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Defendant.
Pursuant to Civil Rule 53 and Local Rule 99.02, this case was referred to undersigned for
the following: "Motion Hearing: Plaintiff's Summary Judgment filed 4/30/10, Defendant's Memo
Contra filed 5/17/10, Plaintiff's reply filed 5/21/10; Defendant's Summary Judgment filed 5/14/10,
Plaintiff's Memo Contra filed 5/27/10, Plaintiff's Notice of Supplemental Authority and Request
for Motion Hearing filed 7/6/10." See Order of Reference filed on August 23, 2010.
The parties conducted an Oral Argument on September 9, 2010. The undersigned has
reviewed all pleadings filed plus the attachments; the undersigned also has taken into consideration
the arguments of counsel as advanced at the Oral argument of September 9, 2010. After a
complete review of the matter the undersigned comes to the following Findings of Facts and
Conclusions of Law.
Page 2
FINDINGS OF FACTS
On January 1, 2007 the Defendant, pursuant to its rule making authority, adopted OAC
§3901-7-04. Said section was/is titled, 'Title insurance controlled business arrangements'. The
purpose of the rule was to aid the Defendant in establishing the ownership and licensing standards
for title insurance agencies operating within the state of Ohio. This matter turns upon the interplay
Plaintiffs claim various reasons why the Defendant was mistaken in creating OAC §3901-
7-04. Defendant has asserted a number of reasons why the code and the administrative rule are not
in conflict. All parties have asserted that the issues presented are questions of law susceptible to
summary judgment.
STANDARD OF REVIEW
A motion for summary judgment is governed by Rule 56(C) of the Ohio Rules of Civil
The Supreme Court of Ohio has adopted a three-part standard to be used when deciding if
(1) [T]hat there is no genuine issue as to any material fact; (2) that the moving
party is entitled to judgment as a matter of law; and (3) that reasonable minds can
come to but one conclusion, and that conclusion is adverse to the party against
whom the motion for summary judgment is made, who is entitled to have the
Additionally, the nonmoving party must go beyond the allegations or denials contained in
their pleadings and affitivatively demonstrate the existence of a genuine issue of material fact in
order to prevent the granting of a motion for summary judgment. Mitseff v. Wheeler (1988), 38
Moreover, the entry of summary judgment against a party is mandated when the
nonmoving party:
The Supreme Court of Ohio has adopted and approved the Celotex burden on the
nonmoving party, provided that the moving party met its initial burden of informing the court of
the basis for the motion and identifying portions of the record demonstrating the absence of any
genuine issue of material fact. Dresher v. Burt (1996), 75 Ohio St.3d 280.
All parties to this proceeding have asserted that the issues in this case are questions of law
and not of fact. Hence, both parties have asserted that summary judgment is appropriate.
This case deals with the interplay between a code and a statute. Concerning that area of the
Administrative rules issued pursuant to statutory authority are valid and enforceable
unless they are unreasonable or in clear conflict with legislation governing the
subject matter. Hoffman v. State Med. Bd., 113 Ohio St.3d 376, 2007-Ohio-2201,
at ¶17; State ex rel. Celebreeze v. Natl. Lime & Stone Co. (1994), 68 Ohio St.3d
377, 382, citing Youngstown Sheet & Tube Co. v. Lindley (1988), 38 Ohio St.3d
232, 234. "'When the potential for conflict arises, the proper subject for
determination is whether the rule contravenes an express provision of the statute.' "
Brindle v. State Med. Bd. of Ohio, 168 Ohio App.3d 485, 2006-Ohio-4364, at ¶30,
quoting Woodbridge Partners Group, Inc. v. Ohio Lottery Comm. (1994), 99 Ohio
App.3d 269, 273.
"When interpreting statutes, courts must give due deference to those interpretations
by an agency that has accumulated substantial expertise and to which the General
Assembly has delegated enforcement responsibility." Shell v. Ohio Veterinary
Med. Licensing Bd., 105 Ohio St.3d 420, 2005-Ohio-2423, at ¶34. See, also
Northwestern Ohio Bldg. & Constr. Trades Council v. Conrad (2001), 92 Ohio
St.3d 282, 289 (recognizing that courts must accord due deference to the
interpretation formulated by an administrative agency that has accumulated
substantial expertise and "to which the General Assembly has delegated the
responsibility of implementing the legislative command"). If a statute provides an
administrative agency authority to perform a specified act but does not provide the
details by which the act should be performed, the agency is to perform the act in a
reasonable manner based upon a reasonable construction of the statutory scheme.
Id. at 287-288. See, also, Regions Hosp. v. Shalala (1998), 522 U.S. 448, 449-450,
and Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984), 467
U.S. 837, 843 (observing that if the statute is silent or ambiguous as to the specific
issue, the question for the court is whether the agency's answer is based on a
permissible construction of the statute). "An agency's reading that fills a gap or
defines a term in a reasonable way in light of the Legislature's design controls, even
if it is not the answer the court would have reached in the first instance." Regions
Hosp., at 450, citing Chevron, at 843, fn. 11. Cosby v. Franklin County Dept. ofJob
and Family Services, 2007-Ohio-6641 at 37 & 38.
From within the above noted framework the undersigned will review the pleadings; exhibits and
argument of counsel.
ANALYSIS
As to the issues, both parties have claimed that the case is susceptible to summary
judgment because the issues turn on the legal interpretation of codes and rules. Having agreed on
that the rule had been promulgated outside of the requirements of Chapter 119 of the Revised
Code. Hence, the rule is not being attacked as to the process of its creation. The argument is
limited to the Plaintiffs' assertion that the rule is outside of the rulemaking authority of the
Defendant.
The undersigned will address the two pending motions for summary judgment together.
Plaintiffs firmly believe that O.A.C. §3901-7-04 violates R.C. §3953.21(B). The
Defendant disagrees. The Plaintiffs have asserted that the Defendant, in creating the rule, has
overstepped her authority and has created a rule that defeats the purpose behind the statute. First
the undersigned must turn to the language of the code and rule. Please note the following from the
code:
The Plaintiffs have asserted that the rule drafted by the Defendant violates the 'Carroll Test'.
Hence the Plaintiffs rely on Carroll v. Dept. of Adm. Serv., 10 Ohio App.3d 108, a case from the
Tenth District Court of Appeals dealing with the attempt of an administrator to order medical
The Carroll case held that the exams authorized by the administrative rule went too far and did not
relate or stem from the statute that authorized the administrator to act. Therefore the Carroll court
As in Carroll the Plaintiffs asserted that the Defendant has overstepped her authority when
she adopted O.A.C. §3901-7-04. To support that argument the Plaintiffs claimed that rule conflicts
with R.C. §3901.32(B). Please note the following from said code:
It is Plaintiffs position that 10% is the standard that applies for all insurance issues and the
Defendant was wrong to adopt a rule that allowed the presumption to only be triggered at the 50%
Plaintiffs then buttressed their arguments by stating that R.C. §3901.32(B) contains the
only definition of 'control' in the insurance statutes of this state and, therefore that code section
must be followed by the Defendant. Because 50% is greater than 10%, the Plaintiffs argued that
the rule exceeded the authority that flowed from the statute. Based on Carroll, the rule must
Plaintiffs then advance a number of areas where the General Assembly has shown a
willingness to restrict access to a regulated industry. From that knowledge, the Plaintiffs asserted
that it would 'make no sense' that the General Assembly would want such a liberal interpretation
The Defendant responded to these arguments by first noting that there exists no statutory
language that directly conflicts with the rule. The Defendant asserted that she is given a great deal
of authority as manifested in R.C. §3901.041. The Defendant asserted that it would be 'difficult to
conceive' a regulation of the industry that could fall outside of the scope of her power to
promulgate rules.
Agency Rule Review without incident, suggesting that the General Assembly was not concerned
with the rule. Next, the Defendant pointed out that the 10% level in R.C. §3901.23(B) as argued
company systems'. Defendant claimed that said statute has nothing to do with the regulation of
Revised Code §3901.23 has the following language in it: 'As used in sections 3901.32 to
3901.37 of the Revised Code'. The section of the code regulating title insurance is found in R.C.
§3953. Hence, the statute relied upon by the Plaintiffs limits its language to sections of the statute
not at issue. The rule in question was drafted 'in accordance with division (B) of section 3953.21
of the Revised Code' and it was promulgated pursuant to the authority of §3901.041 of the code.
Hence, the General Assembly did not mean to enforce a 10% 'control' test on all aspects of
insurance regulations. The Defendant argued that had the General Assembly wished to mandate a
certain level of 'control' within R.C. §3953 it could have easily done so. It did not. Therefore, the
The Defendant also reminded the undersigned that the burden is on the Plaintiffs to prove
that the rule is in conflict with a statute. Having shown that R.C. §3901.23(B) does not directly
apply, the Plaintiffs have failed to meet their burden. The Defendant responded to the Plaintiffs
`makes no sense' allegation by again reminding the undersigned that the Plaintiffs cannot point to
one statute that conflicts with the rule. Defendant asserted that the Plaintiffs' arguments are
political in nature. Defendant argued that the Plaintiffs can fix the perceived problem by going to
the General Assembly to change the statute. The Defendant asserted that until that time this Court
must follow the current law and hold that the rule does not conflict with any specific code.
Prohibited Person' thrust of R.C. §3953.21(B). Plaintiffs asserted that the clear language of the
code indicated a desire by the General Assembly to keep certain individuals or entities from acting
as an agent for a title insurance company. Yet the Defendant's rule allows those types of entitles
to become part owners of agencies. The Plaintiff asserted that the Defendant's rule tries to create
persons as defined in the statute. Plaintiffs claimed that the rule changed the definition of the term
Plaintiffs asserted in their Memorandum Contra to the Defendant's Motion for Summary
Judgment that the term subsidiary is not defined in Chapter 3952. They then use a definition found
The Plaintiffs then turned to an online Merriam-Webster dictionary for their definition of affiliate.
Based upon Plaintiffs' logic, to be an affiliate is to be a subsidiary. As already pointed out R.C.
§3901.32 limits itself to §§ 3901.32 to 3901.37 of the Revised Code making the definition less
authoritative.
The Plaintiffs also asserted in the pleadings that in 2000 there was an attempt to take out
the or any subsidiaries' from the body of R.C. 3953.21(B) and that that effort never became law.
The Plaintiffs then argued that the fact that the effort failed supported their arguments against any
ownership interest being appropriate. But that argument can be turned by noting that there has
never been any effort by the General Assembly to insert the term affiliate into the code. It is clear
that affiliate is not in the code section. Had the General Assembly wanted to include that word it
The Defendant responded to the Plaintiffs' arguments by stating that nothing in the code
stops insurance agencies from selling an equity interest in their business to others. The act of
selling an interest is legal. That is true even if the 'other' is not a licensed agent, so long as a
licensed agent has the ultimate authority to make decision about the business. O.A.C. §3901-7-04
was created, or so the Defendant argued, to 'clarify when an agency's corporate structure may run
afoul of the Revised Code's prohibition on excessive outside interference in the business of title
insurance.' (Defendant's MSJ at pages 2 — 3) The Defendant also reminded the Court that the rule
indicated a presumption of control at 50%, yet control could be shown to be at a lower amount
Furthermore, the 50% level contained in the rule is just a red flag that would trigger
regulatory scrutiny. At that point there would be a presumption that the corporate structure
violated the code. The rule does not establish that it is okay for a prohibited person to control the
agency if said individual only has 5% interest. It merely provides a clear shift in the burden of
proof should anyone, including the Plaintiffs or the Defendant, assert that a prohibited person is
controlling the business, and therefore, acting as an agent for a title insurance company.
Defendant rightfully pointed out that Plaintiffs' pleadings seem to mainly take issue with
the language in the rule dealing with the number 50. Had the Defendant picked 10, as asserted by
the Plaintiffs, then the rest of the issues concerning who would be able to own an equity share in a
title agency would not have even been an issue. Defendant also has pointed out time and time
again that there is no prohibition in the Revised Code that would stop an entity noted in R.C.
§3953.21(B) from owning an interest in a corporation engaged in the business of a title agency.
During the oral argument the Plaintiffs made a more direct statement. In effect, the
Plaintiffs argued that the language of R.C. §3953.21(B) must be read to completely restrict any
ownership by a ' bank, trust company, bank and trust company, or other lending institution,
mortgage service, brokerage, mortgage guaranty company, escrow company, real estate company
or any subsidiaries thereof . . .' Thus it was the position of the Plaintiffs that .001% was too much
ownership and any rule that provided for any ownership exceeded the Defendant's rule making
authority.
The Defendant responded by again asserting that the language of the code contained 'be
permitted to act as an agent for a title insurance company.' The rule is not allowing any entity
named in R.C. §3953.21(B) to become an agent. Therefore, it does not conflict with the code.
Furthermore there is no probation found in the statute that would keep a 'bank, trust company,
bank and trust company, or other lending institution, mortgage service, brokerage, mortgage
guaranty company, escrow company, real estate company or any subsidiaries thereof . . .' from
owning stock in a company that is engaged the business of a title agency. All that OAC §3901-7-
04 is, argued the Defendant, was an attempt to make sure that ownership did/does not become
control. Defendant argued that the rule was/is and appropriate exercise of her authority to clarify
the issue of the corporate structure of a title agency. For with control, the 'precluded person'
would/could then be in effect an 'agent for a title insurance company' and that would be in
The Plaintiffs asserted that Bulletin 95-3, issued on August 1, 1995 clearly showed that
stock dividends are a 'valuable thing'. Hence, it is wrong for dividends to be paid to owners of
agent. The Plaintiffs saw the payment of dividends as as an inducement to insurance' as noted in
Bulletin 95-3.
In further support of their arguments the Plaintiffs pointed to the following language from
R.C. §3953.26:
Plaintiffs asserted that if the parties prohibited by R.C. §3953.21(B) were to receive any dividends,
then that would violate R.C. §3953.26. Therefore, since OAC §3901-7-04 allows some ownership
interest in a title agency, ergo the Defendant has allowed by rule what it is denied by statute.
The Defendant felt that Bulletin 95-3 had nothing to do with the issues at hand. The
Defendant asserted that Bulletin 95-3 spoke to the marketing of insurance and methods to make
sales that would treat one potential policy holder different than the rest. Furthermore, the
Defendant argued that the Bulletin has no binding authority on the Court or the Defendant. The
Defendant stated: 'The opinion of a former Superintendent of Insurance is not afforded any special
weight. The opinion of the current Superintendent, however, is entitled to judicial deference."
(Defendant's Memorandum in Opposition at page 4) The Defendant cited Maitland v. Ford Motor
Co., 2004-Ohio-5717 to establish the level of deference that is required. The undersigned holds
extrapolated to hold that the possibility of the payment of uniform dividends, not specifically tied
to one insurance transaction, would keep a 'prohibited person' from owning stock in a title agency.
R.C. §3953.26 also speaks to the specific quid pro quo associated with insurance sales not
contemplated within a corporate dividend. (But if the dividend was structured in that fashion; i.e.,
to individually reward a stockholder for the placement of a policy, the dividend would violate R.C.
It is clear to the undersigned that R.C.§3953.21 precludes bank, trust company, bank and
trust company, or other lending institution, mortgage service, brokerage, mortgage guaranty
company, escrow company, real estate company or any subsidiaries thereof . . from acting as an
agent for a title insurance company. The language does not preclude those same entities from
having an ownership interest in a company engaged in the work of a title insurance agency. The
language of the statute does not speak to 'affiliates' for if it did, the arguments of the Plaintiffs
During the Oral argument, Plaintiffs pointed to OAC §3901-7-04(C)(5) to show that the
rule has clearly exceeded the Defendant's authority. Please note the following language from the
rule:
(5) "Prohibited person" means a person prohibited from acting as an agent for a title
insurance company pursuant to division (B) of section 3953.21 of the Revised
Code, and includes builders and developers. (Emphasis added)
Yet R.C. §3953.21(B) does not reflect any prohibition against builders and developers. Plaintiffs
asserted that that showed that the Defendant knew that she was exceeding her authority in
promulgating the rule. The Plaintiffs argued that said language showed the Defendant's
that conclusion.
In any event, the language of OAC §3901-7-04(C)(5) is not the issue before this Court.
Nor does it appear that the Plaintiffs would have standing to assert that argument for the benefit of
`builders and developers'. Furthermore the rule contains a standard severability clause that would
keep the undersigned from tossing out the baby with the bath water.
In her Motion for Summary Judgment, the Defendant asserted that the Real Estate
Settlement Procedures Act (RESPA) allows corporate ownership in title insurance agencies. That
statement was uncontested by the Plaintiffs. It was also supported by the findings in Carter infra,
a case cited as authority by the Plaintiffs. Hence, if the Defendant was to agree with the Plaintiffs'
position, she would be in violation of the federal rules. Defendant asserted, based on RESPA, that
she lacked the authority to do what the Plaintiffs want; i.e., preclude or heavily restrict the
The Defendant also asserted that this is just an attempt by the Plaintiffs to keep additional
competition from occurring. The suit was filed to try and limit any new providers from entering
the market that might be able to better compete with the stand alone title agencies. As such, the
Defendant asserted that the arguments of the Plaintiffs should be viewed in that light. Defendant
asserted that this was just an attempt to wall off the industry from competition. Defendant asked
the Court to look behind the curtain of Plaintiffs' arguments to see the scared industry trying to
Plaintiffs', in their supplemental filing and at oral argument, asserted that the Federal Court
has found RESPA to be unconstitutional due to vagueness. In support Plaintiffs cited to Carter, et
In Carter the defendants were tile agencies that had been created between realtor firms and
a title insurer. The realtors in conjunction with a title insurer, created a corporate entity that gave
the title insurer 50.1% ownership interest while the realtors' subsidiary corporation owned 49.9%.
The evidence in Carter indicated that over 90% of the new agencies' revenue came from the
realtors' firms. The defendants in Carter argued that the business fell into the exceptions found in
RESPA.
The Carter defendants argued that they meet the exceptions noted for an 'affiliated
business arrangement.' The Carter defendants disclosed the ownership arrangement to the
consumer; they did not require the consumer to use the defendant; and the compensation that the
realtors received where based purely on their respective ownership interest in the agency. The
Carter plaintiffs claimed that the court needed to look past RESPA and to the HUD Policy
Statement 1996-2, 61 Fed. Reg. 29,258, 20 C.F.R. Pt. 3500. Plaintiffs argued that the Carter court
had to address the ten factors noted in that policy statement to see if the defendants agencies were
The Department will consider the following factors and will weigh them in light of
the specific facts in determining whether an entity is a bona fide provider:
(1) Does the new entity have sufficient initial capital and net worth, typical in the
industry, to conduct the settlement service business for which it was created? Or is
it undercapitalized to do the work it purports to provide?
(2) Is the new entity staffed with its own employees to perform the services it
provides? Or does the new entity have "loaned" employees of one of the parent
providers?
The undersigned notes that almost the same language is contained within O.A.C. §3901-7-04.
The Carter defendants asserted that the HUD Policy Statement deserved no deference
based upon Chevron USA., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 at 842 (1984).
The Carter defendants also asserted that the 10 factor test in the HUD policy was
[vagueness] test is warranted." (Citing Springfield Armory, Inc. V City of Columbus, 29 F.3d 250
at 252 (6th Cir. 1993)) The Carter court held that the factors in the HUD policy used vague terms
reminiscent of language that had be struck down in the past. Terms like 'sufficient', 'substantial'
`reasonable', and 'actively competes'. The HUD policy gave no guidance as to what an entity
must do to avoid the potential criminal sanction. The Carter court also took issue with the fact that
all of the factors would be 'considered together'. The Carter court was left to question if one factor
Based on those issues the Carter court concluded that the HUD policy language was
unconstitutionally vague. The Carter court then turned to the actual language of the RESPA
statute and determined that, pursuant to the statute, the defendants had disclosed the ownership
arrangement; they did not require the consumer to use the defendant, and the compensation that the
realtors received where based purely on their respective ownership interest in the agency. The
Carter court held that the defendants, therefore, had not violated the anti-kickback or unearned fee
provisions of RESPA.
that the Plaintiffs want to stop all business arraignments like the one noted in Carter. Plaintiffs
feel that O.A.C. §3901-7-04 has allowed for those entities to be sanctioned by the state. Hence, the
Plaintiffs have aggressively argued that O.A.C. §3901-7-04 needs to be stricken to secure their
goal. Yet, the logic in Carter shows that once the rule is stricken for vagueness, then entities are
only going to be limited by the language contained in the statute. The language of R.C.
§3953.21(B) does not stop nor outlaw the creation of affiliated business arrangement just like the
ones noted in Carter. So if the undersigned was to determine that O.A.C. §3901-7-04 was
creation of affiliated business leading to the alleged harm that the Plaintiffs are fighting to avoid.
Also, the Carter court only found that the factors in the HUD policy used by RESPA was
unconstitutionally vague. That would remove section (E) of O.A.C. §3901-7-04. Even if that
language was stricken, there would still be no conflict between O.A.C. §3901-7-04(C)(2) and any
other relevant parts of Chapter 39 of the Revised Code. As noted earlier the rule would stop a
prohibited person from using his/her/its equity share if it was being used to circumvent R.C.
§3953.21(B).
The Plaintiffs filed their Motion for Summary Judgment on April 30, 2010 and the
Defendants timely responded. On May 21, 2010 the Plaintiffs filed their Reply. The Plaintiffs did
not assert within their April 30, 2010 filing any constitutional issues. Their arguments were
concentrated on their claims that the Defendant exceeded her rulemaking authority.
On July 6, 2010 the Plaintiffs filed a request to file supplemental authority and a request for
an Oral argument. The Defendants responded by asserting that the Oral argument should not be
granted. The Plaintiffs' July 6 filing did more than just attach the supplemental authority. In said
document the Plaintiffs asserted arguments stemming from the supplemental authority that raised,
for the first time, constitutional questions. The Plaintiffs raised the same constitutional question
again at the Oral argument. It would be fundamentally unfair to make a ruling in regard to that
argument given the fact that the Defendant has never been given the opportunity to brief the issue.
Hence, the undersigned will not address the constitutionality of the rule because it is not
Defendant's Motion for Summary Judgment pointed out that a number of Plaintiffs claims;
i.e., accounting and a request for injunctive relief, were unsupported by the law. There is no legal
then a request for injunctive relief must also be denied. The undersigned has reviewed the 37 page
complaint filed by the Plaintiffs. One of the counts raised by the Plaintiffs is in the nature of a
mandamus action. The Plaintiffs' Motion for Summary Judgment has only addressed their claims
for a declaratory judgment. The Plaintiffs did not seek mandamus relief within their Motion for.
Summary Judgment or directly within their Complaint but the allegation of Count 6 would seem to
In determining the actual claim as found in Count 6 of the complaint, the undersigned must
look to the nature of the claim asserted and not to the mere title given to the count by the Plaintiffs.
See, Hunter v. Shenango Furnace Co., (1988) 38 Ohio St.3d 235, at 237. From a review of count
6, mandamus has been pled. Count 6, paragraph 96 asserted; "Upon information and belief, the
ODI Director has not applied and refuses to apply OAC 3901-7-04(E) against existing title
insurance agencies". If the rule is upheld then the Plaintiffs would have the ability to maintain a
mandamus action to attempt to prove the elements of that claim; i.e., seek enforcement of the
rile/statute. Therefore the Defendant's request that the entire complaint be dismissed cannot be
granted.
Based upon the arguments properly before this Court, it is the decision of the undersigned
that the rule is a reasonable construction of the statutory scheme and the Defendant did not exceed
As noted earlier, the Plaintiffs filed a request for an oral argument within their
supplemental authority filed on July 6, 2010. Defendant filed a memorandum in opposition. The
Court filed its Order of Reference and Notice of Hearing on August 23, 2010. Having referred the
DECISION
authority, it is reasonable, and it does not expressly conflict with any statute on the same subject.
Plaintiffs' request for an oral argument as contained within their July 6, 2010 filing is
MOOT.
Counsel for the Defendant SHALL prepare and submit a Judgment Entry pursuant to Local
Rule 25.01.
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