Monday, August 31, 2015

Ninth Circuit Again Resurrects RESPA Class in Edwards v. First American

           Remember Edwards v. First American Corp., the putative class action under RESPA filed in 2007?  The Supreme Court granted cert in 2011 on the issue (as slightly expanded on this blog at the time): “Does [a private purchaser of real estate settlement services] have standing to sue under Article III, § 2 of the United States Constitution, which provides that the federal judicial power is limited to "Cases" and "Controversies" and which this Court has interpreted to require the plaintiff to "have suffered an 'injury in fact,'" Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), [in the absence of any claim that the alleged violation affected the price, quality, or other characteristics of the settlement services provided]?” 

            After full briefing and oral argument, the Supreme Court issued a one-sentence order in 2012 dismissing the writ as improvidently granted.  (Another case, Spokeo v. Robins, is currently pending before the Court for the October 2015 term and supposedly involves somewhat the same issue.)

             Anyway, after the Supreme Court dismissed the writ in Edwards, the case trundled along in the district court.  Plaintiffs moved for class certification of a “nationwide class consisting of all home buyers who entered into a federally-related mortgage transaction using one of thirty-eight title agencies that sold a minority ownership interest to First American and, in the same transaction, agreed to refer future title insurance business to First American.”  The district court denied class certification (again).

             The Ninth Circuit just reversed in part (again).  First, the court disagreed with the district court’s holding that “individual inquiries were required to determine whether First American overpaid for its ownership interests in each title agency.”   

RESPA grants a safe harbor for referral fees (some called them “kickbacks”) if the payment was for “goods or facilities actually furnished or for services actually performed.”  The Ninth Circuit held that First American’s payment for ownership interests in the title agencies was not a payment for goods, services, or facilities.  So for class certification purposes, no individual determinations need to be made for the safe harbor defense, because it does not apply as a matter of law.

            In addition, the court held that RESPA does not require plaintiffs to prove that “First American gave money to the title agencies only in consideration for the referral agreement” (emphasis added):

Here, Edwards alleges that First American paid the title agency a lump sum of money; in return, First American obtained two items: the title agency’s equity interest and the title agency’s agreement to refer future title insurance business.  Whether this transaction violates RESPA § 8(a) does not require inquiry into individual issues of payment. 

             Further, the court held that a common question of fact predominated over individual issues in those transactions that involved this alleged common scheme:

Here, Edwards contends that First American utilized a nationwide scheme of buying minority interests in the title agencies in order to secure remittance streams from the agencies’ future referrals.  Edwards points to evidence showing this common scheme, including several memoranda submitted to First American’s board of directors asking for approval of these transactions (referred to by the parties as the “Smoking Gun Memos”). 

             The Ninth Circuit agreed, though, with the district court that transactions involving twelve of the thirty-eight title agencies that were “not preexisting when First American decided to purchase their ownership interests” did not share this common question of fact and did not raise common issues sufficient for class action certification.

            The Ninth Circuit declined to address (because the district court had not yet addressed) “the remaining prerequisites of class certification, including whether a class action is a superior method of adjudication, whether Edwards and her counsel are adequate, and whether the putative class is ascertainable.”  The score?  “We affirm the district court’s denial of class certification in part as to the newly-formed title agencies, vacate the district court’s denial of class certification in part as to the remaining title agencies, and remand for further proceedings.”

            So two motions for class certification, two trips to the appellate court, nationwide discovery on class certification issues, and one trip to the Supreme Court . . . This case could easily pend ten years or more before it terminates.  Incidentally, in case you were wondering, the latest opinion makes no mention of the “standing” argument raised in the Supreme Court.

Class Actions, Recent Decisions | Permalink


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