Several years ago, legal commentators wrote extensively about the U.S. Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which revised the standard for a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Commentators have debated the extent to which these decisions have altered how motions to dismiss are decided. A recent Second Circuit decision applying Iqbal in a title insurance class action provides some guidance to district courts and demonstrates how the new standard can be used effectively by defendants in class actions.
In Galiano v. Fidelity National Title Insurance Company, No. 10-4941-cv, 2012 U.S. App. LEXIS 13614 (2d Cir. July 3, 2012), the plaintiffs brought a putative class action against various title insurance companies doing business in New York, alleging that title insurance rates were improperly inflated due to “kickbacks” that violated the Real Estate Settlement Procedures Act (RESPA). The complaint alleged that commissions paid to title agents violate RESPA because the commissions exceed the value of services rendered by title agents and in effect constituted “kickbacks” for referring business to the title insurer. Id. at *5-6. The district court dismissed the complaint. The Second Circuit affirmed, based entirely on the plaintiffs’ failure to satisfy Iqbal. Judge Chin’s opinion explained that:
In this case, the district court did not err in dismissing the Complaint because it did not contain sufficient factual matter to state a plausible claim for relief under § 8(a). See Iqbal, 556 U.S. at 678; Fed. R. Civ. P. 12(b)(6). While the Complaint did allege a kickback scheme, it did so in a wholly conclusory and speculative manner. See Iqbal, 556 U.S. at 678-79.
First, the Complaint failed to allege facts sufficient to establish the elements of a § 8(a) claim. The Complaint failed to identify: (1) a payment or thing of value; (2) given by defendants and received by plaintiffs’ title agents, lawyers, brokers, lenders, or other third parties pursuant to an agreement to refer settlement business; and (3) an actual referral. . . .
Second, the Complaint failed to allege any specifics as to the date, time, or amount of the alleged § 8(a) violations, or any connections between these plaintiffs — or their title agents, lawyers, brokers, or lenders — and these defendants. . . . The Complaint contained no allegations that defendants charged any plaintiff a rate inflated by kickbacks.
Third, plaintiffs are essentially relying on a supposed industry-wide practice of kickbacks and referrals to sustain their § 8(a) claim. In effect, the Complaint presumed that (1) there were substantial differences between title insurance rates and the actual costs incurred by title insurers — namely, the costs associated with the risk of loss and the search and examination of prior ownership records — and (2) these differences represented kickbacks for referrals rather than profit margins. . . . Without facts as to the alleged kickbacks, referral agreements, or referrals, however, plaintiffs are engaging in mere conjecture; this speculation is insufficient to state a plausible claim.
Id. at *12-14.
Galiano explains that, under Iqbal, a properly drafted complaint must: (1) allege facts (not mere conclusory assertions) that, if proven, would establish the elements of the cause of action; (2) allege specifics as to basic details such as dates, times and amounts; and (3) when alleging an improper practice, allege facts, not “mere conjecture” or “speculation.” This opinion should be helpful to district courts adjudicating motions to dismiss in the Second Circuit, as well as to plaintiffs seeking to plead a complaint in compliance with Iqbal and defendants seeking dismissal of complaints under Iqbal.