RICO Claims Dependent on Allegation that Insurers Charged More than Permitted by State Law Dismissed for Failure to Exhaust Mandatory State Administrative Remedies for Excessive Rate Charges

From Mitchell-Tracey v. United Gen. Title Ins. Co., 2011 U.S. App. LEXIS 15952 (4th Cir. Aug. 2, 2011):

Plaintiff-Appellants are Maryland homeowners who purchased title insurance from Defendant-Appellees First American Title Insurance Company and United General Title Insurance Company (collectively, "defendants") when they refinanced their mortgages. In April 2005, plaintiffs filed a class-action lawsuit, alleging, inter alia, that defendants illegally charged higher rates than those they had filed with the Maryland Insurance Commissioner ("MIC"). After plaintiffs' class was certified, we decided Arthur v. Ticor Title Insurance Co., 569 F.3d 154 (4th Cir. 2009), which dismissed similar claims on account of plaintiffs' failure to exhaust administrative remedies under Maryland's Insurance Code (the "Code") before proceeding with litigation. In light of our decision, and plaintiffs' own failure to exhaust administrative remedies before filing suit, the district court decertified plaintiffs' class and dismissed their claims. For the reasons discussed below, we affirm.***

Pursuant to Maryland law, each company has filed its insurance rates with the MIC. See Md. Code Ann., Ins. §§ 11-403, 11-404. Both companies have also filed discounted "reissue" rates with the MIC. Although the language of their respective policies differs slightly, each company's reissue rate purports to offer a forty percent discount to consumers who apply for mortgage title insurance for property that the consumer has had insured within the preceding ten years. Maryland law mandates that both companies adhere to their rates as published. Id. § 11-407(b).***

In June 2009, we decided Arthur, 569 F.3d at 154, in which we held, on facts similar to those presented here, that Maryland law required prospective litigants to exhaust administrative remedies made available by the Code before proceeding with judicial action. See id. at 161-62. Following Arthur, the parties concluded that further mediation would not be productive and sought to resume litigation. In October 2009, Plaintiffs moved to amend their complaint to abandon their claims for negligent misrepresentation and civil conspiracy and to add claims for negligence, breach of contract, and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(d). The following month, plaintiffs also initiated MIC administrative proceedings against defendants. That administrative action is currently pending.***

Our decision [in Arthur] cited, inter alia, Maryland courts' presumption that "when the statutory text creating an administrative remedy is not dispositive" as to whether exhaustion is mandatory, "the administrative remedy is intended to be primary, and that a claimant cannot maintain the alternative judicial action without first invoking and exhausting the administrative remedy." Id. at 161 (quoting Zappone v. Liberty Life Ins. Co., 706 A.2d 1060, 1069 (Md. 1998)). We explained that plaintiffs' claim was "dependent on the Insurance Code because that claim will succeed only if plaintiffs show that [the insurer] violated the Code." Id. We further observed that assessment of plaintiffs' claim would benefit from the MIC's expertise, as the MIC "would be in a better position than a federal court to determine, for example, whether plaintiffs are correctly interpreting the rate structure that [the defendant insurer] filed with the [MIC]." Id.***

[W]e are not persuaded by plaintiffs' claim that the district court abused its discretion by dismissing their complaint rather than granting them leave to amend. *** Here, each of the claims plaintiffs sought to add — breach of contract, negligence, and RICO violations — suffered from the same defect as plaintiffs' original causes of action: dependence on a threshold determination that defendants violated the Code. Consequently, the district court did not abuse its discretion by denying leave to amend.

As discussed above, Arthur mandates administrative exhaustion when plaintiffs' claims are "dependent" on the Code. 569 F.3d at 161. ***

Plaintiffs' RICO claims are ... dependent on the Code. As the district court explained, in order to succeed on these claims, plaintiffs must substantiate their allegation that they "were induced 'to unwittingly pay excessive and illegal fees in respect [of] mortgage loan transactions.'" J.A. 2398 (quoting plaintiffs' proposed amended complaint) (emphasis added); see also Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 233 (4th Cir. 2004) (noting civil RICO claims' injury requirement). Accordingly, the appropriateness of defendants' rates presents a threshold question for the MIC. In sum, plaintiffs' proposed new claims rely on the same underlying determination as their earlier allegations — namely, that defendants charged plaintiffs fees in excess of their filed insurance rates. As a result, plaintiffs' causes of action "explicitly depend[] on the statute that also makes administrative remedies available to plaintiffs." Arthur, 569 F.3d at 161. On these facts, the district court did not abuse its discretion by finding that amendment would be futile, as each new claim "requires proof of a violation of the Maryland Insurance Code." J.A. 2398.

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