U.S. Supreme Court debates future of no-harm class actions following oral argument in First American Financial Corp. v. Edwards

The future of no-harm class actions is now in the hands of the U.S. Supreme Court following oral argument in First American Financial Corp. v. Edwards, U.S. Supreme Court Docket No. 10-708, October 2011.

The Court is considering whether violation of a statute providing specified statutory damages is sufficient to confer standing under Article III of the Constitution even absent any allegation of separate economic harm.  Specifically, the issue is whether Edwards and a putative class of plaintiffs have standing under the Real Estate Settlement Procedures Act (RESPA) to maintain claims for refunds of title insurance fees paid in transactions involving improper kickback agreements when they do not and cannot allege that they overpaid or that their coverage was adversely affected.

At oral argument, the questions from the bench to counsel for both sides were quick, continuous and varied. 

Questions to the Petitioner, First American, focused on whether the statute gives the enforceable right to a kickback-free deal.  In other words, is the violation of the statute the injury?  First American maintained that a violation (i.e., the injury) and damages are both required for standing and must remain separate elements of the Article III analysis.  Thus, Congress cannot unilaterally define an injury that confers standing without separate harm.  The bench appeared to be considering whether participation in a tainted transaction is itself a harm.  Such questions may indicate that the Court will preserve the requirement of separate harm, but is pausing on whether participation in a tainted transaction is enough.

In turn, the Respondent faced a number of questions from the bench on its real position, with Chief Justice Roberts pointing out that Respondent slid among three separate positions:  (1) there is injury-in-fact, (2) injury-in-fact is required but it is presumed by Congress for statutory violations, and (3) no injury-in-fact is required.   Respondent’s true position remained somewhat unclear. 

The Chief Justice pressed as to why violation of the statute was not “injury in law” rather than the required injury in fact.  Justice Ginsburg, on the other hand, focused on the presence of statutorily-defined damages (under RESPA, three times the fee paid) as adequate to meet the harm requirement, even if no other damages were alleged.
Time will tell, but the focus of inquiry at oral argument appeared to indicate separate harm will still be required, but the real question is whether either participation in a tainted deal or a statutory penalty can satisfy that requirement.

Stay tuned for more information as the Supreme Court decides this critical case.

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