Summary
The U. S. Court of Appeals for the Second Circuit recently affirmed the dismissal of a putative class action, which alleged the defendant title insurance companies paid illegal kickbacks in violation of the Real Estate Settlement Procedures Act ("RESPA"), on the basis that the plaintiffs failed to state a valid claim for relief. The Second Circuit found that the plaintiffs had not alleged any facts to support the elements necessary for a RESPA claim and the plaintiffs' allegations were purely speculative and conclusory.

The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of a putative class action alleging that the defendant title insurance companies paid illegal kickbacks in violation of the Real Estate Settlement Procedures Act ("RESPA"). Specifically, the plaintiffs alleged that the title insurer defendants paid illegal kickbacks to title agents for referrals and gave other things of value for unearned settlement services that were not provided to plaintiffs or other members of the class. Plaintiffs further alleged that the title insurers used "financial inducements" to encourage the persons making purchasing decisions to direct business to that particular title insurer.

The defendants moved to dismiss the plaintiffs' RESPA claim pursuant to Fed. R. Civ. Pro. 12(b)(6) and on November 8, 2010, the district court granted the defendants motion to dismiss. The district court found that plaintiffs failed to state a plausible claim under RESPA § 8(a) and (b) and that the plaintiffs' claims were precluded by the filed rate doctrine. The plaintiffs appealed the district court's dismissal of their claim under § 8(a) and that their claims were precluded under the filed rate doctrine.

The 2nd Circuit affirmed the district court's dismissal of the plaintiffs' RESPA claims against the defendant title insurance companies on the sole basis that they failed to state a valid claim for relief. The 2nd Circuit held that a violation of § 8(a) under RESPA, which prohibits kickbacks for referrals of real estate settlement business, requires the following three elements: (1) a payment or thing of value; (2) given and received pursuant to an agreement to refer settlement business; and (3) an actual referral. RESPA's § 8(b) provides a private right of action to "the person or persons charged for the settlement service involved in the violation…" and are enforceable through consumer actions brought for damages. However, the 2nd Circuit recognized that RESPA "is not a price-control statute" and is not a "mechanism for federal courts to regulate the reasonableness of title insurance fees."

The 2nd Circuit held that the plaintiffs' complaint against the title insurer defendants was appropriately dismissed because the allegations of a purported kickback scheme was speculative and conclusory. The 2nd Circuit specifically held that the complaint failed to allege any facts to establish the elements of a violation of § 8(a) under RESPA. The 2nd Circuit further found that the complaint failed to allege any specifics as to the date, time or amount of the alleged violations, or any connections between these plaintiffs or their title agents, lawyers, brokers, or lenders and these defendants. While not necessary to sustain a claim, the Court further noted that the complaint contained no allegations that defendants charged any plaintiff a rate inflated by kickbacks. The Court also held that the plaintiffs' claims of supposed industry-wide practices of kickbacks and referrals were not supported by any facts as to the alleged kickbacks, referral agreements, or referrals and are nothing more than conjecture. The 2nd Circuit found that the District Court properly dismissed the plaintiffs' complaint because there were not allegations that could allow a court to draw a plausible inference that defendants paid kickbacks for business referrals in violation of § 8(a) of RESPA in connection with the title insurance purchased by the plaintiffs.