Advertising Material
February 24, 2009
HRO CONTACTS Title Industry
CLASS ACTION CLAIM UNDER RESPA NEED NOT ALLEGE ACTUAL MONETARY INJURY
In a recent appellate court case, Carter v. Welles-Bowen Realty, Inc., 2009 Fed. App. 0024P (6th Cir.), the United States Court of Appeals for the Sixth Circuit reversed the District Court’s dismissal of the Carters’ claims under Section 2607 of RESPA (Real Estate Settlement Practices Act). The Carters had filed an action, and sought class certification, alleging violation of RESPA’s anti-kickback and anti-fee-splitting provisions in the business arrangement between WB Title and Chicago Title Insurance Company. The District Court reasoned that the Carters did not allege any specific damage and therefore lacked standing to bring a claim under Section 2607 of RESPA. Reversing and remanding the case, the Circuit Court held that a plaintiff under ERISA need not allege a concrete injury such as an overcharge in order to have sufficient standing to assert a RESPA violation.
ARIZONA
Joseph William Kruchek Partner joseph.kruchek@hro.com 480.624.4530
Dena M. Cruz Senior Counsel dean.cruz@hro.com 415.268.1975 Scott D. Rogers Partner scott.rogers@hro.com 415.268.1990
CALIFORNIA
The Alleged RESPA Violations
The Carters executed a residential real estate purchase contract for a home in Perrysburg, Ohio. At the suggestion of WB Realty (the Carters’ real estate agent in the transaction), the Carters utilized WB Title for real estate settlement services to close their purchase. WB Realty was co-owned by WB Investors and Chicago Title. WB Title was also co-owned by WB Investors and Chicago Title. The title policy premiums and other costs and expenses of the closing were typical and reasonable, and no overcharge claims were made. The Carters alleged that WB Title was a sham operation in that it did not perform any settlement services for the closing and all settlement work was done by Chicago Title. They alleged that WB Title violated RESPA’s anti-kickback and anti-fee-splitting provisions because the entity itself does not and cannot provide settlement services. The Carters also claim that the affliated business arrangement allows Chicago Title to provide illegal kickbacks to WB Realty in exchange for the referral of settlement work. Chicago Title contended that WB Title constituted a permissable “affliated business arrangement” as that term is defined by 12 U.S.C. § 2602(7), and that it could not violate Section 2067(a) or (b) because it satisfies a safe-harbor provision contained in 12 U.S.C. § 2607 (c)(4) (A)-(C) for certain referrals.
Robert A. Holmes Partner bob.holmes@hro.com 303.866.0234 Richard D. Flint Partner richard.flint@hro.com 801.323.3251
COLORADO
UTAH
The Carters’ Standing to Maintain an Action Under RESPA
The Carters sought class certification for all individuals who had been referred by WB Realty to WB Title and had paid WB Title for real estate settlement services. Chicago Title argued that the Carters lacked standing because it could not meet the three-prong test for Article III standing set forth in Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130. Relying on the holdings in Morales v. Attorneys’ Title Insurance Fund, 983 F. Supp. 1418 (S.D. Fla. 1997) and Moore v. Radian Group, Inc., 233 F. Supp.2d 819 (E.D. Tex. 2002), aff’d, 69 Fed. Appx. 659 (5th Cir. Sept. 10, 2002), Chicago Title argued that the Carters could not show that they suffered economic damages or a concrete “injury in fact” because they had not been overcharged for settlement services. The Carters, relying on the holding in Kahrer v. Ameriquest Mortgage Co., 418 F. Supp. 2d 748 (W.D. Pa. 2006), argued that RESPA creates a “right to a free and competitive marketplace,” and Chicago Title’s interference with this right constituted an “injury in fact.”
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Recognizing a split among the various District Courts on the standing issue, the Circuit Court independently analyzed the statutory language of RESPA, reviewed the legislative history and purpose of RESPA, and evaluated the applicable HUD regulations governing RESPA violations. Ignoring the balance struck by the lower court between “advancing” the express purpose of RESPA while “respecting” the constitutional requirement of an injury in fact, the Court concluded that RESPA created an individual right to receive referral services untainted by kickbacks or fee-splitting, and that the Carters had standing to pursue damages for the alleged RESPA violations because they themselves had been given a referral allegedly tainted by kickbacks or unearned fees.
The Potential Impact
In the past, where no overcharges or other financial injury resulted from business arrangements similar to the ones underlying the Carter case (such arrangements are not uncommon in many parts of the country), RESPA claims were often not asserted because of the absence of individual damages and the significant challenges of obtaining class certification. As this case potentially removes one of the more significant barriers to class certification, the title industry should be prepared for a new wave of RESPA class actions.
This article is a periodic publication of Holme Roberts & Owen LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances, nor is it intended to address specific disclosure or compliance issues that may arise in particular circumstances or provide an exhaustive discussion of the topics discussed herein. The contents are intended for general informational purposes only, and you are urged to consult counsel concerning your own situation and any specific legal questions you may have. For further information regarding the topics described herein, please contact any of the attorneys listed on the rights side of page one.
1700 Lincoln Street, Suite 4100 I Denver, Colorado 80203-4541 tel 303-861-7000 I fax 303-866-0200 I www.hro.com