U.S. v. Graham Mortg. Corp.

• Citation: 740 F.2d 414
• Decision Date: 12 July 1984
• Docket Number: 83-1629,Nos. 83-1628,s. 83-1628
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. GRAHAM MORTGAGE CORP., Richard E. Chapin, Thomas P. Heinz, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 414

740 F.2d 414

UNITED STATES of America, Plaintiff-Appellee, v. GRAHAM MORTGAGE CORP., Richard E. Chapin, Thomas P. Heinz,

Defendants-Appellants.

Nos. 83-1628, 83-1629.

United States Court of Appeals, Sixth Circuit.

Argued March 27, 1984.

Decided July 12, 1984.

James A. Smith (argued), Bodman, Longley & Dahling, Thomas A. Roach, Donovan, Hammond, Ziegleman, Roach & Sotiroff, Detroit, Mich., for defendants-appellants.

Leonard R. Gilman, U.S. Atty., Stephen T. Robinson, Asst. U.S. Atty. (argued), Detroit, Mich., for plaintiff-appellee.

Before KENNEDY and WELLFORD, Circuit Judges; and PECK, Senior Circuit Judge.

PECK, Senior Circuit Judge.

This appeal involves the issue of whether, for purposes of a criminal prosecution involving Sec. 8(a) of the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C. Sec. 2607(a), ¹ the making of a mortgage loan is a settlement service. Before this court appellants contend that the making of mortgage loans at a reduced charge of points ² in exchange for referrals of mortgage loan applicants, which was the substantive activity the indictment alleged to be illegal, is not prohibited by Sec. 8(a) of RESPA because the making of a mortgage loan is not "a real estate settlement service." ³ The district court, in an opinion and order denying appellants' motion to dismiss the indictment, held that the making of a mortgage loan is a settlement service. United States v. Graham Mortgage Corp., 564 F.Supp. 1239 (E.D.Mich.1983). We reverse.

I. Facts

A superseding six-count indictment was filed in the Eastern District of Michigan on February 11, 1983 charging four defendants with the misdemeanor of giving and accepting kickbacks in violation of Sec. 8(a) of RESPA, 12 U.S.C. Sec. 2607(a), and with conspiracy to violate Sec. 8(a) of RESPA, 18 U.S.C. Sec. 371. The defendants included Graham Mortgage Corporation (GMC), a wholly-owned subsidiary of Manufacturers National Bank, engaged in the mortgage banking business; Richard E. Chapin, an executive vice-president and director of GMC; Thomas P. Heinz, a vice-president and branch manager of GMC; and Manford Colbert, president of Rose Hill Realty, Inc. (Rose Hill), which was engaged both in traditional real estate brokerage activity and in the purchase, rehabilitation and resale of Detroit-area homes. Colbert is not a party to this appeal.

From September 1975 through May 1979, GMC provided Rose Hill with interim financing, i.e., financing of Rose Hill's purchase, rehabilitation and resale of Detroit-area residences. For each loan it received, Rose Hill agreed to refer to GMC two mortgage loan applicants from its regular brokerage business in addition to referring the purchaser of the rehabilitated house. In turn, GMC, when making Federal Housing Administration (FHA) or Veterans' Administration (VA) mortgage loans to purchasers of the rehabilitated residences sold by Rose Hill, charged Rose Hill fewer points than it charged other sellers. ⁴ To recoup the income lost through the reduction in points charged to Rose Hill, GMC increased the points charged to sellers of residences referred by Rose Hill and financed by FHA or VA loans.

Prior to trial, appellants filed a motion to dismiss the indictment on the ground, inter alia, that the activity alleged in the indictment did not involve the referral of business "incident to or part of a real estate settlement service" and, consequently, did not violate Sec. 8(a) of RESPA. The district court denied the motion. Treating the question as one of first impression, the court held that the statutory language, viewed in light of both Congress's goal of eliminating kickbacks and referral fees that unduly inflated the cost of settlement services and the interpretation of the statute in the regulations promulgated by the Department of Housing and Urban Development (Secretary or HUD), 24 C.F.R. part 3500, appendix B, prohibited the alleged activity. 564 F.Supp. at 1242-43.

Subsequently, the appellants pleaded guilty to the conspiracy count in exchange for dismissal of the substantive counts. Following entry of judgments of conviction, appellants filed a motion for arrest of judgment. In an unpublished order, the court adhered to its decision that the making of a mortgage loan was a settlement service and denied the motion. The appellants then initiated the instant appeal.

II. Statutory Interpretation

In reviewing a question of statutory interpretation, we first turn to the language of the statute. Albernaz v. United States, 450 U.S. 333, 336, 101 S.Ct. 1137, 1140, 67 L.Ed.2d 275 (1981); Perrin v. United States, 444 U.S. 37, 42-43, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979); Stevens v. United States, 440 F.2d 144, 146 (6th Cir.1971). Where the language of the statute is ambiguous and can be interpreted to support readings either imposing or not imposing criminal liability on individuals for particular conduct, the court must turn to the legislative history of the statute. Dixson v. United States, --- U.S. ----, 104 S.Ct. 1172, 1177, 79 L.Ed.2d 458 (1984) (citing Rewis v. United States, 401 U.S. 808, 812, 91 S.Ct. 1056, 1059, 28 L.Ed.2d 493 (1971)). See United States v. Ilacqua, 562 F.2d 399, 402 (6th Cir.1977), cert. denied, 435 U.S. 906, 98 S.Ct. 1453, 55 L.Ed.2d 497 (1978). "If the legislative history fails to clarify the statutory language, our rule of lenity would compel us to construe the statute in favor of ... [the] criminal defendants in this case." Dixson v. United States, supra, 104 S.Ct. at 1177. Accord United States v. Faygo Beverages, Inc., 733 F.2d 1168, 1170 (6th Cir.1984); United States v. Ilacqua, supra, 562 F.2d at 402.

A. Statutory Language

Section 8(a) of RESPA prohibits the payment or receipt of fees, kickbacks, or things of value in exchange for referrals of "business incident to or part of a real estate settlement service involving a federally related mortgage loan". 12 U.S.C. Sec. 2607(a). Section 3(3) of RESPA defines the term "settlement services" as follows:

the term "settlement services" includes any service provided in connection with a real estate settlement including, but not limited to, the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, and the handling of the processing, and closing of settlement....

12 U.S.C. Sec. 2602(3). The critical textual question is whether this definition of "settlement services", which does not expressly include within its scope the making of a mortgage loan, properly may be construed to do so implicitly.

The government advances a simple argument in support of its position that the language of Sec. 3(3) of RESPA provides for the treatment of the making of a mortgage loan as a settlement service. The government first contends that the definition of "settlement services", by its own terms, does not purport to contain an exhaustive list of settlement services, but rather denotes "any service provided in connection with a real estate settlement." 12 U.S.C. Sec. 2602(3) (emphasis added). The government then contends that the making of a mortgage loan is a service in the sense that it satisfies a borrower's need or demand for money. The government concludes that because the making of a mortgage loan is the service essential to a real estate settlement, it must be incidental to the settlement and fall within the scope of the definition in Sec. 3(3) of RESPA.

There can be little question that the list of settlement services contained in Sec. 3(3) of RESPA was not intended by Congress to be exhaustive. The language of the definition that the term includes, "but [is] not limited to," the services listed constitutes an explicit recognition that the list was not intended to be exhaustive. Accordingly, the Seventh Circuit upheld a conviction for splitting charges in violation of 12 U.S.C. Sec. 2607(b) based, in part, on its determination that a county counterman's handling of Torrens filings is a settlement service for purposes of RESPA even though the service is not included in the list. United States v. Gannon, 684 F.2d 433, 438-39 (7th Cir.) (en banc), cert. denied, 454 U.S. 940, 102 S.Ct. 475, 70 L.Ed.2d 248 (1981). See also id. at 441 (Cudahy, J., dissenting) (handling of Torrens filings assumed to be settlement service). The determination that the list of settlement services in Sec. 3(3) of RESPA is not exhaustive, however, does not render the government's argument persuasive. The issue before this court is not whether the list in Sec. 3(3) of RESPA is exhaustive; rather, the issue before this court is whether the making of a mortgage loan constitutes the provision of a service "in connection with a real estate settlement."

In arguing that the making of a mortgage loan is a service provided incident to a settlement, the government appears to rely on what it contends is an ordinary meaning of the term "service", viz., that "service" denotes the supplying of some demand or need. Because the making of a mortgage loan supplies the need for money in connection with a real estate settlement, the government concludes that the making of a mortgage loan is a real estate settlement service. The problem with this argument is that, as the government concedes, the meaning of the term "service" varies depending upon the context in which the term is used. See, e.g., Central Power & Light Co. v. State, 165 S.W.2d 920, 925 (Tex.Civ.App.1942), appeal dismissed, 319 U.S. 727, 63 S.Ct. 1033, 87 L.Ed. 1691 (1943). The government cites no authority in support of its contention that "service" is used in Sec. 3(3) of RESPA in the sense that it urges is an ordinary meaning of the term. In the one case cited by the government, King v. Central Bank, 18 Cal.3d 840, 558 P.2d 857, 135 Cal.Rptr....