Chultem v. Ticor Title Ins. Co.

• Decision Date: 16 December 2015
• Docket Number: 1–14–0820.,Nos. 1–14–0808,s. 1–14–0808
• Citation: 46 N.E.3d 340
• Parties: Doljin CHULTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants and Cross–Appellees, v. TICOR TITLE INSURANCE COMPANY, Chicago Title and Trust Company, and Fidelity National Financial, Inc., Defendants–Appellees and Cross–Appellants. Paul Colella, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants and Cross–Appellees, v. Chicago Title Insurance Company and Chicago Title and Trust Company, Defendants–Appellees and Cross–Appellants.
• Court: United States Appellate Court of Illinois

46 N.E.3d 340

Doljin CHULTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants and Cross–Appellees

v.TICOR TITLE INSURANCE COMPANY, Chicago Title and Trust Company, and Fidelity National Financial, Inc., Defendants–Appellees and Cross–Appellants.

Paul Colella, Individually and on Behalf of All Others Similarly Situated, Plaintiffs–Appellants and Cross–Appellees

v.Chicago Title Insurance Company and Chicago Title and Trust Company, Defendants–Appellees and Cross–Appellants.

Nos. 1–14–0808

1–14–0820.

Appellate Court of Illinois, First District, Third Division.

Filed Dec. 16, 2015.

Rehearing Denied Jan. 12, 2016.

Power Rogers & Smith, PC (Todd A. Smith and Joseph A. Power, Jr., of counsel), Korein Tiller LLC (Stephen M. Tillery, George A. Zelcs, and John A. Libra, of counsel), and Myron M. Cherry & Associates, LLC (Myron M. Cherry and Jacie Zolna, of counsel), Chicago, for appellants.

Fidelity National Law Group (Scott C. Lascari, of counsel), Skadden, Arps, Slate, Meagher & Flom (Edward M. Crane and Timothy M. Frey, of counsel), and Jenner & Block LLP (Michael T. Brody and Elin I. Park, of counsel), Chicago, and Hahn Loeser & Parks LLP, Cleveland, OH (Robert J. Fogarty, Erica L. Calderas, and Dennis R. Rose, of counsel), for appellees.

OPINION

Presiding Justice MASON delivered the judgment of the court, with opinion.

¶ 1 In this consolidated class action appeal, plaintiffs Doljin Chultem and Paul Colella, individually and on behalf of all others similarly situated, appeal the trial court's ruling that defendants Ticor Title Insurance Company (Ticor), Chicago Title Insurance Company (Chicago Title), Chicago Title and Trust Company (CT & T) and Fidelity National Financial, Inc. (Fidelity) (collectively, the “title companies”) did not make illegal kickback payments by splitting a fee with attorneys for their referral of business to the title companies in violation of the Illinois Title Insurance Act (215 ILCS 155/1 (West 2002) ) (Title Act)¹ and the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2002)) (Consumer Fraud Act). Plaintiffs assert that payments made by the title companies to attorneys who also served as title agents (attorney agents) were unlawful because the title companies provided those attorneys with a pro forma title commitment that determined the insurability of a property's title—a function they assert must be performed by the attorney agents to earn the fee paid by the title companies. Plaintiffs claim that because the attorney agents received the pro forma commitment, they did not perform “core title services” and the title company's payment was unearned and, in reality, an illegal kickback. Because recent case law fails to support plaintiffs' position, we affirm.

¶ 2 BACKGROUND

¶ 3 A. RESPA and HUD Policy Statements

¶ 4 We begin by providing a brief overview of the pertinent statutory and regulatory framework to place in context the issues and arguments raised in this appeal. The Real Estate Settlement Procedures Act (12 U.S.C. § 2601 et seq. (2000) ) (RESPA) is a federal statute establishing various requirements relating to the residential real estate settlement process. Weatherman v. Gary–Wheaton Bank of Fox Valley, N.A., 186 Ill.2d 472, 481, 239 Ill.Dec. 12, 713 N.E.2d 543 (1999). Congress enacted RESPA to provide purchasers and sellers of real property with more detailed advance disclosure of the settlement costs associated with real estate closings. Id. Congress also sought to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country.” 12 U.S.C. § 2601(a) (2000). More specifically, Congress sought to eliminate kickbacks or referral fees for title insurance business that contributed to increased costs of settlement services. 12 U.S.C. § 2601(b)(2) (2000).

¶ 5 Two sections of RESPA address these practices. RESPA section 2607(a) (12 U.S.C. § 2607(a) (2000) ) prohibits kickbacks for referrals and states:

“No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” Id.

To establish a violation of section 2607(a), the following elements must be demonstrated: “(1) a payment or thing of value; (2) given and received pursuant to an agreement to refer settlement business; and (3) an actual referral.” Galiano v. Fidelity National Title Insurance Co., 684 F.3d 309, 314 (2d Cir.2012).

¶ 6 RESPA section 2607(b) (12 U.S.C. § 2607(b) (2000) ) prohibits unearned fee splitting and states in pertinent part:

“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.” Id.

Section 2607(b) is violated where: (1) a person gives or accepts any portion, split or percentage of any charge; (2) the fee-split relates to the rendering of a real estate settlement service; and (3) the fee-split or payment is made “other than for services actually performed.” (Internal quotation marks omitted.) Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir.2003). Simply stated, a party violates section 2607(b) where no services are performed in exchange for the fee charged to the consumer by a title company and later split with another party. Clements v. LSI Title Agency, Inc., 779 F.3d 1269, 1274 (11th Cir.2015) (a plaintiff must plead that “ ‘no services were rendered in exchange for a settlement fee’ ” (quoting Friedman v. Market Street Mortgage Corp., 520 F.3d 1289, 1298 (11th Cir.2008) )).

¶ 7 As is apparent, each subsection addresses specific conduct not addressed by the other subsection, i.e., “[s]ubsection (a) prohibits certain kickbacks (those agreed to in exchange for referrals) and subsection (b) prohibits certain unearned fees (those paid from a part of the charge to the customer).” Freeman v. Quicken Loans, Inc., 566 U.S. ––––, ––––, 132 S.Ct. 2034, 2043, 182 L.Ed.2d 955 (2012).

¶ 8 In enacting RESPA, Congress also included “safe harbor provision[s]” that exempt certain payments from the prohibition against kickbacks. Johnson v. Matrix Financial Services Corp., 354 Ill.App.3d 684, 689, 290 Ill.Dec. 27, 820 N.E.2d 1094 (2004). RESPA section 2607(c)(1)(B) provides that the payment of a fee “by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance” shall not be considered a prohibited payment. 12 U.S.C. § 2607(c)(1)(B) (2000). RESPA section 2607(c)(2) provides that the payment “to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed” shall likewise not be considered a prohibited payment. 12 U.S.C. § 2607(c)(2) (2000). The two safe harbor exemptions are not mutually exclusive. Howland v. First American Title Insurance Co., 672 F.3d 525, 533 (7th Cir. 2012).

¶ 9 Until recently, the Department of Housing and Urban Development (HUD) was the administrative agency responsible for drafting regulations and rendering interpretations consistent with RESPA's objectives.² Cohen v. JP Morgan Chase & Co., 498 F.3d 111, 124 (2d Cir.2007). Following RESPA's enactment, HUD promulgated regulations using language that mirrors RESPA's provisions regarding the prohibition against kickbacks and unearned fees. The regulations provide that “any referral of a settlement service is not a compensable service, except as set forth in § 3500.14(g)(1).” 24 C.F.R. § 3500.14(b) (2001). Section 3500.14(g)(1) adopts RESPA's “safe harbor” provisions in language identical to the statute. The regulation addressing fee splitting provides further elaboration and states that “[a] charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.” 24 C.F.R. § 3500.14(c) (2001). The regulations specify that for an attorney, who provides multiple services and is in a position to refer settlement service business, to receive “a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person.” 24 C.F.R. § 3500.14(g)(3) (2001). To further clarify, the regulation provides the following example:

“[F]or an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing.” 24 C.F.R. § 3500.14(g)(3) (2001).

¶ 10 In 1996, HUD issued a statement of policy (HUD, RESPA Statement of Policy 1996–4, 61 Fed.Reg. 49398, 49399–400 (Sept. 19, 1996) ) (Florida Policy Statement)³ reflecting its interpretation of the safe harbor exceptions set forth in section 2607(c)(1)(B) and section 2607(c)(2). Howland, 672 F.3d at 529. In HUD's opinion, “a title agent does not qualify under the Section 8(c)(1)(B) safe harbor if the title insurance company performs any of the core title services itself,” including preparation of a preliminary or pro forma commitment. Id. at 529–30 (citing Florida Policy Statement, 61 Fed.Reg. at 49400 ). HUD further explained that an attorney agent may receive compensation for services performed under section 2607(...