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Slade Smith's Blog

Edwards v. First Am: good news for independents, a bust for me!
by Slade Smith | 2012/06/28 |

And here I was all excited because I thought there was GUARANTEED big news to write about today.

Well, so much for the notion that our little industry might make headlines for once.  The Supreme Court did not reach a decision in the RESPA Section 8 class action case First American v. Edwards.  The "decision" consisted of nine words: "The writ of certiorari is dismissed as improvidently granted."

Slade Smith's Blog ::

With the Supreme Court ObamaCare decision being released at the same time, I think it is safe to say that there will not be a lot of ink spilled in the national press over this decision.  This is still newsworthy in the title industry, however, in that the 9th Circuit Court of Appeals decision in favor of Edwards stands, along with a couple other appeals court rulings, as the highest court rulings on the general matter.

To review, Edwards alleges that she obtained title insurance from a title agency that was effectively paid an illegal kickback for referrals through a partial ownership arrangement between the agency and First American that overvalued First American's stake in the agency.  Edwards made no allegation that she was overcharged, that the title insurance she obtained was defective, or that she was personally harmed in any other way.  The defendants in the case, led by First American, asked the courts to dismiss the case, claiming that without claiming an injury to herself, Edwards lacked standing to bring a lawsuit.

The 9th Circuit Court of Appeals decision in the matter of Edwards' standing held that a plaintiff need not allege an injury to themselves in order to bring suit against a settlement service provider under RESPA's anti-kickback laws.  The plaintiff only needs to allege that the settlement service provider violated those laws.   According to the court, the injury is, in effect, established by the law, not by any particular damages established by the plaintiffs.  As far as how much a plaintiff can collect, RESPA establishes the amount by establishing statutory damages: three times the amount of the charge for the affected service.  This amount substitutes for a showing by the plaintiff attempting to establish how much they have been damaged.

I see this decision (or lack thereof) as the best possible outcome here for the independents who favor a strong interpretation of RESPA Section 8 in order that undue referrer influence and control in the title industry be kept as low as possible.  With the makeup of the court, a broad decision in favor of Edwards was not in the cards here.  As I have said before, I do not think Edwards has a particularly compelling case; the nature of the arrangement alleged does not contain the obvious conflict of interest inherent in many affiliated business arrangements, that makes these arrangements troubling to me.  If an underwriter wants to buy a title agency outright or pay any amount for any stake in an agency, I think it should be allowed to do so, because there is no unhealthy misalignment of the natural interests of an underwriter and an agent with respect to insuring title-- both have an interest in ensuring good title, all else equal-- and therefore there is no need to regulate such arrangements.  If the court was inclined to issue an affirmation of the statutory damages in RESPA Section 8 or a sweeping endorsement of the concept statutory damages overall, surely it could have chosen a more compelling case such as Carter v. Welles Bowen.  Actually, one can hope that the court punted on this case because they have decided to take up that case next session-- but that is dreaming on my part!

Why the court took up the case in the first place remains a puzzle.  Were the conservatives on the court planning to use the case to gut class actions, but one of the conservatives defected?  Did the liberals on the court have a majority, but not want to write a decision in support of Edwards, given her weak case?  All speculation on my part, but when the Supreme Court gives you one sentence non-decisions, what can you do but speculate?


936 words | 7097 views | 2 comments | log in or register to post a comment

Supreme Court

This was a result that no one expected. So it is in human events -- the totally unexpected becomes the result.

Justin Brookman, head of the privacy division at the Center for Democracy and Technology stated, “Apparently the case didn’t have the questions they wanted to answer”.

Inasmuch as some of the tech heavyweights sided with First American and wanted actual injury for actions to exist it might be that the "privacy issue" and other issues of this nature couldn't be reached here.

But I do disagree with your comment, "because there is no unhealthy misalignment of the natural interests of an underwriter and an agent with respect to insuring title-- both have an interest in ensuring good title, all else equal-- and therefore there is no need to regulate such arrangements".

If large underwriters can seize upon agents by paying outrageous amounts for the purpose of "exclusive agency contracts" this will result in fewer small underwriters able to compete. That, in turn, will reduce competitive forces which benefit us all when they are allowed to run unfettered.

But I think it's important to keep in focus the issue here is whether an actual injury must precede a claim. And the question again becomes whether rule-making can be such without injury to forestall certain behavior which may be deemed harmful.

Brookman went on, "the types of cases the tech firms hoped the Supreme Court’s decision would make go away involve “intangible” privacy harms. There’s no economic or security injury, but rather harm to a person’s right to privacy. ‘No-injury’ should be in a different basket than ‘privacy injury,’ but a broad ruling from the Supreme Court might have made it much harder for plaintiffs to file lawsuits for violation of their privacy. It’s probably a win [for privacy]”.


by Wyatt Bell | 2012/06/28 | log in or register to post a reply

Hi Wyatt,

Point taken.  To clarify, when I am talking about "unhealthy misalignment of interest", I am speaking from the perspective of the consumer, and with regards to the special kinds of misalignments of interest betwwen referrer an service provider that RESPA was intended to prevent.

Though competition from small independent underwiters may be beneficial, RESPA was never intended to protect small underwriters from competition from bigger rivals. It was intended to prohibit kickbacks paid by settlement service providers to referrrers of business engaged in other businesses with conflicting interests in transactions.  The kind of unhealthy outcome you bring up concerns an unhealthy level of consolidation, not a misalignment of interest between referrer and service provider. Lack of competition due to too much consolidation is a broad concern that could apply in any industry, and is not addressed by RESPA.


by Slade Smith | 2012/06/28 | log in or register to post a reply
Slade Smith's Blog

I'm the web developer for Source of Title.  Due to this role, I have become an interested observer of the title insurance industry and the broader issues arising out of real estate and finance.   I have also blogged extensively about politics under the pseudonym "skymutt" at the partisan Democratic blog Daily Kos and the non-partisan community Swords Crossed






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