First American Financial Corp. v. Edwards

Under Article III of the U.S. Constitution, before a court may hear a suit brought by a plaintiff, that plaintiff must establish standing. First American contends that a basic element of standing is that the plaintiff demonstrates an injury-in-fact caused by the legal wrong upon which the plaintiff sues. First American argues that the plaintiff, Denise Edwards, has no standing to sue because she did not allege an injury-in-fact. Edwards counters that, while standing requires an injury-in-fact, Congress may deem given violations of law de facto injuries, and that her standing arises from such an injury: a violation of RESPA. Edwards argues that RESPA is a valid exercise of Congress’s authority to elevate harms caused by kickbacks for referrals from real estate professionals to the status of a legal injury.

Fiduciary Duties and RESPA

First American argues that RESPA forbids certain kickbacks, but does not create a fiduciary relationship between customers and settlement service providers. First American asserts that a plaintiff could not claim any conflict of interest in a RESPA violation because Section 8(a) of the Act did not obligate the title agent to provide disinterested advice to the customer. Even if RESPA bestowed a fiduciary duty on real estate professionals, First American contends breaching that duty does not grant standing without some actual injury to the plaintiff’s interests. First American asserts that Edwards did not suffer any economic harm, such as overcharges or receiving less value, because the state regulates the prices title insurers may charge. Moreover, First American asserts that Edwards did not allege a real informational harm from not knowing about First American’s relationship with Tower City because RESPA does not create any statutory right to the information. Therefore, First American insists that lack of such knowledge is not an injury unless it causes harm to another legal interest.

Edwards responds that real estate professionals have a duty to provide their customers honest referrals, and that the breach of this duty provides standing without requiring any further inquiry into the harm the plaintiff actually suffered. Edwards contends that the implicit trust customers place in real estate professionals creates a fiduciary-like relationship. Edwards argues that when real estate professionals are paid kickbacks for their referrals to other companies, they violate their customers’ trust because they are conflicted between increasing their own compensation and providing value to the customer. Edwards rejects First American’s claim that a plaintiff must allege a harm other than a breach of duty, because courts have long recognized that conflicted transactions misalign incentives and harm customer interests. Edwards argues that such transactions fall under the “no-further inquiry rule,” which prevents courts from examining the terms of the transaction to see if the conflict actually affected price or quality. Edwards asserts that American courts adopted this rule from the English common law to allow suits without any proof of economic harm. Edwards argues the rule applies for cases brought under RESPA because kickbacks to real estate professionals represent a type of violation similar to those the original rule sought to address.

The Injury-In-Fact Requirement

First American argues that Article III requires plaintiffs to allege an actual injury, and that a court cannot grant standing based only on whether the plaintiff alleges a statutory cause of action. First American contends that the Supreme Court held in Summers v. Earth Island Institute that no federal statute may displace the injury-in-fact requirement. Further, First American argues that Supreme Court precedent confirms that, while a federal statute may authorize private citizens to sue in court for statutory violations, a violation alone will not confer standing.

First American insists that the Ninth Circuit based its ruling in this case on an erroneous reading of the Supreme Court’s holding in Warth v. Seldin. In its opinion, the Ninth Circuit relied on Warth for the proposition that in cases in which the plaintiff’s injury arises from invasion of a statutory right, an examination of whether Congress intended to grant persons like the plaintiff judicial relief should answer the question of standing. However, First American asserts the Ninth Circuit overlooked the argument that Warth maintained that standing still requires the plaintiff to allege how the practices violating the federal law harmed the plaintiff individually. First American argues that Warth stands only for the proposition that Congress may designate an injury where before there was none, not that the plaintiff is relieved from alleging an actual injury from the statutory violation.

Edwards responds that Congress may create new legal rights and define new injuries. Edwards contends the Supreme Court recognized in Lujan v. Defenders of the Wildlife that violation of these rights alone could satisfy Article III’s injury requirement. Edwards concedes that Article III places limitations on what Congress may cast as a new legal right. However, Edwards explains that this limitation only requires Congress to identify the injury as it relates to the possible plaintiffs, but does not limit what constitutes an injury. Edwards argues that RESPA satisfies Article III’s requirements because Congress both identified the injury involved and properly related that injury to the plaintiffs granted the new cause of action. Thus, Edwards argues that RESPA indicates that the arrangement between First American and Tower City compromised Edwards’s best interests, and, recognizing this as a concrete injury, RESPA confers the right to file suit.

Edwards further argues that an injury arising from the invasion of a legal right is not new to legal history. In particular, Edwards cites examples from tort and contract law where the court granted nominal damages to a plaintiff who proved that another party violated his rights but did not prove the actual harm inflicted, recognizing that the violation itself was the harm. Edwards further points to the accepted practice of fixed statutory damages as a means for the legislature to remove the focus on proving the actual harm and instead to focus on the invasion of a statutory right.

First American accepts that Congress may define new injuries, but asserts that Congress cannot declare statutory violations as per se injuries for standing purposes. Further, First American denies that RESPA declares kickbacks themselves to be an injury to the consumer. First American cites the statute’s language to argue that Congress only intended to eliminate kickbacks that “tend to increase unnecessarily the costs of certain settlement services.” First American insists that, because Congress intended to protect consumers from the negative economic effects of the kickbacks, the plaintiff must allege adverse economic harms to qualify for relief.

Edwards responds that Congress’ intent was not solely to eliminate the economic harms from kickbacks, but also to eliminate conflicts that decrease the quality of advice consumers receive. Edwards argues that, if Congress intended RESPA to prevent only injuries from overcharges caused by kickback referrals, then the statute would have explicitly required an overcharge before the plaintiff could recover damages. Instead, Edwards contends that Congress meant to protect consumers against both the costs and conflicts relating to kickbacks and thus the protected interest is not solely the economic effect of kickbacks, but the right to kickback-free services.