BOSTON, MA — At oral arguments two weeks ago, the justices of the U.S. Supreme Court seemed skeptical of a homeowner’s claim that a kickback scheme violated the Real Estate Settlement Procedures Act without showing any actual injury was suffered.
In First American Financial Corp v. Edwards, plaintiff Denise Edwards purchased a home in Ohio. In the transaction, her settlement agent referred her title insurance to First American Title.
Edwards claims that her settlement agent was part of a network of individual title companies that had entered into exclusive referral agreements with First American that involved kickbacks that violated RESPA.
She sued under RESPA, seeking to certify the case as a class action. First American argued that Edwards lacked Article III standing to sue under the Act because she failed to show she suffered any injury in the form of a higher title insurance fee.
The district court disagreed, holding that Edwards can state a RESPA claim without suffering an overcharge.
The 9th Circuit affirmed, and the U.S. Supreme Court granted First American’s petition for certiorari.
‘A very broad position’
Aaron M. Panner, a partner in the Washington office of Kellogg, Huber, Hansen, Todd, Evans & Figel, said the constitution requires plaintiffs to show they have suffered a real harm before they can sue.
“The question for purposes of [the] ability of a plaintiff to come into court is to show that they have some injury in fact, that there is some harm, some way in which they were made worse off,” Panner said.
“Counsel, are you taking a very broad position?” Justice Sonia Sotomayor asked. “You seem to be arguing that Congress can’t ever presume damages or injury.”
“The plaintiff would have to allege in the complaint and then eventually show that there was some injury,” Panner said, adding: “It doesn’t have to be a financial injury.”
But several justices, including Justice Antonin Scalia, pointed to other areas of law where causes of action exist without concrete injuries, such as those involving breach of trust.
“Let’s assume that a trustee acts on its own interest and sells property [at] top dollar, so that the beneficiary hasn’t really been deprived of anything,” Scalia said. “What’s the injury to the beneficiary?”
“The trustee would have misappropriated an opportunity that belonged to the beneficiary,” Panner said.
“So Congress has no power to [allow] a cause of action on the basis of a statutory violation in which it is presuming injury?” asked Sotomayor.
“That is correct,” Panner said. “What Congress cannot do is … confer on a particular plaintiff an injury that is constitutionally sufficient under Article III.”
Scalia pointed out that breach of trust and contract actions can be maintained without proof of injury.
“I’m just saying that that concrete interest can be created by Congress instead of being created by contract,” Scalia said. “What difference does it make?”
‘No duty of loyalty owed’
Jeffrey A. Lamken, a partner in the Washington office of MoloLamken, argued on the homeowner’s behalf that anything which “breaches a duty of loyalty owed to you by taking a kickback or otherwise introducing a conflict into a transaction, you can sue on the basis of that alone.”
“There is no duty of loyalty owed here,” Scalia said. “It was just a law that said you cannot get – and I’m not even sure it’s proper to call it – a kickback.”
“Congress is entitled to elevate your interest in obtaining honest judgments or conflict-free advice to legal protection,” Lamken said.
“It’s not an agency relation here,” Scalia said. “It’s a customer going to somebody who is an independent contractor.”
“Congress imposed one component of the duty that applies to agents and fiduciaries across the board and that is: Don’t take kickbacks that undermine the incentive to obtain the best deal offered a consumer,” Lamken said.
“You said violation of a statute is injury in fact,” said Chief Justice John G. Roberts. “I would have thought that would be called injury in law. And what we say, as all our standing cases have, is that what is required is injury in fact.”
“A conflict-free referral is itself substantively more valuable than getting one laden by conflict. … Congress has entitled you to something of potential value that isn’t being denied to every other member of the public,” Lamken said.
“Potential value?” Roberts asked. “[Our precedent] said, and this is a quote: ‘Allegations of possible future injury do not satisfy the requirements of Article III.’ Potential value sounds to me like possible future injury.”
“In this sense, what you received is substantively less valuable,” Lamken said. “All you have to do is ask yourself: Would I value more advice from somebody who is playing it straight on the financial side or someone who is taking kickbacks?”