Antitrust - Immunity for Registers of Deeds only goes so far: First American Title Co., et al. v. Devaugh, et al., --- F.3d ----, 2007 WL 528086, No. 05-70718 (6th Cir. February 22, 2007)
Introduction
On February 22, 2007, the United States Court of Appeals for the Sixth Circuit reversed the dismissal of Sherman Act claims against the Registers of Deeds of four counties in Michigan and upheld
the dismissal of Sherman Act claims against a fifth. The Appeals Court determined that the four Registers’ practice of conditioning the provision of copies of title records on the buyer’s agreement not to resell the
records did not qualify for state-action immunity because this anti-competitive behavior was not mandated by, or a reasonably foreseeable result of, Michigan state legislation. In contrast, the appeals court found that the fifth
Register’s decision to provide only paper copies of title information and its refusal to provide a bulk discount was a reasonably foreseeable result of legislation and therefore entitled to state-action immunity.
Alleged Antitrust Behavior
Plaintiffs in First American are four title-insurance companies that do business in Michigan. Plaintiffs allege that the Registers of Deeds of four Michigan counties refuse to duplicate records of title information in non-paper
formats, or to provide duplicate records at a bulk discount, unless plaintiffs agree not to sell or to give the duplicate records, or information contained in the records, to anyone else. Plaintiffs also allege that a fifth Register
of Deeds completely refuses to provide duplicate records in non-paper formats or to provide duplicate records at a bulk discount. Plaintiffs allege that these Registers of Deeds are engaging in anticompetitive practices in
violation of Section 2 of the Sherman Act. Id. at *1.
The District Court
The United States District Court for the Eastern District of Michigan granted the five Registers’ motion to dismiss the Sherman Act claims for failure to state a claim upon which relief can be granted. The District Court found
that the Registers’ action are entitled to state-action immunity from Sherman Act antitrust liability. Relying on the case of Michigan Paytel Joint Venture v. City of Detroit, 287 F.3d 527 (6th Cir. 2002), the District
Court found that “because the state had granted the registers the general power to contract, the registers had ‘antitrust immunity in setting terms within a contract.’” Id. at *3. The District
Court also denied Plaintiffs’ motion for reconsideration, rejecting the argument that the District Court decision amounted to a “virtual per se immunity rule,” and finding that the decision, although debatable,
did not constitute “palpable error.” Id. at *4.
The Court of Appeals
The sole issue before the Court of Appeals was whether the Registers’ challenged practices are exempt from the Sherman Act under the state-action immunity doctrine set forth in Parker v. Brown, 317 U.S. 341 (1943).
Id. at *5. The Court began by noting that “the Parker doctrine ‘exempts anticompetitive conduct engaged in as an act of government by the state as sovereign, or , by its subdivisions, pursuant to state
policy to displace competition with regulation or monopoly public service’ from the Sherman Act.” Id. (citations omitted). The Court also noted that state-action immunity is subject to a two-part test: “First,
the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second, the policy must be actively supervised by the State itself.” Id. at *6. However, the Court concluded
that the usual second prong (that the State actively supervise the policy) does not apply to municipalities. Id. at *6.
Turning to the first prong of the test (that the policy be clear and affirmative), the Court explained that the practice at issue does not have to be mandated by the state to be “clearly articulated” under the doctrine;
“a state policy that expressly permits, but does not compel, anticompetitive conduct” may also fall under the protection of the doctrine. Id. at *7. The Court stated that although the Registers do not claim
that the state of Michigan requires them to follow the challenged practices, their actions may nonetheless fall under the doctrine if the Registers can show “that the ‘State as sovereign [the Legislature] clearly intends
to displace competition in a particular field with a regulatory structure….” Id.
The Court began its analysis of the practices of the first four Registers by finding that the legislature did intend for the Registers to have a monopoly on the mandatory acquisition of real estate transaction information and recordation
of the transaction and possession of original, official title documents. The Court refused to find, however, that the legislature intended this monopoly to extend to the provision of unofficial, duplicate title documents or to the
provision of title information. Id. at *8.
Because the practices at issue were not mandated by the legislature, the Court went on to consider whether a monopoly on the provision of duplicate title documents and title information is the “logical” or “foreseeable
result” of the monopoly that had been expressly granted to the Registers. Id. The Court noted that under the Supreme Court’s reasoning in the case of Town of Hallie v. City of Eau Claire, 471 U.S.
34, 41 (1985), an anticompetitive practice can be considered “clearly articulated” by the legislature if it is effectively authorized by other express legislation. After considering Michigan statutes governing county
powers generally, statutes governing access to public records, and statutes governing county register records specifically, the Court determined that “it was decidedly not foreseeable that the powers expressly granted to the
registers would result in any of these four registers’ challenged practices.” Id. at *9.
The Court analyzed six different Michigan statutes under the Hallie standard. For example, a statute authorized the Registers to store the original records of real property transactions. The Court found that this statute
granted the Registers a monopoly on the storage of the original records, but that this power did not logically result in the Registers’ right to impose a non-resale agreement on the purchase of duplicate copies. Id.
at *9. The Court also considered legislation allowing the Registers “to make reasonable rules and regulations with reference to the inspection and examination of the records and files….” Id. at *10. The Court
found that there was no reason to believe that the sale of unofficial copies of certified records could harm the originals, so it was not reasonably foreseeable that the power granted by this statute could result in the challenged
practices. The Court went on to consider a statute authorizing the Registers to charge a $1.00 per page fee for copies of title documents. The Court found that it was not foreseeable that granting the Registers the discretion to
charge a fee would result in the Registers imposing non-resale agreements on the purchase of the documents. Id.
The Court concluded its analysis of the anti-competitive practices of the four Registers by criticizing the District Court’s application of Michigan state law to this case and its failure to construe the legislation at issue
narrowly. Id. at *15 -16. According to the Appeals Court, by failing to construe the statutes narrowly, the District Court treated a neutral power of the Registers to maintain and sell title information as a mandate to allow
the Registers to condition the resale of duplicate documents and title information. Id. at *17.
The Court then considered the claims against the fifth Register, who did not impose a non-resale agreement, but had merely refused to provide bulk discounts or to provide documents in a non-paper format. The Court noted that the
legislature had expressly provided the Register the discretion to determine the medium in which records are reproduced. The Court determined that the decision to refuse to provide non-paper copies was reasonably foreseeable from
the right to determine the medium of copies. Id. at *19. Thus, the Court found that the fifth Register had “acted pursuant to a clearly articulated state policy.” Id.
As for the fifth Register’s refusal to offer a bulk discount, the Court noted that, unlike the issue of the format of copies, the legislature has been silent on the issue of discounts, so that the refusal to offer discounts
does not seem to have been “clearly articulated” by the legislature. The Court continued its analysis, however, noting that the legislature had regulated the provision of title record copies in great detail, including
the authorization of a $1.00 per page fee for paper copies. In this context, the Court reasoned, it is reasonably foreseeable that a Register with the discretion to charge up to $1.00 per page for copies of records would choose to
do exactly that and refuse to offer any sort of discount. The Court concluded that this practice met the Hallie standard for state-action immunity. Id.
Conclusion
The Sixth Circuit’s reliance on narrow construction may be important in other circumstances. Agencies relying on user fees may have nearly as much of an incentive (and far greater ability) to exact monopoly rents than do private
companies. Legislatures, however, usually have less of an interest in clearly empowering agencies to take advantage of this situation. Accordingly, the ruling the Registers faced today is one other municipal agencies may face tomorrow.
That said, there is a certain irony in the Sixth Circuit’s decision. The Court determined that the Registers’ practice of conditioning the sale of duplicate title information was not entitled to state-action immunity
because the Registers had not been given monopoly power over the provision of copies of title records. But the Court’s decision that the Registers may charge exorbitant fees for these copies or limit the format in which they
are distributed opens the door to a de facto monopoly over title documents by giving the Registers the right to make it unreasonably expensive or difficult for others to obtain title information. By stretching the limits
of the powers granted to the Registers – even after determining the Registers were not granted monopoly power over duplicate title information – the Court itself arguably failed to construe narrowly the state-action
immunity doctrine.