Last week, a federal appeals court in California revived a twice-failed bid for class certification by homeowners who claim to have been harmed by a group of so-called captive title agencies. The court said it would not defer to the expansive arguments raised by the Consumer Financial Protection Bureau in the agency’s friend-of-the-court brief. But, as it turns out, the court did exactly that. An upcoming ruling from the U.S. Supreme Court might ultimately change that result.
The case, Edwards v. First American Corporation, has a long and tortured history. Plaintiff Denise Edwards bought a home in Cleveland, Ohio, and used Tower City Title Agency, LLC, as her settlement agent. Before that, First American Title Insurance Company had purchased a 17.5% ownership interest in Tower City, which agreed as part of that deal, to refer future title business to First American. Edwards sued, claiming that, under the Real Estate Settlement Procedures Act (RESPA), the new ownership structure was an unlawful referral arrangement. First American had similar ownership interests with 179 other title agencies all over the country, Edwards asserted.
The trial court denied Edwards’ motion for class certification, but the United States Court of Appeals for the Ninth Circuit reversed that decision. First American then successfully persuaded the U.S. Supreme Court to hear the case on appeal. (Disclosure: In that proceeding, I wrote an amicus brief on behalf of other title insurance underwriters, urging the Supreme Court to accept the case.) The high court was supposed to decide whether the U.S. Constitution allows a plaintiff to sue when that person has suffered no money damages but instead complains only of a violation of statutorily-created rights. Yet, after the case had been fully briefed and set for ruling, the Supreme Court did an about-face and declined to hear the appeal, which it said it had “improvidently granted.”
On remand, the trial court again denied class certification and the Ninth Circuit again reversed. The CFPB intervened on appeal and argued that the trial court had fatally erred. While the Ninth Circuit declined to formally defer to the agency’s arguments, the appellate court warmly embraced them nonetheless. For example, the CPFB argued that evidence that a referral was caused by an allegedly unlawful arrangement—as opposed to being caused by an unrelated third-party, like a lender or broker—was immaterial. Instead, the existence of the arrangement itself taints all subsequent transactions regardless of any factors that may have ultimately affected an individual referral, the CFPB asserted. The Ninth Circuit agreed.
What is next for Ms. Edwards? Luckily for First American, the Supreme Court is set to decide once again, in the pending Spokeo case, if plaintiffs can sue if they have no money damages. Also, the trial court in Edwards must rule on the other arguments First American raised but were not part of its now-scuttled opinion.
For my part, I will award a $15 Starbucks gift card to anyone in the Edwards case who asserts the RESPA argument I came up with but no one else seems to like: that the statute does not allow class actions for alleged violations of Section 8, the anti-kickback provisions. Instead, RESPA permits class actions only for violations of its mortgage-servicing requirements, which are found in RESPA Section 6. The Latin phrase, expressio unius est exclusio alterius (meaning the expression of one thing implies the exclusion of the other), is particularly apt. If Congress had meant to allow class actions for alleged violations of RESPA Section 8, it certainly knew how to do that—because it expressly did so in RESPA Section 6. Since Congress did not provide for class actions in RESPA Section 8, courts should presume that the legislature intentionally omitted them.
Send me a copy of your filed brief and the gift card is yours.