The U.S. Court of Appeals for the Second Circuit dismissed a complaint alleging an illegal industry-wide practice of kickbacks in the title insurance business. Plaintiffs who sought to win damages under the anti-kickback provision of the federal Real Estate Settlement Procedures Act. The NYLJ reported on the Court’s decision that the Complaint offered nothing more than “mere conjecture” against title insurance companies. The plaintiffs alleged that kickbacks to lawyers, title agents, brokers and lenders in return for referrals resulted in the sale of title insurance at inflated rates.
The complaint, Judge Chin wrote for the panel, failed to state a claim under §8(a) of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §2607(a). Chin explained that title insurance premiums for residential properties in New York usually range from $1,800 to $3,700, although they can be much higher for expensive homes and commercial properties.
The defendants are all members of the Title Insurance Rate Association Inc., which annually sends financial data to the New York State Insurance Department, which sets the rates. Those rates are set, in part, by reference to the total value of property being insured, the cost of insuring the risk associated with issuing the title policy, the costs associated with the search and examination of prior ownership records, and the agency commissions usually paid to title agents.
Judge Chin wrote in his decision that while the complaint “did allege a kickback scheme,” he said, “it did so in a wholly conclusory and speculative manner.” Chin said the complaint did not identify a payment or thing of value that was made by the title insurance companies to “plaintiffs’ title agents, lawyers, brokers, lenders, or other third parties pursuant to an agreement to refer settlement business.” He said it also failed to allege an actual referral.