By Mary Massaron Ross, Esq., and Hilary A. Ballentine, Esq., Plunkett Cooney

For centuries, access to the federal court system has been regulated by a doctrine called standing.

Derived from the Constitution’s separation of the three branches of government, the standing doctrine limits the federal judiciary’s power to resolving only “cases” and “controversies.”

Article III standing, as interpreted by the U.S. Supreme Court, requires a plaintiff to show personal injury, “fairly traceable” to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief.¹   

In other words, standing requires a live contest.²  Abstract injury will not suffice.

OVERVIEW OF FIRST AMERICAN V. EDWARDS 

In the last decade, standing has been a primary issue in nearly 20 Supreme Court decisions and, in many of these cases, the court was divided on whether standing existed.³  

This term, the doctrine is once again at the front line of the Supreme Court’s docket.  In First American Financial Corp. v. Edwards, No. 10-708, the court must decide whether the legislature may confer standing by statute, circumventing the actual injury requirement.

The statute at issue in First American is the Real Estate Settlement Procedures Act,⁴ which provides relief for litigants who show that their settlement services violated the act’s anti-kickback provision.

Plaintiff Denise P. Edwards bought a home in Cleveland, and First AmericanFinancial Corp.provided the title insurance.

She sued First American in the U.S. District Court for the Central District of California on behalf of a nationwide class, alleging that the firm paid millions of dollars to individual title companies in exchange for exclusive referral agreements.  She said First American violated RESPA’s anti-kickback provision.

Edwards sought monetary damages for this alleged statutory violation, though she was not charged more for title insurance because of the alleged kickback and exclusivity agreement.

First American moved to dismiss the class action complaint for lack of subject matter jurisdiction, arguing that Edwards lacked standing to pursue a RESPA claim because she did not suffer any injury.

In support of its request for dismissal, First American said that Ohio regulates the cost of title insurance so that all insurance providers charge the same price.

Edwards conceded this fact, but maintained that RESPA entitled her to bring a suit for monetary damages under its anti-kickback provision.

First American objected, arguing that the constitutional doctrine of standing requires an actual injury and that Congress, in enacting RESPA, had no authority to abrogate, override or change that requirement.

The district court ultimately denied First American’s motion, saying that the plain language of the phrase “any charge paid” did not limit damages to overcharges.

In concluding that Edwards had standing to pursue her claim, the district court also relied on RESPA’s legislative history and the 1983 amendment replacing the phrase “thing of value” with “any charge paid.”

According to the District Court, “[b]y its 1983 amendment, Congress created a right to be free from referral-tainted settlement services as demonstrated by both the statute’s text and legislative history.  If Edwards can prove her claim, there is a statutory injury fairly traceable to defendants’ action and redressable by a favorable decision.”⁵ 

First American appealed, but the 9th U.S. Circuit Court of Appeals agreed that Edwards had standing to pursue the class suit.

The appeals court said, “Because the statutory text [of RESPA] does not limit liability to instances in which a plaintiff is overcharged, we hold that plaintiff has established an injury sufficient to satisfy Article III.”⁶ 

The panel took a similar statutory interpretation approach to determine whether Edwards demonstrated an injury sufficient to satisfy Article III.  It reasoned that use of the term “any charge paid” demonstrated “that charges are neither restricted to a particular type of charge, such as an overcharge, nor limited to a specific part of the settlement service.”⁷ 

The court also emphasized that no-fee situations like the one at issue here “were the impetus behind Congress’ enactment of the 1983 amendment.”⁸ 

Additionally, the 9th Circuit highlighted that its ruling coincided with decisions from the 3rd and 6th circuits on similar issues.⁹ 

PARTIES’ POSITIONS ON APPEAL

The Supreme Court accepted First American’s plea to re-examine the standing issue.

On appeal, First American cited Article III and its specification that the federal judiciary resolve only “cases” and “controversies.”

First American said the Supreme Court, most notably in Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), has interpreted Article III to require a plaintiff to “have suffered an ‘injury in fact.’”

The injury-in-fact requirement is a “hard floor” that “cannot be removed by statute,” First American said.¹⁰ 

Congress granting a right of action against the defendant under RESPA cannot alone satisfy the actual injury requirement, First American said.

Appealing to the textualists on the Supreme Court, First American said a reversal would not render RESPA meaningless.  The statutory scheme includes civil enforcement provisions permitting state or federal regulators to seek broad injunctive relief to guard against violations and protect consumers.¹¹ 

On the other side, Edwards cited the statutory text of RESPA, which she argued was a “permissible exercise” of the legislature’s authority to “enact statutes creating legal rights, the invasion of which creates standing.”¹² 

Edwards said that Congress, in enacting RESPA, properly elevated “concrete, de facto injuries that were previously inadequate in law” to “the status of legally cognizable injuries.”¹³ 

In Edwards’ view, this so-called “no-further-inquiry rule” is particularly appropriate in cases such as this, involving conflicts of interest, where economic harm is hard to detect.

AMICI WEIGH IN

With so much to lose and little to gain if the Supreme Court affirms the lower courts’ opinions, the title insurance industry has come out as amici in strong support of First American.

Real estate brokerage firms conduct a substantial number of title closings through companies with which they have similar affiliations as the petitioners.  If the 9th Circuit’s decision is affirmed, each of these closings runs a risk of becoming the basis for a lawsuit under RESPA.

Furthermore, the other affiliated entities in the mortgage process — including mortgage lenders, real estate agents, builders and attorneys — could be a separate basis for liability.¹⁴  

The threat of debilitating lawsuits may extort colossal settlements from companies that are not liable.

This, other amici argue, would produce a completely unjust result.

They point out that affiliated business arrangements — whether cross-ownership interests, referrals or endorsements — have a long, accepted history under RESPA and provide consumers with significant benefits, including efficiency, accountability and even cost savings.¹⁵ 

Amici in favor of Edwards, however, argue that a reversal would impermissibly restrict Congress’ authority “to create judicially enforceable substantive rights to carry out the purposes of consumer protection schemes” like RESPA.¹⁶   

Relying on Congress’ ability to define new legal rights, they argue that Congress had authority to confer standing through RESPA to vindicate an injury caused to a plaintiff.

They say requiring a plaintiff to establish consequential damages beyond violation of a statutory right in order to satisfy standing would directly contradict the Supreme Court’s 1982 decision in Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982).

In Havens Realty, the court ruled that a plaintiff under the Fair Housing Act need not show consequential damages even where the plaintiff is a “tester” with no intention of buying or renting a home.¹⁷ 

As a matter of policy, amici in favor of the plaintiff argue that the court should defer to Congress’ judgment that kickbacks in real estate transactions harm all consumers, even if the alleged kickback does not cause them to pay a higher price.

Another branch of the plaintiff’s amici platoon, comprised of reporters and advisers to the Restatement of Restitution and Unjust Enrichment, argues that the principles of unjust enrichment and restitution require the Supreme Court to affirm the 9th Circuit’s decision because these principles are based on a defendant’s gain rather than a plaintiff’s loss.

Therefore, this case is no different from the many causes of action for unjust enrichment that do not require proof of compensable injury, these amici say.

These amici also argue against a universal standing requirement, maintaining that the test for standing differs based on the type of relief sought.

Here, where the relief sought is for restitution and unjust enrichment, the amici urge the Supreme Court should not focus on compensable injury or economic loss.¹⁸  

They instead propose the injury requirement in these types of cases should be “abandoned” or “clarified” to fit within the law of restitution and unjust enrichment.

BEYOND RESPA

Although the Supreme Court considers Edwards’ case in relation to RESPA, the act is one of many federal statutes in which Congress has authorized suits based on a statutory violation alone.

Other statutes include:

•           Telephone Consumer Protection Act, 47 U.S.C. § 227(3).

•           Fair Credit Reporting Act, 15 U.S.C. § 1681n.

•           Truth in Lending Act, 15 U.S.C. § 1640.

•           Fair Debt Collection Practices Act, 15 U.S.C. § 1692.

•           Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C. § 1854.

Accordingly, this case is but one battle in a much larger war over the propriety of legislatively conferred standing and whether the legislature can circumvent Article III’s actual injury requirement.

The Supreme Court’s decision may endorse the Framers’ limit on the judiciary’s power of resolving only “cases” and “controversies,” or it may seriously weaken the doctrine of standing by finding a mere statutory violation sufficient for actual injury.

If First American can persuade the Supreme Court that a statutory violation under RESPA does not suffice to confer standing, all plaintiffs will have to show actual injury in order to initiate a RESPA claim.

This would be an impossible threshold for Edwards to meet in this case because she has conceded that she was not charged more for title insurance due to the allegedly illegal agreements.

If the Supreme Court rules this way, however, its holding would presumably extend to any other statute that provides a statutory cause of action.

On the other hand, the consequences if the Supreme Court affirms the 9th Circuit’s decision are much more far-reaching, and perhaps more troubling, though less defined.

If Edwards wins this battle, class-action litigants — or perhaps more accurately, their creative and energetic attorneys — will be positioned to win the war over the standing doctrine.

With a lower standing threshold, class certification will become much more likely if a plaintiff need only prove an abstract violation of a legal duty, as opposed to an actual injury, to institute a class-action suit.¹⁹   

Placed in the wrong hands, this novel weapon of “no-injury” class actions could produce mass casualties.

The battlefield is already wrought with crippling costs attendant to defending against class-action suits, and the rise of electronic discovery has further driven up these costs over the last several years.

In addition, what would have been modest suits may elicit large settlements in a no-injury class-action environment.

Therefore, easier access to the class mechanism in this manner could create problems for the frequent targets of class-action suits, particularly mass-market businesses.

CONCLUSION

Though the battle for standing will be fought on RESPA ground, the aftermath may reach far beyond.

If the Supreme Court abrogates the actual injury requirement in these circumstances, the American public is likely to face higher premiums for title services, among other things.

Accordingly, to the extent the American public views this case as nothing more than a way to hold companies to a higher degree of accountability for their conduct, it should think again.

To the contrary, the case implicates the vitality of a critically important structural protection: the standing doctrine.  It creates the possibility of a series of class-action lawsuits in which lawyers representing the plaintiffs earn enormous fees from litigation when no plaintiff even suffered harm.

NOTES

1          Friends of the Earth Inc. v. Laidlaw Envtl. Servs., 528 U.S. 167, 180-81 (2000).

2          Felix Frankfurter, A Note on Advisory Opinions, 37 Harv. L.R. 1002, 1006 (1924).

3          Am. Elec. Power Co. v. Connecticut, 131 S. Ct. 2527 (2011); Ariz. Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436 (2011); Bond v. United States, 131 S. Ct. 2355 (2011); DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006); Davis v. Fed. Election Comm’n, 554 U.S. 724 (2008); Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1 (2004); Gratz v. Bollinger, 539 U.S. 244 (2003); Hein v. Freedom From Religion Found., 551 U.S. 587 (2007); Horne v Flores, 129 S. Ct. 2579 (2009); Kowalski v. Tesmer, 543 U.S. 125 (2004); Lance v. Coffman, 549 U.S. 437 (2007); Massachusetts v. EPA, 549 U.S. 497 (2007); Nike Inc. v. Kasky, 539 U.S. 654 (2003); Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316 (2008); Salazar v. Buono, 130 S. Ct. 1803 (2010); Sprint Commc’ns Co. v. APCC Servs., 554 U.S. 269 (2008); Summers v. Earth Island Inst., 555 U.S. 488 (2009); Thompson v. N. Am. Stainless, 131 S. Ct. 863 (2011); Utah v. Evans, 536 U.S. 452 (2002).

4          12 U.S.C. § 2607.

5          Edwards v. First Am. Fin. Corp., 517 F. Supp. 2d 1199 (C.D. Cal. 2007).

6          Edwards v. First Am. Fin. Corp., 610 F.3d 514, 517 (9th Cir. 2010).

7          Id. 

8          Id. 

9                      Id. at 518, citingCarter v. Welles-Bowen Realty, 553 F.3d 979, 989 (6th Cir. 2009), and Alston v. Countrywide Fin. Corp., 585 F.3d 753, 755 (3d Cir. 2009).

10        First Am. Fin. Corp. v. Edwards, No. 10-708, 2011 WL 3706110 (U.S. Aug. 22, 2011), Brief for Petitioners at 12, 16, 19, citingSummers v. Earth Island Inst., 129 S. Ct. 1142, 1151 (2009).   

11        Id. at 45, citing 12 U.S.C. § 2607(d).

12        First Am., No. 10-708, 2011 WL 4872040 (U.S. Oct. 11, 2011), Brief for Respondent at ii, 38, citingLujan v Defenders of Wildlife, 504 U.S. 555, 578 (1992) (quotation marks omitted).

13        Id. at 15, 18, quoting Lujan, 504 U.S. at 578.

14        First Am., No. 10-708, 2011 WL 3821402 (U.S. Aug. 29, 2011), Brief for the American Land Title Association as Amicus Curiae Supporting Petitioners.

15        Brief for Real Estate Services Providers Council, Inc. as Amicus Curiae Supporting Petitioners, First American Financial Corp. v. Edwards (No. 10-708), 2011 WL 3857214 (Aug. 29, 2011).

16        First Am., No. 10-708, 2011 WL 4998354 (U.S. Oct. 17, 2011), Brief for Public Law Professors as Amici Curiae Supporting Respondent.

17        Id. 

18        First Am., No. 10-708, 2011 WL 5015109 (U.S. Oct. 18, 2011), Brief for Reporters and Advisors to Restatement (Third) of Restitution and Unjust Enrichment as Amici Curiae Supporting Respondent.

19        First Am., No. 10-708, 2011 WL 3821403 (U.S. Aug. 29, 2011), Brief for the Association of Global Automakers Inc. and the Alliance of Automobile Manufacturers as Amici Curiae Supporting Petitioners.

Mary Massaron Ross, the appellate practice group leader at Plunkett Cooney in Detroit, has handled hundreds of appellate matters before state and federal appellate courts throughout the Midwest.  She is president elect of DRI, co-chair of the Michigan Appellate Bench Bar Conference Foundation and a fellow in the American Academy of Appellate Lawyers.  Hilary A. Ballentine, an appellate attorney with the firm, sits on the board of directors of the Michigan Defense Trial Counsel, is a barrister on American Inn of Court for the University of Detroit-Mercy School of Law, and is an active member of DRI.