Judicial Council of California Issues Opinion in Steve Ahn Vs. Stewart Little Guaranty Case

SACRAMENTO, California, July 6 -- The Judicial Council of California issued the following opinion (No. D080391) on July 5, 2023:

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Court of Appeal, Fourth Appellate District, Division One, State of California

STEVE AHN, Plaintiff and Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant and Respondent.

APPEAL from a judgment of the Superior Court of San Diego County, Richard S. Whitney, Judge. Affirmed.

Wingert Grebing Brubaker & Juskie, Stephen C. Grebing, and Camille E. Kollar for Plaintiff and Appellant.

Best Best & Krieger and Matthew L. Green for Defendant and Respondent.

Amidst a corporate merger, a sales executive is told there are limitations on how he can compete for the merging partner's clients. He loses sales commissions and is terminated for poor sales performance. Does he have standing to assert a cause of action under the Cartwright Act, California's antitrust statute? (Bus. & Prof. Code,/1 Sec. 16700 et seq.) On the particular facts alleged in this case, the answer is clearly no.

Ahn was a sales executive for a title insurer who claims his sales figures were adversely affected when his employer barred him from using a particular sales pitch to solicit customers from a competitor who was also a proposed corporate merger partner. Ahn's pitch told prospective clients that after the proposed merger was finalized, they would have no choice but to comply with his company's higher-cost, less flexible underwriting standards. He attempted to use this pitch to convince these clients to abandon the competitor before the merger.

But a plaintiff suing under the Cartwright Act must suffer " 'antitrust injury,' " which in turn requires harm that "stem[s] from the anticompetitive aspect of [defendants'] alleged conduct." (Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1235 (Cellular Plus).) Accepting Ahn's claim that the two merging entities agreed not to fully compete for each other's customers while their merger was pending, Ahn does not claim injury from the alleged anticompetitive aspects of this agreement, but rather from conduct that emphasized their competitive differences. A complaint that he could not lure customers with a pitch about their restricted postmerger options does not constitute an antitrust injury, meaning Ahn lacks standing to sue under the Cartwright Act. We find an alternative ground to affirm based on Ahn's concession at oral argument that Fidelity and Stewart attempted to merge in good faith, and had the merger gone through, his Cartwright Act claim would be barred under Asahi Kasei Pharma Corp. v. CoTherix, Inc. (2012) 204 Cal.App.4th 1 (Asahi). The mere circumstance that the merger was not consummated is not enough to distinguish this case from Asahi.

Our conclusion that Ahn cannot demonstrate an antitrust violation affects his derivative economic relations tort claims, both of which require independently wrongful conduct. Concluding the trial court did not err in granting summary judgment, we therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Background and Claims Against Stewart

Developers of wind, solar, and renewable energy projects must obtain title insurance securing the land and improvements used in a project in order to obtain financing for necessary infrastructure (wind turbines, solar panels, etc.)./2 Title insurance protects lenders and purchasers from defects in the property's title. Because these infrastructure projects are usually built on undeveloped rural land, a major aspect of obtaining title insurance involves getting waivers from owners of subsurface mineral rights. For many rural parcels, subsurface mineral rights were sold a long time ago to mining companies or oil and gas developers. Current landowners may be unsure if mineral rights were ever sold, who bought them, and who currently holds these interests. Once the current interest holders are identified and located, developers must obtain waivers, which is a difficult and time-consuming process. Thus, "title issues for these parcels can be highly complex and a title issue with even one parcel may impact the entire renewable energy project."

Four underwriters, known as the "Big 4," dominate the title insurance industry across the United States. Fidelity National Financial, Inc. (Fidelity) and Stewart Title Guaranty Company (Stewart) are two members of the Big 4 and horizontal competitors. In the renewable energy title insurance market, Stewart competed for business with Fidelity's wholly owned subsidiary, Chicago Title.

Ahn previously worked as a senior account executive at Stewart for fifteen years. In 2014, Chicago Title recruited him as their Vice President for Energy Services "for the specific purpose of competing with Stewart's title business in renewable energy." Ahn found it difficult to compete with Stewart given Fidelity's "more stringent underwriting policies concerning surface waivers from the holders of mineral rights." Fidelity generally required a developer to obtain waivers from 100 percent of the holders of subsurface mineral rights as a condition to providing title insurance, and rarely granted exceptions. Stewart, on the other hand, had looser underwriting standards and would provide insurance coverage so long as developers secured waivers from 51 percent or more of the mineral rights holders. These differences in underwriting standards offered "a significant competitive advantage to Stewart and made convincing clients to switch from Stewart to Fidelity very difficult." Few of Ahn's new clients at Chicago Title had moved over from Stewart.

In March 2018, Fidelity announced a tentative merger with Stewart, subject to shareholder and regulatory approval. Ahn would later allege that Fidelity and Stewart agreed during the premerger period not to compete for each other's clients and to allocate their customers. He believed he was fired for attempting to actively compete with Stewart for clients during this premerger period. The specific sales pitch he sought to make, which compels our conclusion that he lacks antitrust standing, is discussed further below.

The merger ultimately did not go through. In September 2019, the FTC challenged it because the proposed merger would concentrate the Big 4 into three main players./3 The FTC alleged this consolidation was "likely to result in anticompetitive harm." Beyond losing one of four competitors in the market, the FTC was concerned that Stewart, in particular, had "earned a reputation among market participants for being more creative and flexible in providing title insurance--to the benefit of its customers--and for selling title insurance at lower prices than the other Big 4 underwriters." More specifically,

"Stewart has shown a greater willingness to undercut the other Big 4 underwriters on price, or offer more favorable coverage terms, in order to win business. Even within this four-firm 'oligopoly,' Fidelity has been forced to reduce its prices in response to Stewart. Stewart also finds creative ways to mitigate or assume risk in order to compete for business and has been willing to provide coverage where Fidelity and others in the Big 4 have declined to do so unless the customers can meet additional burdensome conditions. Where the current oligopoly has already softened competition, Stewart's approach has prompted others in the Big 4 to adjust their own competitive strategies to the benefit of customers."

In the FTC's view, neither Stewart nor Fidelity had demonstrated that the merger would yield efficiencies that would counteract anticipated competitive harm to consumers. Following the FTC's complaint, Fidelity and Stewart abandoned their merger attempt.

Ahn sued his employer Chicago Title, its parent Fidelity, Fidelity's Executive Vice President Dan DuBois, and Stewart. He filed his operative First Amended Complaint after the FTC complaint. Only the claims against Stewart are relevant to this appeal. Ahn alleged that Stewart violated the Cartwright Act by conspiring with Fidelity and Chicago Title "to curtail and restrict competition between Fidelity/Chicago and Stewart in wind, solar and renewable energy projects." He asserted that the companies "agreed to allocate customers such that Fidelity would not compete for Stewart's customers" pending the merger. The purpose behind this arrangement, in Ahn's view, was to maintain Stewart's market share, earnings, and customer base while the merger was pending. He further accused Stewart of tortiously interfering with his contractual relations and interfering with his prospective economic advantage, with these tort causes of action resting on an alleged antitrust violation to show independently wrongful conduct.

In other words, Ahn's three causes of action against Stewart rose or fell on his antitrust claim. That claim, in turn, was predicated on efforts by Fidelity and Stewart to restrain Ahn's sales tactics as follows.

Soon after the merger was announced in 2018, Ahn was told by Joe Goodman, his supervisor at Chicago Title, that Stewart would likely have to conform postmerger to Fidelity's tighter underwriting guidelines--i.e., waivers would be required from all rather than half of subsurface mineral rights holders. Ahn saw this as an opportunity to compete for Stewart's customers. As he put it in the complaint: "If Stewart had to meet Chicago/Fidelity's more stringent underwriting standards, this would end Stewart's competitive advantage and open the door for Ahn to convince his old book of business (and other renewable developers) to choose Ahn, and therefore Chicago, over Stewart." Thus, in an attempt to lure Stewart clients to Chicago, Ahn began telling them about the anticipated merger "and looming underwriting parity between Stewart and Chicago/Fidelity."

To Ahn's surprise, his active efforts to compete for clients with this pitch were met with internal hostility at Chicago Title. Ahn was told not to send public notices about the merger to Stewart's clients. With Goodman's approval, however, Ahn continued his outreach. As several large clients began to express interest in moving their projects from Stewart to Chicago Title, senior executives at both companies grew concerned. In a May 2018 email exchange attached to the complaint, Dawn Anderson, a senior underwriter at Stewart, expressed concern that Ahn was telling a major wind farm client about impending postmerger underwriting shifts at Stewart. Because of Ahn's outreach to that client, Anderson wrote that her team risked losing a project they had spent months on. Anderson's e-mail made its way up the chain at Stewart and was passed onto Fidelity executives, who internally commented on "issues with Steve Ahn." DuBois told Goodman that Stewart's complaint about Ahn was "more than concerning," noting it would be a "big problem" if Ahn was still discussing the merger with Stewart's clients. Feeling he was in "[h]ot water" from Ahn's conduct, Goodman told Ahn to "stand down" and not mention the merger or anticipated underwriting changes to prospective clients.

Ahn alleged that these restrictions were designed to prevent him from competing with Stewart for clients, in furtherance of the companies' alleged premerger conspiracy. Had he been allowed to compete in the manner he desired, Ahn believed he would have brought several Stewart customers over to Chicago Title. Stewart's shareholders approved the merger in October 2018. Ahn circulated the associated press releases to prospective clients with Goodman's authorization. But six days later, he was abruptly terminated.

B. Summary Judgment Proceedings/4

Stewart moved for summary judgment. (Code Civ. Proc., Sec. 437c.) As to the Cartwright Act, it argued Ahn lacked standing, citing Vinci v. Waste Management, Inc. (1995) 36 Cal.App.4th 1811 (Vinci) for the proposition that losing a job was not the type of injury the Act sought to rectify. Stewart also maintained that Ahn could not prove any anticompetitive agreement between it and Fidelity. Finally, Stewart asserted that the Cartwright Act claim failed on the merits because, under Asahi, supra, 204 Cal.App.4th 1, the Act did not cover premerger coordination.

As Stewart explained, Ahn's remaining economic tort causes of action required some type of independently wrongful act. (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1142, 1148 (Ixchel).) Because Ahn could not state an antitrust claim, Stewart contended these derivative tort claims likewise failed. Moreover, Stewart claimed, those causes of action failed for lack of causation because Chicago Title terminated Ahn for legitimate performance-based reasons.

Opposing the motion, Ahn distinguished Vinci as a case where the plaintiff had not been terminated to further an anticompetitive scheme. In Ahn's view, factual issues precluded summary judgment as to whether communications between Stewart and Fidelity executives suggested a premerger conspiracy to restrain competition. Likewise, Ahn claimed factual issues existed as to whether Stewart tortiously interfered with his employment relationship.

The parties appeared before Judge Richard Whitney in March 2022. Arguing against the tentative ruling in favor of Stewart, Ahn's counsel claimed Vinci, supra, 36 Cal.App.4th 1811 applied the incorrect federal antitrust standard to reject standing whereas the Cartwright Act expressly allowed indirect market participants to sue./5 As for the tort claims, Ahn contended that Ixchel required an independent wrong to prove tortious interference with contract in order to protect business competition. He claimed the requirement did not apply given Stewart's anticompetitive actions here.

The trial court rejected these arguments. Citing Vinci, supra, 36 Cal.App.4th 1811 determined that Ahn lacked standing because he had less incentive than Stewart's market competitors to vindicate the public's interest in antitrust enforcement. Even otherwise, the court concluded on the merits that the Cartwright Act applied to neither mergers nor premerger coordination, unless the merger was a sham to facilitate cartel behavior. Because Ahn had not provided evidence suggesting the proposed merger was a sham, the court concluded he lacked standing under Asahi, supra, 204 Cal.App.4th at page 16. Turning to the tort claims, the court noted that they rested on a Cartwright Act violation for the requisite independently wrongful conduct. Because Ahn could not assert a violation under the Cartwright Act, it reasoned he could likewise not raise a question of fact as to whether Stewart did anything independently wrongful. Accordingly, it granted the motion for summary judgment and entered judgment for Stewart.

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Footnotes:

1/ Further undesignated statutory references are to the Business and Professions Code.

2/ We draw background facts from the operative complaint and its cross-referenced administrative complaint by the Federal Trade Commission (FTC) solely for context.

3/ Ahn was terminated in November 2018, ten months before the FTC filed an administrative complaint challenging the proposed merger.

4/ Because this case ultimately turns on questions of law raised on summary judgment, we need not dwell on the parties' factual submissions.

5/ In Illinois Brick Co. v. Illinois (1977) 431 U.S. 720, the United States Supreme Court barred indirect purchasers from bringing federal antitrust damages claims. In response, the California Legislature amended section 16750, subdivision (a) to allow indirect purchaser claims under the Cartwright Act. (See Union Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15, 20-22.) Since Illinois Brick, federal courts have developed a multifactor test for evaluating antitrust standing under the Sherman Act. (See Associated General Contractors v. Cal. State Council of Carpenters (1983) 459 U.S. 519, 537-544 (AGC).) These so-called "AGC factors" consider among other things whether there are more direct victims who can challenge the alleged antitrust violation. Despite the Cartwright Act's express extension to indirect purchasers, one intermediate appellate court applied the AGC factors to dismiss a case brought by a terminated plaintiff for lack of standing. (Vinci, supra, 36 Cal.App.4th at pp. 1814-1817.) After Vinci was decided, the California Supreme Court confirmed in Aryeh v. Canon Business Solutions (2013) 55 Cal. 4th 1185, 1195 (Aryeh) that federal antitrust standards "are at most instructive, not conclusive, when construing the Cartwright Act" given their distinct origins. Ahn argued below and on appeal that Aryeh and this court's standing analysis in Cellular Plus, supra, 14 Cal.App.4th 1224 undermine Vinci's reasoning. For reasons we explain, we need not reach this question to resolve this appeal.

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Original text here: https://www.courts.ca.gov/opinions/documents/D080391.PDF