The U.S. Court of Appeals for the Second Circuit recently upheld the dismissal of a putative class action alleging that the defendant title insurance companies supposedly paid illegal kickbacks in violation of Section 8(a) of the federal Real Estate Settlement Procedures Act, where the complaint merely alleged supposedly unreasonably high insurance rates.
A copy of the opinion is available at:
Plaintiffs filed a putative class action suit against various title insurance companies ("Defendant Title Companies") alleging that Defendant Title Companies sold title insurance to Plaintiffs at supposedly inflated rates as a result of illegal "kickbacks" in violation of the anti-kickback provision of the federal Real Estate Settlement Procedures Act,12 U.S.C. §2607(a) ("Section 8(a)"). Plaintiffs sought injunctive relief and treble damages based on the amount of any charge paid for allegedly unearned settlement services.
In addition to outlining how title insurance rates are determined in New York and bringing claims for allegedly unreasonably high title insurance rates under federal antitrust law, the New York Business Law, and common law unjust enrichment principles, Plaintiffs alleged that: (1) "[d]efendants paid illegal kickbacks to title agents[, lawyers, brokers, and lenders,] for referrals and gave fees and other things of value to others for unearned settlement services and settlement services not provided"; (2) "roughly 85 percent of total title insurance premiums" consist of kickback and other illegitimate costs"; and (3) "[t]itle insurers get business by encouraging those making the purchasing decisions . . . to direct business to that insurer."
Ruling in part that Plaintiffs failed to state a plausible claim under RESPA, the district court dismissed. On appeal, the Second Circuit affirmed.
As you may recall, Section 8(a) provides: "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding . . . that business incident to or a part of a real estate settlement service . . . shall be referred to any person." 12 U.S.C. § 2607(a). In addition, RESPA's "safe-harbor provision" provides that Section 8(a) shall not be construed as prohibiting payments by a title company for goods, facilities actually furnished, or services actually performed. 12 U.S.C. § 2607(c).
Noting that Plaintiffs' complaint was largely based on allegations that title insurance companies generally charged unreasonably high title insurance rates, the Second Circuit pointed out that even though RESPA provides a private right of action to persons improperly charged a settlement fee, RESPA is not intended to serve as a means to regulate the reasonableness of title insurance rates.
Thus, in further observing that a Section 8(a) violation requires: (1) payment or thing of value; (2) given and received pursuant to an agreement to refer settlement business; and (3) an actual referral, the Court ruled that Plaintiffs' complaint failed to contain sufficient factual information to state a plausible claim for relief under this test. See Ashcroft v. Iqbal, 556 U.S. 662 (2009)(plausibility requires more than mere possibility that a defendant acted unlawfully).
In so ruling, the Second Circuit noted that the complaint lacked any specifics as to dates, times, amount of alleged violations, and references to referral agreements and business referrals. The Court also pointed out that while not necessary to sustain a section 8(a) claim, there were no allegations that Defendant Title Companies charged any of the Plaintiffs a rate inflated by the alleged kickbacks.
In so ruling, the Second Circuit noted that the complaint lacked any specifics as to dates, times, amount of alleged violations, and references to referral agreements and business referrals. The Court also pointed out that while not necessary to sustain a section 8(a) claim, there were no allegations that Defendant Title Companies charged any of the Plaintiffs a rate inflated by the alleged kickbacks.
Accordingly, the Second Circuit concluded that without specific facts as to the alleged kickback schemes that would allow a plausible inference that Defendant Title Companies paid kickbacks for business referrals in violation of Section 8(a), Plaintiffs' complaint was effectively just a claim of industry-wide overcharges that the district court properly dismissed.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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