Foley & Lardner LLP on In re Carter; Confusion Over RESPA Standing Requirements Continues as Sixth Circuit Holds That Section 8 Plaintiffs Need Not Allege They Were Overcharged

Foley & Lardner LLP on In re Carter; Confusion Over RESPA Standing Requirements Continues as Sixth Circuit Holds That Section 8 Plaintiffs Need Not Allege They Were Overcharged


In 2009, the Sixth Circuit Court of Appeals became the first federal appellate court to squarely address the question of whether a plaintiff has standing to sue a settlement service provider under Section 8 of Real Estate Settlement Procedures Act (RESPA), even if he was not overcharged for settlement services. This commentary by Michael D. Leffel and Matthew R. Lynch addresses that decision by the Court in In re Carter, 553 F.3d 979 (6th Cir. 2009). They write:
 
RESPA generally prohibits, among other things, kickbacks and improper referral fees in the settlement closing industry. The Sixth Circuit acknowledged a widespread split in the district courts over whether a plaintiff has standing if they were not in fact overcharged for the settlement service in question. The plaintiffs in Carter did not allege in their complaint that they were overcharged in any way, but rather merely alleged a RESPA violation based solely on allegations that a portion of the fees they were charged for title insurance and settlement services was improperly used to pay a kickback to a third party in exchange for a referral of business. The Sixth Circuit held the plaintiffs had standing because they alleged they suffered an "individual, rather than collective harm" for the purposes of the standing requirement because "they themselves were given referrals sullied by kickbacks in violation of RESPA." With the other United States Courts of Appeals yet to weigh in on the issue, the Carter decision and the split in the lower courts demonstrates that, at least for now, a settlement service provider's potential exposure to private claims under RESPA depends not only on its actions, but on where in the country it operates.
 
     The Legal Question Facing the Carter Court. RESPA clearly prohibits real estate settlement service providers from giving "kickbacks" for referrals and, similarly, from charging and splitting fees for unperformed services. Confusion arises, however, when individuals (not HUD) seek to enforce these provisions through a private cause of action. RESPA provides a private right of action for a plaintiff who is "charged for the settlement service involved in the violation[.]" In private actions, courts often face a straightforward but difficult question: if the plaintiff does not allege any direct financial harm from the kickbacks--because the settlement service rates were at or below the market rate, or at or below the provider's filed insurance rate, for example--does the plaintiff have standing to sue? In other words, can a plaintiff suffer an "injury-in-fact" if the kickback did not result in some overcharge to him or her?
 
     The question of what constitutes an "injury-in-fact" sufficient to convey standing upon a Section 8 RESPA plaintiff has vexed courts for nearly a decade. Some courts hold a plaintiff lacks standing unless the rates charged for settlement services, including any unearned fees or kickbacks, exceeded the service provider's filed rate or the fair market value for the services. Other courts hold there is standing present even if a plaintiff is not overcharged. In doing so, those courts have utilized a variety of theories for finding standing satisfied, ranging from causing general harm to market competition, to promoting a market-wide deterrent to unnecessarily high settlement costs, to potentially harming the plaintiff based on a lack of impartiality in the referral to the settlement service.
 
(citations and footnotes omitted)
 

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