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Edwards v. First Am: good news for independents, a bust for me!
Slade Smith's Blog
June 28 2012

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."

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?