The recent decision in Carter v. Welles-Bowen Realty, Inc., No. 3:09-cv-400 (N.D. Ohio Mar. 11, 2010), two consolidated cases involving alleged kickbacks to “sham” title insurance companies, in violation of the Real Estate Settlement Procedures Act (“RESPA”), is consistent with numerous other decisions of federal courts nationwide that have denied class certification of RESPA kickback claims on the grounds that a class action is not a superior method of adjudication.
In Carter, the lead plaintiffs made payments, in connection with the purchase of residential real estate, to the defendant companies, which merely referred all of the work to defendant Chicago Title Insurance Company. These purchases were funded in part by federally related mortgages, subjecting them to regulation under RESPA. The anti-kickback provisions of RESPA prohibit the payment or acceptance of fees or kickbacks in exchange for referrals of settlement service business involving a federally related mortgage. Almost all loans made for residential property qualify as federally related mortgages. The penalties for violating the anti-kickback provisions are severe, including the recovery of up to three times the amount paid for the services.
The plaintiffs sought certification of two classes consisting of hundreds of members. The district court denied the motion for class certification on the grounds that the named plaintiffs could not satisfy the superiority and predominance requirements of Federal Rule of Civil Procedure 23(b)(3). In doing so, the court found that a class action is not a superior method for litigating this case given RESPA’s provision of attorneys’ fees and costs, on top of treble damages, to prevailing plaintiffs, which the court found provided “adequate incentive for individual plaintiffs to bring these types of claims.” In addition, the court found that common questions did not predominate the proposed classes’ claims because there were “substantial individualized issues,” including whether each class member had a federally-related mortgage covered by RESPA.
Companies sued in putative class actions alleging violations of RESPA's anti-kickback provision may look to the holding in Carter, and similar decisions of numerous other federal courts nationwide, as support for an argument in their case that class certification should be denied for failure to satisfy the superiority and predominance requirements of Rule 23.