     Case: 11-10695   Document: 00511954820    Page: 1   Date Filed: 08/13/2012




          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                   FILED
                                                                 August 13, 2012

                                  No. 11-10695                   Lyle W. Cayce
                                                                      Clerk



GARY AHMAD, Individually and on behalf of all others similarly situated;
MIRVAT AHMAD, Individually and on behalf of all others similarly situated

                                      Plaintiffs-Appellees
v.

OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY,

                                     Defendant-Third Party Plaintiff-Appellant



                  Appeal from the United States District Court
                       for the Northern District of Texas


Before KING, HIGGINBOTHAM, and HAYNES, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
        This is an interlocutory appeal from the district court’s grant of class
certification in a case involving allegations that the defendant title insurance
company charged premiums for title policies that exceeded the refinance rates
set by the Texas Department of Insurance in TEXAS INSURANCE CODE Rate Rule
R-8. For the reasons that follow, we REVERSE the district court’s grant of class
certification and REMAND for further proceedings.
                                       I.
        Under TEXAS INSURANCE CODE Rate Rule R-8 (“R-8”), a title insurance
company must provide a discount on the premium for a mortgagee title policy for
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                                         No. 11-10695

a refinanced mortgage that was originally insured by a prior lender’s policy if the
new policy is issued within seven years of the date of the initial policy.1 R-8
provides:
       On a Mortgagee Policy, issued on a loan to fully take up, renew,
       extend or satisfy an old mortgage(s) that is already insured by a
       Mortgagee Policy(ies), . . . the premium for the new policy shall be
       at the Basic Rate, but a credit shall reduce the premium. . . .2

R-8 provides this discount on a sliding scale, with the highest discount (40%)
offered for refinances within two years of issuance of the original lender’s policy
and the lowest discount (15%) for refinances more than six years but less than
seven years from the date of the policy insuring the prior mortgage.3
       As this court has noted, “there is often no definitive way for a title insurer
to determine, based on the documents available to it, whether or not a prior
mortgage was covered by title insurance such that the new . . . policy would
qualify for the reissue discount.”4             Title insurance companies thus have
developed ad hoc policies which apply the discount when the borrower’s file
contains certain circumstantial evidence that the prior mortgage was insured.5
“[R]egardless of the circumstantial evidence in the borrower’s file, the discount
is mandatory for all borrowers who qualify.”6




       1
         See TDI, BASIC MANUAL OF TITLE INSURANCE, Section III, Rate Rule R-8 (last updated
Feb. 23, 2011), available at http://www.tdi.texas.gov/title/titlem3b.html#R-8 (last visited Aug.
13, 2012).
       2
           Id.
       3
           See id.
       4
           Benavides v. Chicago Title Ins. Co., 636 F.3d 699, 700 (5th Cir. 2011).
       5
           See id.
       6
           Id.

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                                      No. 11-10695

      Gary and Mirvat Ahmad (“the Ahmads”), the named plaintiffs in this
putative class action, filed a complaint alleging that Old Republic commonly fails
to grant the discount to mortgagees who are entitled to it in violation of the
federal Real Estate Settlement Procedures Act (“RESPA”) and state common
law. The defendant, Old Republic National Title Insurance Co. (“Old Republic”),
moved for partial summary judgment, and the district court granted summary
judgment for Old Republic on the Ahmads’ RESPA claim.
      Before the district court issued is order granting partial summary
judgment, the Ahmads moved for Rule 23(b)(3) class certification, proposing the
following class definition:
      All persons who, within seven (7) years of the date of an existing
      mortgage on their residential real property in Texas, refinanced or
      otherwise replaced their existing mortgage and were charged a
      premium for a new lender title insurance policy underwritten by
      Defendant Old Republic National Title Insurance Company, that
      exceeded the discounted reissue premium rates mandated by Texas
      law. The Class includes all such persons that closed a refinancing
      within the four (4) years preceding the filing of the Complaint
      (“Class Period”).

The Ahmads argued that class certification was appropriate because the
transactions at issue “involve standard, form documents” and “[c]lass members
and their damages can be identified and determined using objective criteria
based on Defendant’s business records.” They maintained that such evidence
could be summarized easily because it is an “established practice” in Texas “to
assume that the refinanced mortgage was insured by title policy (and give the
R-8 credit) if ‘(1) it has a GF number,7 (2) it is returned to a title company or (3)
it is [a] first lien in favor of an institutional lender.’” According to the Ahmads,
each of these three “proxy indicators” is sufficient to demonstrate that a policy



      7
          A “GF number” is a guaranty file number.

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                                   No. 11-10695

was issued insuring the prior mortgage and to show that the borrower is entitled
to the R-8 credit.
      In response, Old Republic denied that any of the three proxy indicators is
“legally sufficient” to establish a borrower’s entitlement to the R-8 credit. It also
disputed the Ahmads’ contention that evidence necessary to show liability and
damages could be easily summarized, noting that the guaranty files are not
stored centrally by Old Republic but rather by numerous individual agents
throughout the state; that much of the information is not available
electronically; that where it is available electronically, it is not easily compiled
because different agents use different programs for electronic filing; and that in
most, if not all cases, the guaranty file for the refinance transaction will not
contain a copy of the prior mortgage policy.
       The district court granted the Ahmads’ motion for class certification with
regard to their remaining state law claims for unjust enrichment, money had
and received, and breach of implied contract, which were brought pursuant to
the court’s diversity jurisdiction. The court narrowed the Ahmads’ proposed
class definition so that it included only individuals whose files contained one of
the three proxy indicators of a prior title policy. The Ahmads had originally
proposed eleven questions of fact or law common to the class:
      1. Whether the plaintiff refinanced an existing mortgage within
      seven (7) years after the closing of the existing mortgage;

      2. Whether the plaintiff qualified for the mandatory reissue discount
      in connection with the reissue lender title policy;

      3. What evidence is sufficient to qualify a borrower for the R-8
      credit;

      4. The dollar amount of the reissue discount required to be applied
      to the plaintiff's transaction;




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                                           No. 11-10695

      5. Whether Defendant or its agents could “earn” or lawfully keep the
      amount of the R-8 credit not given to eligible borrowers;

      6. Whether Defendant split the unearned discounts with its agents;

      7. Whether Defendant’s splitting of the unearned premiums with
      title agents violated Section 8(b) of RESPA;

      8. Whether the circumstances of each borrower's purchase of a
      lender title policy gives rise to implied contracts requiring
      Defendant to issue a policy at the lawful rate;

      9. Whether Defendant breached the implied contracts with class
      members by not giving the mandatory R-8 credit;

      10. Whether Defendant breached other legal duties to class
      members by failing to give them the discounted reissue premium
      rates mandated by Texas law and retaining those unearned
      premiums; and

      11. Whether plaintiffs and the class are entitled to recover three
      times the amount charged for the reissue lender title insurance
      policies, pursuant to 12 U.S.C. § 2607(d)(2).

From the Ahmads’ eleven proposed common questions, the district court
identified two questions of law (5 and 10) and two questions of fact (2 and 3)
common to the class and not resolved by its ruling on partial summary
judgment,8 and it concluded that common questions would predominate over
individual issues.9
      The same day the district court entered its order, this court issued
Benavides v. Chicago Title Ins. Co.,10 affirming denial of class certification on
similar facts. The district court in Benavides had concluded that the plaintiffs

      8
          See FED. R. CIV. P. 23(a)(2).
      9
          See id. 23(b)(3).
      10
           636 F.3d 699 (5th Cir. 2011).

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could not satisfy the predominance requirement of Rule 23(b)(3) because none
of the central issues in the case constituted a “common question” of fact or law.11
This court affirmed, holding that the district court did not abuse its discretion
when it found that there were no common questions capable of class-wide
determination using class-wide proof.12 Arguing that the holding in Benavides
controls the class certification analysis in this case, Old Republic filed a motion
for reconsideration, which the district court denied. We granted permission for
Old Republic to file an interlocutory appeal.13
                                                II.
       We review a district court’s class certification decision “for abuse of
discretion in ‘recognition of the essentially factual basis of the certification
inquiry and of the district court’s inherent power to manage and control pending
litigation.’”14 However, whether the district court applied the correct legal
standard in reaching its decision on class certification is a legal question that we
review de novo.15 If the “district court premises its legal analysis on an
erroneous understanding of governing law, it has abused its discretion.”16
                                               III.
       For a class to be certified, plaintiffs must meet the four requirements of
Rule 23(a) of the Federal Rules of Civil Procedure – numerosity, commonality of
issues, typicality of the class representatives’ claims in relation to the class, and

       11
        Hancock v. Chicago Title Ins. Co., 263 F.R.D. 383, 390 (N.D. Tex. 2009), aff’d sub
nom. Benavides v. Chicago Title Ins. Co., 636 F.3d 699 (5th Cir. 2011).
       12
            Benavides, 636 F.3d at 703.
       13
            See FED. R. CIV. P. 23(f).
       14
         Regents of the Univ. of Cal. v. Credit Suisse First Boston, 482 F.3d 372, 380 (5th Cir.
2007) (quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402, 408 (5th Cir. 1998)).
       15
            See id.
       16
            Id. (citing Unger v. Amedisys Inc., 401 F.3d 316, 320 (5th Cir. 2005)).

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                                            No. 11-10695

adequacy of the class representatives and their counsel to represent the class.17
Plaintiffs also must satisfy at least one of the requirements of Rule 23(b).18 The
plaintiffs in this case relied on Rule 23(b)(3), which requires that questions of
law or fact common to the class predominate over questions affecting only
individual members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the controversy.19
       To satisfy Rule 23(a)(2)’s commonality requirement, plaintiffs must show
that “[t]heir claims must depend upon a common contention,” and the common
contention “must be of such a nature that it is capable of classwide
resolution--which means that determination of its truth or falsity will resolve an
issue that is central to the validity of each one of the claims in one stroke.”20
While the existence of even one common question of this nature satisfies Rule
23(a)(2),21 the Rule 23(b)(3) predominance inquiry “is more demanding,”22
testing “‘whether proposed classes are sufficiently cohesive to warrant
adjudication by representation.’”23 A court must consider how the case will be
tried on the merits if the class is certified,“identifying the substantive issues that
will control the outcome, assessing which issues will predominate, and then




       17
         FED. R. CIV. P. 23(a); see Katrina Canal Breaches Litig. v. Bd. of Comm’rs, 628 F.3d
185, 191 (5th Cir. 2010).
       18
            See FED. R. CIV. P. 23(b); Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614 (1997).
       19
            See FED. R. CIV. P. 23(b)(3).
       20
            Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).
       21
            See id. at 2556.
       22
         Wilborn v. Wells Fargo Bank, N.A. (In re Wilborn), 609 F.3d 748, 755 (5th Cir. 2010)
(citing O’Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 738 (5th Cir. 2003)).
       23
            Id. (quoting Amchem Prods., 521 U.S. at 623).

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                                         No. 11-10695

determining whether the issues are common to the class.”24 Plaintiffs cannot
satisfy Rule 23(b)(3)’s predominance requirement without satisfying Rule 23(a)’s
commonality requirement.25
       Old Republic challenges the district court’s finding that the plaintiffs
satisfied Rule 23(b)(3)’s predominance requirement. We agree with Old Republic
that this finding that common questions would predominate misreads the
demands of Rule 23.
                                               A.
       Our holding in Benavides controls the predominance analysis here.
Benavides presented the same constellation of federal and state law claims as
this case, with seven questions purportedly common to the putative class. Three
of those questions pertained only to Benavides’s RESPA claim, which the district
court, as here, denied before deciding the class certification issue.26                    The
remaining four allegedly common questions in Benavides were:

       (1) Whether the plaintiffs refinanced an existing mortgage within
       seven (7) years after the recording of the existing mortgage;

       (2) Whether the plaintiffs qualify for the mandatory reissue discount
       in connection with the reissue lender title policy;



       24
            Id. (quotation marks and citation omitted).
       25
          See Amchem Prods., 521 U.S. at 609 (noting with approval that the court below
“recognized that Rule 23(a)(2)’s ‘commonality’ requirement is subsumed under, or superseded
by, the more stringent Rule 23(b)(3) requirement that questions common to the class
‘predominate over’ other questions” (citing Georgine v. Amchem Prods., Inc., 83 F.3d 610, 627
(3d Cir. 1996))).
       26
          See Hancock v. Chicago Title Ins. Co., 263 F.R.D. 383, 388 (N.D. Tex. 2009), aff’d sub
nom. Benavides v. Chicago Title Ins. Co., 636 F.3d 699 (5th Cir. 2011). The Benavides district
court also dismissed the plaintiffs’ unjust enrichment claim before deciding the class
certification issue, leaving only the claims for money had and received and breach of implied
contract. However, the absence of an unjust enrichment claim at the class certification stage
does not meaningfully distinguish Benavides from this case.

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                                         No. 11-10695

      (3) The dollar amount of the reissue discount required to be applied
      to the plaintiff’s transaction; and

      (6) Whether Defendant breached other legal duties to class members
      by failing to give them the reissue discount mandated by Texas law
      and retaining those unearned premiums.27

The Benavides district court found that while the questions were “common in the
colloquial sense,”28 none could be “definitively answered for all class members
using a generalized set of facts and producing one unified conclusion.”29 The
resulting trial would require the factfinder to determine whether each individual
qualified for the discount based on the evidence in his or her file – “[i]n some
cases the answer [would] be ‘yes’ and in others ‘no.’”30 On appeal, this court
affirmed, approving the district court’s denial of class certification because “[t]he
only issues to be determined are . . . individualized inquiries as to whether
particular persons qualify for the discount and were denied it.”31
                                             B.
       Because this court’s affirmance in Benavides was based on the absence of
any common question of fact or law,32 we turn to the question of whether the
predominant issues here differ from those in Benavides and, if so, whether they
are capable of class-wide determination.             Old Republic argues that, as in
Benavides, the question of whether a plaintiff actually qualified for the R-8
discount will require at trial a series of individualized inquiries rather than a

      27
           Id. at 387-88.
      28
           Id. at 388.
      29
           Id. at 390.
      30
           Id. at 389.
      31
           Benavides, 636 F.3d at 703.
      32
           See id. at 702.

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                                       No. 11-10695

single, class-wide determination.33 Indeed, two of the questions the district court
identified as “common” – questions 2 and 10 – are virtually identical to questions
that the Benavides district court found could not be determined on a class-wide
basis using class-wide proof.         We agree with Old Republic that there is no
meaningful distinction between the class certification issues in this case and
those in Benavides and that individual questions will predominate at trial.
      The district court suggested that Benavides could be distinguished in two
ways. First, the district court found that “whether extensive file-by-file review
w[ould] be necessary” to answer question 2 – whether a plaintiff qualified for the
discount – depended upon the resolution of question 3 – “what evidence is
sufficient to demonstrate R-8 eligibility.” The district court reasoned that
question 3 is a common question of fact and that question 3 was not at issue in
Benavides because there was no dispute in that case about what evidence was
sufficient to establish entitlement to the discount. This reasoning is seductive
but flawed.
      In concluding that question 3 distinguishes this case from Benavides, the
district court asked more work than it could perform of Chicago Title’s
concession in Benavides that the discount was mandatory for all who qualified.
As Old Republic does here, Chicago Title conceded that when a borrower meets
the requirements of R-8, the discount is mandatory.34             Chicago Title also
acknowledged that it had an ad hoc practice of applying a presumption of prior
title policy on the basis of any one of the three proxy indicators.35 But Chicago
Title did not concede that any individual plaintiff or class of plaintiffs was
“eligib[le]” for the R-8 discount.           The Benavides district court rejected


      33
           See Hancock, 263 F.R.D. at 388.
      34
           See id. at 390.
      35
           See id. at 386.

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Benavides’s proposal that the court “examine Chicago Title’s internal policy that
grants credits even in questionable cases, and rely on it (or something close) as
the standard for imposing legal liability.”36
       The district court here also mistakenly characterized question 3 as a
“common question” of fact. Question 3 is not a type of question that could satisfy
Rule 23(a)’s commonality requirement, as it does not invite a “yes” or “no”
answer,37 or present a contention whose “truth or falsity” can be established.38
During a trial on the merits, the fact-finder will not be tasked with answering
the open-ended question,“What evidence is sufficient to qualify a borrower for
the R-8 credit? Equally important, the answer to question 3 will not “resolve an
issue that is central to the validity of each one of the claims in one stroke.”39
Even if the proxy indicators constitute evidence from which a reasonable jury
could conclude that a borrower’s original mortgage was insured, the jury will
have to engage in file-by-file review to determine whether individual plaintiffs
had original mortgages covered by title insurance and met the other R-8
criteria.40
       Second, the district court reasoned that it had “found four common
questions where [the Benavides district] court found none.” This justification is


       36
            Id. at 391-92.
       37
          Cf. id. at 388-89 (explaining that Benavides’s question (2) was not a common
substantive issue that would predominate because “[i]n some cases the answer [would] be ‘yes,’
and in others ‘no’”).
       38
            See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).
       39
            Id. (emphasis added).
       40
          See Hancock, 263 F.R.D. at 391 n.14 (“Even if the court were to assume that
Benavides’ proposed class definition accurately identified borrowers who should have received
a reissue credit, individual inquiries would still predominate. Her proposal might simplify the
individual-inquiry process, but it would not raise any class-wide common questions.”); see also
Benavides, 636 F.3d at 703 (“The only issues to be determined are therefore individualized
inquiries as to whether particular persons qualify for the discount and were denied it.”).

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question-begging. The district court found that questions 2, 3, 5 and 10 were
common to the class. For reasons just explained, question 3 is not a common
question. And in Benavides, this court affirmed that issues virtually identical
to questions 2 and 10 were not capable of class-wide determination by class-wide
proof. As Old Republic notes, question 5 – “Whether Defendant or its agents
could ‘earn’ or lawfully keep the amount of the R-8 credit not given to eligible
borrowers” – presupposes that “the R-8 credit not given” was required to be
given. Question 5 thus is dependent on the resolution of question 2. In other
words, question 5 presupposes the resolution of a question that cannot be
answered on a class-wide basis with class-wide proof. Therefore, like questions
2, 3, and 10, question 5 is not a “common question.”
       Because none of the four questions identified by the district court is
actually common to the class, common questions will not predominate at trial,
and the Ahmads were not entitled to class certification under Rule 23(b)(3). Our
holding in Mims v. Stewart Title Guaranty Co.41 is not to the contrary.42
                                                IV.
       The district court abused its discretion in finding that the requirements
of Rule 23(b)(3) were satisfied. We REVERSE the district court’s grant of class
certification and REMAND the case for further proceedings consistent with this
opinion.




       41
            590 F.3d 298 (5th Cir. 2009).
       42
           See Benavides, 636 F.3d at 702 (“All that Mims held . . . was that the class definition
was appropriate; not that there were any common class-wide questions, that those questions
would predominate at trial, or that mere membership in the class was sufficient to establish
liability en masse.”).

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