After a title insurer in California denied homeowners’ claims, the homeowners sued the state’s trade association for false advertising. They claimed that they relied on the advertisement in making their decision to purchase title insurance and that they lost money as a result of the violations.
The case eventually made it to the Court of Appeal for the Second Appellate District of California.
The case is Scott Meisterlin, et al., v. California Land Title Association (Court of Appeal for the Second Appellate District of California, No. B231308).
Scott and Julie Meisterlin purchased a title insurance policy for their Morro Bay, Calif., home from First American Title Insurance Co. in December 2001. The First American policy did not identify or exclude from coverage any easements on the property. In particular, the policy did not identify an easement pursuant to which the City of Morro Bay maintained a water main running almost directly beneath the foundation of the Meisterlins’ house.
In July 2006, the water main burst, causing substantial damage to the Meisterlins’ house. The city denied compensation for the Meisterlins’ damages. First American initially agreed to compensate the Meisterlins for their actual losses. It then refused to compensate them for their losses such as their attorneys fees, by refusing to represent them in litigation against the city and by under-valuing the property based on an inaccurate appraisal.
In their complaint, the Meisterlins alleged that the California Land Title Association (CLTA) advertises title insurance to the public, stating that title insurance will make sure the homebuyer’s rights and interests to the property are clear, that the homebuyer’s interests are protected to the maximum degree, that any valid claim against the homebuyer’s property will be borne by the title company and that the odds of a claim being filed are slim. The Meisterlins alleged that First American’s conduct was inconsistent with these claims and that CLTA’s advertising was, therefore, false and misleading.
The Meisterlins alleged that they acquired the title insurance policy in reliance on these representations being true. Had they been accurately informed of how First American interpreted the insurance policy and its obligations toward them as its insured if a claim arose, they would not have acquired the policy. They alleged that CLTA and its members acted together to misrepresent what the title industry is actually selling to the public via title insurance policies by misrepresenting the value and purpose of title insurance, in violation of the Cartwright Act.
In addition, the Meisterlins alleged that the statements on CLTA’s website constituted false advertising in violation of section 17500. They alleged that they suffered injury in fact and have lost money as a result of the violations. They also alleged that CLTA’s advertising constitutes unfair competition in violation of section 17200.
The trial court sustained CLTA’s demurrer without leave to amend. It found that the Meisterlins failed to state a cause of action for violation of the Cartwright Act because they failed to allege facts showing CLTA and First American created a trust for the purpose of restraining trade or that the trust actually restrained trade in title insurance. They also failed to allege facts showing that CLTA’s advertising was related to the terms of their First American insurance policy or their decision to buy that policy. Finally, the court found that the Meisterlins did not allege facts showing how the advertising promoted a restraint on trade or how any alleged restraint on trade caused their damages.
The Court of Appeals of California for the Second District affirmed the trial court’s motion. In its decision, it noted that a cause of action for violation of the Cartwright Act must allege both a purpose to restrain trade and injury to the business of the plaintiff traceable to actions in furtherance of that purpose.
“The trial court correctly concluded that these allegations fail to state a cause of action for violation of the Cartwright Act,” the court stated. “First, the complaint does not allege that CLTA or First American formed a trust for the purpose of restraining trade in title insurance policies. Instead, it alleges that CLTA exists for precisely the opposite purpose: to promote the purchase of title insurance policies.
“Similarly, the complaint does not allege that CLTA and First American engage in ‘unlawful acts’ to restrain trade,” the court continued. “Instead, the appellants allege that CLTA created and promoted the use of standardized forms for title insurance policies. But the creation of standardized forms is not unlawful. Instead, Insurance Code section 12340.8 authorizes an advisory organization, such as CLTA to recommend or prepare policy forms or endorsements for title insurers. In addition, there is no allegation that the trust prevented its members from offering title insurance on different terms than those provided in the standard CLTA forms.”
The court then turned to the Meisterlins’ false advertising claims, noting that the trial court concluded that the complaint failed to allege a cause of action under this claim because it alleges only that First American did not perform its claims handling obligations in a manner consistent with the advertising promulgated by CLTA. The court agreed.
“The appellants have not alleged facts showing that they ever saw CLTA’s allegedly false advertisements before they purchased the First American policy, nor have the appellants alleged that CLTA’s advertising caused them to buy the First American policy,” the court stated. “The appellants also failed to allege that CLTA had any form of control over First American’s conduct in handling their claim. As a result, the appellants fail to allege that their economic losses were caused by CLTA’s advertising, an essential element of a cause of action under the False Advertising Law.
“The appellants allege that CLTA published advertisements on or before 2001 and continuing to the present time that were false because, nearly six years later, First American handled their claim in a way that was inconsistent with CLTA’s advertisements,” the court continued. “The appellants do not allege that they purchased the First American policy as a result of statements made in CLTA’s advertisements. In fact, the appellants do not allege that they ever saw the CLTA advertisements before they bought their policy and the advertisements they have attached to the complaints as exhibits were disseminated in 2010, nearly eight years after the appellants bought their insurance policy.”
The court found that the Meisterlins’ cause of action for unfair competition in violation of section 1720 fails for the same reason. “Although they allege that CLTA promoted the title insurance industry and the use of standardized insurance policy forms and provisions, the appellants do not allege that they were ever exposed to CLTA’s promotional materials or that they acted in reliance on those materials,” the court stated. “Such an allegation is necessary to state a cause of action for unfair competition.”