A case that — on its surface — has nothing to do with RESPA (the Real Estate Settlement Procedures Act) may impact those subject to RESPA nonetheless. The Supreme Court issued a decision Monday in a case involving consumer privacy law that may ultimately have implications for real estate and mortgage industry companies that are subject to certain federal statutes, including the Fair Credit Reporting Act (FCRA) and RESPA.

  • Thomas Robins filed a class-action lawsuit in 2011 in California federal court against Spokeo, a website that aggregates publicly available information about people and assembles it into an online profile, for putting false information about his age, marital status, educational background and professional accomplishment into his profile.
  • In response, Spokeo pointed out that the erroneous information in Robins’ profile was actually favorable and that he suffered no harm.
  • The Supreme Court sent the "concrete harm" question back to the circuit court, but industry experts are concerned because the case could have implications for RESPA-affected industries, allowing plaintiffs to bring lawsuits against real estate and mortgage companies without proving concrete harm.

A case that — on its surface — has nothing to do with RESPA (the Real Estate Settlement Procedures Act) may impact those subject to RESPA nonetheless.

The Supreme Court issued a decision Monday in a case involving consumer privacy law that may ultimately have implications for real estate and mortgage industry companies that are subject to certain federal statutes, including the Fair Credit Reporting Act (FCRA) and RESPA.

The court’s May 16 decision in Spokeo v. Robins concerns when and how a consumer may sue for privacy violations under the FCRA.

Thomas Robins filed a class-action lawsuit in 2011 in California federal court against Spokeo, a website that aggregates publicly available information about people and assembles it into an online profile, for putting false information about his age, marital status, educational background and professional accomplishment into his profile.

Robins argued that because Spokeo collects information upon the request of potential employers and others, it qualifies as a consumer reporting agency under the FCRA.

‘Concrete’ and ‘particularized’ harm

In response, Spokeo pointed out that the erroneous information in Robins’ profile was actually favorable and that he suffered no harm, thus falling short of the Constitution’s Article III requirement that he properly plead a “concrete” harm. The district court dismissed the case.

However, on appeal, the 9th Circuit Court of Appeals reversed the district court’s decision. It found that because Congress implicitly created a private cause of action to enforce statutory rights, Robins satisfied his Article III burden.

The case made its way to the Supreme Court last fall, where Spokeo asked the court to answer the question, “Can Congress authorize a cause of action based on a violation of a federal statute and therefore confer Article III standing on a plaintiff who has not suffered concrete harm?”

A screenshot from the Spokeo website.

A screenshot from the Spokeo website.

The court wrote in its decision that an injury-in-fact to confer standing under Article III of the Constitution “must be both concrete and particularized,” and that “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.”

The court vacated the 9th Circuit Court’s decision and remanded it for further proceedings, finding that it “failed to fully appreciate the distinction between concreteness and particularization…and its standing analysis was incomplete.”

The Supreme Court’s decision to remand the case is receiving a lot of attention because it is one of several similar actions recently made by the now eight-member court, all assumed to be attempts to avoid 4-4 deadlocks as it awaits the appointment of a replacement for Justice Antonin Scalia, who passed away in February.

But it’s also being kicked around the real estate and mortgage industries, as some compliance experts are concerned about how the ultimate outcome may affect an already litigious environment for companies in those industries.

What’s RESPA got to do with it?

A half-dozen real estate industry trade associations joined forces and submitted an amicus curiae, or “friend of the court,” brief in support of Spokeo.

The groups — the National Association of Realtors (NAR), the Real Estate Services Providers Council Inc. (RESPRO), the American Escrow Association (AEA), the American Land Title Association (ALTA), the Consumer Mortgage Coalition and the Coalition for Sensible Records Access — asked the Supreme Court to reverse the judgment of the 9th Circuit Court of Appeals because “the Constitution does not provide a judicial remedy to an uninjured plaintiff due to the mere violation of a statute providing statutory rights or penalties.”

The groups, which are all subject to the FCRA, noted that they are all also subject to RESPA, two of many federal statutes that provide a private right of action to pursue alleged violations and recovery of significant statutory damages.

In the brief, the group states that plaintiffs “frequently pursue claims under these types of statutes on behalf of putative classes, exposing defendants to the threat of overwhelming liability,” whether or not the plaintiff was actually harmed. “Litigating in the face of such exposure in these circumstances presents an overwhelming risk that defendants should not, and are not required, to take,” the group wrote.

The members of all of these associations have frequently been confronted with class-action lawsuits brought against them by a consumer who suffered no injury, including some who were solicited by plaintiffs’ law firms to represent a proposed class, the groups alleged.

RESPA cases in particular — which carry the potential remedy of treble damages — are “a magnet for the plaintiff’s bar,” the groups alleged.

“As a result, amici’s members — some of whom supply lending, insurance or transactional information, or facilitate residential real estate purchases — face increased costs of doing business and are significantly less willing to bear risk and to innovate, to the ultimate detriment of all consumers and the economy,” their brief stated.

What happens if the decision stands?

The groups suggested that if the 9th Circuit Court of Appeals decision were allowed to stand, this would lead to the settlement of or need to litigate meritless claims.

But if the Supreme Court reversed the decision, and recoveries were restricted to situations in which a plaintiff can prove he suffered damages, there are still other opportunities for enforcement of the law and deterrence of violation, they added.

“Congress provided multiple avenues for enforcement of the consumer protection statutes,” they stated. Regulatory agencies like the Federal Trade Commission, the Securities and Exchange Commission and the Consumer Financial Protection Bureau (CFPB) have authority to enforce the FCRA, RESPA and other federal statutes.

The groups’ brief pointed out that Congress gave the CFPB in particular “an enormous budget,” the ability to conduct investigations and bring enforcement actions, including issuing civil investigation demands and a choice of forums to pursue consumer complaints.

And the CFPB “has not been shy about utilizing its enforcement authority,” the groups noted. “It has aggressively enforced RESPA,” they stated, pointing to the ongoing legal battle between the bureau and PHH Corp., over concerns that the mortgage lender’s captive reinsurance agreements may have violated RESPA.

Ken Trepeta, RESPRO’s president and executive director, called the Supreme Court’s decision “a pleasant surprise.”

When he attended oral arguments, it seemed like the decision could be 5-4, but then Scalia’s unexpected death changed things, he said.

“This case is about whether you need actual damage to have a claim,” Trepeta said. “The guy in this case didn’t really have damages. Spokeo got his profile all wrong, but nothing bad happened because of it.

“The court appears to be saying you do need real damage of some sort. Similar things happen under RESPA. If the rule is that you must have concrete damages, then people will need to do more than say they didn’t get some disclosure. They will have to show they were harmed because of it.”

“If the rule is that you must have concrete damages, then people will need to do more than say they didn’t get some disclosure.” – Ken Trepeta, president and executive director of RESPRO

The case now goes back to the 9th Circuit Court for further proceedings.

“Robins may still prevail, but it is important that the court is reiterating that there must be some harm for a claim to be sustained,” Trepeta said.

Email Amy Swinderman

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