§ 36-13-25.”

The legislature also amended SDCL § 36-13-25 to state in

— part that, {The Board of reno shall also estab-

ish a schedule of fees and the requirements for an abstracter’s

services for countersigning title insurance policies pursuant to

§ 58-25-16.”

The Board of Examiners subsequently promulgated regula-

tions implementing these statutory changes. A title search—

meaning a search of both the abstracter’s plant and the official

county records—is required before countersigning a title insur-

ance policy. ARSD § 20:36:07:01. Additionally, the search is

to be “made under the direction of an abstracter licensed in

the county in which the property is located.” ARSD § 20:36:

07:02. This regulation also requires the abstracter’s full co-

- operation with the title insurer by forbidding any unnecessary

i in performing the search and countersigning the policy:

“Delays in the search or reporting shall be cause for complaint

= or" rid proceedings by the abstracters’ board of exam-

ners.” Id.

App. 9

ule ever regulated countersignature fees during the life

of the First American Title Insurance Company of South

Dakota. It is claimed that Linderman, as the agent for

this company, was the victim of a private price-fixing

conspiracy by the individually-named defendant abstract-

ers and title companies in 1979 and 1980. Allegedly, these

defendants conspired to fix countersignature fees at a

level of 50% of the title insurance policy’s premium. It is

claimed that this private price-fixing conspiracy, coupled

with the statutory changes, forced Linderman to dissolve

First American Title Insurance Company of South Dakota

in May 1980.

Il.

First American’s’ initial claim on appeal—that the

district court erred in finding insufficient evidence of a

private conspiracy to fix prices for countersignature fees

—need not long detain us. It is, of course, well-estab-

lished that price-fixing is a per se violation of $1 of the

Sherman Act. United States v. Socony-Vacuum Oil Co.,

310 U.S. 150, 218 (1940). In this case the district court

concluded that evidence of a conspiracy to fix counter-

signature fees at 50% of the title insurance policy premi-

um was “‘equivocal’’ and ‘‘not sufficient.’’ First Ameri-

can failed to prove the presence of a conspiracy among

the individual abstracters and title companies named as

defendants, and further failed to prove that the counter-

signature fees charged by these defendants were fixed at

a level of 50% of the policy premium. It would serve no

purpose for this court to reiterate the district court’s dis-

‘We shall refer to appellants collectively as “First Ameri-

can” throughout the remainder of this opinion.

App. 10

cussion which reflects careful consideration of the evi-

dence. See First American Title Co. v. South Dakota

Land Title Association, 541 F. Supp. 1147, 1154-56 (D.S.

D. 1982). We hold that substantial evidence in the record

supports the district court’s findings; nowhere are we left

with the ‘‘definite and firm conviction that a mistake has

been committed” with regard to these findings. Uvwited

States v. United States Gypsum Co., 333 U.S. 364, 395

(1948).

Ii.

First American next contends that the district court

erred in holding that the Noerr-Pennington doctrine insu-

lates defendants from antitrust liability for their lobbying

and litigation activities. The Noerr-Pennington doctrine

generally holds that the Sherman Act does not apply to

joint efforts by groups seeking to exercise their first

amendment right to petition the government, whether it

be a petition to the legislature, an administrative agency,

or the courts. California Motor Transport Co. v. Truck-

ing Unlimited, 404 U.S. 508 (1972); United Mine Workers

v. Pennington, 381 U.S. 657 (1965); Eastern Railroad

Conference v. Noerr Motor Freight, 365 U.S. 127 (1961).

Furthermore, such joint efforts ‘‘do not violate the anti-

trust laws even though intended to eliminate competi-

tion.’’ Pennington, supra, 381 U.S. at 670. But an ex-

ception to the doctrine does hold that the Sherman Act

applies if the joint action ‘‘is a mere sham to cover what

is actually nothing more than an attempt to interfere

directly with the business relationships of a competitor.’’

Noerr Motor Freight, supra, 365 U.S. at 144.

App. 11

First American initially attacks the district court’s

holding that lobbying by defendants in favor of the

amendment to SDCL 4 58-25-16 which resulted in deletion

of the word ‘‘foreign’’ from the statute was activity which

fell ‘‘squarely within the confines of the Noerr-Penning-

ton Doctrine.” First American Title Co., supra, 541 F.

Supp. at 1157. We do not understand First American to

argue the sham exception in attacking this holding. In-

deed, such a claim would not prevail. As the district

court concluded, ‘‘This is a classic case of a group of

persons petitioning their government for relief and re-

ceiving the relief they request.’’ Id. Cf. Alexander v.

National Farmers Organization, 687 F.2d 1173, 1195 (8th

Cir. 1982), cert. denied, 51 U.S. L. W. 3826 (May 16, 1983)

(‘The sham exception generally involves governmental

contacts which are not a genuine attempt to influence

official decision making, but instead are merely an at-

tempt to interfere directly with the business relationships

of a competitor.’’).

Rather First American claims that the Noerr-Pen-

nington doctrine does not apply because a state agency—

the Board of Examiners—was an alleged conspirator

along with the private party defendants in seeking amend-

ment to the countersignature statute. First American

relies on Duke & Co. v. Foerster, 521 F.2d 1277, 1281-82

(3d Cir. 1975), in arguing for application of this cocon-

spirator exception to the Noerr-Pennington doctrine. In

Duke & Co., plaintiff alleged that municipal corporations

which owed the Pittsburgh Civic Arena, Three Rivers

Stadium, and the Pittsburgh International Airport con-

spired with private corporations which operated these

App. 12

facilities to boycott malt beverages manufactured by

plaintiff. The court of appeals reversed the district

court’s dismissal of the complaint, holding in part that

the Noerr-Pennington doctrine did not shield defendants

from antitrust liability.

Both Noerr and Pennington involved suits against

private parties who had allegedly conspired to influ-

ence governmental action. In neither case was it

alleged that the governmental entity had collaborated

to promote the conspiracy. Where the complaint goes

beyond mere allegations of official persuasion by

anticompetitive lobbying and claims official participa-

tion with private individuals in a scheme to restrain

trade, the Noerr-Pennington doctrine is inapplicable.

Duke & Co., supra, 521 F.2d at 1282 (emphasis in orig-

inal).

We do not quarrel with the court’s conclusion in

Duke & Co. that the Noerr-Pennington doctrine did not

apply. In our view, however, Noerr-Pennington was in-

applicable because of the nature of the conduct alleged

in the complaint, not because of the nature of the parties

involved. The anticompetitive conduct alleged in the

complaint in Duke & Co. was a boycott of plaintiff’s pro-

duct; clearly an alleged anticompetitive boycott is not first

amendment conduct which the Noerr-Pennington doctrine

‘This circuit recently refused to rely on the Duke & Co.

coconspirator exception, noting that it has beer subject to

criticism. Westborough Mall, Inc. v. City of Cape Girardeau,

693 F.2d 733, 746 (8th Cir. 1982), cert. denied, 51 U.S.L.W.

3841 (May 23, 1983); see Metro Cable Co. v. CATV of Rock-

ford, Inc., 516 F.2d 220, 229-30 (7th Cir. 1975); Fischel, Anti-

trust Liability for Attempts to Influence Government Action:

The Basis and Limits of the Noerr-Pennington Doctrine, 45

U.Chi.L.Rev. 80, 115 (1977) (“in most cases the co-conspirator

exception is unworkable and should not be recognized”).

App. 13

was formulated to protect. The Court made this distine-

tion in Noerr Motor Freight.

We think it equally clear that the Sherman Act does

not prohibit two or more persons from associating

together in an attempt to persuade the legislature or

the executive to take particular action with respect

to a law that would produce a restraint or a mono-

poly. ... [S]nch associations ... bear very little

if any resemblance to the combinations normally held

violative of the Sherman Act, combinations ordinarily

characterized by an express or implied agreement or

understanding that the participants will jointly give

up their trade freedom, or help one another to take

away the trade freedom of others through the use of

such devices as price-fixing agreements, boycotts,

market-division agreements, and other similar ar-

rangements.

Id., 365 U.S. at 136. Thus the Court made clear that

**{t]he proscriptions of the Act, tailored as they are for

the business world, are not at all appropriate for appli-

cation in the political arena.’’ IJd., 365 U.S. at 141. Duke

é Co. and the instant case are embodiments of the Court’s

distinction. Whereas Duke & Co. involved allegations of

anticompetitive government activity in the business world,

the instant case concerns government activity in the po-

litical arena. We therefore hold that Duke @ Co. is dis-

tinguishable on its facts.

First American further contends that defendants’

lobbying campaign should not be protected by Noerr-Pen-

nington because it involved ‘a misuse of the lobbying

process” through false statements and inaccuracies that

were made by defendants to the state legislature. The

focus of this complaint appears to be a letter that the

Board of Examiners sent to members of the South Dakota

App. 14

legislature explaining the Board’s understanding of the

then-current requirements for becoming a licensed ab-

stracter and stating the Board’s fear that failure to amend

the countersignature statute could conceivably result in

a domestic title insurance company issuing policies with-

out performing a title search. The district court made

no specific findings in this regard, but to characterize

these statements as “‘misrepresentations” and to withhold

Noerr-Pennington protection on account of this would re-

sult in undermining the doctrine itself. This letter, which

contained at most mild political hyperbole, was well with-

in the bounds of traditional political activity which Noerr-

Pennington was established to protect. Cf. Westborough

Mall, Inc. v. City of Cape Girardeau, 693 F.2d 733, 746

(8th Cir. 1982), cert. denied, 51 U.S.L. W. 3841 (May

23, 1983) (holding that illegal or fraudulent actions em-

ployed in conjunction with legitimate lobbying went be-

yond traditional political activity protected by Noerr-

Pennington).

Even assuming that misrepresentations may have

appeared in the Board’s letter, this would not preclude

application of the Noerr-Pennington doctrine—at least in

the context of legislative lobbying. The Supreme Court

in California Motor Transport made the following com-

ments regarding the bounds of constitutionally-protected

conduct in the political arena:

The political campaign operated by the railroads

in Noerr to obtain legislation crippling truckers em-

ployed deception and misrepresentation and unethical

tactics. We said:

‘‘Congress has traditionally exercised extreme

caution in legislating with respect to problems

relating to the conduct of political activities, a

App. 15

caution which has been reflected in the decisions

of this Court interpreting such legislation. All

of this caution would go for naught if we per-

mitted an extension of the Sherman Act to reg-

ulate activities of that nature simply because

those activities have a commercial impact and

involve conduct that can be termed unethical.’’

365 U.S., at 141.

Id. 404 U.S. at 512.

Finally, we note that First American had equal access

to the legislature to lobby against the amendment and to

corrcct any ‘‘misrepresentations’’ which may have been

made by defendants. Accordingly, we hold that the dis-

trict court properly applied the Noerr-Pennington doc-

trine to defendants’ activities in lobbying the South Da-

kota legislature to amend the countersignature statute.

First American also attacks the district court’s appli-

cation of the Noerr-Pennington doctrine to the state court

litigation which arose during the period when Linderman

formed and operated his domestic title insurance com-

pany. First American claims that certain defendants in

two instances engaged in baseless and sham litigation ‘n-

tended to harass and interfere with First American’s

business relations. The Association opposed the granting

of a certificate of authority by the Division of Insurance

to First American Title Insurance Company of South Da-

kota and appealed the subsequent grant of the certificate

to state court. This appeal resulted in affirmance of the

Division of Insurance’s decision to grant the certificate.

Also, in Fall River County Abstract Co. v. Knutson, supra,

the Association and the Fall River County Abstract Com-

pany sought a writ of prohibition in state court to prohibit

the director of the Division of Insurance from establish-

ing a fee schedule for the countersigning of title insurance

policies. First American Title Insurance Company of

South Dakota intervened in this litigation as a defendant.

The district court held that the Noerr-Pennington doctrine

protected the Association and the Fall River County Ab-

stract Company from antitrust liability for their partici-

pation in these actions.

It is established that ‘‘[t]he right of access to the

courts is indeed but one aspect of the right of petition’’;

accordingly, groups do not violate the Sherman Act by

‘*us[ing] the channels and procedures of state and federal

agencies and courts to advocate their causes and points

of view respecting resolution of their business and eco-

nomic interests vis-a-vis their competitors.’’ California

Motor Transport, supra, 404 U.S. at 510-11. The sham

exception to this doctrine holds that litigation of baseless

claims which ‘‘may be characterized as a sham cover for

what is really just an attempt to directly interfere with

the business relations of a competitur,’’ is subject to

scrutiny under the Sherman Act. Alexander v. National

Farmers Organization, supra, 687 F.2d at 1200; see Cal-

ifornia Motor Transport, supra, 404 U.S. at 513.

In Alexander v. National Farmers Organization, su-

pra, the parties initiated reciprocal antitrust actions aris-

ing out of competition in the milk industry between the

NFO and certain large midwest dairy cooperatives. The

court held that certain lawsuits initiated by the other

dairy cooperatives against NFO were not actionable un-

der the antitrust laws by application of the Noerr-Pen-

nington doctrine, even though ‘‘the litigation directly

App. 17

against NFO was intended in part to hamper NFO’s

ability to compete.’’ Jd., 687 F.2d at 1200. The court

concluded that ‘‘{t]here were genuine disputes regarding

NFO’s solicitation methods,’’ id.; thus the sham excep-

tion did not apply.

Similarly in this case we do not doubt that the litiga-

tion was intended in part to hamper First American’s

ability to carry on the title insurance business with a

domestically-formed company. But both causes of action

also involved genuine disputes. The controversy over

who was the proper party to establish a countersignature

fee schedule was certainly genuine. When the Associa-

tion lost in the judicial forum, it continued to assert its

position before the South Dakota legislature and ultimate-

ly achieved the result it sought—the Board of Examiners

was vested with authority to establish the fee schedule.

Likewise, the Association’s effort to prevent Linder-

man’s domestic title insurance company from receiving a

certificate of authority to operate in South Dakota was

not a baseless claim or sham cover for an attempt to in-

terfere with First American’s business.’ The Association

had a genuine interest in preventing a domestic title in-

surance company from operating in South Dakota—at

least while South Dakota law had the effect of permitting

a domestic insurance company to issue title insurance

policies without securing a title search from an abstracter

who was licensed in the county where the property to be

7SDCL § 58-6-8 requires the director of the Division of In-

surance to hold a hearing in order to determine whether au-

thority to engage in the insurance business should be granted.

Part of this inquiry is a determination whether the grant of such

authority would be in the public interest. /d.

App. 18

insured was located.’ Clearly the Association had a first

amendment right of access both to the administrative and

the judicial forums to press its opposition. We discern no

abuse of these processes which was intended to produce

an illegal result. Cf. California Motor Transport, supra

(in which the Court held that the sham litigation excep-

tion applied to allegations that defendants abused admin-

istrative and judicial processes to produce the illegal re-

sults of barring plaintiffs from access to the agencies and

courts). We thus affirm the district court's application

of the Noerr-Pennington doctrine to these litigation epi-

sodes.

£Y.

First American also challenges the district court’s ap-

plication of the state action doctrine of Parker v. Brown,

317 U.S. 341 (1943). First American’s rather unclear

claims in its complaint state that defendants violated the

Sherman Act by ‘‘enfore[ing] and attempt[ing] to en-

foree’’ the countersignature statute (SDCL 4 58-25-16)

and the regulation setting out the requirements for an

*Apparently, the Association’s asserted public interest con-

cern (see note 7, supra) was that untrained individuals could

issue title insurance policies without the necessity of bein

supervised or trained by abstracters licensed by the State o

South Dakota. Brief of the Association at 6-7. This situation

cow as long as SDCL § 58-25-16 required only —

nsurance companies to obtain the countersignature of a li-

censed abstracter before issuing a policy of title insurance.

The Association asserted its position without success before

the Division of Insurance and before a state court. It appealed

the state court’s decision to the South Dakota Supreme Court,

but abandoned this appeal following the amendment of SDCL

§ 58-25-16 which deleted the word ‘foreign’ from the statute,

thus extending the statute’s requirement to domestic title in-

surance companies.

App. 19

abstract plant (ARSD § 20:36:04:01), as well as that de-

fendants violated the Sherman Act by attempting to es-

tablish a fee schedule for countersignatures pursuant to

SDCL § 36-13-25. The district court held that these par-

ticular claims were barred from federal antitrust scrutiny

on account of the state action doctrine under which feder-

al law impliedly defers to ‘‘state action” when the state

program at issue satisfies certain requirements. P. Aree-

da & D. Turner, Antitrust Law § 207 at 58 (1978).

It appears, however, that First American shifted its

focus somewhat during the course of the district court

proceedings by dropping its challenge to defendants’ auth-

ority to establish a countersignature fee schedule and

arguing that the Sherman Act preempts the countersig-

nature statute and certain regulations. See Clerk’s Rec-

ord (C.R.) at 74-75. The district court did not address

this particular argument. The challenged regulations are

those setting out the abstract plant requirements (ARSD

§ 20:36 :04:01), requiring the abstracter to search both the

official records and the abstracter’s title plant before

countersigning a title insurance policy (ARSD § 20:36:07:

01), and requiring that the search on behalf of a title

insurer be made under the direction of the licensed ab-

stracter (ARSD § 20:36:07 :02).

First American claimed before the district court that

the challenged statute and regulations produce the follow-

ing anticompetitive effect. The challenged provisions im-

pose a rigorous abstract plant requirement which must be

satisfied in each county in which an abstracter seeks to

be licensed to do business. ARSD § 20:36:04:01. Coupled

with this is the countersignature requirement, which states

that a title insurance policy must be countersigned by an

App. 20

abstracter who is licensed in the eounty where the prop-

erty to be insured is located. SDCL 4 58-25-16. Because

First American has satisfied the state’s abstract plant

requirements only in Pennington County, the anticompeti-

tive effect is to prevent First American from performing

title searches on a statewide basis, which in turn prevents

First American from countersigning title insurance poli-

cies on a statewide basis.

First American reiterates this argument on appeal

and adds that a further anticompetitive result of the regu-

latory scheme is to create a horizontal division of terri-

tories under which each abstracter is assured of a mono-

poly of the abstracting business in the county where the

abstracter is licensed to operate. See United States v.

Topco Associates, Inc., 405 U.S. 596, 608 (1972) (“One

of the classic examples of a per se violation of $1 is an

agreement between competitors at the same level of the

market structure to allocate territories in order to mini-

mize competition.’’) We take this latter argument to be

directed mainly at the abstract plant requirement which

states that the plant must contain an index and that the

index ‘“‘must be made from an actual check of each page

of each book of recorded instruments in [the register of

deeds’} office, and in no case will a copy or film of the

numerical index in the register’s office be accepted.’’

ARSD § 20:36 :04:01.° According to First American, these

*See Brief of First American at 41 (where First American

claims that the abstract plant requirement makes it “prohibi-

tively expensive’ to construct an abstract plant and that the

effect of the regulation is to give “existing abstracters monopoly

power over title services within their respective counties’).

ntly there was never any evidence offered at trial indi-

cating exactly how costly it would be to assemble an abstract

plant in accordance with ARSD § 20:36:04:01.

App. 21

anticompetitive effects require preemption of the chal-

lenged statute and regulations under the Sherman Act.

In arguing for preemption, First American claims

neither to seek ‘‘any sweeping repudiation of state statu-

tory and regulatory provisions,’’ nor to ‘‘seek a finding

of unconstitutionality of any state statutes.’’ Brief of

First American at 43. On the contrary, the result of a

successful preemption attack upon a state statute is that

the statute is stricken down as unconstitutional under the

Supremacy Clause. See, e.g., Seagram & Sons v. Hos-

tetter, 384 U.S. 25, 45 (1966). Accordingly, it is clear that

First American is making a facial challenge to the above-

indicated statute and regulations which are said to con-

flict with the Sherman Act. We also clarify that although

First American’s preemption argument appears to be

directed against all defendants without differentiation, the

only defendants against whom the argument necessarily

ean be directed are the State of South Dakota and the

Board of Examiners. The state (in the form of its legis-

lature) and the Board promulgated and enforce’ the chal-

lenged statute and regulations; consequently, it is they

who would be enjoined from enforcing the challenged as-

pects of the regulatory scheme if First American were to

prevail. We trouble to clarify these points because they

are important to our ensuing discussion of the preemp-

tion/state action issues.

The unauthorized conduct of the business of abstracting

in South Dakota is a petty offense. SDCL § 36-13-9. The

Board of Examiners is empowered to commence actions for

injunctions against such unauthorized business as an alterna-

tive to the state’s initiation of criminal proceedings. SDCL

§ 36-13-9.1. In addition, SDCL § 58-25-16 states that violation

of its countersignature requirement “is a Class 2 misdemean-

or.”

App. 22

A due regard for federalism led the Supreme Court

to create what is referred to as the state action doctrine

in Parker v. Brown, supra. A raisin producer attempted

to use the Sherman Act in Parker to strike down a mar-

keting program enacted by the California legislature to

create price supports for raisins. The Court assumed that

the program would have violated the Sherman Act if it

had been devised and carried out by private individuals

or corporations. But because the marketing program

‘‘derived its authority ... from the legislative command

of the state,” id., 317 U.S. at 350, the program was not

prohibited by the Sherman Act. The Court found no in-

tent in the Sherman Act to occupy a field so broad that

it precluded the states, acting in their sovereign capaci-

ties, from exercising their broad police powers to effect

economic regulations.'' ‘‘In a dual system of government

in which, under the Constitution, the states are sovereign,

save only as Congress may constitutionally subtract from

their authority, an unexpressed purpose to nullify a

state’s control over its officers and agents is not lightly

to be attributed to Congress.’’ Zd. 317 U.S. at 351.

'!\Of course the state’s exercise of its police powers in ef-

fecting economic regulations may impermissibly impinge on

other federal interests which do not concern us in the instant

case—notably the interest in preventing significant burdens on

interstate commerce which is protected by the Commerce

Clause. See P. Areeda & D. Turner, Antitrust Law 9] 219-20

(1978).

App. 23

Of late, the state action doctrine has become a road

well-traveled by the Court.’ Its signposts, however, re-

main less than clear. We know, for example, that when

a state legislature enacts an otherwise unlawful anticom-

petitive system of regulation, such regulation is ‘‘outside

the reach of the antitrust laws under the ‘state action’

exemption” provided that the regulations reflect a state

policy ‘‘clearly articulated and affirmatively expressed,

designed to displace unfettered business freedom’’ with

regulation. New Motor Vehicle Bd. of Cal. v. Orrin W.

Foz Co., 439 U.S. 96, 109 (1978). This state policy must

be articulated by the state acting in its sovereign capacity;

this much is clear from Parker itself. Naturally the ques-

tion arises—what constitutes an articulation of the state

in its sovereign capacity? Certainly enactments of a state

legislature qualify as the state acting in its sovereign

capacity. Orrin W. Foz, supra; Parker, supra. Also, the

state supreme court acting in its supervisory capacity over

the practice of law qualifies as the state acting in its

sovereign capacity. Bates v. State Bar of Arizona, 433

U.S. 350, 359-60 (1977); Goldfarb v. Virginia State Bar,

421 U.S. 773, 789-90 (1975).

On the other hand, ‘‘state agencies or subdivisions of

a State ... simply by reason of their status as such,”

apparently do not qualify as the state acting in its sover-

'28See Community Communications Co. v. City of Boulder,

455 U.S. 40 (1982); California Retail Liquor Dealers Assn. v.

Midcal Aluminum Inc., 445 U.S, 97 (1980); New Motor Vehicle

Bd. of Cal. v. Orrin W. Fox Co., 439 U. S. 96 (1978); City of La-

fayette v. Louisiana Power & Light Co., 435 U.S. 389 (1978);

Bates v. State Bar of Arizona, 433 U.S. 350 (1977); Cantor v.

Detroit Edison Co., 428 U.S. 579 (1976); Goldfarb v. Virginia

State Bar, 421 U.S. 773 (1975).

App. 24

eign capacity. City of Lafayette v. Louisiana Power &

Light Co., 435 U.S. 389, 408 (1978). Actions by such

bodies, however, may reflect a state policy to displace

competition with regulation. Such actions will not be

subject to scrutiny under the Sherman Act provided that

‘fan adequate state mandate for anticompetitive activities

exists.’’ Id., 435 U.S. at 415. This mandate exists ‘‘when

it is found ‘from the authority given a governmental en-

tity to wperate in a particular area, that the legislature

contemp.ated the kind of action complained of.’” ITId.

Finally, we observe that conduct by a private party

may be cloaked with state action immunity provided that

the conduct was pursuant to a ‘‘clearly articulated and

affirmatively expressed’’ state policy and that the con-

duct was ‘‘actively supervised’’’ by the state itself. Cal-

'3Uncertainty exists regarding whether the second Midcal

criterion—the requirement of active state supervision—applies

to conduct by municipalities and other state subdivisions as

well as to conduct by private parties. The Court expressly de-

clined to address this issue in Community Communications Co.

v. City of Boulder, 455 U.S. 40, 51 n. 14 (1982) (“Because we

conclude in the present case that Boulder’s moratorium ordi-

nance does not satisfy the ‘clear articulation and affirmative ex-

pression’ criterion, we do not reach the question whether that

ordinance must or could satisfy the ‘active state supervision’

test focused upon in Midcal.”’)

This circuit has answered this question in the negative in

the context of municipal conduct. Gold Cross Ambulance &

Trans. v. City of Kansas City, 705 F.2d 1005, 1014 (8th Cir.

1983) (“T]he state supervision requirement is intended to

control the potential for abuse created by authorizing private

persons to make anticompetitive decisions and to insure that

those decisions are consistent with the clearly articulated and

affirmatively expressed state policy at stake.) The court’s

reasoning in Gold Cross was fourfold: municipal officials are

(Continued on next page)

App. 25

ifornia Retail Liquor Dealers Assn. v. Midcal Aluminum,

Inc., 445 U.S. 97, 105 (1980).

We therefore see the state action doctrine to be a

construct developed by the Court and based upon princi-

ples of federalism which peimits the coexistence of the

Sherman Act and apparently conflicting state economic

regulation. Absent the state action doctrine, the Sher- —

man Act preempts the conflicting state regulation. Rice

v. Norman Williams Co., — U.S. —, 73 L. Ed. 1042, 1049

(1982) (The Sherman Act will preempt a state statute if

‘‘there exists an irreconcilable conflict between the fed-

eral and state regulatory schemes.”. It is then self-evi-

dent that application of state action principles follows

the antitrust court’s initial determination that there is

truly a conflict between the Sherman Act and the chal-

lenged regulatory scheme. See, e.g., Midcal, supra, 445

U.S. at 102 (‘‘The threshold question is whether Cali-

fornia’s plan for wine pricing violates the Sherman

Act.’’); Parker, supra, 317 U.S. at 350 (‘‘We may assume

(Continued from previous page)

cepa politically accountable to their citizens, which keeps

those officials in check; fe state authorization for local

government conduct is analogous to requiring active supervi-

sion of private conduct; it would make little sense to require

the state to supervise and enforce municipal ordinances; and

state supervision could lead to duplicative, wasteful regulation

as well as the erosion of local autonomy. /d., 705 F.2d at

1014-15. But see Ronwin v. State Bar of Arizona, 686 F. 2d 692,

696 (9th Cir. 1981), cert. granted, 51 U.S.L.W. 3825 (May 16,

1983) (No. 82-1474) (The court held in the context of chal-

lenged action by the state supreme court-appointed committee

which grades the Arizona bar examination that the acts of this

overnmental body had to be “actively supervised by the state

tself’ in order to be immune from Sherman Act scrutiny.).

App. 26

for present purposes that the California prorate program

would violate the Sherman Act....’’).

In Rice, supra, the Court set out how the antitrust

court is to analyze whether a state regulatory scheme

conflicts with the Sherman Act when aspects of the state

scheme are challenged in the abstract.

[A] state statute, when considered in the abstract,

may be condemned under the antitrust laws only if it

mandates or authorizes conduct that necessarily con-

stitutes a violation of the antitrust laws in all cases,

or if it places irresistible pressure on a private party

to violate the antitrust laws in order to comply with

the statute. Such condemnation will follow under

$1 of the Sherman Act when the conduct contem-

plated by the statute is in all cases a per se violation.

If the activity addressed by the statute does not fall

into that category, and therefore must be analyzed

under the rule of reason, the statute cannot be con-

demned in the abstract. Analysis under the rule of

reason requires an examination of the circumstances

underlying a particular economic practice, and there-

fore does not lend itself to a conclusion that a statute

is facially inconsistent with federal antitrust laws.

Id., 73 L. Ed. 2d at 1051. The challenged statute in Rice

empowered liquor distillers to designate which California

wholesalers may import the distiller’s product into the

state. The Court characterized the conduct allowed by

the statute as a vertical nonprice restraint; such restraints

have been held not to be per se violations of the Sherman

Act. Continental T.V., Inc. v. GTE Sylvania Inc., 433

U.S. 36, 57-59 (1977). Accordingly, the Court held that

there was no irreconcilable conflict between the state

statute and the Sherman Act; hence, there was no pre-

App. 27

emption by the Act.'* The Court noted that “Because of

our resolution of the preemption issue, it is not neces-

sary for us to consider whether the statute may be saved

from invalidation under the doctrine of Parker v. Brown

.... Rice, supra, 73 L. Ed. 2d at 1052 n. 9.

Applying the above principles to the instant case, we

arrive .' ‘he following conclusions. Initially, the district

court, in aualyzing First American’s Sherman Act chal-

lenges to aspects of South Dakota’s regulation of the

business of abstracting, applied the two Midcal criteria

and concluded that the state action doctrine immunized

the regulatory scheme from Sherman Act scrutiny. As

we have stated, however, the Midcal criteria apply only

in the context of whether a private party’s conduct is im-

munized from Sherman Act scrutiny by the state action

doctrine. See Gold Cross Ambulance & Trans. v. City of

Kansas City, 705 F.2d 1005, 1014 (8th Cir. 1983).

More fundamentally, we do not perceive that the as-

pects of South Dakota’s regulatory scheme which are chal-

lenged by First American ‘‘irreconcilably conflict’? with

the Sherman Act under the principles of Rice, supra. We

are told by First American that an irreconcilable conflict

does exist because the rigorous abstract plant require-

ment of ARSD § 20:36:04:01 effectively forecloses com-

4The Court indicated that the conduct of a particular dis-

tiller under the statute would not necessarily be insulated from

scrutiny under the Sherman Act, even though there was no

basis “for condemning the statute itself by force of the Sherman

Act.” Rice v. Norman Williams Co., — U.S. —; 73 L. Ed. 2d

1042, 1052 (1983).

App. 28

petition in the abstracting business within a county and

creates a horizontal division of territories, which is a per

se violation of §1 of the Sherman Act. See note 9 supra

and accompanying text. But Rice states that for an ir-

reconcilable conflict to arise, the challenged regulatory

provision must contemplate conduct that ‘‘is in all cases

a per sc violation.’’ Jd., 73 L.Ed.2d at 1051. Regard-

less of whether the challenged regulation tends to have

the anti-competitive effect claimed by First American,

it cannot be said that the regulation mandates or author-

izes conduct that in all cases constitutes a §1 violation.

First American and its principal, Linderman, exemplify

this. In 1973, Linderman became a licensed abstracter

in Pennington County which indicates that Linderman was

able to fulfill the abstract plant requirement and thus

compete on an equal footing with the other licensed ab-

stracter in Pennington County at that time, Theresa

Burke. Accordingly, we hold that because no irreconcil-

able conflict exists between the Sherman Act and the ab-

stract plant requirement, the Sherman Act does not pre-

empt the requirement.

Furthermore, even if we assumed that the challenged

aspects of the regulatory scheme conflicted with the Sher-

man Act sufficiently to require preemption, we would hold

that the scheme reflects a clearly articulated and affirm-

atively expressed state policy to replace unfettered busi-

ness freedom with regulation. See Orrin W. Fox, supra,

439 U.S. at 109. Thus the state action doctrine would

‘apply to preclude preemption. The state as sovereign

enacted the challenged countersignature statute, SDCL

§ 58-25-16, and although it is within the code chapter

regulating the business of title insuraace, it undoubtedly

App. 29

regulates the business of abstracting as well. In fact,

First American’s complaint about the statute relates to

its anticompetitive effect on the business of abstracting.

The statutory requirement that a title insurance pol-

icy be signed by a licensed abstracter who, by regulation,

has searched both his own title plant and the official

county records (ARSD § 20:36:07:01) before countersign-

ing ensures that someone whom the State of South Dakota

deems qualified has performed a professional title search

before title to property is transferred. Indeed, First

American at oral argument appeared to have no quarrel]

with this policy, stating that it did not really object to

the countersignature requirement, but only objected to

the regulations which precluded Linderman, a licensed

abstracter, from searching official county records outside

of Pennington County and countersigning title insurance

policies based on his search of those records. According

to First American, the sta‘e’s requirement that an ab-

stracter have an abstract ;)!ant in each county in which

the abstracter wishes to do business serves only anticom-

petitive ends. The State of South Dakota at trial justi-

fied its abstract plant requirement by introducing evi-

dence which indicated the poor—in some cases illegible—

condition of many counties’ official records. Thus the

state requires an actual check, in lieu of copies, of each

page of the official county records in constructing an

index for the abstract plant.

We do not fulfill our role as the antitrust court by

determining whether the manner in which the State of

South Dakota regulates the business of abstracting is

wise or appropriate. This type of judicial inquiry by the

federal courts has long been repudiated in the context

App. 30

of due process. See Ferguson v. Skrupa, 372 U.S. 726,

731 (1963) (The Due Process Clause does not empower

the judiciary ‘‘to sit as a ‘superlegislature to weigh the

wisdom of legislation’ ....”). Rather we fulfill our

role by determining whether the state as a sovereign, in

the broad exercise of its police powers, has chosen ‘‘to

displace competition with regulation ....” City of La-

fayette, supra, 435 U.S. at 413.

Certainly regulation of the business of title insurance

falls within the state’s broad police powers. As the South

Dakota Supreme Court observed in response to a due

process challenge to the fee schedule for abstracters’

services, which at the time was established by state stat-

ute:

Because the abstracters’ product is an indispensable

part of real property transfers and due to the reli-

ance which must necessarily be placed upon it by the

vendor and vendee alike, the legislature has properly

exercised its police power by the enactment of Ch.

36-13 [Abstracters of Title]. It is evident that there

does exist a real and substantial relation between the

regulatory means adopted in regard to price regula-

tion and the actual or manifest evil possible due to

the monopolistic nature of the business.

Siefkes v. Clark Title Co., 215 N. W.2d 648, 652 (S.D.

1974).'5 The pervasiveness of South Dakota’s regulation

'SSee also 1 Am. Jur. 2d Abstracts of Title § 4 at 230 (1962)

(The inherent police power of the states permits reasonable

regulation of businesses or professions when such regulation

appears necessary for the general welfare of the people, and

in the exercise of this power, a state may impose reasonable

regulations upon those who seek to engage in the business of

abstracting titles to real estate.’’)

App. 31

—to the point of mandating the fixing of prices for ab-

stracters’ services, SDCL § 36-13-25—indicates that the

state has indeed chosen to displace competition with reg-

ulation in the business of abstracting.

First American argues that even if the statutes which

regniate the abstracting business are protected by the

state action doctrine, the regulations promulgated by the

Board of Examiners are not because they do not qualify

as enactments of the state as sovereign. We hold that

the abstract plant regulation (ARSD § 20:26 :04:01), the

regulation requiring the abstracter to search both his own

abstract plant and the official county records before

countersigning (ARSD 4 20:36:07:01), and the regulation

requiring the search pursuant to the countersignature re-

quirement to be under the supervision of a licensed ab-

stracter (ARSD § 20:36:07:02) all to be actions clearly

within the contemplation of the legislature in granting

authority to the Board to regulate. See City of Lafayette,

supra, 435 U.S. at 415.

South Dakota by statute requires that an abstracter

maintain an abstract plant ‘‘showing in a sufficiently

comprehensive form, all instruments affecting the title

to real estate which are of record or on file in the office

of the register of deeds ....” SDCL § 36-13-10. The

Board of Examiners in turn sets out by regulation pre-

cisely what constitutes ‘‘sufficiently comprehensive form’’

for an abstract plant in ARSD § 20:36:04:01. South Da-

kota also requires by statute that an abstracter maintain

a set of records for ‘‘each county wherein said person

seeks to engage in compiling abstracts of land titles

. 2’ SDCL § 36-13-10. In addition, SDCL § 36-13-26.1

requires the abstracter to examine record title and fur-

App. 32

nish a report to the title insurer before countersigning

the title insurance policy. The Board of Examiners in

turn sets out that the ‘‘examination of record title” re-

quired by SDCL § 36-13-26.1 must include an examination

of both the abstracter’s abstract plant and the official

county records. ARSD 4 20:36:07:01. The Board also

requires that the search pursuant to the countersignature

requirement be made “under the direction of an abstract-

er licensed in the county in which the property is located,”’

ARSD § 20:36:07 :02, to ensure that the search is not im-

properly delegated to one who has not met the require-

ments for becoming a licensed abstracter. Clearly the

statutory provisions which govern the business of ab-

stracting indicate that the challenged regulations of the

Board of Examiners are the kind of action contemplated

by the South Dakota legislature. Cf. Areeda, Antitrust

Immunity for ‘‘State Action’ After Lafayette, 95 Harv.

L. Rev. 435, 445 n. 49 (1981) (‘‘Immunity [under the state

action doctrine] for decisions of subordinate agencies or

officials cannot depend on an explicit command from the

legislature; delegation of governmental powers necessar-

ily includes the discretion to make decisions not compelled

by the legislature.’’). To the extent that the challenged

regulatory provisions impose an anticompetitive restraint

upon First American, such restraint ‘‘is a necessary or

reasonable consequence of engaging in the authorized ac-

tivity.” Gold Cross, supra, 705 F.2d at 1013.

First American relies on cases from the Ninth and

Fifth Circuits in arguing that the challenged regulations

were not compelled by the South Dakota legislature, thus

they are not entitled to state action immunity. Ronwin

v. State Bar of Arizona, 686 F.2d 692 (9th Cir. 1981),

App. 33

cert. granted, 51 U.S.L. W. 3825 (May 16, 1983) (No.

82-1474); United States v. Texas State Board of Ac-

countancy, 464 F.Supp. 400 (W. D. Tex. 1978), modified,

592 F. 2d 919 (5th Cir.), cert. denied, 444 U. S. 925 (1979).

Our above discussion should indicate, however, that we

are in fundamental disagreement with our brethren in

these circuits regarding application of the state action

doctrine to state agencies or subdivisions. In both these

cases, the courts cast the inquiry in mandatory terms—

whether the challenged action by the state agency was

compelled by the state legislature. In both cases there

were vigorous dissents putting forth the view adhered to

by this circuit: ‘‘that an adequate state mandate for anti-

competitive activities of cities and other subordinate gov-

ernmental units exists when it is found ‘from the author-

ity given a governmental entity to operate in a particular

area, that the legislature contemplated the kind of action

complained of.’’’ City of Lafayette, 435 U.S. at 415.

Accordingly, we conclude that the Sherman Act does

not irreconcilably conflict with the challenged statute and

regulations, and that, even if it did, the state action doc-

trine would operate to shield the regulatory provisions

from anti-trust scrutiny."®

16it is thus unnecessary to consider the district court's al-

ternative holding that the countersignature statute is exempt

from antitrust scrutiny under the McCarran-Ferguson Act, 15

U.S. C. §§ 1011-15, because the statute constitutes state -

lation of the “business of insurance.” See Union Labor Life

Ins. Co. v. Pireno, — U.S. —, 102 S. Ct. 3002 (1982).

Additionally, we reject First American’s contention that the

district court failed to consider its claims under § 2 of the Sher-

man Act. 15 U.S.C. §2. If the alleged private price-fixing

(Continued on next page)

App. 34

In conclusion we observe that the regulations chal-

lenged here by First American undoubtedly restrained it

from carrying on its business in the manner it desired.

That the regulations, in this sense, have an anticompeti-

tive effect does not invalidate them under the Sherman

Act, ‘‘(flor if an adverse effect on competition were, in

and of itself, enough to render a state statute invalid,

the States’ power to engage in economic regulation would

be effectively destroyed.’’ Exxon Corp. v. Governor of

Maryland, 437 U.S. 117, 133 (1978).

For the foreging reasons, the judgment of the district

court is affirmed.

A true copy.

Attest:

CLERK, U. 8. COURT OF APPEALS,

EIGHTH CIRCUIT

(Continued from previous page)

conspiracy was supposed to be evidence of monopolization,

the claim failed for lack of proof. If the lobbying and litigation

activity which has been held immune from anti-trust scrutiny

under Noerr-Pennington is alleged to be evidence of an at-

tempt or a conspiracy to monopolize, ther Noerr-Pennington

applies to immunize defendants from these claims as well.

—

App. 35

APPENDIX B

UNITED STATES DISTRICT COURT

District of South Dakota

June 8, 1982

Chambers of

Andrew M. Rogue

Chief Judge

318 Federal Building

Rapid City, South Dakota 57701

Mr. Donald R. Shultz

Attorney at Law

P.O. Box 8110

Rapid City, South Dakota 57709

Mr. Gary F. Colwill

Attorney at Law

P.O. Box 1174

Pierre, South Dakota 57501

Mr. Mark V. Meierhenry

Attorney General

State Capitol

Pierre, South Dakota 57501

Mr. E. James Hood

Attorney at Law

115 East Hudson Street

Spearfish, South Dakota 57783

Mr. Keith R. Smit

Attorney at Law

P.O. Box 29

Sturgis, South Dakota 57785

Re: First American Title Company of South Dakota and

First American Title Insurance Company of South

Dakota vs. South Dakota Land Title Association,

South Dakota Abstracters Board of Examiners, Black

Hills Land and Abstract Company, Dennis O. Mur-

ray, Security Land and Abstract Company, Glen M.

App. 36

Rhodes, Fall River County Abstract Company,

Charles E. Clay, Custer Title Company, Betty J.

Gould, Haakon County Abstract Company, Keith

Emerson, Wayne Roe and Charles Nass, CIV80-5076

MEMORANDUM OPINION

Gentlemen:

This matter is an antitrust suit brought under sec-

tions 1 and 2 of the Sherman Act, 15 U.S.C. 441 and 2,

and tried before this Court on June 15, 16, 17 and 19 of

1981. Plaintiffs are First American Title Company of

South Dakota, which is a South Dakota company pres-

ently doing business within South Dakota, and First

American Title Insurance Company of South Dakota,

which operated in South Dakota until May, 1980, when

the company was voluntarily dissolved. The Defendants

include the South Dakota Land Titl Association

(SDLTA), which is an unincorporated association of land

title abstractors in South Dakota, and the South Dakota

Abstracters’ Board of Examiners (SDABE), which is a

South Dakota state agency under the South Dakota De-

partment of Commerce. See SDCL ch. 36-13. SDABE

regulates real estate title abstractors in the state of

South Dakota. The remaining Defendants are Western

South Dakota abstract companies and individual licensed

abstractors, all of whom are members of Defendant

SDLTA and some of whom are members of Defendant

SDABE. The State of South Dakota has also been joined

as a defendant pursuant to a motion of SDABE.

Plaintiffs allege the Defendants have engaged in a

conspiracy in restraint of trade and have also monopolized,

attempted to monopolize, and engaged in a conspiracy to

monopolize, all in violation of 441 and 2 of the Sherman

App. 37

Act. The basic allegations in Plaintiffs’ complaint are

found in {/21(a) through (h). Plaintiffs allege that the

Defendants conspired to: (a) fix the price to Plaintiffs of

abstractor countersignatures on title insurance policies;

(b) engage in frivolous and sham litigation by appealing

the decision of the South Dakota Director of Insurance to

grant a certificate of authority to Plaintiff First Ameri-

ean Title Insurance Company to do business in South

Dakota; (c) engage in frivolous and sham litigation by

participating in the case of Fall River County Abstract

Company v. Knutson, (6th Judicial Cireuit Court, Hughes

County, C. D., Nov. 6, 1979, Judge Robert A. Miller, pre-

siding); (d) engage in efforts to influence the enactment

of S. L. 1979, ch. 345, amending SDCL 58-25-16, which had

the effect of requiring all title insurance policies issued in

the state to contain the countersignature of an abstractor;

(e) enforce and attempt to enforce SDCL 58-25-16; (f) at-

tempt to establish a fee schedule for countersignatures to

be provided by abstractors on title insurance policies; (g)

enforce and attempt to enforce ARSD § 20:36:04:01; (h)

engage in a publicity campaign directed against the Plain-

tiffs, ostensibly directed toward influencing government

action, which campaign was a sham to cover an attempt to

interfere with the business relationships of the Plaintiffs.

The licensing of abstractors in South Dakota is gov-

erned by SDCL 36-13. That chapter created Defendant

SDABE to act as the state agency to regulate the abstract-

ing business in South Dakota.

Most South Dakota counties have only one abstract

firm. Plaintiffs have attempted to show that this condi-

tion was created by SDABE regulations which, Plaintiffs

App. 38

have alleged, make it financially prohibitive to open a com-

peting abstract plant in any county. Plaintiffs have fur-

ther alleged that it is the goal of Defendants SDABE and

SDLTA to maintain the status quo so as to shield SDLTA

members from competition within their individual coun-

ties. .

Plaintiff First American Title Company was organized

by Walter J. Linderman and began operating in Pezning-

ton County, South Dakota in 1974. It acted as the local

agent for a foreign title insurance company. Under South

Dakota law in effect at that time, a countersignature by a

licensed abstractor or abstract company was required on

all title insurance policies issued by foreign title insurance

companies. Linderman, through First American Title

Company, could countersign policies on property in Pen-

nington County. However, in other counties countersigna-

tures had to be obtained from other abstractors for a

price which in Plaintiffs’ opinion was too high.

Because a countersignature was not required on do-

mestic title insurance policies, Linderman decided to or-

ganize a domestic title insurance company. By doing this

he could issue title insurance policies throughout the state

without the necessity of an abstractor’s countersignature,

Linderman incorporated Plaintiff First American Title

Insurance Company in December, 1978, for this purpose.

Plaintiffs claim that the Defendants were opposed to

Linderman’s establishing a domestic title insurance com-

pany and united in an attempt to thwart his efforts. The

first step allegedly taken by Defendants was intense lobby-

ing which resulted in South Dakota law being changed so

as to make it necessary for all title insurance policies,

App. 39

both foreign and domestic, to be countersigned by an ab-

stractor. This again made it necessary for Linderman’s

First American Title Insurance Company to obtain coun-

tersignatures from other abstractors on policies dealing

with property outside Pennington County.

The second step allegedly taken by Defendants to dam-

age Plaintiffs’ business was SDLTA’s opposition to First

American Title Insurance Company’s application for a cer-

tificate of authority to do business in the state. Plain-

tiffs charge that SDLTA had no justification for attack-

ing First American Title Insurance Company’s applica-

tion and did so just to harass Plaintiffs. The application

was granted by the South Dakota Director of the Division

of Insurance. This decision, however, was then appealed

to state court and was affirmed. Plaintiffs allege that the

sole purpose of this appeal was to harass and competi-

tively injure First American Title Insurance Cornpany.

Plaintiffs charge that the conspiracy against them con-

tinued after the statute regarding countersignatures on

title insurance policies was changed in 1979. After this

statutory change, the South Dakota Attorney General held

that the Division of Insurance, and not Defendant SDABE,

had the authority to hold hearings to adopt a rule to fix

the countersignature fee that could be charged by abstrac-

tors. According to Plaintiffs, Defendants opposed this rul-

ing because they feared the Division of Insurance would

set the fees too low and there would then be a widespread

proliferation of title insurance throughout the state. To

regain control for SDABE, SDLTA commenced litigation

to attack the jurisdictional basis for the right of the Divi-

sion of Insurance to set the countersignature fees. The

App. 40

court disagreed, ruling that the Division of Insurance did

have this authority.

While the Fa/l River County Abstract Company, su-

pra, decision was pending on appeal, Plaintiffs charge

that Defendants successfully lobbied the legislature to give

the authcrity to establish a fee schedule to SDABE. This

law, which amended SDCL 36-13-25,? became effective

July 1, 1980. Another statute dealing with abstractor

countersignatures was also enacted in 1980.2 This stat-

ute declared that an abstractor’s countersignature on a

title insurance policy was a verification that the abstractor

had performed a title search on the property involved.‘

Plaintiffs charge that after all these legislative

changes were made, Linderman experienced numerous

problems obtaining countersignatures for title insurance

policies issued outside of Pennington County. The Plain-

tiffs have claimed that abstractors sought to charge fifty

percent of the policy premium for providing the counter-

?The pertinent portion of SDCL 36-13-25 provides as fol-

lows: “[{The Abstracters’ Board of rower shall also estab-

lish a schedule of fees and the requirements for an abstractor’s

services for countersigning insurance policies pursuant to § 58-

25-16.”

. 4The statute referred to is SDCL 36-13-26.1 which pro-

vides: “An abstractor’s countersignature on a title insurance

policy is verification that the abstractor has furnished the insur-

er a report based on the examination of recorded title and any

Hera information and services required by the insurer and

-25.”

One of the bases for the ruling in the Fall River County

Abstract Company case was that South Dakota law did not re-

quire any affirmative act on the part of the abstractor counter-

si “3 here title insurance policy. Before the enactment of

S.D.C.L. 36-13-26.1, there was no requirement that the abstrac-

tor search the title or do anything else before countersigning.

App. 41

signatures. Plaintiffs have also charged that the various

abstractors contacted about countersigning First Ameri-

can Title Company’s title insurance policies communicated

with other abstractors in the state to establish a fee sched-

ule for countersignatures in the absence of any statute or

regulation governing such fees. Plaintiffs charge that as

a result of these legislative changes and the resulting prob-

lems First American Title Insurance Company had with

obtainin countersignatures, Plaintiff First American Title

Insurance Company was no longer able to exist financially

and was dissolved in May, 1980.

In a nutshell, Plaintiffs allege that the activities of

the Defendants were meant to harass and injure them. It

is further claimed that this harassment allegedly led to

the failure of First American Title Insurance Company

and has obstructed Plaintiff First American Title Com-

pany from conducting title work in counties other than

Pennington County.

All of the Defendants have cited three major areas

of law in support of their opposition to Plaintiffs’ allega-

tions: The McCarran-Ferguson Act, 15 U.S.C. §§1101,

et seq.; the Noerr-Pennington doctrine; and the so-called

state action doctrine. In addition, Defendants SDABE

and the state of South Dakota have alleged immunity un-

der the eleventh amendment.

This Court will analyze each of these areas of the law

as they apply to the eight allegations of Plaintiff’s com-

plaint.

McCARRAN-FERGUSON ACT

The McCarran-Ferguson Act’ was passed in response

5For the most part, this opinion will henceforth refer to

the McCarran-Ferguson Act as simply the McCarran Act.

App. 42

to the decision of the United States Supreme Court in

United States v. South-Eastern Underwriters Association,

322 U.S. 533 (1944), in which it was held that Congress

did not intend to exempt the business of insurance from

the Sherman Act. The McCarran Act made the Sherman

Act applicable to the business of insurance only to the ex-

tent insurance was not regulated by state law.°®

The portions of the McCarran Act with which we are

concerned in this case provide as follows:

That aiter June 30, 1948, the Act .. . known as the

Sherman Act... shall be applicable to the business of

insurance to the extent that such business is not regu-

lated by State law. 15 U.S.C. § 1012(b).

However, 15 U.S.C. § 1013(b) provides:

Nothing contained in this chapter shall render the said

Sherman Act inapplicable to any agreement to boy-

cott, coerce, or intimidate, or act of boycott, coercion,

or intimidation.

Defendants argue that the business of title insurance

is part of the business of insurance, is regulated by the

state of South Dakota and, therefore, this Court has no

jurisdiction to consider those allegations in the complaint

which concern the title insurance business. The allega-

tions which Defendants argue are defeated by the McCar-

ran Act are those which refer to the alleged fixing of

prices for abstractor countersignatures on title insurance

policies (721(a) of Plaintiffs’ complaint), the enforcement

of the statute requiring countersignatures on title insur-

6For a more complete discussion of the history and devel-

opment of the McCarran Act, see, St. Paul Fire & Marine Insur-

ance Co. v. Barry, 438 U. S. 531, 538 (1978).

App. 43

ance policies ({2l1(e) of Plaintiffs’ complaint,’ the alleged

attempt by Defendants to establish a fee schedule for ab-

stractors’ countersignatures (§21(f) of Plaintiffs’ com-

plaint), and the enforcement of ARSD § 20:36:04:01 ({21

(g) of Plaintiffs’ complaint).*

Prior to July 1, 1979, S.D.C.L. 58-25-16 provided as fol-

lows: “No foreign insurance company shall issue any policy of

title insurance or certificate of title or other guarantee of title,

covering any property located within the state of South Dakota,

unless the same is countersigned by a person, partnership or

corporation, who has met the requirements of §§ 36-13-8 and

36-13-10 in the county in which the real property is located, or

maintains an abstract plant in the county where the real prop-

erty is located and meets the requirements of ch. 36-13. A vi-

olation of this section is a Class 2 misdemeanor.” However,

the 1979 legislature deleted the word ‘foreign’ in the first sen-

tence, thereby requiring all title insurance companies to obtain

countersignatures on their policies.

8ARSD § 20:36:04:01 provides: ‘Before any person, firm,

or corporation shall be entitled to a certificate of registration

to engage in abstracting under the laws of South Dakota, he

shall have an approved abstract plant containing the following:

(1) a complete index ng every instrument recorded in the

operate, properly listed against the specific property which it

affects, and also a separate index showing all recorded instru-

ments which do not affect specific eigen" This index may

be compiled on cards, in bound books, or a looseleaf form, but

must be made from an actual check of each page of each book

of recorded instruments in said office, and in no case will a

copy or film of the numerical index in the register’s office be

accepted; (2) in case a numerical index is used showing only

the k and page of each instrument, then and in that case

such index must be supplemented by a take-off of each instru-

ment properly arranged in the said abstract plant so that it can

be located from its own numerical index. Such take-off shall

be sufficiently complete to show all essential parts of each in-

strument, such names, dates, descriptions, acknowledgements,

filings, and any special or unusual recitals, covenants, warrant-

ies, exceptions or reservations. Such take-off may be made on

(Continued on next page)

App. 44

In response, Plaintiffs contend that the conduct al-

leged in the complaint does not involve the business of

insurance because none of the Defendants are insurers and

because they are not regulated by the South Dakota Divi-

sion of Insurance with respect to their abstracting activi-

ties. Plaintiffs further argue that the alleged actions of

the Defendants are not regulated by the state of South

Dakota and therefore, the McCarran Act is not applicable.

Finally, Plaintiffs argue that the alleged activities of De-

fendants fall within the boycott, coercion or intimidation

exception to the McCarran Act contained in 15 U.S.C.

§ 1013(b).

Whether or not title insurance is part of the business

of insurance for purposes of the McCarran Act is consid-

ered in Commander Leasing Company v. Transamerica

Title Insurance Company, 477 F. 2d 77 (10th Cir. 1973),

and Schwartz v. Commonwealth, 374 F. Supp. 564 (E. D.

Pa. 1974). Iu both these cases, the Plaintiffs argued that

title insurance is unlike other insurance in that the major

emphasis of title insurance is the title search rather than

insuring against a potential loss. Because of this, it was

argued that title insurance is not covered by the McCarran

Act. Both courts disagreed. The Schwartz court com-

mented:

(Continued from previous page)

cards, on looseleaf form or in bound books or film; (3) if the

form of index is a card, a looseleaf sheet, or the page of a

bound book showing all instruments affecting a particular piece

of farmland, or town lot or block, then such index must in

such form as to show all names, dates, acknowledgements,

seals, and filings, and also a column to show any special or un-

usual recitals in each instrument.

App. 45

[I]t ould be in our view unrealistic, indeed ostrich-

like, to separate the title search process from the pure

insurance aspect of the title companies’ activities

and, as plaintiffs urge, to call only the latter ‘‘the

business of insurance.’’ Id. at 574.

The requirement that title insurance policies be coun-

tersigned by an abstractor clearly falls within the busi-

ness of insurance. Under present South Dakota law, ab-

stractor countersignatures are an integral part of the

business of title insurance in South Dakota. Therefore,

as to Plaintiffs’ allegation that Defendants have violated

the Sherman Act by enforcing or attempting to enforce

SDCL 58-25-16, it follows that this conduct is part of the

business of insurance for McCarran Act purposes. How-

ever, as to the other allegations dealing with countersign-

ing—that Defendants have conspired to fix the price for

countersignatures and that they have conspired to attempt

to establish a fee schedule for countersignatures—it would

be stretching the McCarran Act beyond its intended pur-

pose to hold that these allegations are part of the business

of insurance. Although this Court has found that the

countersignature requirement itself is included in the bus-

iness of insurance, the decision of individual abstractors

or Defendant SDABE as to what should be charged for

this service is too far removed from the business of title

insurance to warrant a McCarran Act exemption. The

charge made for countersignatures is part of the busi-

ness of abstracting, not title insurance.

The antitrust allegations in both Commander Leas-

ing, supra, and Schwartz, supra, concerned charges made

for certain services. However, both cases involved

charges made by title insurance companies to either the

buyer or seller of property. At issue in the allegations

App. 46

in question are charges made by abstractors to a title in-

surance company.

This Court reaches the same conclusion with regard

to Plaintiffs’ allegation that the Sherman Act has been

violated by Defendants’ actions to enforce or attempt to

enforce ARSD § 20:36:04:01. This regulation sets up re-

quirements for abstract plants. This certainly cannot be

considered to be part of the business of insurance. A\l-

though certain abstracting services which are performed

in conjunction with the issuance of a title insurance pol-

icy are included within the business of insurance, not all

abstracting activities can be considered part of the busi-

ness of insurance. Certainly, requirements for abstract

plants are not concerned with the business of insurance.

Therefore, this Court finds that the McCarran Act does

not bar the allegation contained in {21 (g) of Plaintiffs’

complaint.

In light of this Court’s determination that the coun-

tersignature requirement is part of the business of in-

surance for purposes of the McCarran Act, the next ques-

tion is whether the alleged conduct of the Defendants is

regulated by state law. In answer to this question it

must be noted that the title insurance business is thor-

oughly regulated by South Dakota state law. SDCL 58-

25.2 Therefore, unless the allegation contained in 21 (e)

9See Lawyers Title Company of Missouri v. St. Paul Title

Insurance Corporation, 526 F.2d 795 (8th Cir. 1975), Com-

mander Leasing, supra, and Swartz, supra, which discuss the

regulation of title insurance business in Missouri, Colorado, and

Pennsylvania, respectively. It should also be noted that wheth-

er or not a state’s regulation of insurance is effective is not rel-

evant for McCarran Act purposes. Seasongood v. K & K Insur-

ance Agency, 548 F. 2d 729 (8th Cir. 1977); Lawyers Title Com-

pany, supra.

App. 47

of Plaintiffs’ complaint'® falls within the boycott, coercion

or intimidation exception, the McCarran Act will deny

this Court jurisdiction over this allegation.

In St. Paul Fire & Marine Insurance Company v.

Barry, 431 U.S. 531, 536 (1978), the Supreme Court

adopted the First Circuit Court of Appeals’ definition of

boycott, that being ‘‘[a] ‘conserted refusal to deal’ with

a disfavored purchaser or seller.’’ 555 F.2d at 8. In

regard to §21(e) of Plaintiffs’ complaint, this Court

finds no facts which would cause this allegation to fall

within the boycott exception. Although it is not neces-

sary for the complaint to specifically allege a boycott in

order to invoke the exception, Ballard v. Blue Shield of

Southern West Virginia, Inc., 543 F.2d 1075 (4th Cir.

1976), this Court finds that nothing in this allegation

even raises an issue of a boycott, coersion or intimidation.

Based on the foregoing, this Court concludes that

21 (e) of Plaintiffs’ complaint is outside the jurisdiction

of the Sherman Act under the authority of the MeCarran

Act.

Therefore, this Court will now ascertain whether the

Sherman Act has been violated by the conduct alleged in

121 (a) of the complaint. {21 (f) of the complaint will be

examined elsewhere in this opinion.

10As noted, this rn concerns Plaintiffs’ allegation

that Defendants conspired to enforce or attempt to enforce

§.D.C.L. 58-25-16. There is a question about whether Defend-

ants have any connection with the enforcement of this statute.

The statute makes it a Class 2 misdemeanor to violate its pro-

visions. It would appear that the duty to enforce a statute

rests with the various states attorneys of South Dakota. How-

ever, due to this Court’s determination regarding the McCar-

ran Act (infra), further discussion of this issue is not required.

App. 48

The conduct of the individual abstractor Defendants

with respect to the allegations of price fixing contained in

121 (a) does not violate 15 U.S.C. §1 or §2.

The Plaintiffs have claimed that the individual ab-

stractor defendants conspired to fix prices by setting the

abstractor’s countersignature fee at fifty percent of the

title insurance premium. This Court has spent a consid-

erable amount of time examining the evidence introduced

on the allegation of conspiracy to fix prices. Initially,

this Court found no direct evidence of any formal agree-

ment between the defendant abstractors. However, such

a finding is not fatal to the Plaintiffs’ allegation of con-

spiracy. In cases where conspiracy is claimed it is rare

that a plaintiff can ever show or produce direct evidence

of an agreement to fix prices. American Tobacco Co. v.

U.S., 328 U.S. at 810; Milgram v. Loew’s, Inc., 192 F. 2d

579 (8rd Cir. 1951), cert. denied 343 U.S. 929 (1952). Ac-

cordingly, this Court has closely examined the evidence

concerning the dealings between Plaintiffs and the ab-

stractor Defendants.

From such examination this Court does not find that

the Plaintiffs have proved the presence of a conspiracy.

It appears to this Court that, at the most, the actions of

the individual abstractors may have constituted parallel

action. The Eighth Circuit Court of Appeals in Admiral

Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877 (8th

Cir. 1978), noted that, ‘‘... similar practices by competi-

tors, i. ¢., ‘conscious parallelism’, will sometimes support

an inference of an agreement.’’ Jd. at 884. Generally,

however, mere conscious parallelism is not enough to sup-

port a finding of conspiracy.

App. 49

The Eighth Cireuit Court of Appeals, in Admiral

Theatre Corp. v. Douglas Theatre Co., supra, noted The-

atre Enterprises v. Paramount Film D. Corp., 346 U.S.

537 (1954) where the Supreme Court said, ‘‘Circumstan-

tial evidence of consciously parallel behavior may have

made heavy inroads into the traditional judicial attitude

toward conspiracy; but ‘‘conscious parallelism’’ has not

yet read conspiracy out of the Sherman Act entirely.’’

Id. at 541. In this ease, the Plaintiffs must be able to

show, through additional facts, that the conscious paral-

lel actions of the alleged conspirators were concerted and

interdependent. Levitch v. Columbia Broadcasting Sys-

tem, Inc., 495 F.Supp. 649, 674 (S.D. N.Y. 1980); Na-

tional Auto Brokers v. General Motors Corp., 572 F.2d

953 (2nd Cir. 1978), cert. denied 439 U.S. 1072 (1979);

Michelman v. Clark-Schwebel Fiber Glass Corp., 534 F. 2d

1036, 1042-43 (2nd Cir. 1976) cert. denied 429 U.S. 885

(1976). This Court should be able to find that the De-

fendants’ actions were made in the ‘‘. . . collective self-

interest of the conspirators rather than, or in addition

to, their individual self interest.’’ Levitch v. Columbia

Broadcasting System, Inc., 495 F.Supp. at 675. In Ad-

miral Theatre Corp. v. Douglas Theatre Co., the Eighth

Circuit Court of Appeals, when considering when parallel

action may be used to properly infer an agreement stated,

‘*Only where the pattern of action undertaken is incon-

sistent with the self-interest of the individual actors, were

they acting alone, may an agreement be inferred solely

from such parallel action.” Jd. at 884. After having

considered the evidence in light of the law as applied to

parallel action, this Court is unable to find the presence

of conspirac,. Plaintiffs have been unable to show that

the Defendants’ actions were more consistent with con-

App. 50

spiracy to fix prices than with individual business de-

cisions. Additionally, Plaintiffs have been unable to elicit

sufficient evidence to prove that the Defendants’ actions

were interdependent or concerted. Thus, the indication

of possible parallel action, without more, does not allow

this Court to properly infer conspiracy.

A review of the evidence indicates that, while the

initial countersignature fees charged by the abstractor

defendants tended to be fifty percent of the title insur-

ance premium, } ie fees generally varied from five to fifty

percent of the title insurance premium. It appears that

Defendant Eddie Clay, owner of the Fall River County

Abstract Company, agreed with Walter Linderman to

charge a fee of thirty-five percent of the premium. (Tes-

timony of Walter J. Linderman, trial transcript pp. 299,

300.) Mr. Linderman’s testimony also indicates that in

October, 1980, he voluntarily paid Defendant Dennis O.

Murray a higher countersignature fee than Mr. Murray

had been charging. In his letter to Mr. Murray dated

October 31, 1980, Mr. Linderman stated that he thought

the fee was fifty percent. (Mr. Linderman’s testimony,

trial transcript p. 321, trial exhibit #156.) Furthermore

Mr. Dale Morman, an attorney practicing in Sturgis, South

Dakota, testified that, in a meeting with Defendant Glen

Rhodes on August 1, 1979, Mr. Linderman offered to pay

a fifty percent countersignature fee to Mr. Rhodes for

countersigning title insurance policies. (Testimony of

Dale Morman, trial transcript, p. 360.) On direct exam-

ination Mr. Linderman said Mr. Rhodes had asked for a

fifty percent fee. (Trial transcript, p. 90.) However,

in his cross-examination testimony concerning the meet-

ing, Mr. Linderman could not recall who proposed the

App. 51

fifty percent fee. Mr. Linderman did claim that he did

not propose the fifty percent fee. (Trial transcript, pp.

325, 326.) Such evidence is equivocal and is not suffi-

cient to meet Plaintiffs’ burden of proof concerning the

allegations of conspiracy to fix prices contained in 921 (a)

of the complaint.

The Plaintiffs’ evidence concerning price fixing by

Defendant Betty Gould of Custer, South Dakota, is typi-

cal of the Plaintiffs’ inability to clearly meet their burden

of proof on the price fixing allegation. In their proposed

finding #73 the Plaintiffs ask this Court to find that on

July 29, 1979, Betty Gould refused to sign a title insur-

ance policy, tendered to her by Mr. Linderman, because

she did not want to sign the policy until she had discussed

the matter with other abstractors. Such a finding would

misstate the record. This Court is unable to find, either

in the transcript or in the deposition of Betty Gould,

where Defendant Gould stated that she needed to talk

with other abstractors. It appears that, at the most, she

may have used the term ‘‘others’’. Further examination

of the transcript of her deposition would indicate that the

‘‘others’’ Betty Gould spoke with, prior to signing the

policy, were her attorney, a Mr. Baldwin, her insurance

agent and her errors and orissions policy carrier. (Wal-

ter Linderman testimony, trial transcript, pp. 95, 298.)

(Deposition of Betty J. Gould, 12-10-80, pp. 38, 40, 48 and

49.) This Court cannot find that the term ‘‘others’’ as

it may have been used by Betty Gould, clearly included

the other defendants in this action. The Plaintiffs have

simply failed to introduce sufficient evidence to meet their

burden of proof. Accordingly, this Court finds that, with

regard to the conduct complained of in {21 (a) of the

App. 52

complaint, the Defendants are not liable to Plaintiffs

under 15 U.S.C. $1 or §2.

NOERR-PENNINGTON DOCTRINE

Defendants also urge that the Noerr-Pennington Doc-

trine bars portions of Plaintiffs’ complaint. The Noerr-

Pennington Doctrine had its birth in Eastern RR Presi-

dents Conference v. Noerr Motor Freight, Inc., 365 U.S.

127 (1961). The gist of the complaint in that case was

that the petitioners had violated the Sherman Act by or-

chestrating a publicity campaign against the respondents

designed to foster the adoption and retention of laws

damaging to the trucking industry. Although the court

found that petitioners’ motive was to destroy respondents

as competitors, it was hid, on the basis of the first

amendment, that this fact could not transform the lawful

action of petitioning the government into a Sherman Act

violation. The decision in Noerr was expanded upon in

United Mine Workers v. Pennington, 381 U.S. 657 (1965),

wherein the court stated:

Joint efforts to influence public officials do not vio-

late the antitrust Jaws even though intended to elim-

inate competition. Such conduct is not illegal, either

standing alone or as part of a broader scheme itself

violative of the Sherman Act. Jd. at 670.

Although Noerr and Pennington only spoke in terms of

approaches to legislative bodies, the rule established in

those cases was extended to requests for relief made to

administrative agencies and courts in California Motor

Transport Company v. Trucking Unlimited, 404 U.S. 508

(1972).

Like most legal doctrines, there is an exception to

the Noerr-Pennington Doctrine. This exception was first

App. 53

noted in Noerr where the court indicated that a campaign

which is a mere sham to cover what is nothing more than

an attempt to interfere with another’s business relation-

ships is not shielded from the Sherman Act by the first

amendment. The ‘‘sham exception” was further devel-

oped in California Motor Transport, wherein the court

held that the Sherman Act proscribed the conduct of the

petitioners who had sought to bar their competitors from

meaningful access to adjudicatory tribunals and to usurp

the decision-making process. From a study of both Noerr

and California Motor Transport, it follows that the sham

exception would encompass lobbying or litigation efforts

which are solely directed toward either interfering with

another’s business interests or are directed toward seek-

ing to bar another from meaningful access to adjudica-

tory tribunals.

Defendants claim that several of Plaintiffs’ allega-

tions are barred by the Noerr-Pennington Doctrine, in-

cluding: the allegation the Defendants conspired to en-

gage in sham litigation by appealing the decision to grant

a certificate of authority to First American Title Insur-

ance Company ({21 (b) of Plaintiffs’ complaint); the al-

legation the Defendants conspired to engage in sham liti-

gation by participating in the Fall River County Abstract

Company v. Knutson case ({21(c) of Plaintiffs’ com-

plaint); the allegation the Defendants conspired to en-

gage in efforts to influence the enactment of 8. L. 1979,

ch. 345, amending SDCL 58-25-16 (21 (d) of Plaintiffs’

complaint); and the allegation the Defendants conspired

to engage in a publicity campaign directed toward inter-

fering with Plaintiffs’ business relationships, (21 (h) of

Plaintiff’s complaint).

App. 54

This Court will first address Defendants’ alleged ac-

tivities to influence the enactment of S. L. 1979, ch. 345,

which amended SDCL 58-25-16. Plaintiffs claim that

these efforts were part of a larger scheme to monopolize

and restrain trade in the abstracting business. Nonethe-

less, this activity falls squarely within the confines of the

Noerr-Pennington Doctrine. The Noerr court stated:

The right of people to inform their representatives in

government of their desires with respect to the pas-

sage or enforcement of laws cannot properly be made

to depend upon their intent in doing so. It is neither

unusual nor illegal for people to seek action on laws

in the hope that they may bring about an advantage

to themselves and a disadvantage to their competi-

tors. Id. at 139.

lt should also be noted the Defendants were success-

ful in their lobbying efforts. They went to the legisla- .

ture with a proposal and the legislature adopted this pro

posal. This is a classic case of a group of persons peti-

tioning their government for relief and receiving the re-

lief they request. Such activity is protected from the

Sherman Act. See Franchise Realty Interstate Corp. v.

San Francisco Local Joint Executive Board of Culinary

Workers, 542 F.2d 1076 (9th Cir. 1976); Central Bank

of Clayton v. Clayion Bank, 424 F.Supp. 163 (E. D. Mo.

1976), aff’d 553 F. 2d 102 (8th Cir. 1977), cert. demed 433

U.S. 910 (1977). The tact Defendants obtained the re-

lief they were seeking from the legislature indicates that

their efforts were directed toward that end and were not

a sham. There is no evidence that Defendants’ activities

to amend SDCL 58-25-16 were a mere sham to cover at-

tempts to interfere with Plaintiffs’ business activities.

App. 55

The same reasoning can be applied to Defendants’

participation in the Fall River County Abstract Company

v. Knutson case. As noted earlier, this case involved the

question of who was the proper party to establish a fee

schedule for countersigning of title insurance policies by

abstractors. The South Dakota Attorney General ruled

in 1979 that the Division of Insurance, rather than De-

fendant SDABE, should perform this task. Defendants

Fall River County Abstract Company and SDLTA then

brought suit seeking a Writ of Prohibition to prohibit the

Director of Insurance from establishing these fees. Plain-

tiff First American Title Insurance Company intervened

as a defendant. Defendants Fall River County Abstract

Company and SDLTA were unsuccessful in their litiga-

tion. The court ruled that the Director of Insurance

should proceed to establish a fee schedule for counter-

signatures."

Plaintiffs allege that the purpose of this litigation

was to harass and competitively injure them. This Court,

however, has read the pleadings, affidavits and deposi-

tions, has heard the testimony and reviewed the evidence

in the trial of this matter, and has searched the opinion

in the Fall River County Abstract Company case. The

record shows that Defendants participated in the litiga-

tion in question for the express purpose of achieving the

result which they claimed they were seeking. As with

the lobbying activities noted above, the relief the De-

fendants unsuccessfully sought in the Fall River County

Abstract Co. case was eventually obtained through legis-

"This ruling was rendered ineffective in 1980 when SDCL

36-13-25 was amended to allow SDABE to establish the fee

schedule for countersignatures.

App. 56

lation. This tends to indicate that the case was not a

sham. Subscription Television, Inc. v. Southern Califor-

nia Theatre Owners Ass'n, 576 F.2d 230 (9th Cir. 1978);

Central Bank of Clayton, supra.

Since this Court finds no factual basis to support

Plaintiffs’ claim that the Defendants’ participation in this

lawsuit was a sham, the Noerr-Pennington Doctrine also

governs.

Another allegation which Defendants claim is barred

by Noerr-Pennington refers to Defendants’ alleged pub-

licity campaign. ({21(h) of Plaintiffs’ complaint). Plain-

tiffs charge that Defendants participated in a publicity

campaign which was ostensibly directed toward influencing

governmental action, but which was in fact, a mere sham

to cover an attempt to interfere with Plaintiffs’ business

relationships.

In Eastern Railroad Presidents Conference v. Noerr

Motor Freight, 365 U.S. at 144, the Court stated that:

There may be situations in which a publicity cam-

paign, ostensibly directed toward influencing govern-

mental action, is a mere sham to cover what is ac-

tually nothing more than an attempt to interfere di-

rectly with the business relationships of a competitor

and the application of the Sherman Act would be jus-

tified.

Having reviewed the trial] transcript and the trial exhibits,

this Court is unable to find any evidence of a “publicity

campaign” that is not encompassed by the allegations con-

tained in paragraphs 21(b), (c) and (d) of the complaint.

Nor can this Court find any reference to such a “publicity

campaign” in the post-trial material submitted by parties.

App. 57

Furthermore, because, as stated elsewhere in this opinion,

this Court has found that any such “publicity campaigns”

were directed towards influencing governmental action and

were not merely a sham to cover attempts to interfere

with Plaintiffs’ business relationships, this Court finds that

the allegations set forth in 21(h) are redundant and do

not properly state a claim that entitles Plaintiffs to relief

under the Sherman Act.

Such finding leaves only Plaintiffs’ allegation that De-

fendants’ opposition to First American Title Insurance

Company’s application for a certificate of authority was a

sham proceeding. In this regard, the language of Caltfor-

nia Motor Transport, supra, must again be examined. In

that case, the Supreme Court stated:

One claim, which a court or agency may think baseless,

m y go unnoticed; but a pattern of baseless, repetitive

ci.de that the administrative and judicial processes

have been abused. 7d. at 513.

Since we are now concerned with only a single law-

suit, the question arises whether a single lawsuit can ever

constitute a sham within the exception to the Noerr-Pen-

nington Doctrine. The Supreme Court addressed this

issue in Vendo Company v. Lektro-Vend Corp., 433 U.S.

623 (1977), but established no clear precedent. In a con-

curring opinion, Justice Blackmun, joined by Chief Justice

Burger, indicated that California Motor Transport stands

for the proposition that a single court proceeding cannot

be the basis of an exception to the Noerr-Pennington Doc-

trine. On the other hand, Justice Stevens, joined by Jus-

tices Brennan, White and Marshall, stated that a single

suit could be the basis of an antitrust violation.

App. 58

A number of lower courts have also addressed the

issue and have reached conflicting results. In Raemco,

Inc. v. Allegheny Airlines, 496 F. Supp. 546 (S. D. N.Y.

1980), and Mountain Grove Cemetery v. Norwalk Vault

Co., 428 F. Supp. 951 (D. Conn. 1977), it was held that a

single lawsuit was not sufficient evidence of a sham so as

to fall within the Noerr-Pennington exception. The oppo-

site result has been reached in other courts. See Feminist

Women’s Health Center, Inc. v. Mohammad, 586 F. 2d 530

(5th Cir. 1978) cert. denied 444 U.S. 924 (1979); T'echni-

con Medical Information Systems Corp. v. Green Bay

Packaging, Inc., 480 F. Supp. 124 (E. D. Wis. 1979) ; Colo-

rado Petroleum Marketers Ass'n v. Southland Corp., 476

F. Supp. 373 (D. Colo. 1979). Two district courts in the

Eighth Circuit have addressed this issue and have reached

conflicting results. In Centra’ Kank of Clayton, supra, in

finding there was no sham, the court emphasized that only

one lawsuit was brought. /d. at 167." A different opinion

was expressed in First National Bank of Omaha v. Mar-

quette National Bank of Minneapolis, 482 F. Supp. 514

(D. Minn. 1979), wherein the court concluded that in some

cases one lawsuit could be sufficient to bring a defendant’s

conduct within the sham exception to the Noerr-Penning-

ton Doctrine. /d. at 520.

This Court agrees with the Minnesota District Court

that in some instances one lawsuit can be sufficient to come

within Noerr-Pennington’s sham exception. If a lawsuit

is filed solely to interfere with another’s business relation-

“This case was affirmed by the Eighth Circuit Court of

Appeals without opinion, so the court did not specifically ad-

dress the issue in question.

App. 59

ships or to deny another access to a tribunal,.it should not

be necessary that a second, third, fourth or fifth lawsuit

be filed before this conduct is considered a sham. A

statement from Colorado Petroleum, supra, seems emin-

ently reasonable :

I \» not convinced that the court intended to give

every dog one free bite, thus making it an irrebutable

presumption that the first lawsuit was not a sham re-

gardless of overwhelming evidence indicating other-

wise, ... Although the frequency of litigation is a pro-

bative factor in a putatively sham litigation situation,

it is not by any means determinative. Jd. at 378-79.

In light of this Court’s determination that one lawsuit

can be a sham for Noerr-Pennington purposes, this Court

must now determine whether the appeal of the Insurance

Commissioner’s decision was the type of conduct which

falls within the meaning and scope of the sham exception.

The Fifth Circuit, in Feminist Women’s Health Cen-

ter, Inc. v. Mohammad, supra at 543, has stated that the

test for a sham exception is, “[w]hether the conduct was

genuinely intended to influence a government employee to

take official action in his [official] capacity... .” The

Ninth Circuit, in Franchise Realty, supra, at 1081, con-

cluded the scope of the sham exception, “. . . is limited to

situations where the defendant is not seeking official ac-

tion by a governmental body, so that the activities com-

plained of are ‘nothing more’ than an attempt to interfere

with the business relationships of a competitor. ...” Thus,

it appears that this Court must divine the Defendants’ in-

tent in appealing the decision of the Director of Insur-

ance. In evaluating intent, it is necessary to distinguish

anticompetitive intent from the intent te interfere with

Led

App. 60

business relationships. In analyzing activities that fall

within the sham exception to the Noerr-Pennington Doc-

trine, the District of Columbia Cirenit Court stated in

Federal Prescription Services v. American Pharmaceuti-

cal Ass'n, 663 F, 2d 253, 263 (D.C. Cir. 1981):

Anticompetitive intent alone is not enough. Nor is it

sufficient that the persons engaged in lobbying ac-

tivity also engaged in “a pattern of actions.” Both

factors were present in Noerr, in which the Court held

the complained of activities were beyond the scope of

the antitrust laws. What is needed in addition is

proof that the lobbyists subverted the integrity of the

governmental process, that they effectively barred

Federal’s [plaintiff’s] access to these processes, or

that the nature of these processes made their invoca-

tion something other than the “political activity,” that

was recognized by the Noerr-Pennington-Trucking Un-

limited line of cases to be beyond the scope of the

Sherman Act.

In the present case, little evidence supports Plaintiffs’

claim that the Defendants have in any way barred Plain-

tiffs’ access to governmental process. Certainly Plaintiffs

cannot claim they were denied access to the Director of

Insurance’s decision-making process. Nor can Plaintiffs

claim they were denied access to the judicial process upon

Defendants’ appeal of the decision of the Director of In-

surance. Additionally, this Court cannot find that Defend-

ants’ conduct constituted, “something other than the ‘poiti-

eal activity,’ that was recognized by the Noerr-Penning-

ton-Trucking Unlimited line of cases to be beyond the

scope of the Sherman Act.” 7d.

The fact that Defendants’ opposition to the issuance

of a certificate of authority by the Director of Insurance

was unsuccessful is not and should not be determinative

App. 61

of intent. In a memorandum decision dated January 10,

1979, Judge Robert Miller of the South Dakota Sixth

Judicial Circuit affirmed the decision of the Director of

Insurance, finding that the Director’s determinations were

supported by the record as a whole. Judge Miller also

found that several of the issues raised by the appeal were

outside the jurisdiction of the Director and thus the Di-

rector’s refusal to rule on those issues was proper. This

Court has been unable to find any statement in Judge Mil-

ler’s memorandum opinion that would indicate that the

appeal of the Director’s decision was a sham or was friv-

olously made in order to interfere with Plaintiffs’ busi-

ness relationships. It appears to this Court that Defend-

ants intended to and did make a genuine effort to infiu-

ence an official administrative decision and, when unsuc-

cessful in those efforts, Defendants made a genuine effort

to seek judicial review of the Director’s decision. Such a

finding does not mean that Plaintiffs have not been in-

jured in some way as an incidental effect of Defendants’

efforts. The Sherman Act, however, does not proscribe

such incidental effects because, as the Court stated in East-

ern Railroad Presidents Conference v. Noerr Motor

Freight, 365 U.S. at 143:

It is inevitable, whenever an attempt is made to

influence legislation by a campaign of publicity, that

an incidental effect of the campaign may be the in-

fliction of some direct injury upon the interests of the

party against whom the campaign is directed. And it

seems equally inevitable that those conducting the

campaign would be aware of, and possibly even pleased

by, the prospect of such injury. To hold that know-

ing infliction of such injury renders the campaign it-

self illegal would thus be tantamount to outlawing all

such campaigns.

App. 62

The Court then concluded that such campaigns had not

been outlawed by the Sherman Act. /d. at 144. The

Court’s analysis of the basic nature of the case in Noerr

is relevant to the present case:

...A “no-holds-barred fight” [footnote omitted] be-

tween two industries both of which are seeking control

of a profitable source of income. [Footnote omitted.]

Inherent in such fights, which are commonplace in the

halls of legislative bodies, is the possibility, that one

group or the other will get hurt by the arguments that

are made. In this particular instance, each group ap-

pears to have utilized all the political powers it could

muster in an attempt to bring about the passage of

laws that would help it or injure the other. But the

contest itself appears to have been conducted along

lines normally accepted in our political system... .

Id.

In conclusion, this Court finds that the allegations con-

tained in §§21(b), (ce), (d), and (h) of Plaintiffs’ complaint

are barred by the Noerr-Pennington Doctrine.”

3It has been stated where there is officiai participation in

an anti-competitive lobbying scheme meant to restrain trade,

Noerr-Pennington is not applicable. Duke & Company, Inc. v.

Foerster, 521 F. 2d 1277 (3rd Cir. 1975). Because SDABE a state

agency, is a party and because all of Plaintiffs’ allegations are

directed toward all the Defendants, it might be argued that

Noerr-Pennington is inapplicable because it is alleged there is

official participation in the lobbying and litigation efforts dis-

cussed above. This Court does not find that any of Plaintiffs’

allegations which it has found barred by Noerr-Pennington in-

volve the degree of official participation necessary under the

decision in Foerster, and other similar cases.

SLATE ACTION DOCTRINE

The so-called state action doctrine was formulated

by the Supreme Court in Parker v. Brown, 317 U.S. 341

App. 63

(1943), in which it was held that Congress did not intend

the Sherman Act to apply to state action. The Court

stated: “We find nothing in the language of the Sherman

Act or in its history which suggests that its purpose was

to restrain a state or its officers or agents from activities

directed by its legislature.” Jd. at 350-51. The Supreme

Court did not address the state action doctrine for thirty

years until it decided the case of Goldfarb v. Virginia

State bar, 421 U.S. 773 (1975), which ruled on the use of

minimum fee schedules for attorneys. Since that time,

several Supreme Court decisions have considered this doc-

trine. See California Retail Liquor Dealers Association

v. Midcal Aluminum, Inc., 445 U.S. 97 (1980); City of

Lafayette, La. v. Lowisiana Power & Light Co., 435 U.S.

389 (1978); Bates v. State Bar of Arizona, 433 U.S. 350

(1970) ; Cantor v. Detroit Edison Company, 428 U.S. 366

(1976).

In Midcal, swpra, the Supreme Court established

standards for antitrust immunity under Parker.’ These

standards were stated as follows: “First, the challenged

restraint must be ‘one clearly articulated and affirmative-

ly expressed as state policy;’ second, the policy must be

‘actively supervised’ by the State itself.” The Eighth Cir-

euit Court of Appeals also studied the state action doc-

trine and discussed when it should be applied. In Sound,

“For a more complete discussion of the development of

the state action doctrine and a closer look at the cases inter-

preting it, see, Sound, Inc. v. American Telephone & Telegraph

Company, 631 F. 2d 1324, 1332-34 (8th Cir. 1980).

Actually Parker, supra, did not establish an immunity un-

der the antitrust laws, but instead, established a limitation on

ee Sa However, this Court, like most others,

will make use of the term immunity.

Inc. v. American Telephone & Telegraph Company, 631

F’, 2d 1324 (8th Cir. 1980), the Court held that the follow-

ing factors were relevant in determining whether the

state action doctrine should be applied:

[t]he existence and nature of any relevant statutorily

expressed policy; the nature of the regulatory agen-

ey’s interpretation and application of, its enabling

statute, including the accommodation of competition

by the regulator; the fairness of subjecting a regulat-

ed private defendant to the mandates of antitrust

laws; and the nature and extent of the State’s inter-

est in the specific subject of the challenged activity.

Id. at 1334.

Defendants argue that Plaintiffs’ allegations concern-

ing fixing the price of abstractor countersignatures and

enforcing countersignature and title plant requirements

are covered by the Parker case.'* They assert that state

policy regarding these subjects is clearly articulated in

SDCL 36-13 and 58-25 and that these subjects are actively

supervised by the state.

Plaintiffs argue that a state agency, SDABE, is in-

volved in the conspiracy, and thus, the state action doc-

trine should not be applicable. There is some support for

this position. In Duke & Company v. Foerster, 521 F.2d

1277 (3rd Cir. 1975), the court stated:

After Goldfarb ... it is clear that when there is an

allegation of governmental participation in such a

combination to the benefit or detriment of private par-

‘6The allegations which Defendants contend would be o.

mune under Parker are those contained in {J 21(e), (f), and (g).

in atte this Court has already determined that the all “ee

) is barred by the McCarran-Ferguson Act, the e

3 on this ts dhe will also be discussed.

App. 65

ties, and when the activities of the public body are

not compelled by the state acting as a sovereign, a

claim has been stated under the antitrust laws. Id.

at 1282. See also Lafayette, supra; Kurek v. Pleas-

ure Driveway and Park District of Peoria, Ill., 557 F.

2d 580 (7th Cir. 1977), vacated and remanded 435 U.

S. 389, aff’d 583 F. 2d 378 (7th Cir. 1978), cert. denied

439 U.S. 1098 (1979).

As noted earlier, Plaintiffs have alleged, in 21(g)

of the complaint, that Defendants conspired to enforce

and attempted to enforce ARSD 4 20:36:04:01 and that

this regulation is illegal and anticompetitive as applied

to Plaintiffs. This regulation was adopted by the SDABE

pursuant to SDCL 36-13-10 and 36-13-6. SDCL 36-13-10

specifically authorizes the SDABE to promulgate rules

and regulations for the establishment of abstract plants.

If, as Plaintiffs allege, the regulation was enacted by

SDABE in order to specifically prevent Plaintiffs from

establishing abstract plants in counties other than Pen-

nington County, then this would appear to be the kind of

government action that would preclude the application of

the state action doctrine. However, if the regulation was

adopted in an effort to promote the public welfare and

in furtherance of a statutorily expressed public policy, then

the state action doctrine will bar Plaintiffs’ action con-

cerning ARSD 4 20:36:04:01. Thus, this Court must de-

termine whether the tests set out by the Supreme Court

in Midcal, swpra, and by the Eighth Cireuit Court of Ap-

peals in Sound, Inc., supra, have been met.

The SDABE was created by the State Legislature by

the enactment of SDCL 36-13. The composition of the

board and the requisite qualifications of its members were

determined by the State Legislature in SDCL 36-13-1. The

App. 66

duties of the SDABE were established in SDCL 36-13-6

and include carrying out the purposes and enforcing the

provisions of the chapter. SDCL 36-13-6 also clearly re-

quires the SDABE to, “. . . make such rules and regula-

tions as may be necessary to carry out the purposes of

this chapter.” Jd. SDCL 36-13-6 also requires the Board

to comply with the state Administrative Procedures Act

when making rules and regulations. Additionally, SDCL

36-13-8 and 36-13-10 specifically refer to the Board’s rule-

making authority.

The South Dakota Legislature, in SDCL 36-13-10, has

clearly expressed state policy concerning the need for a

person engaging in the business of abstracting to have

an abstract plant. That statute also indicates the state’s

interest in having such abstract plants contain sufficient

information to show, “.. . all instruments affecting the

title to real estate which are of record ‘or on file in the

office of the registrar of deeds of each county....” 7d.

SDCL 36-13, taken as a whole, clearly indicates the state’s

policy requiring the regulation of the business of abstract-

ing.

The South Dakota Supreme Court, in Siefkes v. Clark

Title Company, 215 N. W. 2d 648, 652 (S. D. 1974), recog-

nized the state’s interest in regulating the business of ab-

stracting. The Court therein stated that, “[b]ecause the

abstractor’s product is an indispensable part of real prop-

erty transfers and due to the reliance which must neces-

sarily be placed upon it by the vendor and vendee alike,

the legislature has properly exercised its police power by

the enactment of SDCL 36-13.” Id.

ARSD § 20:36 :04:01, the regulation complained of in

21(g) of the complaint, further implements state policy

App. 67

and clarifies the statutory language of SDCL 36-13-10. The

statute requires, “. . . indexes or other records showing in

a sufficiently comprehensive form, all instruments affect-

ing title... .” Jd. [Emphasis added.] The requirements

set out in the regulation that Plaintiffs have complained

of have the effect of increasing the accuracy of abstract

plant records. Such a result clearly supports the state’s

policy of regulating abstractors. Nor does the SDABE’s

interpretation and application of its enabling statutes, re-

garding the enactment of ARSD § 20:36 :04:01, appear un-

reasonable or strained.

While this regulation might increase the amount of

work required to construct an abstract plant or prepare

one for sale or transfer, such a burden falls on anyone

wishing to purchase or construct an abstract plant in

South Dakota and not just on Plaintiffs.

It also appears, from the depositions of Arthur John-

son, at page 12 and Barbara Mann, at pages 11 and 42,

that especially since 1975 the state’s policies concerning

abstract plants have been actively enforced. Since 1975

approximately 20 to 25 new and existing abstract plants

have been examined by the SDABE pursuant to regula-

tions promulgated by the Board.

In Fed. Prescription Service v. American Pharmaceu-

tical Ass’n, supra, Plaintiffs alleged that the Iowa State

Board of Pharmacy Examiners had conspired with, among

others, the Iowa State Pharmaceutical Association. As

in the present case, the Iowa Board of Pharmaceutical Ex-

aminers was, by statute, composed of pharmacists who

were members of the State Pharmaceutical Association. It

was also possible to argue that some of the Iowa Board’s

App. 68

actions were taken to competitively injure the Plaintiffs.

The Board could also have taken the same actions believ-

ing them to be for the public good. A similar problem is

raised by the arguments in the present case. The District

of Columbia Circuit Court of Appeals applied the follow-

ing analysis:

Accepting as true that the board members acted in con-

formance with American’s economic goals rather than

solely in selfless dedication to the publie good, we de-

cline, given the availability of a better explanation for

their conduct, to treat that parallel conduct as signifi-

cant probative evidence of an unlawful conspiracy

with American. Although parallel behavior may sup-

port an inference of conspiracy when the alleged co-

conspirators have acted in a way inconsistent with in-

dependent pursuit of economic self-interest, that in-

ference is warranted only when a theory of rational,

independent action is less attractive than that of con-

certed action. [Citations omitted.] The behavior of

the Iowa Board in this case is not the kind that could

only make sense in the context of the behavior of

others; rather, it can be persuasively explained by the

exercise of rational, independent judgment. If we

take as true Federal’s claim that the Board was dom-

inated by community pharmacists pursuing commer-

cial self-interest, then the Board’s action in attempt-

ing to hinder Federal’s operation is explained as

simply an effort to serve the economic interests of the

Board members and their professional peers. If in-

stead Federal is wrong and the Board was actually

seeking in good faith to advance the public interest,

the inference that it unlawfully conspired with Ameri-

can is weaker yet. We thus conclude that the most

convincing explanations of the Board’s conduct do not

support the theory that Board members were partici-

pants in an unlawful conspiracy with American. Fed-

eral Prescription Service v. American Pharmaceutical

Ass’n, 663 F. 2d at 267.

= "

App. 69

The Plaintiffs have also claimed that the SDABE is

the “alter ego” of SDLTA and thus the actions of the

SDABE should not be subject to the state action doctrine.

In support of this argument, Plaintiffs note that three of

the four members of the SDABE were also members of the

SDUTA. While this Court understands Plaintiffs claim

that the overlapping membership between SDABE and

SDLTA should be probative of a conspiracy, given the

facts of this case, this Court concludes “mere membership

in associations is not enough to establish participation

in a conspiracy with other members of those associations.

-.- Id. at 265.

The SDABE was established by SDCL 36-13. The

statute provides that of the four members of the Board,

three will be active abstractors. Currently, SDCL 36-13-1

requires two of the three abstractor members to be mem-

bers of SDLTA. Thus, the composition of the SDABE

has been determined by state law and any changes that

should be made are a matter for the state legislature. Any

such changes should not be made by this Court applying

the Sherman Act as a substitute for the proper political

process.

Further, the Plaintiffs have been unable to show that

SDABE and SDLTA engaged in a conspiracy resulting in

the enactment of ARSD 4 20:36:04:01. Plaintiffs have

been unable to show that the SDABE violated SDCL 36-13-

6 or SDCL 1-26 when ARSD § 20:36:04:01 was enacted.

Instead, the evidence shows that SDABE complied with

the requirements of the South Dakota Administrative Pro-

cedures Act when enacting the ARSD § 20:36 :04:01.

Finally, Plaintiffs have not shown that their theory of

the reason for the enactment of ARSD § 20:36:04:01 is

App. 70

more plausible than the Defendants’ explanation. Thus,

as did the District of Columbia Circuit Court in Federal

Prescription Service, supra, this Court must, “conclude

that the most convincing explanations of the Board’s con-

duct do not support the theory that the Board members

were participants in an unlawful conspiracy. ...” Id. at

268.

Thus, when all of the evidence is analyzed in accord-

ance with the factors set out by the Eighth Cireuit Court

of Appeals in Sound, Inc. v. American Telephone and Tele-

graph Company, supra, and considering the analysis of

the D.C. Cireuit Court of Appeals in Federal Prescrip-

tion Service, this Court finds that the state action doctrine

precludes the application of the Sherman Act to the ac-

tions complained of in §21(g) of the Plaintiffs’ complaint.

This same reasoning applies to the allegations con-

cerning the establishment of fees for countersignatures

on title insurance policies ({21(f) of Plaintiffs’ complaint.)

The South Dakota State Legislature has declared that

countersignatures are required on title insurance policies,

SDCL 58-25-16, and that the SDABE is to, “. . . establish

a schedule of fees ... for an abstractor’s services for coun-

tersigning title insurance policies pursuant to § 58-25-16.”

SDCL 36-13-25. This Court finds these statutes to be a

clear expression of state policy. The South Dakota Su-

preme Court has also recognized that the legislature is

concerned with price regulation of the abstracting busi-

ness. Siefkes v. Clark Title Company, supra. It also ap-

pears to this Court that the statutorily expressed policy

concerning the establishment of fee schedules by the

SDABE and the requirement of countersignatures on title

_ aan

App. 71

insurance policies, has been actively enforced. The SDABE

filed rules concerning countersignature requirements with

the South Dakota Secretary of State on July 12, 1981.

While the SDABE has not established a fee schedule for

countersignatures of title insurance policies, it has held

informational hearings regarding such fees in the cities

of Aberdeen, Mitchell and Rapid City, South Dakota.

These meetings were held in March and April of 1981.

(Deposition of Barbara Mann, p. 223; Trial Exhibit 86.)

Having reviewed the actions taken by the SDABE pursu-

ant to SDCL 58-25-16 and SDCL 36-13-25, this Court can

find no fault with the SDABE’s interpretation of the en-

abling statutes. Nor can this Court, when reviewing the

evidence as a whole, find that the SDABE participated in

a scheme specifically designed to damage Plaintiffs’ busi-

ness interests. Thus, considering both the Midcal test and

the factors set out by the Eighth Circuit Court of Appeals

in Sound, Inc., supra, this Court concludes that the state

action doctrine bars {21(f) of Plaintiffs’ complaint.

One remaining allegation which Defendants claim is

barred by the state action doctrine concerns the enforce-

ment and attempts to enforce SDCL 58-25-16. ({21(e) of

Plaintiffs’ complaint.) The challenged restraint, namely

the requirement that title insurance policies be signed by

abstractors, is “clearly articulated and affirmatively ex-

pressed as state policy.” The legislature clearly stated in

SDCL 58-25-16 that title insurance policies should be coun-

tersigned. It also appears that the statute itself indicates

that this particular alleged restraint is “actively super-

vised” by the state. Applying the standards articulated in

Midcal and Sound, Inc., this Court concl

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.