Supreme Court Surprises Again: RESPA Standing Case Dismissed by Supreme Court As Improvidently Granted

The June 28, 2012 ruling on the Affordable Care Act was not the only surprise that came out of the Supreme Court last week. In First American Financial Corp. v. Edwards, No. 10-708, the Court was expected to decide whether a plaintiff had standing, under Article III of the United States Constitution, to sue for statutory damages even though she suffered no injury from the purported statutory violation. Instead, the Court punted. In a per curiam opinion, the Supreme Court dismissed the petition for certiorari in First American Financial Corp. as improvidently granted. The Court's dismissal lets stand a ruling by the United States Court of Appeals for the Ninth Circuit, that held that the Real Estate Settlement Procedures Act of 1974 (RESPA) gives a borrower a statutory cause of action and standing to pursue that action despite the lack of any actual damages.

In First American, the plaintiff filed a class action lawsuit claiming that the title insurance she paid to First American constituted an illegal kickback in violation of RESPA. The plaintiff conceded that she did not overpay for the title insurance or suffer any other actual damages. The Ninth Circuit held that RESPA gives plaintiffs a cause of action to seek statutory damages and standing to pursue those claims. The Ninth Circuit reasoned that, because RESPA grants "a person who is charged for a settlement service involved in a violation is entitled to three times the amount of any charge paid," the statutory text does not limit liability to instances in which a plaintiff is overcharged."

This case was watched closely by the consumer financial services sector and a variety of other industries because of its potential impact on class action litigation. A ruling in favor of First American (and overturning the Ninth Circuit), would have effectively shut the federal courthouse doors on plaintiffs who never suffered any actual damages from filing class actions under a variety of consumer protection laws. A wide array of companies and organizations, such as the American Land Title Association, Facebook, Experian Information Solutions, Inc., the National Association of Home Builders and the Alliance of Automobile Manufacturers, filed amicus briefs on behalf of First American. The U.S. government and groups such as Toyota Economic-Loss Plaintiffs, Electronic Privacy Information Center, and the AARP filed amicus briefs on behalf of Edwards.

Thursday’s dismissal surprised many because of speculation that the Court had planned to use the First American case to create new Article III limitations on a plaintiff's standing to sue and Congress’ power to create private rights of action absent actual injury. The Court set this expectation back in June 2011 when it granted cert, although there was no circuit conflict on this issue and three circuits courts—the Third, Sixth, and Ninth—have held that plaintiffs have standing to pursue statutory claims under RESPA without alleging an actual injury. Expectations grew following a highly active oral argument in November and the Court's decision to wait until the last day of the term to release its decision. In the end, however, it appears that the members of the Court could not reach an agreement on a workable constitutional test, what limitations should be imposed, and how they should be imposed. 

While Thursday’s ruling may embolden plaintiff's counsel, the inaction by the Court arguably settles nothing. In response to Thursday’s nondecision, Michelle L. Korsmo, Chief Executive Office of the American Land Title Association, explained that “[b]y dismissing First American Financial Corporation v. Edwards, the U.S. Supreme Court has left the issue to be worked out in the trial court. The decision to dismiss leaves the issue of the necessity of injury to bring a class-action suit yet to be resolved.” Scotusblog speculated that Court will likely revisit this case in the future. "If the Court simply decided that this was not the right case for resolving the Article III question, it could grant cert on the same question in a future case. But if, instead, the Court dismissed the case because it could not reach agreement on a workable constitutional test, then revisiting the question may be on hold for some time—or at least until the current membership of the Court changes."

Should you have any questions about First American Financial Corp. v. Edwards or need additional information, please contact the authors of this alert, Theodore Seitz, at 517-374-9149, Jeffrey Jamison, at 312-627-2101; or Richard Gottlieb, the Director of Dykema's Financial Industry Group and leader of the Firm’s Consumer Financial Services practice, at 312-627-2196.

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