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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
dirt@umkc.edu
RESPA; ANTI-KICKBACK RULES; STATUTE OF
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
compelling.
Readers are encouraged to respond to or criticize this
posting.
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