Supreme Court Hears Arguments On Whether RESPA Violation Is An Injury In Fact

WASHINGTON, D.C. -- The U.S. Supreme Court heard arguments on Nov. 28 on whether a property owner suffered an injury in fact under the Real Estate Settlement Procedures Act (RESPA) when she bought title insurance from a company that allegedly paid kickbacks to get business from title insurance agents in Ohio (First American Financial Corp. v. Denise P. Edwards, No. 10-708, U.S. Sup.). 

(Transcript.  Document #85-111223-001T.)


Denise P. Edwards sued First American Financial Corp. in the U.S. District Court for the Central District of California.  She alleged that First American violated RESPA's anti-kickback provision by entering into exclusivity agreements with thousands of title insurance agencies that are authorized to sell First American title insurance policies.  Under RESPA's remedies, Edwards seeks treble damages for the $455 cost of her title insurance. 

The District Court denied First American's motion to dismiss for lack of standing.  On appeal, the Ninth Circuit U.S. Court of Appeals affirmed. 

Questions Presented 

The Supreme Court agreed to hear two questions:  whether the Ninth Circuit erred in holding that Edwards has standing to sue under RESPA when she does not claim that the violation affected the price, quality or other characteristic of the settlement services, and whether Edwards has standing to sue under Article III, Section 2, of the U.S. Constitution when she does not have an injury in fact.

 Justice Stephen G. Breyer questioned whether Edwards was suing because she was exposed to a transaction that Congress "said was harmful."  Aaron M. Panner of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, arguing for First American, said no, because Edwards paid the only rate for title insurance that is available under Ohio state law. 

Justice Ruth Bader Ginsburg said Edwards' claim "does seem to fit the bill of restitution, unjust enrichment cases, where the plaintiff doesn't have to prove any harm, she just gets back what the defendant should not have received."  Panner said Edwards is not "worse off" because there is no allegation that the insurance was lacking. 

'Prearranged, Tied Product' 

Justice Sonia Sotomayor said Panner seems to be arguing that "Congress can't ever presume damages or injury, that even in those cases plaintiff has to come in and prove that they would have paid less."  She continued:  "So what more does this plaintiff have to allege other than, if I had been told that this was a prearranged, tied product between the mortgage and the title company, but that I had a right to get an untied product even at the same price, and I would have exercised that right if I had known - would that be enough?" 

Panner said that is not what Edwards is alleging.  He said a "violation of the statutory right does not create an injury for constitutional purposes." 

Justice Breyer told Panner "there is no doubt that the plaintiff here suffered the harm that Congress sought to forbid.  That harm was being engaged in a transaction where the title insurance company was not chosen on the merits, but partly in terms of a kickback."  He asked what was unconstitutional about that. 

Panner said there was no injury in fact under Article III "and Congress cannot create that injury legislatively." 

Trust Violation? 

Justice Antonin Scalia asked if Congress could create a trust relationship between title insurance agents and property purchasers that would constitute an Article III injury in fact.  "If you become a trustee by contract you get one result, but if you are a trustee by government decree so that you must be a trustee, contract or not, somehow the situation changes?" he asked.  

Justice Elena Kagan said Panner's argument that there is a difference depending on the source of the law is "very much inconsistent with our case law."  She said her reading of Edwards' complaint is that she doesn't have to prove injury because "there's been a judgment made that these kinds of practices tend to decrease service and tend to increase price and therefore I don't have to prove those matters.  And that's the exact same judgment that is made in the trust cases, for example." 

Panner said that Congress could broaden the law to require enforcement of violations by the executive branch.  "But what Congress cannot do is to dictate in advance that a particular practice has cause injury to a particular plaintiff." 

'Duty Of Loyalty' 

Jeffrey A. Lamken of MoloLamken LLP in Washington, arguing for Edwards, said that breaches of a duty of loyalty by taking kickbacks have been a part of common law for which a plaintiff can sue without showing an economic harm. 

Justice Scalia told Lamken:  "There is no duty of loyalty owned here."  The justice added:  "I'm not even sure it's proper to call it a kickback.  It's a commission." 

Lamken told Justice Scalia that Congress gave consumers a right to "freedom from a particular conflict of interest, and that is the kickbacks that undermine their incentive to serve your best interest, that undermine their incentive to choose the insurer that provides the best quality and the best service." 

Justice Samuel A. Alito Jr. said he doesn't see a fiduciary relationship and doesn't see where a duty of loyalty comes from.  He added that he does not see an injury in fact. 

Permit Private Suits? 

Justice Scalia told Lamken:  "The issue isn't whether Congress can achieve that result [of legal protection].  It's whether they can achieve it by permitting private suits." 

Chief Justice John G. Roberts Jr. questioned whether Edwards suffered an injury in fact or an injury in law.  He said he thinks it is the latter. 

The chief justice also told Lamken that Edwards claim of "potential value" "sounds to me like possible future injury." 


Justice Anthony M. Kennedy told Lamken, "[i]t's circular for you to say that he was denied something that he is entitled to.  The question is whether there is an injury.  The Constitution requires an injury." 

Appearing on behalf of the federal government, Assistant Solicitor General Anthony A. Yang of the U.S. Department of Justice in Washington, told the court:  "When an individual has a statutory right to a kickback-free referral in a financial transaction, she participates in a particular financial transaction in which her right is violated and she pays money for the service unlawfully referred, she has sustained an Article III injury in fact based on, as this Court in its repeatedly explained test, an invasion of a legally protected interest." 

On reply, Panner told the justices that Edwards claims a violation of a duty, not an injury in fact. 

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