After agreeing to hear First American Financial Corp.’s appeal of an unfavorable decision by the Ninth Circuit Court of Appeals; reviewing the parties’ opposing briefs and the numerous amicus briefs that were submitted; questioning the parties at length during a spirited oral argument conducted in November 2011; and ruminating for more than seven months on all arguments presented pro and con, the U.S. Supreme Court dismissed its writ of certiorari as having been “improvidently granted,” effectively “punting” on the issue.

The pertinent allegations contained in Ms. Edwards’ Complaint, the lower courts’ rulings, and the meaning of the Supreme Court’s non-decision, are discussed below:

Ms. Edwards’ Complaint

Plaintiff Denise Edwards filed a class action Complaint against First American Financial Corp. (“First American”) in which she alleged that First American violated the anti-kickback provision in RESPA by purchasing minority interests in various title agencies in return for their agreement to enter into an exclusive agency arrangement with First American Title Insurance Company (“First American Title”), a First American subsidiary.

Ms. Edwards also alleged in her Complaint that in 2006 she used one such title agency, Tower City Title Agency, LLC (“Tower City”), as her settlement agent when buying a home in Cleveland, Ohio. First American, she claimed, held a 17.5 percent interest in Tower City at that time, which First American purchased in return for an exclusive agency arrangement with Tower City. Tower City then obtained title insurance for Ms. Edwards from First American Title at the price mandated by Ohio law.

The Lower Courts’ Decisions

The Complaint was filed in the United States District Court for the Central District of California. First American moved to dismiss the Complaint, arguing that Ms. Edwards did not have standing to sue in federal court under Article III of the United States Constitution, since she failed to allege that she suffered an “injury in fact” as a result of the alleged violation. The District Court denied First American’s motion, and the Ninth Circuit Court of Appeals affirmed.

In its decision, the Ninth Circuit determined that “the injury required by Article III can exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates standing.’ ”1 The Ninth Circuit then found that “the statutory text [of section 8 of RESPA] does not limit liability to instances in which the plaintiff is overcharged.”2

The High Court’s Action

First American petitioned the U.S. Supreme Court to agree to hear an appeal from the Ninth Circuit’s decision. Surprising many, since the Ninth Circuit’s decision was consistent with decisions reached in the Third and Sixth Circuits,3 the U.S. Supreme Court granted the petition. Oral arguments were held November 28, 2011.

On June 28, 2012, the last day of its term, the Supreme Court dismissed its writ of certiorari stating that it had been “improvidently granted.”

What Does This Mean Going Forward?

The Supreme Court’s action does not mean that it agreed with the Ninth Circuit’s decision on Article III standing. Rather, it is simply a statement by the Court that, for whatever reason, it now believes that it was a mistake for it to have agreed to hear this appeal. The Ninth Circuit’s decision therefore stands as the law in the Ninth Circuit unless and until the U.S. Supreme Court agrees to review another case that presents the same issue and reaches a contrary conclusion. Financial services institutions (and even entities outside the financial services industry) that have been subjected to class actions seeking statutory damages for purely technical violations that do not cause any actual harm to the plaintiffs will thus have to wait until another day and for another test case to obtain relief from such actions.

Background materials pertaining to this case, including the Ninth Circuit’s decision, the Supreme Court’s non-decision, and all of the briefs that were submitted to the Supreme Court, can be found here.

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1 Slip Op. at 9094, quoting from Fulfillment Servs., Inc. v. UPS, 528 F.3d 614, 618-19 (9th Cir. 2008) (quoting Warth v. Seldin, 422 U.S. 490, 500 (1975).

2 Slip Op. at 9095.

3 Carter v. Wells-Bowen Realty, Inc. 553 F. 3d 979, 989 (6th Cir. 2009); Alston v. Countrywide Financial Corp., 585 F. 3d 753, 755 (3rd Cir. 2009).