This case began as a putative class action with Gerry Galiano as the named plaintiff, which in turn emerged out of another class action that named many of the same defendants. The plaintiff alleged that various title insurance defendants, including the Title Insurance Rate Service Association, Inc. ("TIRSA"), injured the plaintiff by setting title insurance rates that included both agency commissions -- which the plaintiff characterized as "prohibited fees, kickbacks or other things of value" -- as well as insurance risk costs, or that the division of the title insurance fee into agency commission and risk premium was a prohibited "fee splitting 'other than for services actually performed.'"
The court noted that RESPA was enacted to safeguard home buyers from abusive practices resulting in in "unnecessarily high settlement charges." However, the court also noted that Congress did not intend to empower the federal courts to serve as "roving equity tribunals" governing real estate closings.
As you may recall, Sections 8(a) and 8(b) of RESPA prohibit the giving or receiving of referral fees, kickbacks, or any other "thing of value" in exchange for the referral of real estate settlement service business involving a federally regulated mortgage loan. However, Section 8(c) of RESPA includes a "safe-harbor" provision allowing "bona fide" fees for services actually rendered.
The Court held that the plaintiff conceded the defendants performed actual services, and this admission is "fatal" to his RESPA claim. Because the services at issue, such as performing title searches and examinations, are "essential" services when insuring title, they are "bona fide" as required under RESPA. The Court noted that, given this fact, the plaintiff was in essence contesting the amounts paid for title insurance services, and that RESPA is not intended to be a "price-control statute." The Court further held that the defendants only shared fees with third parties when those parties performed essential services, and this does not constitute an improper "split charge for which no service was performed."
In addition, the District Court held that the "filed-rate doctrine" would also bar the plaintiff's RESPA claim. This doctrine states that "rates filed with a regulatory agency, such as the title-insurance rates at issue are "per se reasonable and unassailable in judicial proceedings." These rates were filed by the title insurance defendants with the New York Insurance Department. As you may recall, the filed-rate doctrine prevents courts from substituting their judgment for that of a regulatory agency applying expertise to the area in question. The doctrine also prevents price discrimination among consumers, as non-suing consumers would be at a disadvantage to those who were awarded lower rates via a lawsuit.
Finally, the Court observed that there is no fraud exception to the filed-rate doctrine, as such an exception would simply be involving the courts in deciding what constitutes a "reasonable rate." The Court also noted that the Second Circuit has "not yet spoken" on the applicability of the filed-rate doctrine to RESPA "kickback claims," and the lower court was thus not bound by a "specific line of reasoning." The District Court held that because the kickback allegations had been rejected, as actual services were performed, the payments in question could not be "illegal kickbacks" that would preclude application of the filed-rate doctrine.
Ralph T. Wutscher
Kahrl Wutscher LLP
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