United States District Court, D. Colorado
RECOMMENDATION REGARDING DEFENDANTS' MOTION TO DISMISS
CRAIG B. SHAFFER, Magistrate Judge.
This matter comes before the court on Defendants Fidelity National Financial, Inc., Fidelity National Title Insurance Company, Chicago Title Insurance Company, Service Link, Inc., and Service Link, LLC's (collectively "Defendants") Motion to Dismiss Plaintiff's Second Amended Complaint (doc. #121), filed on October 11, 2013. This motion was referred to the Magistrate Judge pursuant to the Order of Reference dated October 11, 2013 (doc. #122). This court has carefully considered the motion and related briefing, the entire case file, the comments offered by the parties during the June 25, 2013 and July 31, 2013 Scheduling Conferences, the September 6, 2013 Telephonic Discovery Hearing, and the January 27, 2014 Motion Hearing, and applicable case law. For the following reasons, I recommend that the Motion to Dismiss be granted in part and denied in part.
On March 15, 2012, Plaintiff Dale Todd filed a lawsuit under seal on behalf of the United States and against twenty-two entities claiming four violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3732, premised on allegations that Defendants charged the Federal Home Loan Mortgage Corporation ("Freddie Mac") for title searches that failed to satisfy the parties' contracts, applicable law, and industry standards. Plaintiff alleges Defendants violated the FCA when they (1) knowingly presented or caused to be presented false and/or fraudulent claims for payment or approval; (2) knowingly made or used or caused to be made or used false records or statements or omitted material facts (a) to get false and/or fraudulent claims paid or approved, and/or (b) that were material to false and/or fraudulent claims; and (3) refused to reimburse overcharges for title searches. 31 U.S.C. §§ 3729(a)(1), (2) & (7) (2006); 31 U.S.C. §§ 3729(a)(1)(A), (B) & (G) (2009). Finally, Plaintiff alleges that Defendants Fidelity National Title Insurance Company and Fidelity National Financial Company retaliated against Plaintiff in violation of 31 U.S.C. § 3730(h).
On November 21, 2012, the United States filed a notice of its election to decline intervention and a Motion to Unseal the Case. (Doc. #9 and #10). Plaintiff filed a First Amended Complaint ("FAC") on January 15, 2013 that added seven defendants (doc. #11), and filed a Motion to Unrestrict the case on March 14, 2013. (Doc. #13). This court granted the United States' Motion to Unseal Case File on March 15, 2013 and declared Plaintiff's Motion to Unrestrict moot. (Doc. #15). On April 29, 2013, the Fidelity Defendants requested an unopposed extension of time until June 10, 2013 to file an answer or otherwise respond. (Doc. #27). This court granted the request on April 30, 2013 (doc. #29). Plaintiff thereafter stipulated that Defendants Castle Stawiarski, LLC and CS Legal Services (collectively "the CS Defendants") would file a responsive pleading by June 17, 2013 (doc. #38) and Defendants Colorado American Title, LLC and Next Organization, LLC would also file a responsive pleading on June 17, 2013 (doc. #39). On May 2, 2013, Plaintiff filed a notice of voluntary dismissal as to Defendants Freeport Financial Partners, LLC and Stark Investments, LP (doc. #30); District Judge Blackburn entered an order dismissing them the same day. (Doc. #31). On June 7, 2013, Plaintiff filed an unopposed motion to substitute Service Link, LLC for Service Link Title Company (doc. #43), which this court granted on June 10, 2013 (doc. #45). Plaintiff filed a notice of voluntary dismissal as to Defendant Censar Title Insurance Co. on June 12, 2013 (doc. #53), and Judge Blackburn ordered its dismissal the next day (doc. #54).
On June 10, 2013 the following Defendants filed motions to dismiss the FAC: First American Title Insurance Company (doc. #46); First American Financial Corporation (doc. #48); and the Fidelity Defendants (doc. #49). On June 17, 2013 the following Defendants filed motions to dismiss the FAC: Colorado American Title, LLC (doc. #55); Next Organization, LLC (doc. #56); and the CS Defendants (doc. 57). Plaintiff filed a notice of voluntary dismissal as to Defendant CMS Holdings, LLC on June 18, 2013 (doc. #60), and Judge Blackburn dismissed it from the case the same day (doc. #66). Plaintiff filed a stipulated Motion for Protective Order on June 18, 2013 (doc. #62), and the Fidelity Defendants filed a Motion to Stay discovery pending resolution of their Motion to Dismiss (doc. #64).
The parties filed a Proposed Scheduling Order on June 18, 2013 (doc. #67). This court held a Scheduling Conference on June 25, 2013, at which the undersigned set a second Scheduling Conference for July 31, 2013 with instruction that the parties hold another Rule 26(f) Conference to address conducting discovery in phases and a protocol for e-discovery (doc. #69). On July 5, 2013, Plaintiff filed a notice of voluntary dismissal as to Defendants Alamo Title Insurance, Castle Stawiarski, LLC, Chicago Title and Trust Co., Colorado American Title, LLC, Commonwealth Land Title Insurance Company, Commonwealth Lawyers Title Agency Holding, LLC, CS Legal Services, Fidelity National Title Group, Inc., First American Financial Corporation, First American Title Insurance Company, FNTG Holdings, Inc., FNTS Holdings, Inc., Lawyers Title Company, LLC, Next Organization, LLC, Power Link General Partner, LLC, Power Link Settlement Services, LP, Security Title Guaranty Co., Single Source Property Solutions, LLC, Ticor Title Company, and Vision Global Solutions, LLC (doc. #70). Judge Blackburn ordered the dismissal of these Defendants on July 8, 2013 (doc. #73). Plaintiff filed a Response to the Fidelity Defendants' Motion to Dismiss on July 5, 2013 (doc. #71), and a response to their Motion to Stay on July 12, 2013 (doc. #76). Plaintiff then filed an amended Motion for Protective Order on July 23, 2013 (doc. #85). Defendants filed their Reply in Support of Motion to Dismiss on July 24, 2013 (doc. #87), pursuant to an order granting their unopposed motion for an extension of time (doc. # 78 and #80). Defendants filed a Proposed Scheduling Order on July 24, 2013 (doc. #89), and filed a Reply in Support of Motion to Stay on July 29, 2013 (doc. #90).
This court held a second Scheduling Conference on July 31, 2013, at which the undersigned denied Plaintiff's Stipulated Motion for Protective Order as moot, granted Plaintiff's amended Motion for Protective Order, and set a Motion Hearing regarding Defendants' Motion to Dismiss for August 15, 2013 (doc. #92). On August 8, 2013, Plaintiff filed a Motion to Vacate Oral Argument and Notice of Intent to File Motion to Amend Complaint (doc. #93). This court granted Plaintiff's Motion to Vacate and ordered Plaintiff to file a Second Amended Complaint ("SAC") by September 13, 2013 (doc. #95). Defendants filed an unopposed Motion for Leave to file supplemental authority regarding their Motion to Dismiss on August 26, 2013 (doc. #99), which this court granted on August 27, 2013 (doc. #101).
At the request of Plaintiff's counsel, this court held a Telephonic Discovery Hearing on September 6, 2013 (doc. #107), at which the undersigned discussed with the parties the need to engage in targeted discovery and Plaintiff's intention to file an amended complaint. Plaintiff thereafter filed an unopposed motion to amend his FAC (doc. #108). The Motion was granted and Plaintiff's SAC was accepted for filing on September 17, 2013 (doc. #109). Defendants filed an unopposed Motion for Extension of time to respond to the SAC (doc. #118), which this court granted on October 7, 2013 (doc. #120). Defendants filed their Motion to Dismiss on October 11, 2013 (doc. #121). Plaintiff filed his Response to the Motion to Dismiss on November 7, 2013 (doc. #126), pursuant to this court's order granting his unopposed Motion for Extension of time (doc. #123 and #125). Defendants filed a Reply in Support of their Motion to Dismiss on November 26, 2013 (doc. #129). On December 9, 2013, this court granted Defendants' Motion to Stay Discovery pending resolution of their Motion to Dismiss (doc. #130). Defendants filed a Motion for Leave to file supplemental authority regarding their Motion to Dismiss on December 23, 2013 (doc. #132), which this court granted on December 26, 2013 (doc. #133). Plaintiff then filed an unopposed Motion for Leave to file supplemental authority regarding his Response to Defendants' Motion to Dismiss (doc. #134). This court held a Motion Hearing on Defendants' Motion to Dismiss on January 27, 2014, at which the undersigned granted Plaintiff's Motion for Leave to file supplemental authority, continued the stay of discovery pending a written recommendation regarding the Motion to Dismiss, and indicated his preliminary position regarding Freddie Mac's entity status and Plaintiff's allegations of retaliatory conduct. (Doc. #136). Plaintiff filed a second Motion for Leave to file supplemental authority on June 11, 2014 (doc. #139), which Judge Blackburn denied on June 13, 2014 (doc. #140).
Plaintiff alleges the following facts in his SAC. Defendant Fidelity National Financial, Inc. ("Fidelity National Financial") provides title insurance, specialty insurance, and claims management services. Defendant Fidelity National Title Insurance Company ("Fidelity National Title") is a subsidiary of Fidelity National Title Group, Inc. and provides title insurance, underwriting, escrow, and closing services. Defendant Chicago Title Insurance Company ("Chicago Title") is also a subsidiary of Fidelity National Title Group, Inc., and provides title examinations, title insurance, and closing services. Chicago Title operates a division known as Service Link, which provides title work and title insurance that is issued in Chicago Title's name. Service Link contracted with Freddie Mac to provide closing services on properties that Freddie Mac sold to the public. Fidelity National Financial positioned Service Link as its "national lender platform." (Doc. #109 at ¶ 39). Defendants are related entities with common employees, offices, and business names. Id. at ¶ 20.
As early as 2006, Service Link and First American Title Insurance successfully bid to provide real estate and title services to Freddie Mac for almost all of Freddie Mac's real estate owned properties. Defendants thereafter contracted with Freddie Mac to provide title services, including title searches "that comply with title industry standards and with applicable law" in connection with properties sold by Freddie Mac to the public. (Doc. #109 at ¶ 42). Title companies perform title searches prior to issuing a title commitment, which represents the company's agreement to insure the property and reflects all the defects on a title that have been detected during the title search. Id. at ¶ 47. A title insurance policy, or "owner's policy, " is issued subsequent to a title commitment. Certain defects in title, such as outstanding tax liability, are referred to as "requirements, " because the title company will not issue a policy until the defect is cured. Other defects are known as "exceptions, " indicating that the policy will be issued but coverage will not extend to those defects. The title insurance policy reimburses the buyer of property for any damages arising out of defects in title that are not expressly excepted.
Plaintiff has worked for Defendant Fidelity National Title since 2005. He began working with Service Link in 2007 when a Freddie Mac representative approached him at an industry conference to assist in resolving "some of Freddie Mac's concerns" regarding Service Link's closing services. (Doc. #109 at ¶ 76). In fall of 2007, Plaintiff and his supervisor at the time, Darren Hone, attended a meeting at Service Link headquarters to discuss the property closing process in states that Freddie Mac considered "trouble states, " which included Colorado. During a tour of the headquarters following the meeting, the Chief Title Officer for Service Link represented to Plaintiff that their title searches typically listed "garbage exceptions" on title searches without elaboration or further investigation. Id. at ¶ 80. A garbage exception is known in the industry as an overly broad exception that does not refer to a specific recorded document. Soon after Plaintiff began supervising escrow services that Service Link was providing to Freddie Mac, his office began receiving phone calls from real estate agents who represented buyers in Service Link transactions; these agents inquired about covenants, conditions, and restrictions ("CCRs") they knew existed in certain subdivisions but that were missing from Service Link's title searches. After some investigation, Plaintiff discovered that Service Link never included CCRs in its title commitments. Id. at ¶ 83. This prompted Plaintiff to review closed Service Link files for missing exceptions and compare Service Link title commitments to commitments he generated using Fidelity National Title's access to a property records databank known as SKLD. Plaintiff discovered that the majority of Service Link's title commitments omitted property-specific exceptions.
In January 2008, Plaintiff prepared a report detailing what he perceived to be Service Link's failure to follow Colorado statutes and regulations in performing closing services for Freddie Mac's properties and submitted the report to Hone. Hone instructed Plaintiff to send the report to Don Dubois, an executive with Fidelity National Financial. (Doc. #109 at ¶ 87). Dubois never responded.
In March 2008, Plaintiff instructed Service Link to begin including CCRs in title commitments, which cost $4.00 more per commitment. After several months, Service Link's managers advised Plaintiff that the extensive search was too costly based on the "National Platform" that Service Link had built. Thereafter, Plaintiff compiled several sets of comparisons using Fidelity Title Insurance commitments he had prepared and Service Link commitments for the same properties, attached the comparisons to his report, and forwarded a copy to Paul Perez, another Fidelity National Financial executive. (Doc. #109 at ¶ 90). Plaintiff received no response from Perez. In the three years that followed, Fidelity National Title executives demoted Plaintiff twice, reduced his monthly commission, revoked his car allowance, removed him from the Service Link account, restricted his access to SKLD, and decreased his monthly salary twice before ultimately eliminating his salary altogether. Plaintiff is currently employed with Fidelity National Title as a sales representative.
A. Rule 12(b)(6)
Under Rule 12(b)(6) a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must "accept as true all well-pleaded factual allegations... and view these allegations in the light most favorable to the plaintiff." Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). However, a plaintiff may not rely on mere labels or conclusions, "and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). As the United States Tenth Circuit Court of Appeals explained in Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007), "the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims." "The burden is on the plaintiff to frame a complaint with enough factual matter (taken as true) to suggest' that he or she is entitled to relief." Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Bell Atlantic Corp., 550 U.S. at 556). The ultimate duty of the court is to ...