Last week, the Consumer Financial Protection Bureau suffered a stinging defeat when a federal judge dismissed the bureau’s long-standing lawsuit against a Kentucky law firm. The battle is all but certain to continue on appeal, which will raise the stakes of this already-crucial case.

In the lawsuit, the CFPB accuses Borders & Borders, a family-owned law firm in Kentucky, of violating the Real Estate Settlement Procedures Act through a series of joint ventures that the firm created with lenders in the Louisville area. The joint ventures were title agencies that operated between 2006 and 2011. According to the CFPB, the joint-venture lenders hired Borders to close real estate transactions and, in turn, Borders referred the title-insurance portions of those transactions to the joint-venture title agencies. Despite strong proof of compliance with RESPA’s requirements for affiliated-business arrangements (AfBAs), the CFPB nonetheless accused Borders of participating in illegal referral arrangements.

The trial court correctly concluded that the joint ventures met RESPA’s requirements for AfBAs and, as a result, the case was dismissed. In opposing that outcome, the CFPB argued that the payments the joint ventures received were not bona fide and were therefore unlawful. But those arguments run contrary to the controlling law in the regional appellate circuit, the United States Court of Appeals for the Sixth Circuit. In 2013, in Carter v. Welles-Bowen Title, the Sixth Circuit struck down the CFPB’s ten-factor test for gauging whether an AfBA is a bona fide settlement services provider. (I was lead counsel for one of the defendants in that case.)

The CFPB will very likely appeal this ruling. The trial court included in its decision several alternative rulings, which will also be included in any appeal. My guess is that the Sixth Circuit will not think kindly of the CFPB’s effort to so easily sidestep Carter. The question at that point will be whether the trial judge properly found compliance with RESPA’s requirements for AfBAs. Marx Sterbcow, a well known RESPA lawyer, has predicted that the timing of the AfBA disclosures will continue to be a hotly contested issue. Since Borders did not make the disclosures until the day of closing, Marx is probably right about that.