A three judge panel of the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) recently held in Baehrs v. The Creig Northrop Team et al that although the plaintiffs had alleged a violation of the Real Estate Settlement Procedures Act (RESPA), they lacked standing under Article III of the U.S. Constitution to sue because they could not establish an injury-in-fact. Accordingly, the Fourth Circuit directed the district court to dismiss the plaintiffs’ complaint.
In connection with their purchase of a home in July 2008, the Baehrs engaged a real estate agent who was a member of The Creig Northrop Team (The Northrop Team) to represent them. After the Baehrs’ offer to purchase the home was accepted, the agent informed them that Lakeview Title Company (Lakeview) would provide the settlement services necessary to complete the purchase and that The Northrop Team did all of its settlements at Lakeview.
In March 2013, after being solicited by a lawyer, the Baehrs, as representatives of a putative class, filed a lawsuit against The Northrop Team, Lakeview and others. In an initial and subsequent complaint, the Baehrs alleged that the defendants were involved in an unlawful kickback scheme from 2000 to 2014. The Baehrs did not assert that they were overcharged for the services provided by Lakeview as a result of the claimed kickback arrangement. In the subsequent complaint, apparently trying to address the statute of limitations, the Baehrs alleged that the kickbacks were concealed using a sham marketing agreement between The Northrop Group and Lakeview in which Lakeview agreed to pay The Northrop Team for marketing services. Also, apparently trying to also demonstrate actual harm, the Baehrs alleged that because of the alleged kickback arrangement, they “were deprived of an impartial and fair competition between settlement service[s] providers in violation of RESPA.”
The defendants moved for summary judgment claiming that (1) the Baehrs’ claim was not subject to equitable tolling and thus was barred by RESPA’s one-year statute of limitations, and (2) the Baehrs had not suffered a concrete injury and thus lacked Article III standing to sue. The district court awarded summary judgment to the defendants on the grounds that the Baehrs lacked Article III standing because they were not overcharged for settlement services and had not otherwise suffered a concrete injury as necessary to establish an injury-in-fact. The district court also determined that their claim was barred by the one-year RESPA statute of limitations because the Baehrs were not diligent in investigating The Northrop Team’s affiliation with Lakeview.
In 2012, after the U.S. Supreme Court granted certiorari in First American Financial v. Edwards the mortgage and settlement services industry eagerly awaited a decision on whether an allegation of a RESPA violation, by itself, gave a private purchaser of real estate settlement services standing to sue 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. The underlying issue was whether such a plaintiff had suffered an injury in fact that provided standing to sue under Article III of the U.S. Constitution. To industry’s disappointment, the Supreme Court did not decide the issue and instead issued an order stating only: “The writ of certiorari is dismissed as improvidently granted.” In other words, never mind.
Subsequently, in its 2016 decision in Spokeo, Inc. v. Robins, the Supreme Court addressed the question whether a plaintiff who cannot show any actual harm from a violation of the Fair Credit Reporting Act (FCRA) nevertheless has Article III standing to sue for statutory damages in federal court. The Court held that a plaintiff alleging an FCRA violation does not have Article III standing to sue for statutory damages in federal court unless the plaintiff can show that he or she suffered “concrete,” “real” harm as a result of the violation.
Based on Spokeo, the Fourth Circuit noted that although intangible harm can constitute a concrete injury, a statutory violation is not necessarily synonymous with an intangible harm that constitutes an injury-in-fact. The Fourth Circuit stated that a plaintiff who sues to vindicate a statutory right still must establish a concrete injury resulting from the violation of that right: “That is, a plaintiff cannot merely allege a ‘bare procedural violation, divorced from any concrete harm’ and ‘satisfy the injury-in-fact requirement of Article III.’” The Fourth Circuit also stated that the strictures of Article III standing are no less important in the context of class actions. The court then turned to the four claims made by the Baehrs to establish concrete injury.
As they had done in the district court, the Baehrs claimed that the deprivation of impartial and fair competition between settlement services providers is a concrete injury under RESPA, and that an overcharge is not necessary to have standing to bring a RESPA kickback claim. The Baehrs also advanced three theories of concrete injury not alleged in the lower court:
- The Baehrs claimed The Northrop Team owed them a fiduciary duty to return to them any kickback paid by Lakeview and to provide impartial advice and advocacy.
- Based on Spokeo’s instruction for courts “to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts,” the Baehrs claimed that they suffered a concrete injury because The Northrop Team was unjustly enriched.
- Based on a Bankruptcy Code provision that authorizes damages where a bankruptcy petition preparer improperly renders legal advice, the Baehrs argued that they suffered a concrete injury by paying for settlement services provided in contravention of RESPA.
Addressing the Baehrs’ claim that the deprivation of impartial and fair competition between settlement services providers is a concrete injury under RESPA, the Fourth Circuit stated that because injury-in-fact is a “hard floor” of Article III standing “that cannot be removed by statute,” the question for the court is whether such deprivation— an intangible harm — is nevertheless a concrete injury. According to the Fourth Circuit the Supreme Court set forth two considerations in Spokeo— historical practice and congressional judgment — that are “instructive” for determining whether an intangible harm constitutes a concrete injury.
In the Fourth Circuit’s view, the Baehrs’ claim was not based on a harm traditionally regarded as providing a basis for a lawsuit in English or American courts. It considered their argument to be predicated on Congress’s inclusion of a cause of action in RESPA for damages sustained through settlement service referrals sullied by kickbacks.
The Fourth Circuit stated that the harm that Congress sought to prevent through the RESPA kickback prohibition is the increase in settlement costs that tends to result from the interference with the market for settlement services that is caused by kickbacks and not interference with the market for settlement services, by itself. Because the Baehrs contended that their injury resulted from being deprived of impartial and fair competition between settlement services providers, and not from being overcharged by Lakeview, the court determined that the Baehrs did not allege a concrete injury under RESPA. The court then turned to the Baehrs’ three new theories of concrete injury.
First, because the Baehrs had not established the existence of a fiduciary duty, the Fourth Circuit rejected their claim of concrete injury based on the theory that The Northrop Team owed them a fiduciary duty. Second, because it viewed unjust enrichment as a restitutionary remedy that does not focus on harm suffered by a plaintiff but instead focuses on a defendant’s receipt of a recognizable benefit that would be inequitable for the defendant to retain, the court rejected the Baehrs’ theory that they suffered a concrete injury because The Northrop Team was unjustly enriched. Third, with respect to the Baehrs’ theory that, based on a single provision of the Bankruptcy Code, they suffered a concrete injury by paying for settlement services provided in contravention of RESPA, the Fourth Circuit stated that it was “satisfied to reject this under-developed theory because it is at odds with Spokeo’s mandate that a statutory violation ‘divorced from any concrete harm’ is insufficient to establish injury-in-fact.”
Having rejected all of their theories of concrete injury, the Fourth Circuit concluded that the Baehrs lacked Article III standing to sue. As a result, the Fourth Circuit ruled that the district court should not have entered summary judgment in favor of the defendants and instead should have dismissed the complaint. Accordingly, the Fourth Circuit vacated the grant of summary judgment and remanded the case to the district court to dismiss the complaint.
In its discussion of the facts, the Fourth Circuit noted that the Baehrs were not first-time home buyers and understood that they were free to procure settlement services from any provider thereof, but they “were satisfied” that the agent would select the settlement company. The court also noted that the Baehrs did not inquire about the Lakeview’s rates, quality of service, or affiliation with The Northrop Team because they had “contracted with a reputable company” — that is, The Northrop Team — and believed that The Northrop Team “would have [their] best interest.” In addition, the Fourth Circuit
twice stated that based on the record, the Baehrs were satisfied with their experience purchasing the home and the settlement services that Lakeview had provided and that, even after learning of the purported kickback scheme, they believed that Lakeview was entitled to the fees it charged for the work that it did.
Thus, it appears the Fourth Circuit viewed the case as involving plaintiffs who, before being solicited by an attorney, believed that they had paid a fair price for services for which they were satisfied, and that the title company deserved the fees that it received. This perception may have significantly contributed to the court’s unwillingness to accept creative theories attempting to establish the concrete injury that a plaintiff needs to have Article III standing to sue. While the plaintiffs can request a review of the decision by the full Fourth Circuit, or seek Supreme Court review, the panel’s decision potentially may finally bring an end to this long-running battle regarding Article III standing to bring a RESPA claim.