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Supreme Court asks if lawsuits require proof of harm

By James Vicini

WASHINGTON (Reuters) - In a case pitting business against consumer groups, U.S. Supreme Court justices on Monday questioned whether individuals can sue a company over an alleged kickback scheme without showing it caused them harm.

Justice Anthony Kennedy, who often holds the decisive vote among the five conservatives and four liberals on the court, said during the arguments, "The question is whether there is an injury. The (U.S.) Constitution requires an injury."

Justices asked whether Cleveland home buyer Denise Edwards could sue her title insurance company despite acknowledging she suffered no specific harm, such as paying a higher price or receiving defective real estate settlement services.

Edwards sued her title insurance company, First American Financial Corp, under a 1974 federal real estate settlement law that bars kickbacks and certain referral fee arrangements.

She paid $455 for title insurance as part of a 2006 home purchase while the seller paid an additional $273. She alleges First American had an arrangement with her Ohio settlement agency to refer title insurance business exclusively to First American.

Edwards was supported by 11 states, the National Consumers League and the consumer advocacy organization Public Citizen. Groups representing home builders, title insurance companies, mortgage bankers, realtors and the U.S. Chamber of Commerce backed the company before the Supreme Court.

The U.S. title insurance industry has said that allowing such lawsuits would result in "widespread and staggering" potential liability.

Edwards' attorney Jeffrey Lamken argued that the law has been clear for 280 years that an individual can sue, without showing harm in terms of economic loss, over the legal right to have services free from any kickback or conflict of interest.

KICKBACK OR COMMISSION?

Justice Antonin Scalia questioned if there was anything wrong with the deal. "I'm not even sure it's proper to call it a kickback. It's a commission. These people are agents for the title insurance company and they get a commission on every sale of title insurance that that they make," he said.

Justice Samuel Alito said he had problems with Lamken's argument. "We are looking for whether there is an injury in fact," he said.

Chief Justice John Roberts said past cases had required a concrete, not a conjectural, harm. He said it sounded conjectural that the quality or price of the title insurance had suffered from the alleged kickbacks.

Assistant Solicitor General Anthony Yang, representing the federal government, supported Edwards and said an individual had the right to a kickback-free referral.

Aaron Panner, a Washington, D.C., attorney representing First American, said such lawsuits required two key parts - violation of a law or legal duty and the claim the violation caused the plaintiff to suffer some adverse impact.

To support his argument, he said federal antitrust lawsuits required that plaintiffs show they had suffered financial injury, that defamation lawsuits required harm to reputation and that discrimination lawsuits also required an injury.

A ruling is expected by the end of June.

The Supreme Court case is First American Financial Corp v. Edwards, No. 10-708.

(Reporting by James Vicini, Editing by Howard Goller and Paul Simao)

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