Commonwealth Land Title Insurance Company; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 981-0127]

Commonwealth Land Title Insurance Company; Analysis To Aid Public

Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

compliant that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before November 2, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Willard Tom or Patrick Roach, FTC/H-394, Washington, D.C. 20580. (202)

326-2786 or 326-2793.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for August 26, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,

Washington, D.C. 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Such comments or views will be considered by

the Commission and will be available for inspection and copying at its

principal office in accordance with Section 4.9(b)(6)(ii) of the

Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement containing a proposed Consent Order from

Commonwealth Land Title Insurance Company (``Commonwealth''), a

subsidiary of LandAmerica Financial Group, Inc. The proposed Consent

Order is designed to remedy the anticompetitive effects arising from

Commonwealth's proposed consolidation of its title plant for

Washington, D.C., with that of a competitor, First American Title

Insurance Company (``First American''). Title plants are privately

owned collections of records and/or indices that are used by

abstractors, title insurers, title insurance agents, and others to

determine ownership of and interests in real property in connection

with the underwriting and issuance of title insurance policies and for

other purposes. Under the terms of the agreement Commonwealth will be

required to take certain steps to ensure that its title plant is

operated as a separate, independent competitor; to restore its

customers to the competitively-determined prices and terms that existed

prior to the proposed consolidation; and to refund to its customers

amounts charged for title plant services during the pendency of the

proposed consolidation in excess of those prior prices and terms.

The proposed Consent Order has been agreed to by Commonwealth and

by its parent corporation.\1\ The Consent Order has been placed on the

public record for 60 days so that the Commission may receive comments

from interested persons. Comments received during this period will

become part of the public record. After 60 days, the Commission will

again review the agreement and the comments received, and will decide

whether it should withdraw from the agreement or make final the

agreement's proposed order.

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\1\ Since the time the proposed Consent Order was agreed to by

Commonwealth, Commonwealth has been acquired by Lawyers Title

Corporation, now known as LandAmerica Financial Group, Inc. The

proposed Order by its terms defines ``Commonwealth'' broadly to

include its parent, which has agreed to be bound by the terms of the

Order.

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Title plants are privately-owned collections of title information

obtained from public records that can be used to conduct title searches

or otherwise

[[Page 46450]]

ascertain information concerning ownership of or interests in real

property. Title plants typically contain summaries or copies of public

records or documents (often in a format that is comparatively easy to

store and readily retrievable) as well as indices to facilitate

locating relevant records that pertain to a particular property. Title

plants permit users to obtain real property ownership information with

significantly greater speed and efficiency than by consulting the

original public records, which may be located in a number of separate

public offices (e.g., offices of the county recorder, tax authorities,

and state and federal courts), may be stored in an inconvenient form,

and may be indexed in a fashion that makes it difficult to readily

research a particular property. Because of the county-specific way in

which title information is generated and collected and the highly local

character of the real estate markets in which the title plant services

are used, geographic markets for title plant services are highly

localized, consisting of the county or local jurisdiction embraced by

the real property information contained in the title plant.

As in other localities across the country, the use of title plants

in the District of Columbia is a result of difficulty in effectively

using public sources of title information to conduct title searches. A

complete title search in the District involves searching a number of

public sources of information, including land records and records of

the federal and local courts. As recently as 1980 there were as many as

seven title plants in the District, but by late 1996 plant closings and

consolidations had shrunk the number to two, operated by Commonwealth

and First American.\2\ In addition to using their respective plants for

their own title insurance businesses, Commonwealth and First American

each sold access to their plants to other title plant users. Most of

these users were independent abstractors or abstract companies

conducting title searches for title insurance companies or agents.

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\2\ There is one other very limited collection of title

information owned by the parent of Commonwealth and leased to a

local abstract company. This latter collection of materials is

inadequate for conducting title searches but is used by the abstract

company for reference purposes. The consent order in LandAmerica

Financial Group, Inc., Docket No. C-3808 (May 20, 1998), requires,

as to the District of Columbia, that Commonwealth's parent

LandAmerica Financial Group, Inc., divest either the Commonwealth

title plant interests or its interest in this more limited

collection of title information. LandAmerica has requested the

Commission's approval to divest the limited title information

collection to the abstract company to which it is leased.

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Beginning in 1996 or earlier, Commonwealth and First American began

to discuss consolidating their title plant operations in the District

of Columbia. The purpose of the consolidation was not merely to avoid

the duplication of expenditures attendant to the operation of two

plants, but also to eliminate competition between the two title plant

operators. Both firms had met the costs of the title plants's

operations by a combination of revenues received from plant users and

from their respective title insurance operations. According to a

proposal presented by Commonwealth to First American, the fundamental

premise of the consolidation was that the two firms should no longer

compete with each other by separately maintaining their respective

title plants but should take the ``final step'' of combining the last

two title plants in the District of Columbia so that costs could be

reduced and title plant services could be sold at pricing that was of

competitive pressure.

Commonwealth and First American in September 1997 executed a letter

setting forth their understanding that they would form a joint venture

entity to consolidate their respective title plant operations. In

November 1997, prior to the formation of the planned joint venture

entity, Commonwealth relocated its title plant to the same premises as

the First American title plant. At that time customers of both

Commonwealth and First American were required to execute new agreements

that stated that title plant services were being jointly provided by

Commonwealth and First American pending formation of a joint title

plant entity. Some forms of title plant access available to

Commonwealth users prior to the proposed consolidation were no longer

available under the interim agreements. The new rates set in these

interim agreements resulted in charges to Commonwealth customers as

much as two to three times higher than under the rates and terms

applicable to the same customers prior to the proposed consolidation.

Commonwealth and First American did not complete formation of the

planned joint title plant entity. After the proposed consolidation was

questioned by FTC staff, Commonwealth discontinued its participation in

the planned joint venture and undertook to re-establish its title plant

as an independent competitor to First American's on the terms embodied

in the proposed Consent Order.

The Complaint alleges two distinct grounds on which Commonwealth's

actions are a violation of the law. First, by undertaking with First

American to jointly set the prices for title plant services before the

planned joint venture was legally consummated, Commonwealth acted to

increase prices and restrict output in the market for title plant

services in the District of Columbia. This conduct had the effect of

raising, fixing, and maintaining the price, terms and conditions of

compensation paid for title plant services in the District of Columbia,

in violation of Section 5 of the FTC Act, 15 U.S.C. 45. This charge

conforms to prior Commission policy to apply established antitrust law

principles of liability to competitors that engage in coordinated

conduct in advance of the consummation of a planned merger or joint

venture. See The Torrington Co. and Universal Bearings, Inc., 114

F.T.C. 283 (1991).

In addition, the Complaint charges that the effect of the proposed

consolidation of the Commonwealth and the First American title plants,

if consummated, may be substantially to lessen competition and to tend

to create a monopoly, in violation of Section 7 of the Clayton Act, 15

U.S.C. 18, and Section 5 of the FTC Act, 15 U.S.C. 45, by eliminating

direct actual competition between Commonwealth and First American and

by increasing the likelihood that Commonwealth and First American,

acting in concert, can exercise market power in the market for title

plant services in the District of Columbia.

The proposed Consent Order requires Commonwealth to segregate its

title plant assets from those of First American, move its title plant

to a separate location and thereafter operate its title plant as a

fully functional title plant providing title plant services in

competition with First American. It further requires Commonwealth to

cease and desist from claiming any rights under the interim agreements

and for a period of one year to restore its users to the most recent

prices, terms and conditions in effect prior to the proposed

consolidation. In addition, the proposed Consent Order requires

Commonwealth to refund to its users all amounts paid for title plant

services during the pendency of the proposed consolidation, to the

extent the payments exceeded the amounts payable under the most recent

prior terms applicable to the user. If the respondent does not promptly

comply with these requirements, the Consent Order permits the

Commission to appoint a trustee to carry out the

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required actions. Information available to the Commission indicates

that Commonwealth has complied with these remedial provisions of the

proposed Order.

The Consent Order also includes a requirement that for ten years

the respondent provide the Commission with prior notice of various

future transactions by the respondent involving title plant interests

in the District of Columbia. A prior notice provision is appropriate in

this matter because the small transaction size of most individual title

plant acquisitions is below the threshold of reportability under the

Hart-Scott-Rodino Act (Clayton Act Sec. 7A, 15 U.S.C. Sec. 18a) and

because the underlying conduct at issue establishes a credible risk

that the respondent will but for an order to the contrary, engage in

otherwise unreportable anticompetitive mergers.\3\ In addition, the

Consent Order prohibits Commonwealth, for a period of twenty years,

from entering into or attempting to enter into agreements or

understandings to raise, fix or stabilize prices for title plant

services in the District of Columbia.

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\3\ See Statement of FTC Policy Concerning Prior Approval and

Prior Notice Provisions (June 21, 1995).

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Properly structured joint ventures between competitors relating to

the production of needed supplies or services can reduce costs and

improve economic efficiency without unreasonably restricting

competition, where the joint venture preserves the freedom and

incentives for the joint venture partners to price and market their

goods or services competitively. See, e.g., United States v. Alcan

Aluminum Ltd., 605 F. Supp. 619 (W.D. Ky. 1985) (DOJ Consent); Ethyl

Corp. and The Associated Octel Company Limited, and Great Lakes

Chemical Corporation, Docket Nos. C-3814 and C-3815 (June 16, 1998).

The proposed Consent Order does not prohibit Commonwealth from entering

into arrangements with First American or anyone else to share or reduce

the costs of carrying on its title plant operations, so long as the

arrangements do not compromise Commonwealth's pricing independence or

fix or stabilize the prices or rates for title plant services. Any such

arrangements would be subject to review by the Commission under the

prior notice provisions of the proposed Order.

The purpose of this analysis is to facilitate public comment on the

proposed Consent Order, and it is not intended to constitute an

official interpretation of the agreement and proposed Consent Order or

to modify in any way their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-23449 Filed 8-31-98; 8:45 am]

BILLING CODE 6750-01-M