First American Financial Corporation v. Edwards

June 20, 2012
The Supreme Court’s imminent ruling on the availability of standing where plaintiffs allege violation of a federal statute but cannot establish an actual loss could have broad implications for financial services companies who are targets of the plaintiffs’ class action bar.

The Issue: Congress has enacted numerous statutes, including many that govern actions by financial services providers, that can be read to allow for private rights of action (including class actions) and statutory damages, even in situations where the plaintiff cannot establish actual harm to class members. One such example is Section 8 of the Real Estate Settlement Procedures Act (“RESPA”), which prohibits any person from giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). A private party who is “charged for the settlement service involved in [a] violation” may bring an action to recover “three times the amount of any charge paid for such settlement services.” Id. § 2607(d)(2), (5).

In First American Financial Corporation v. Edwards, No. 10-708, the Supreme Court will soon address the constitutional requirements for injury for a federal claim to be asserted under RESPA — specifically whether a homebuyer who alleges no actual loss from a title company’s violation of this provision nevertheless has constitutional standing to sue the title company. The specific issue is framed in terms of the RESPA violation, but the Court’s analysis is widely expected to have an impact in standing analyses for cases interpreting other federal statutes. In First American, the plaintiff filed a putative class action complaint alleging that First American’s business relationship with Tower City constituted a kickback in violation of RESPA. The plaintiff had obtained title insurance from Tower City, which issued policies on behalf of First American, when she purchased her home in Ohio. All title insurance companies in Ohio, however, charge the same rate as set by the Ohio Title Insurance Rating Bureau. Accordingly, the plaintiff could not allege that the alleged kickback affected the price of the services she received. She also did not allege that the alleged kickback affected the quality of the services. The plaintiff instead relied on the alleged statutory violation to establish an injury to herself and members of the purported class.

First American moved to dismiss the complaint on the grounds that the plaintiff lacked Article III standing and statutory standing under RESPA. The district court denied the motion, holding that RESPA gave the plaintiff certain rights, the violation of which conferred standing. The Ninth Circuit affirmed. Because the statute does not expressly limit recovery to those who have been overcharged, the Ninth Circuit held that any person who is charged for settlement services in violation of RESPA has established an injury sufficient to satisfy the minimum requirements for standing under Article III of the U.S. Constitution. The Supreme Court granted certiorari to determine whether, under the allegations presented, Article III’s injury-in-fact standing requirement was satisfied. Argument occurred in November 2011, and a decision is expected before the end of the Court’s term in June 2012.

Implications: The Ninth Circuit held that Congress created legal rights when it enacted a statute such as RESPA, and thus establishing a violation of those legal rights is sufficient to confer standing regardless of any actual harm to plaintiff as a result of the violation. Although the Supreme Court in theory could find a narrow ground to resolve the case, it is widely expected that the Court will address the injury-in-fact requirements for Article III standing when a lawsuit alleges a violation of a federal statute that involves statutory damages. Numerous statutes imposing obligations on financial services market participants contain a private right of action and a statutory damages remedy, so actions predicated on statutory violations have historically created significant risk exposure relative to the harm (or lack thereof) to the consumer.