Daily Development for Monday, June 16, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LIMITATIONS: Prohibited kickback occurs, if at all, at the time of the
closing, when the beneficiary of the kickback obtained the right to
receive it, even though the kickback in fact is paid at a later time, and the
RESPA one year statute of limitations runs from the closing date.

Snow v. First American Title Insurance Company, No. 02-60539 (5th
Cir. 2003)

This latest in a continuing series of class action lawsuits under RESPA
based upon various incentives provided by service providers to their
agents deals with volume incentives for title insurance agents.  The
defendant title insurance companies provided a 60 percent share with
their agents on title premiums as their normal policy, but permitted a 70
percent share when the agent reached a high volume.  Plaintiffs alleged
that this additional share constituted a prohibited "kickback" under
RESPA.  The statute prohibits a residential real estate service provider,
in connection with a real estate settlement,  from paying or receiving a
"thing of value" in pursuant to an "agreement or understanding" that
"business incident to or part of a real estate service . . . shall be referred
to nay person."

The parties here apparently stipulated that the right to receive a higher
percentage was a "thing of value" and that it was earned in connection
with generating higher volume in placement of title insurance, which of
course is done in the process of carrying out residential real estate
closings.  Instead of arguing whether there had been an "agreement or
understanding" related to referral of business, the defendants sought to
more expeditious route of invoking the one year statute of limitations
contained in RESPA, as all of the closing in which the"kickback"
scheme was alleged to have been involved occurred more than one year
prior to the filing of the lawsuit.

Plaintiffs argued that the court should look to the time at which the
benefits of the agreement were enjoyed by the agents as an additional
time for the running of the statute.  They pointed out that often the agents
did not get the benefit of the increased percentage until their business
totals were evaluated at year end, and the lawsuit was filed within a
period of less than one year from the time, therefore, that the "thing of
value" actually was provided to the agents.  The court disagreed - going
on at length about the awkward results that would obtain if it accepted
plaintiff's rationale of a "two hit" violation.  In the court's view, the only
rationale and possible intent of Congress was that the violation of the
anti-kickback scheme occurred when the right to receive the additional
compensation accrued, and this accrued, if at all, at closing.

Comment 1 : For a similar viewpoint, note the discussion of the time of
violation contained in Scottsdale Insurance Company v. James L.
Gardner Trust,  2002 U.S. App. LEXIS 26514 (10th Cir. 2002), the
DIRT DD for 5/29/03 (insurer avoided having duty to defend lawsuit
against insured for alleged wrongs because insured's wrongs occurred
prior to date of policy where insured obtained termination agreement
from plaintiff lessee prior to its acquiring insurance policy but later, after
the policy, took actions that plaintiff alleged it had fraudulently
represented it would not do in connection with obtaining the release.   As
the alleged  fraud in obtaining the release occurred prior to policy date,
policy did not apply even when rewards of the alleged fraud were
enjoyed while policy was in place.)

Comment 2:  The court claims that all manner of horribles will arise if it
permits characterization of the kickback scheme as either a "two event"
violation or a "continuing violation."  The editor is a bit skeptical.
Clearly courts recognize "continuing injuries" and "tortious conspiraces"
and often don't run the statute until the last act is completed, even though
the actual claim may be for damages caused at an earlier point in the
continuum.  Here, the court sits hard on the regulations that discuss the
"accrual" of a potential future interest as the "thing of value" that
constitutes the violation.  The editor believes that the court had other
options available to it that would have been consistent with approaches
in other areas.

The editor is more sympathetic with the court's other point - that the
whole purpose of a statute of limitations is to provide "repose" to claims
that arise an inappropriately long time after the offense.  Here, since the
focus of RESPA is on bad things done in real estate closings, it may
make sense for Congress to have intended that plaintiffs should bring
their actions within one year of the completion of the closing in question.
 Thus, as a matter of policy, the court's conclusion was correct, if not

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