Dеnise P. EDWARDS, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. The FIRST AMERICAN CORPORATION; First American Title Insurance Company, Defendants-Appellees.
No. 13-55542.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted March 3, 2015. Filed Aug. 24, 2015.
798 F.3d 1172
Brian J. Murray (argued), Nathaniel P. Garrett, Leigh A. Krahenbuhl, Jones Day, Chicago, IL; Matthew A. Kairis, Jones Day, Columbus, OH, for Defendants-Appellees.
Nandan M. Joshi (argued), Senior Litigation Counsel, Meredith Fuchs, General Counsel, To-Quyen Truong, Deputy General Counsel, David M. Gossett, Assistant General Counsel, Consumer Financial Protection Bureau, Washington, D.C., for Amicus Curiae Cоnsumer Financial Protection Bureau.
Before: MICHAEL R. MURPHY,* RONALD M. GOULD, and RICHARD C. TALLMAN, Circuit Judges.
OPINION
GOULD, Circuit Judge:
We must decide whether the district court abused its discretion in denying Plaintiff Denise P. Edwards‘s motion for class certification, in her action against Defendants First American Corporation and its wholly owned subsidiary First American Title Insurance Company (collectively, “First American“). Edwards, seeking to represent a class of similarly-situated home buyers, alleged that First American engaged in a national scheme of paying the title agencies things of value in exchange for the title agencies’ agreement to refer future title insurance business to First American, in violation of the Real Estate Settlement Procedures Act (“RESPA“),
I
Edwards bought a home in Cleveland, Ohio. Edwards used Tower City Title Agency, LLC (“Tower City“) as her settlement agent, and by referral of Tower City, she used First American as her title insurer. Prior to Edwards‘s home purchase, First American and Tower City entered into a transaction: First American acquired a 17.5% ownership interest in Tower City for $2 million and, in the same transaction, Tower City agreed to refer future title insurance business to First American. First American also entered into similar transactions with various other title agencies. In each of these transactions, First American paid the title agency
Edwards filed a putative class action against First American, alleging that the transactions between First American and the captive title agencies violated RESPA‘s anti-kickback provision,
After completing discovery, Edwards moved to certify the Tower City class. The district court denied certification. We reversed and held that “there is a single, overwhelming common question of fact: whether the arrangement between Tower City and First American violated” RESPA. Edwards v. The First Am. Corp., 385 Fed. Appx. 629, 631 (9th Cir. 2010) (”Edwards I“). We ordered nationwide discovery on remand and gave Edwards an opportunity to renew her motion to certify a nationwide class. Id. After further discovery, Edwards moved to certify a nationwide class consisting of all home buyers who entered into a federally-related mortgage transaction using one of thirty-eight title agencies that sold a minority ownership interest to First American and, in the same transaction, agreed to refer future title insurance business to First American.
The district court again denied certification, now on the basis that common issues did not predominate over individual issues for the nationwide class. First, the district court concluded that individual inquiries were required to determine whether First American overpaid for its ownership interests in each title agency. Second, the district court found that common issues did not predominate over individual issues of reliance and causation for referrals. Third, the district court concluded that transaction-specific inquiries as a result оf the different types of title agencies will not require common proof related to First American‘s liability. Edwards appeals the district court‘s order denying class certification.
II
We review the district court‘s determination of class certification for abuse of discretion and consider “whether the district court correctly selected and applied Rule 23‘s criteria.” Parra v. Bashas‘, Inc., 536 F.3d 975, 977 (9th Cir. 2008). The underlying legal questions, however, are reviewed de novo, and “any error of law on which a certification order rests is deemed a per se abuse of discretion.” Conn. Ret. Plans & Trust Funds v. Amgen Inc., 660 F.3d 1170, 1175 (9th Cir. 2011).
III
A
A court, when asked to certify a class, is merely to decide a suitable method of adjudicating the case and should not “turn class certification into a mini-trial” on the merits. Ellis v. Costco Wholesale Corp., 657 F.3d 970, 983 n. 8 (9th Cir. 2011). But Rule 23(a)(2) is not a pleading standard, so to the extent necessary, our determination of commonality will inevitably touch upon the merits of plaintiffs’ underlying RESPA claims. See, e.g., Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 466 (2013); Wal-Mart Stores, 564 U.S. at 350-51; Stockwell v. City & Cty. of S.F., 749 F.3d 1107, 1111-12 (9th Cir. 2014).
In 1974, Congress passed RESPA to protect consumers from “unnecessarily high settlement charges caused by certain abusive practices.”
The national title insurance industry is highly concentrated, with most states dominated by two or three large title insurance companies. See U.S. Gov‘t Accountability Office, Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers 3 (Apr. 2007). A “factor that raises questions about the existence of price competition is that title agents mаrket to those from whom they get consumer referrals, and not to consumers themselves, creating potential conflicts of interest where the referrals could be made in the best interest of the referrer and not the consumer.” Id. Kickbacks paid by the title insurance companies to those making referrals lead to higher costs of real estate settlement services, which are passed on to consumers without any corresponding benefits.
Section 8(a) of RESPA aims to eliminate these unlawful kickbacks. It prohibits any exchange of a thing of value pursuant to real estate referrals:
No person shall give and nо 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.
Congress gave the Department of Housing and Urban Development (“HUD“) authority to regulate under RESPA, and HUD promulgated the corresponding regulations known as Regulation X. See
Under Regulation X, a “referral” includes “any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service for which the home buyer will pay a charge“; and an exchange of a “thing of value” is used as synonymous with a payment and does not require a transfer of money.2
B
We first address whether individual inquiries on each of the transactions are required due to the safe harbor in
CFPB submitted an amicus brief interpreting RESPA and its own Regulation X. CFPB contends that § 2607(c)(2) does not apply to the transactions here because First American‘s payment for ownership interests is not а payment for goods, facilities, or services. CFPB urges us to give deference to its interpretation.
As a threshold matter, we must consider the proper level of deference to be given to the agency interpretation. Our analytical framework depends on whether the agency is interpreting the statute or the regulation. An agency‘s interpretation of an ambiguous statute is entitled to Chevron deference when the interpretation is promulgated in the exercise of the agency‘s formal rule-making authority. See Chevron, U.S.A., Inc. v. Nat‘l Res. Def. Council, Inc., 467 U.S. 837, 843 (1984). An agency‘s interpretation of its own ambiguous regulation is generally entitled to Auer deference. See Auer v. Robbins, 519 U.S. 452, 461 (1997) (holding that an agency‘s intеrpretation of its own ambiguous regulation is controlling unless “plainly erroneous or inconsistent with the regulation“) (internal citation omitted).
Here, CFPB is interpreting the statute, not the regulation. An agency‘s
We nevertheless agree with CFPB‘s interpretation, which is consistent with the language of the statute. Neither RESPA nor Regulation X defines “goods,” “facilities,” or “services,” see
The ownership interests purchased by First American are equity shares, not goods, services, or facilities. First American contends that two of the thirty-eight transactions at issue also contained acquisitions of facilities, such as a title plant3 and buildings. This misses the point. The purchase of ownership interests—which are not goods, services, or facilities—disqualified First American‘s transactions from the exemption under
C
We next address whether individual inquiries are required because of
The cases relied on by the district court are inapplicable here, because they interpreted the statutory exemption under
But the question remains: Are there individual issues here that could predominate over common issues such that class action certification is inappropriate? See
Absent § 8(c), nothing in the statute requires Edwards to prove First American gave money to the title agencies only in consideration for the referral agreement. The statute merely prohibits the exchange of a “thing of value” for a referral agreement.
Moving on to the commonality inquiry under Rule 23(a)(2),5 we ask whether the proposed class members share a common question of law or fact, the answer to which “will resolve an issue that is central to the validity of each one of the [class members‘] claims.” Wal-Mart, 131 S.Ct. at 2551. We have previously held that there was an overwhelming common question of fact concerning the Tower City class. Edwards I, 385 Fed. Appx. at 631. There is also a common question of fact concerning some of the transactions here: whether First American‘s pattern of conducts in entering into similar transactions with the title agencies violates RESPA.6
The district court erred in concluding that the common issue does not predominate over individual issues for the proposed class members. “The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997). Common issues predominate over individual issues when the common issues “represent a significant aspect of the case and they can be resolved for all members of the class in a single adjudication.” 7AA Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1778 (3d ed. 1998). Here, Edwards contends that First American utilized a nationwide scheme of buying minority interests in the title agencies in order to secure remittance streаms from the agencies’ future referrals. Edwards points to evidence showing this common scheme, including several memoranda submitted to First American‘s board of di-
We emphasize that at this stage of the litigation we are making no conclusions on whether the evidence cited above—including the Smoking Gun Memos and the alleged standard contract terms imposed by First American—resolves the merits of Edward‘s underlying RESPA claims. Our focus now is to decide whether the issues relating to the alleged common scheme predominate over individual issues for the proposed class, so that the case should be certified for class adjudication. See Stockwell, 749 F.3d at 1111-12 (holding that a common contention need not be one that will prevail on the merits) (internal citation and quotation omitted). We cite First American‘s alleged practices not as bearing on the merits but as bearing on First American‘s common scheme—as alleged in the complaint—that predominates over individual issues for certain class members. This common scheme, if true, presents a significant aspect of First Amеrican‘s transactions that warrant class adjudication: Whether First American paid a thing of value to get its agreement for exclusive referrals. We vacate the district court‘s denial of class certification in part as to these transactions that involved the common scheme presented to First American‘s board of directors.7
IV
First American showed that on some occasions someone other than the captive title agencies—such as lenders, mortgage brokers, realtors, and other title agencies—affirmatively influenced the home buyers’ choice of First American as their title insurance underwriter. The district court held that the third parties’ influences constituted individual issues that render class adjudication improper. We
For a referral to violate RESPA, it need not be the exclusive or even the primary reason that influenced a home buyer‘s choice of a real estate service provider. See
V
The district court denied certification on the additional ground that the different types of title agencies will require individual, case-by-case proof оn First American‘s liability. First American contends that in the proposed class, there are three unique types of title agencies, so that separate inquiries on each type will be required.
First, First American contends that its transactions with twelve of the thirty-eight title agencies are affiliated business arrangements (“ABA“) that are exempt from RESPA violations under
When defendants opposing class certification raise a legal defense that may defeat commonality, the district court cannot assume its validity but should make a threshold determination on the legal merits. The district court need not take evidence to determine the legal merits of defendants’ defense, because otherwise it would defeat the purpose of class certification. But if an alleged defense is invalid as a matter of law, the defense will not give rise to individual issues and thus cannot be a valid basis for denying class certification.
First American‘s defense on the basis of
Second, First American contends that certain agencies are majority-owned by First American, and First American cannot refer business to itself. First American cites the Supreme Court‘s decision in Freeman, 132 S.Ct. at 2043-44, which held that to establish a violation of
Third, the district court concluded that First American‘s transactions with the newly-formed title agencies do not raise common issues sufficient for class action adjudication. We agree and affirm the district court‘s denial of certification as to the newly-formed title agencies. First American contends that twelve оf the thirty-eight title agencies were not preexisting when First American decided to purchase their ownership interests. Instead, First American and third party investors formed and invested in these title agencies, and the investors’ ownership interests were proportional to their capital investments.
Edwards alleges in the complaint that First American engaged in a nationwide scheme of securing referral agreements by offering to purchase ownership interests of various title agencies. However, First American‘s transactions with these newly-formed agencies represent a different set of facts from the nationwide scheme alleged in the complaint. We conclude that these transactions do not share common questions of fact between First American and the transactions with the preexisting title agencies and thus do not require common proof to resolve the validity of each of the class members’ claims. Wal-Mart, 131 S.Ct. at 2551.
VI
Having concluded that common issues did not predominate over individual issues for the proposed class, the district court declined to address the remaining prerequisites of class certification, including whether a class action is a superior method of adjudication, whether Edwards and her counsel are adequate, and whether the putative class is ascertainable. Edwards urges us to consider these questions in the first instance on appeal and certify the proposed class. We decline to do so. Although we have concluded that common issues predominate over individual issues for a sub class of home buyers referred by the title agencies that were subject to First American‘s common scheme, the remaining prerequisites of class certification are best addressed by the district court, which is “in the best position to consider the most fair and efficient procedure for conducting any given litigation.” Stockwell, 749 F.3d at 1116-17 (internal citation omitted).
We affirm the district cоurt‘s denial of class certification in part as to the newly-formed title agencies, vacate the district court‘s denial of class certification in part as to the remaining title agencies, and remand for further proceedings.
Each party shall bear its own costs on appeal.