U.S. Supreme Court Agrees To Take Up Suit Over Unearned Fees For Settlement Services

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on Oct. 11 agreed to review a 2-1 ruling from the Fifth Circuit U.S. Court of Appeals finding that Quicken Loans Inc. did not violate the Real Estate Settlement Procedures Act (RESPA) when it charged unearned fees for settlement services (Tammy Freeman v. Quicken Loans Inc., No. 10-1042, U.S. Sup.).


The high court rendered its decision after discussing the case during its Oct. 7 conference and after the solicitor general filed a brief on the issue on Aug. 25. 

Tammy and Larry Freeman, Paul and Irma Smith and John and Stacy Bennett allege that Quicken violated RESPA Section 8(b) by charging them loan discount and loan origination fees.  The plaintiffs contend that the fees were unlawful because no services were performed.  The plaintiffs each filed suit in Louisiana state court, seeking statutory damages for violation of RESPA and state law claims.  Quicken removed the actions to the U.S. District Court for the Eastern District of Louisiana, and they were consolidated.  Quicken moved for summary judgment, arguing that because the fees were not split with another party, the plaintiffs' RESPA and state law claims were not actionable.  Judge Carl Barbier agreed and awarded summary judgment to Quicken.  The plaintiffs appealed.

A Fifth Circuit panel noted that there is a divide among the circuit courts on whether unearned, undivided fees are actionable claims under RESPA.  Upon review of the statutory language, the majority held that Section 8(b) "is unambiguous and does not cover undivided claims."  Moreover, the majority, which comprised Chief Circuit Judge Edith H. Jones and Circuit Judge Jennifer Walker Elrod, held that Section 8(a) requires that a kickback involve "two culpable actors."

Senior Circuit Judge Patrick Higginbothom dissented, saying the majority should have looked to the Second Circuit's ruling in Cohen v. JP Morgan Chase & Company (498 F.3d 111, 114-26 [2007]) to determine that unearned undivided fees violate RESPA Section 8(b).

The plaintiffs filed a petition for a writ of certiorari on Feb. 15. 

[Editor's Note:  Full coverage will be in the October issue of Mealey's Litigation Report: Mortgage Lending. For all of your legal news needs, please visit] 

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