In Edwards v. First American Financial Corp., No. 10-708, the United States Supreme Court will decide an important question of Article III standing that will have broad-reaching impact on many industries, including the insurance and reinsurance industries. The Court will decide whether a plaintiff that alleges the violation of a statutory right, but no damage resulting from that violation, has standing to bring a case.
In Edwards, the plaintiff brought suit against her title insurer, claiming that the insurer had violated the Real Estate Settlement Procedures Act of 1974 (RESPA). RESPA prohibits kickbacks by certain entities that provide services related to real estate transactions. The plaintiff complained that her title insurer had paid kickbacks to title insurance agencies in exchange for referrals of business. However, she conceded that the alleged kickback had no effect whatsoever on the insurance she received or the price she paid.
The title insurer moved to dismiss, claiming Edwards suffered no injury sufficient to confer Article III standing. The district court denied the motion, and the Ninth Circuit affirmed finding that there was no requirement that a plaintiff allege any injury to assert a claim under RESPA. The Ninth Circuit concluded that RESPA gives plaintiffs a statutory right, the violation of which provides standing to maintain a cause of action. The Ninth Circuit’s decision was consistent with prior decisions of the Sixth and Third Circuits, which had also found that plaintiffs had standing under RESPA regardless of whether they could allege that they suffered overcharge or other injury.
The Supreme Court granted certiorari. Twenty years ago in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), Justice Scalia wrote that “injury in fact” was an element of the “irreducible constitutional minimum” of Article III standing. In Edwards, the Court must resolve the distinction (as noted by Chief Justice Roberts at oral argument) between an “injury-in-fact” (such as an overcharge) and an “injury-in-law” The case was argued on November 28, 2011 and remains sub judice.
The Supreme Court’s decision in Edwards could have a significant impact on a wide range of commercial litigation. For insurers and reinsurers, the case will bear directly on a scourge of RESPA class action lawsuits pending against mortgage insurers in federal courts in California, Pennsylvania, and New York. In those cases, plaintiffs claim that reinsurance agreements between mortgage insurers and reinsurers that are affiliated with a lending bank constitute an illegal kickback under RESPA, despite the fact that these plaintiffs paid the “filed rate” for their insurance policy and thus suffered no monetary injury. Edwards also will have impact beyond the insurance and reinsurance industry. Notably, Facebook, LinkedIn, Yahoo, and Zynga have filed an amicus brief in the case addressing whether a broad ruling in Edwards will expose them to damages under statutes like the Wiretap Act, the Electronic Communications Privacy Act, and the Stored Communications Act.