Must a consumer suffer actual harm to sue the settlement service providers involved in his or her real estate mortgage transaction for engaging in activities that violate the Real Estate Settlement Procedures Act (RESPA), or is the mere allegation of a statutory violation sufficient to get the consumer into court? The U.S. Supreme Court’s decision in First American v. Edwards not to consider the standing issue under RESPA leaves the settlement service industry at the mercy of the lower courts and effectively invites private plaintiffs to sue settlement service providers under RESPA whenever a statutory violation is suspected regardless of whether any harm has resulted.
Section 8(a) of RESPA prohibits kickbacks and referral fees among individuals and entities that provide services in connection with residential mortgage transactions, such as real estate agents and brokers, mortgage brokers and lenders, title insurance companies, and others. A consumer, however, may or may not suffer actual harm in the face of a kickback, and industry players have long disputed whether such harm is required for a private plaintiff to sue under RESPA. Courts also have been divided on the issue in connection with other consumer protection laws, with some courts holding that statutory injury is sufficient to create standing and other courts holding that a private plaintiff must suffer actual harm beyond the mere violation of a statute to proceed with a lawsuit.
In 2006, Ms. Denise Edwards purchased a home in Cleveland, Ohio. Her settlement agent, Tower City Title Agency LLC (“Tower”), referred her to First American Title for the purchase of title insurance. In 2007, Ms. Edwards filed a class-action complaint against First American in the Central District of California. She claimed that First American had violated Section 8(a) of RESPA by paying $2 million to Tower (in the form of both an excessive price for First American’s ownership interest in Tower, and an additional cash payment) in return for exclusive agency referrals. Edwards v. First American Corp., 517 F. Supp. 2d 1199 (C.D. Cal. 2007). Ms. Edwards, however, did not allege that the arrangement had caused her any economic or other harm (nor could she given that the price of title insurance is regulated in Ohio). Neither the price nor the quality of Ms. Edwards’ title insurance was affected. Thus, First American filed a motion to dismiss the complaint for lack of subject matter jurisdiction, arguing that the plaintiff had failed to plead any injury as required by Article III of the U.S. Constitution and lacked standing to sue under RESPA because she suffered no harm.
The district court denied First American’s motion, holding that RESPA effectively grants a consumer the “right to be free from referral-tainted settlement services” and that a violation of such right is a “statutory injury” that creates standing. On appeal, the Ninth Circuit agreed with the district court and held that the damages provision in RESPA gives rise to a statutory cause of action regardless of whether an overcharge occurred. Edwards v. The First American Corporation, 610 F.3d 514 (9th Cir. 2010). The Ninth Circuit relied on the statutory language providing that any person “who violate[s]” the anti-kickback provisions shall be liable “to the person or persons charged for the settlement service involved in the violation in an amount equal to three times the amount of any charge paid for such settlement service.” 12 U.S.C. § 2607(d)(2). The court reasoned that the statutory language does not limit liability to instances where the plaintiff is overcharged and that the mere existence of the illegal kickback arrangement constituted an injury in fact for standing purposes. In other words, as the district court said, a consumer has a right to engage in a transaction free from the taint of any referral fees. The court held that RESPA provided the plaintiff a statutory cause of action and that the plaintiff had standing to pursue her claims. First American then brought its motion all the way to the U.S. Supreme Court.
The U.S. Supreme Court granted cert to determine the question of whether a purchaser of settlement services has standing to sue under RESPA in the absence of injury under Article III, § 2 of the United States Constitution. First American v. Edwards, 131 S. Ct. 3022 (2011). Interested third parties filed over 30 amicus curiae (“friend of the court”) briefs, with each author taking a side. In many instances, briefs were filed by entities unrelated to the real estate related industries. For example, a number of entities (e.g., Facebook) filed amicus curiae briefs siding with First American and urging the Court to require more than the mere conclusory assertion of a statutory violation to get into court, while other entities (e.g., the National Association of Independent Land Title Agents) filed amicus curiae briefs siding with Denise Edwards and arguing that the private right of action is a continuing deterrent to illegal referral fee arrangements. The arguments have been heated to say the least.
On June 28, 2012, however, the U.S. Supreme Court neglected to take a side. Instead, it issued a Per Curiam opinion stating only: “The writ of certiorari is dismissed as improvidently granted.” First American v. Edwards, No. 10-708 (June 28, 2012). While the Court did not offer any further explanation, the Court generally will dismiss a petition in this manner when it has decided against any further review of the case; for example, when certiorari initially was granted as the result of a mistake or after oral argument the Court concludes that the case did not raise a clear-cut constitutional issue, and the Court believes that it should not have accepted the case in the first place. The dismissal has the same effect as an initial denial of the petition. Thus, the Ninth Circuit decision granting Denise Edwards standing to sue will remain in tact.
The Court’s dismissal likely will have wide-reaching effects, not just on lawsuits under RESPA and other federal consumer protection statutes, but in connection with any federal statutes that do not require a showing of actual harm.