Lane v. Residential Funding Corp.

• Decision Date: 13 March 2003
• Docket Number: No. 01-16269.,No. 01-16798.,01-16269.,01-16798.
• Parties: Jesse LANE, individually and on behalf of others similarly situated, Plaintiff-Appellant, v. RESIDENTIAL FUNDING CORPORATION, a Delaware Corporation; Chicago Title Company, a California Corporation; First National Bank of Chicago, a Illinois Corporation, Defendants-Appellees. Jesse Lane, individually and on behalf of others similarly situated, Plaintiff-Appellee, v. Residential Funding Corporation, a Delaware Corporation, Defendant, and Chicago Title Company, a California Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 739

323 F.3d 739

Jesse LANE, individually and on behalf of others similarly situated, Plaintiff-Appellant, v. RESIDENTIAL FUNDING CORPORATION, a Delaware Corporation; Chicago Title Company, a California Corporation; First National Bank of Chicago, a Illinois Corporation, Defendants-Appellees.

Jesse Lane, individually and on behalf of others similarly situated, Plaintiff-Appellee, v. Residential Funding Corporation, a Delaware Corporation, Defendant, and Chicago Title Company, a California Corporation, Defendant-Appellant.

No. 01-16269.

No. 01-16798.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 9, 2002.

Filed March 13, 2003.

James C. Sturdevant (argued) and Karen L. Hindin, The Sturdevant Law Firm, San Francisco, CA, for the plaintiffs-appellants.

Stephen Stublarec (argued), Latham & Watkins LLP, San Francisco, CA; John M. Grenfell, and Shawn Hanson, Pillsbury, Winthrop LLP, San Francisco, CA, for the defendant-appellee.

Appeal from the United States District Court for the Northern District of California; Maxine M. Chesney, District Judge, Presiding. D.C. No. CV-96-03331-MMC/JL.

Before: D.W. NELSON, BEEZER and WARDLAW, Circuit Judges.

BEEZER, Circuit Judge.

Appellant Jesse Lane bought a house from Residential Funding Corp. ("RFC"). RFC also provided the mortgage loan. RFC required Lane to use Appellee Chicago Title Company's ("Chicago Title") title insurance and escrow services. Lane brought this action, alleging that Chicago Title's pricing arrangements with RFC violate the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601-2617. He contends that certain discounts are prohibited kickbacks, which reward RFC for referring business to Chicago Title.

The district court granted Chicago Title's motion for summary judgment. Lane now appeals the judgment against him. Chicago Title cross-appeals the district court's decision refusing to award Chicago Title attorneys fees. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

I

In September 1995, Jessie Lane purchased a single-family residence in Oakland, California from RFC. RFC also provided a mortgage loan secured by a lien on the real property. As a condition of sale, RFC required Lane to use Chicago Title's escrow and title insurance services. Lane asked to use another company, but RFC refused and would not proceed with the sale unless Lane agreed to use Chicago Title for escrow and title insurance services.

Lane accepted RFC's condition and bought the house. He asked Chicago Title about its fees for escrow services and was told that his fees would total $600. This price quote was wrong, however, as it was based on a custom in another part of the state, where buyers and sellers usually split escrow fee costs. Under Lane's contract he agreed to pay all escrow fees. Presumably, Lane's fees should have been $1200 without the split, but at closing the final cost for escrow fees was actually $900.

The reason the escrow fees were not $1200 is the focus of this dispute. RFC is a repeat user of escrow and title insurance services.¹ As a result, it has negotiated flat or reduced prices with several escrow providers. RFC's standing agreement with Chicago Title provides that RFC will receive title insurance for 60% of Chicago Title's standard price and RFC's cost for escrow fees will be a flat $300, regardless of a residence's sales price. In some cases this fee may be greater than the standard cost, in others less.

It is undisputed that the discussions between RFC and Chicago Title included discussions over the volume of expected orders. Although there is no evidence that RFC generally passes any escrow fee savings along to the buyers of its properties, Lane managed to receive the benefit of RFC's flat rate because he paid for all the escrow fees. After Lane paid the $900 for escrow services, he initiated this action.

His complaint alleges that the flat rate arrangement between RFC and Chicago Title for escrow fees is an illegal "kickback" that rewards RFC for referring business to Chicago Title. According to Lane, this violates section 8(a) of RESPA, 12 U.S.C. § 2607(a).² This portion of the case was certified as a class action in November 1998.

The district court granted Chicago Title's motion for summary judgment on the RESPA claim. The motion was granted on the ground that the discounts Chicago Title provides RFC on its escrow fees are not discounts for referring buyers. The district court concluded that these discounts are based on Chicago Title's lowered costs when dealing with RFC, which are attributable to RFC's familiarity with escrow transactions and its use of standardized forms and procedures. These lowered costs result from "economies of scale" that are related, at least in part, to the volume of business provided by RFC.

The district court also held that the discount on title insurance services was explained by the lower costs associated with RFC's properties. Most of RFC's residential sales involve recent foreclosures, which reduces the extent of any title search. This is because the foreclosed properties usually have a recent title report or trustee sale guarantee available. The district court also held that there was no evidence that the rates charged to RFC were abnormally low or related to anything other than recognized economic principles. Following judgment in the case, Lane appealed, seeking reversal of the summary judgment.

After judgment in the district court, Chicago Title moved for attorneys fees, claiming the status of a "prevailing party" under 12 U.S.C. § 2607(d)(5).³ The district court denied this motion, holding that RESPA's attorneys fee provision is governed by the plaintiff-friendly dual standard of Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 98 S.Ct. 694, 54 L.Ed.2d 648 (1978), and finding that Chicago Title is not entitled to fees under this standard. Chicago Title appeals that order, arguing that the district court should have evaluated the motion under the more favorable standards for defendants found in Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994).

II

We review de novo the grant of summary judgment. Oliver v. Keller, 289 F.3d 623, 626 (9th Cir.2002). The order denying attorneys fees is reviewed for an abuse of discretion. See, e.g., Barrios v. California Interscholastic Fed., 277 F.3d 1128, 1133 (9th Cir.2002). A district court abuses its discretion if it applies the wrong legal standard. Akopyan v. Barnhart, 296 F.3d 852, 856 (9th Cir.2002). Applying these standards of review, we conclude that both district court decisions are correct.

III

Lane argues that the flat rate escrow fees and lower title insurance rates paid by RFC constitute discounts provided in return for referrals. He contends that these discounts are kickbacks under section 8(a), relying heavily on a regulation issued by the Department of Housing and Urban Development ("HUD"), 24 C.F.R. § 3500.14(e). This regulation provides, in relevant part:

When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business.

24 C.F.R. § 3500.14(e). Under Lane's theory, RFC repeatedly receives discounts that are "connected" to the volume of business referred because the "economies of scale" justifying the discounts ultimately rest on the volume of business provided. Based on this, he contends that one may infer that Chicago Title and RFC are parties to a prohibited "discount for referral" agreement.

The district court disagreed with Lane's analysis, finding the broad language of RESPA's section 8 and 24 C.F.R. § 3500.14(e) is limited to situations where the "thing of value" is not based on "economies of scale or other recognized economic principles." We hold that the discount arrangement between RFC and Chicago Title did not violate section 8(a) of RESPA because the discounts and total compensation are reasonably related to the value of services that are actually performed.

In so holding, we use the test developed by HUD for determining whether a type of fee paid to real-estate brokers by mortgage lenders, called a "yield spread premium," is prohibited or not. See RESPA Statement of Policy 2001-1 ("2001 Policy Statement"), 66 Fed.Reg. 53052, 53054 (Oct. 18, 2001). Under this test, a discount on settlement services given to a seller of real estate is not prohibited under section 8(a) when: 1) goods and facilities are actually furnished or services are actually performed for the compensation paid, and 2) the discount is reasonably related to the value of the goods or facilities actually furnished or the services actually performed. Id.

A.

The district court held that RESPA does not prohibit discounts that are based on economies of scale or other recognized economic principles. The district court considered two questions: 1) did the undisputed evidence show that the cost of providing escrow services and title services to RFC is lower than it is for providing such services to individual sellers? and 2) did the undisputed evidence show that the rates charged by Chicago Title for the services it actually provides are not abnormally low? The district court answered both questions in the affirmative.

The district court's approach in this case parallels the test developed by HUD to evaluate yield spread premiums. See 2001 Policy Statement, 66 Fed.Reg. at 53054. Understanding HUD's approach to yield spread premiums sheds significant light on this case.

Yield spread premiums involve payments from mortgage lenders to mortgage brokers. See Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004, 1007 (9th Cir. 2002). With a yield spread premium, mortgage lenders establish a hypothetical interest rate that is called the "par rate." Id. at 1007-08. When a mortgage broker's client takes out a...