First American Financial Corp. v. Edwards

LII note: The U.S. Supreme Court has now decided First American Financial Corp. v. Edwards.


Whether a plaintiff who identifies a violation of the Real Estate Settlement Procedures Act has standing under Article III when the plaintiff is among the category of victims that Congress sought to protect but does not allege a particular, concrete harm arising from the cause of action.

Oral argument: 
November 28, 2011

In this case, the Supreme Court will decide whether a plaintiff has Article III standing to sue under the Real Estate Settlement Procedures Act (“RESPA”) when the plaintiff alleges no injury-in-fact. Respondent Denise Edwards contends that she has standing because, through RESPA, Congress identified a specific harm resulting from a conflict of interest between title insurance service firms and title agents who enter exclusive agreements to exchange referrals for kickbacks. Edwards argues that Congress tethered that harm to a certain class of plaintiffs, which includes Edwards. Respondent First American Financial Corporation rejoins that a plaintiff must allege a personal and concrete harm to gain Constitutional standing. Under this standard, First American asserts that Edwards alleged no such harm and thus lacks standing to sue. The Court’s decision here has the potential to greatly enhance plaintiffs’ ability to organize class actions and obtain relief for statutory violations in various industries and differing legal frameworks.

Questions as Framed for the Court by the Parties 

Section 8(a) of the Real Estate Settlement Procedures Act of 1974 ("RESPA" or "the Act") provides that "[n]o 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 involving a federally related mortgage loan shall be referred to any person." 12 U.S.C. § 2607(a). Section 8(d)(2) of the Act provides that any person "who violate[s]," inter alia, § 8(a) shall be liable "to the person or persons charged for the settlement service involved in the violation in an amount equal to three times the amount of any charge paid for such settlement service." Id. § 2607(d)(2). The questions presented are:

1. Did the Ninth Circuit err in holding that a private purchaser of real estate settlement services has standing under RESPA to maintain an action in federal court in the absence of any claim that the alleged violation affected the price, quality, or other characteristics of the settlement services provided?

2. Does such a purchaser have standing to sue under Article III, § 2 of the United States Constitution, which provides that the federal judicial power is limited to "Cases" and "Controversies" and which this Court has interpreted to require the plaintiff to "have suffered an 'injury in fact,'" Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)?



To buy a house, an individual typically must obtain certain settlement services, such as title insurance. Due to consumer reliance on real estate agents, settlement service firms began paying agents kickbacks to refer clients to them exclusively. . After extensive hearings, Congress learned that these kickbacks potentially result in increased costs to the consumer, since the agents, instead of considering consumer interests, instead choose the firm that maximizes their own profits.

In response, Congress enacted the Real Estate Settlement Procedures Act (“RESPA”), which banned kickbacks for referrals in federally related mortgage financing. . Congress subsequently amended RESPA to close a loophole through which agents who were affiliated with settlement service firms could exclusively refer individuals and receive corporate dividends instead of kickbacks. . However, since such business arrangements were sometimes found beneficial, the amendments offered an exemption where referral payments could be made if they were disclosed to consumers, the consumer was not obligated to use the referral, and the arrangement only contemplated a return on ownership interest. . RESPA provided for a private right of action in the event of violation. .

First American Financial Corporation issues title insurance policies through its subsidiary, First American Title (collectively “First American”), and affiliated title insurance agencies, in which it owns small equity stakes. . One Ohio-based title agent, Tower City, almost exclusively issues First American Title insurance as part of an affiliation agreement. Denise Edwards contracted with Tower City to close the purchase of her home. Pursuant to the affiliation agreement, Tower City referred the insurance to First American, who issued a First American Title policy and paid Tower City through its equity ownership. Although Tower City mentioned an affiliation with First American, it did not reveal the exclusive referral agreement between the two.

Edwards filed suit against First American in the United States District Court for the Central District of California alleging that First American violated RESPA by not informing her of the exclusive referral agreement with Tower City and by paying illegal kickbacks to Tower City. . First American moved to dismiss, asserting that Edwards did not claim any actual overpayment, and therefore lacked standing under Article III of the Constitution. Edwards rejoined that RESPA provided her a claim because she was denied the right to purchase insurance free of illegal kickbacks; she moved to certify either a nationwide class of similarly situated consumers or a class of Tower City consumers. The District Court denied First American’s motion to dismiss and Edwards’s motion to certify for class action.

First American appealed to the United States Court of Appeals for the Ninth Circuit. . The Ninth Circuit held that RESPA’s language, by creating a cause of action, gave Edwards Article III standing to sue regardless of whether she was overcharged. First American requested a rehearing en banc, but the Ninth Circuit denied the petition. .On June 20, 2011, the Supreme Court granted certiorari limited to the Article III standing question.


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.


This case considers whether purchasers of title insurance have Article III standing to sue under RESPA for undisclosed kickbacks without asserting an actual injury. The Court’s decision here could affect the future of the settlement services business and enable similar statutory causes of action under other frameworks.

Socioeconomic Impact of No-Injury Statutory Relief

The Association of Global Automakers, Inc. and others argue that the potential for large damages stemming from RESPA class action suits could severely impede mass-market businesses like the automobile industry. It notes that the damages may be arbitrary, since private suits are often not decided by regulators but by inexperienced judges. . Additionally, the Consumer Data Industry Association (“CDIA”) asserts that upholding the Ninth Circuit’s conclusion could result in a flood of lawsuits against Credit Reporting Agencies if that decision were extended to the Fair Credit Reporting Act. Moreover, the CDIA explains that the increased costs would ultimately be passed on to the consumer in the form of higher prices. In fact, the American Land Title Association (“ALTA”) contends that a decision for Edwards would even have the opposite result from that intended: it would increase title insurance premiums. ALTA explains that, since the mortgage process involves multiple affiliated entities, a finding for Edwards would subject a large number of real estate firms to similar suits—again, costs ultimately borne by homeowners.

However, the Toyota Economic-Loss Plaintiffs point out that increased premiums already exist because the anti-competitive nature of kickback agreements harms the insurance market price equilibrium. Citing various studies, Birny Birnbaum and others contend that kickbacks promote anti-competitive behavior, resulting in artificially inflated prices and decreased service quality. .Moreover, the National Association of Independent Land Title Agents (“NAILTA”) asserts that private suits provide a necessary tool to address and deter violations, where regulators cannot adequately enforce RESPA due to limited resources. . Finally, the Reporter and Advisers to Restatement (Third) of Restitution and Unjust Enrichment argue that a victory for First American would contravene the prevailing understanding of unjust enrichment—a doctrine that allows plaintiffs to sue, not for compensation, but for rewards obtained at the expense of plaintiffs. .

Do Consumers Need a Private Cause of Action?

Edwards argues that consumers need statutory relief because conflicts of interest and related economic harms are difficult to prove. The AARP argues that the difficulty of proving that any one transaction caused harm, whether in the form of anti-competitively inflated prices or poor service, calls for statutory relief to compensate for these expected losses. NAILTA contends that plaintiffs in some states will be hard-pressed to prove injury because, although title insurance rates filed with the state will not appear overpriced, premiums are typically understated because they do not include “the costs of the title search, title examination or other settlement services.”

In response, First American points out that the power to bring either criminal or civil actions without standing is vested solely in the executive branch, typically an individual subject to the democratic process. . First American argues that to allow private individuals to bring private no-injury suits would usurp this role and grant them unaccountable prosecutorial discretion. DRI – The Voice of the Defense Bar and others assert that statutory relief generates windfalls for plaintiffs that disproportionately benefit lawyers rather than plaintiffs themselves. Experian Information Solutions, Inc. contends that a decision for Edwards could incentivize attorneys seeking large payouts to bring meritless or questionable claims, where massive threatened damages will force companies to settle rather than risk losing at trial.


In this case, the Supreme Court will decide whether a plaintiff claiming a statutory right of action based on the Real Estate Settlement Procedures Act has standing to sue under Article III of the Constitution. Petitioner First American argues that standing requires a plaintiff to allege a personal and concrete harm from which he or she seeks a judicial remedy. Respondent Denise Edwards argues that courts recognize Congress’s authority to identify legal injuries, and that, where Congress has identified a harm and properly related that harm to a type of plaintiff, that plaintiff has standing . The Court’s decision here has the potential to greatly enhance plaintiffs’ ability to organize class actions and obtain relief for statutory violations in various industries and differing legal frameworks.Written by:

Brandon Michael Bodnar

Milson Charles Yu

Edited by:

Colin O'Regan


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