Argument recap: First American Financial Corp. v. Edwards

The Court was quite active at oral argument in this Real Estate Settlement Procedures Act (“RESPA”) case presenting a fundamental standing question: Can a plaintiff bring suit seeking an award of statutory damages when she was steered to a particular title insurance company on account of a kickback but did not allege that she paid too much for the insurance or obtained substandard insurance or suffered any other particular injury in fact?

Justice Breyer did not permit Aaron Panner, representing First American Financial, to get very far before initiating the questioning.  What if Congress bans phone calls at certain hours and his grandmother gets such a call?  Must she show injury in fact to obtain the statutory damages?  What if she was happy to be called?  What if Congress provides for an automatic award if a person is exposed to a substance that harms ninety-eight percent of the population?  Justice Ginsburg joined in, suggesting that in RESPA Congress was concerned that someone would not know if his title insurance was sound until he tried to sell his property and therefore did not require a showing of injury in fact.  When Panner held his ground and responded that a plaintiff must allege some specific harm to have standing, Justice Sotomayor accused him of advancing the very broad proposition that Congress may never presume injury.  Panner responded that his position was not overly broad, but boiled down to the argument that a plaintiff must allege some particular injury and Edwards had made no such allegation.

Justice Kagan asked Panner whether a party to a contract with a “no kickback” clause could sue on the contract without alleging any injury.  Panner said “yes,” adding that the party agreeing to the clause must have given value for that assurance, thus anticipating Justice Kagan’s follow-up question asking why Congress could not mandate that every contract have a “no kickback” clause.  But Justice Kagan nevertheless said that she was “still having problems.”

Justice Scalia gave Jeffrey Lamken, representing Ms. Edwards, even less time before initiating questioning.  Lamken said that for 280 years the law has provided that an individual may sue alleging a breach of a duty of loyalty resulting from a kickback on that basis alone.  Where, Justice Scalia asked, was the duty of loyalty here?  Lamken responded that Congress essentially created one by providing that parties to real estate transactions have a right to be free of conflicts of interest.  That sounded “strange” to Justice Alito, who asked Lamken whether a car dealer’s service department would breach a duty of loyalty by giving him an estimate for repairs and then suggesting that it should do the repairs.  Justice Alito added that “I would be an idiot if I don’t realize” that the dealer has a strong economic interest in recommending itself.

The Chief Justice questioned Lamken at length with respect to whether he was arguing that (1) Edwards had been injured by not obtaining a conflict-free referral; (2) Congress presumed that a referral tainted by a conflict caused injury; or (3) no showing of injury is required.  Saying that he did “not mean this in a pejorative sense,” the Chief Justice told Lamken that he was “slid[ing] back and forth” between the three alternatives.  In response, Lamken clarified that his argument is that Congress had decided that no showing of injury is required when a person’s right to conflict-free services is violated, adding that of course parties who obtain tainted advice are frequently harmed but it may be difficult to determine just how they were harmed.  The Chief Justice also asked whether Edwards wanted to “get out of this deal,” contending that the fact that Edwards was not seeking such relief showed that she had not been harmed.  And the Chief Justice responded to Lamken’s reference to nominal damages for breach of contract as a longstanding example of a right to sue without showing damages by asking whether his client would settle for one dollar.

Justice Scalia also led off the questioning of Assistant to the Solicitor General Anthony Yang, representing the United States as an amicus in support of Edwards.  What if Congress created a right to “a tax-observant seller” and provided that anyone who bought a product from a company that did not pay its taxes was entitled to five hundred dollars?  Yang suggested that such a law might be too “undifferentiated” and therefore fail under Lujan v. Defenders of Wildlife, in which the Court held that Congress could not create a “citizen’s suit” to enforce the Endangered Species Act.  Justice Scalia responded that his hypothetical law was “differentiated” because “only the people who bought from tax cheats” could sue.  Justice Breyer interjected that Justice Scalia “has a point,” but suggested that prudential standing principles might prevent a plaintiff who lacked particular injury from going forward in such a case.

Yang invoked trespass as an example of common law suit that did not require a showing of injury.  The Chief Justice responded that trespass is different because property can be sold, unlike a right to a kickback-free settlement.

Only Justice Scalia asked a question during Panner’s rebuttal, saying that he was “troubled by the dollar nominal damages for breach of contract.”  Panner responded that such a contractual provision might represent a determination by the parties that injury would be difficult to determine and added that it was not clear that the Court would find standing to bring a nominal damages claim.

Justice Kennedy asked questions of each counsel, and an analysis of those exchanges may indicate how this case will be decided.  To Panner, he suggested that trust law would permit remedies such as disgorgement without any showing of harm.  Panner responded that a plaintiff’s decision to choose disgorgement would show that the plaintiff thought he had been harmed.  Justice Kennedy also picked up on a hypothetical asked by Justice Ginsburg in which noted economists conclude that rates will be higher in markets infected with kickbacks and Congress therefore provided for statutory damages.  Panner pointed out that no such allegation had been made by Edwards.

Justice Kennedy asked Lamken about agency law, building on Justice Alito’s hypothetical involving car dealers: If the dealer bought parts from a company it owned, without disclosing the relationship, would disgorgement be warranted?  Lamken said “absolutely, without having to show any loss.”  But Justice Kennedy found Lamken’s later statement that, by itself, “an invasion of a statutory right can be injury in fact” unsatisfying, saying that “[t]he Constitution requires injury.”

With Yang, Justice Kennedy indicated that he did not consider trespass comparable to “a right to buy a conflict-free title insurance policy.”

It appears that a majority of the Justices will reject a broad theory of the sort the Chief Justice described as option number three, under which no showing of injury is required simply because Congress has provided for statutory damages.  But it is less clear whether some version of option number two might find majority support.  If so, a showing that Congress has made a considered decision that certain types of acts are likely to cause harm that is difficult to quantify would be sufficient to provide standing.  But even if option two finds support, it is not clear whether the Court will conclude that the provision at issue meets whatever test the Court adopts.