O processo de ação coletiva RESPA não resiste ao escrutínio sob Spokeo ou Menominee

On December 7, 2018, a federal court in Maryland issued an important ruling in a Real Estate Settlement Procedures Act (“RESPA”) case[1] (“Baehr”), granting a defense motion for summary judgment. The court dismissed the action entirely for lack of Article III standing and because the plaintiffs could not equitably toll RESPA’s statute of limitations. Foley partners and long-time blog contributors Jay Varon and Jennifer Keas served as lead counsel for the defense. This is a noteworthy development for RESPA cases and consumer class actions generally, as the court interpreted and relied on standards set forth by the U.S. Supreme Court in Spokeo, Inc. v. Robins[2] and Menominee Indian Tribe v. United States.[3] .

The Baehr RESPA and Equitable Tolling Claims

The Baehr case was filed in March 2013 as a single-count class action complaint under RESPA Section 8(a),[4] alleging an improper sham to disguise kickbacks paid for referrals. The complaint challenged a marketing services agreement (“MSA”) entered into between a now-shuttered Maryland settlement and title company (“Lakeview Title”) and one of the top real estate agent teams in the country. The complaint’s operative theory was that the MSA was used to disguise kickbacks paid to the real estate team by Lakeview Title for title/closing referrals.[5] The named plaintiffs—two former real estate customers who jointly purchased a home and then signed on to the lawsuit over four years later, after responding to an attorney solicitation—sued the professional corporation for the real estate agent team, Lakeview Title, certain of their respective principals, and the broker of record for the agent team.[6]

The Alleged Injury

The complaint did not allege any inferior services or pricing by the defendants as a result of the claimed conduct, and when the named plaintiffs were deposed, they conceded that they had been satisfied from the time of their July 2008 closing until they received a letter from an attorney in March 2013 indicating that the attorney was investigating a possible claim based on illegal kickbacks that could entitle the Baehrs or other similarly situated consumers to a financial recovery under RESPA.[7] Shortly thereafter, the Baehrs brought suit, but the only injury they alleged was that they had been “deprived of impartial and fair competition” between settlement service providers.[8]

Equitable Tolling Allegations

Because the complaint was filed long after RESPA’s one-year statute of limitations had run, the plaintiffs also claimed entitlement to equitable tolling, alleging that, despite the exercise of due diligence, they could not have discovered their claim on a timely basis because the defendants fraudulently concealed the kickbacks by creating a sham MSA.[9] The equitable tolling allegations survived a motion to dismiss and were subjected to discovery.[10]

The Baehr Summary Judgment Proceeding

1. Article III Constitutional Standing

Discovery confirmed that the plaintiffs had not been harmed in terms of services or pricing, or any other concrete way. Mr. Baehr testified that he believed that Lakeview Title deserved to be compensated for the services it provided, which were good and fairly priced, and it was undisputed that both he and his wife had known all along that they had the right to choose their own settlement and title company, yet elected to proceed with Lakeview Title.[11]

The court also rejected plaintiffs’ argument that standing exists because they were denied impartial and fair competition between settlement service providers. In analyzing this issue, the court acknowledged a reference to impartiality in the RESPA legislative history, but correctly noted that this had occurred in the context of so-called “controlled” or “affiliated” business arrangements. Those provisions were not at issue in Baehr since no such arrangement existed between the agent team and Lakeview Title.[12] This result is consistent with the statute itself. RESPA Section 8 does not address fair or impartial competition; indeed, it does not even mandate impartial referrals. There are no restrictions on real estate agents or other referring parties sending business to friends, co-workers, co-members of a fraternal, religious, or other organization, or anyone else to whom the referring party wants to send business, other than certain limitations applicable to the specific affiliated business arrangement context. The claimed deprivation of something that the statute never guaranteed raises significant redressability issues and further underscores the lack of Article III standing.

Accordingly—relying on established law that “Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing” and citing Spokeo—the court in Baehr held that there was no genuine dispute of material fact that the plaintiffs asserted only “a bare procedural violation, divorced from any concrete harm,” which did not satisfy the injury-in-fact requirement of Article III.[13]

2. Equitable Tolling

Alternatively, the court held that even if the Baehrs did have standing, their claim would be barred by the RESPA statute of limitations and equitable tolling did not apply.[14]  The court emphasized that, under Menominee Indian Tribe v. United States, a claim of equitable tolling requires a showing of two distinct elements: (1) the plaintiffs’ diligent pursuit of their rights; and (2) some extraordinary circumstance that stood in plaintiffs’ way and prevented a timely filing.[15] Accordingly, “an insufficient showing of either diligence or extraordinary circumstances is fatal to a claim for equitable tolling.”[16]

The summary judgment record warred with the Baehrs’ allegations of due diligence and fraudulent concealment. Mr. Baehr conceded in his deposition that the defendants had not done anything to affirmatively prevent him from discovering his RESPA claim or otherwise conceal his RESPA claim and that he had made no efforts to discover the claim after his 2008 closing.[17] Likewise, while the Baehrs alleged that the MSA was a sham used to disguise and conceal the claimed referral fees, it was undisputed that they did not know or inquire about it.[18]

Noting the short one-year limitation period from the occurrence of the violation that Congress had prescribed for private RESPA Section 8 claims, as well as the plaintiffs’ concessions, the court found that they could not establish equitable tolling.[19] In particular, the court was struck by the incongruity between the Baehrs’ claimed sensitivity to impartial and fair competition and their complete failure to shop around or even inquire about their service provider options, even as they had awareness that Lakeview was being advertised by the real estate team and claimed to have been told by their individual real estate agent that “we do all our settlements at Lakeview.”[20]

Significance of the Baehr Decision

The Article III aspect of the Baehr decision comes nearly full circle with Edwards v. First American, a RESPA class case that presented this kind of standing concern to the Supreme Court, only for the high court to declare, after oral argument, that it had granted certiorari improvidently.[21] Subsequently, however, the Supreme Court’s Spokeo decision lent credence to the view that RESPA Section 8 cases should not be viewed as conferring Article III standing automatically on the basis of Congress’s decision to provide a private right of action for damages, given that the Supreme Court in Spokeo expressly criticized the Ninth Circuit for having mistakenly relied on its own Edwards reasoning in concluding that Robins had Article III standing.[22]

The equitable tolling analysis in Baehr is also significant because it emphasizes that due diligence is an independent element to toll the statute of limitations. Additionally, the court in Baehr was appropriately concerned—as other courts have also worried[23]—about whether a consumer who waits for a lawyer’s solicitation before deciding to investigate a potential claim constitutes the “rare instance” where it would be inequitable to enforce a deliberately short statute of limitations.[24]

It is not uncommon for class action complaints brought under RESPA and other consumer finance statutes to present such constitutional standing or timeliness issues. In Baehr, the allegations that had allowed the plaintiffs’ pleadings to survive dismissal were not borne out by the evidence adduced during discovery. Given the potentially extortionate effect that litigation costs in a consumer class action can have on defendants (but not plaintiffs, who are usually subjected to minimal discovery burdens), courts and litigants should give careful consideration to using phased discovery, where appropriate, to address critical threshold issues, such as a plaintiff’s claim of constitutional injury or entitlement to equitable tolling, before proceeding to full merits discovery.

[1] Baehr v. Creig Northrop Team, P.C., No. RDB-13-0933, 2018 U.S. Dist. LEXIS 206721, 2018 WL 6434502 (Dec. 7, 2018).

[2] 136 S. Ct. 1540 (2016).

[3] 136 S. Ct. 750 (2016).

[4] 12 U.S.C. § 2607(a).

[5] See 2018 U.S. Dist. LEXIS 206721, at *3-4.

[6] See id. at *12-13. The brokerage firm was subsequently dismissed from the case, along with one of the individual defendants. See id. at *16.

[7] See id. at *11-12.

[8] See id. at *21-22.

[9] See id. at *14-15.

[10] Id.

[11] Id. at *26-27.

[12] See id. at *24.

[13] See id. at *20-21 and *29 (citing Raines v. Byrd, 521 U.S. 811, 820, 117 S. Ct. 2312 (1997) and Spokeo, 136 S. Ct. at 1549).

[14] See id. at *39.

[15] Id. at *30.

[16] Id.

[17] See id. at *38.

[18] See id. at *37-38.

[19] Id.

[20] See id. at *37-38.

[21] First American Financial Corp. v. Edwards, 564 U. S. 1018, 131 S. Ct. 3022 (2011) (granting certiorari), cert. dism’d as improvidently granted, 132 S. Ct. 2536 (2012) (per curiam).

[22] See Spokeo, 136 S. Ct. at 1546 n.5 (citing Edwards as authority upon which the Ninth Circuit had mistakenly relied below, in Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. Feb. 4, 2014)).

[23] See, e.g., Cunningham v. M&T Bank Corp., 814 F. 3d 156, 164 (3d Cir. 2016) (“[A]ccepting Plaintiffs’ theory in this case—toll indefinitely the limitations period for claims under RESPA until a lawyer can find the right plaintiff to join a lawsuit and notify other putative plaintiffs—would effectively write the statute of limitations out of RESPA.”); see also Bezek v. First Mariner Bank, 293 F. Supp. 3d 528, 536 (D. Md. Feb. 2, 2018) (questioning the circumstances under which plaintiffs who themselves have failed to act diligently may have diligence imputed through the actions of their counsel).

[24] See Baehr, 2018 U.S. Dist. LEXIS 206721, at *38-39.