Maryland Court of Appeals continues its cautious approach to finding implied private causes of action

By Jonathan Biran

On May 20, 2016, in Fangman v. Genuine Title, LLC, a case certified from federal court, the Maryland Court of Appeals held that Md. Code Ann., Real Prop. (“RP”) § 14-127 – which generally prohibits kickbacks and similar arrangements with respect to real-estate settlement business – does not create a private cause of action. Judge Watts wrote the opinion for the unanimous Court, which continued a winning streak in the Court of Appeals for defendants arguing against recognizing implied private rights of action.

RP § 14-127(c)(1) provides: “A person who has a connection with the settlement of real estate transactions involving land in the State may not pay to or receive from another any consideration to solicit, obtain, retain, or arrange real estate settlement business.” RP § 14-127(e) contains a criminal penalty, setting forth that “[a] person who violates this section is guilty of a misdemeanor and on conviction is subject to imprisonment not exceeding 6 months or a fine not exceeding $1,000 or both.” The statute does not expressly create a private cause of action for those who claim to be injured by violations of the statute.

Alleging that they were the victims of a kickback scheme orchestrated by Genuine Title, LLC (“Genuine”), and various lenders, the Plaintiffs filed a putative class action against the companies. The Plaintiffs all obtained or refinanced mortgages between 2009 and 2014, and, because of referrals by their lenders, used Genuine to conduct their loan settlements and perform title services. The Plaintiffs alleged that, unbeknownst to them, the lenders’ employees and/or agents received and accepted cash payments, free marketing materials, and other things of value from Genuine in exchange for those referrals. As a result of the scheme, the Plaintiffs contended, they were deprived of “kickback[-]free settlement services and process,” and paid settlement fees that would have been “much lower” had the scheme not been in place.

The Plaintiffs initially filed their complaint in the Circuit Court for Baltimore City. Genuine then removed the case to federal district court.  In a second amended complaint filed in federal court, the Plaintiffs alleged that the kickback scheme violated the anti-kickback and fee-splitting provisions of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2607(a) and (b). The Plaintiffs also pled causes of action under two Maryland statutes: RP § 14-127 and the Maryland Consumer Protection Act’s provision prohibiting unfair and deceptive trade practices, Md. Code Ann., Com. Law § 13-301.

The Defendants filed various motions to dismiss, which U.S. District Judge Richard D. Bennett for the most part denied as to the RESPA claims and granted as to the Maryland Consumer Protection Act claims. As to the RP § 14-127 claims, Judge Bennett stayed the motions and certified the following question of law to the Maryland Court of Appeals: “Does … § 14-127 imply a private right of action?” Judge Bennett noted that no Maryland state court has resolved that question.

The Plaintiffs argued in the Court of Appeals that RP § 14-127 provides an implied private right of action because it was enacted to protect consumers of residential title and settlement services from the types of injuries allegedly caused by the Defendants’ scheme — including overcharges, lack of impartiality in referrals, and a reduction of competition among settlement service providers. According to the Plaintiffs, implying a private right of action under RP § 14-127 is consistent with its language and purpose. The Defendants responded that there is no evidence that the General Assembly intended to create a private right of action under RP § 14-127 and no other basis in law or fact for implying it. According to the Defendants, RP § 14-127 is a criminal statute that prohibits a certain type of conduct and is designed to protect the public at large, not a narrow, specific class of individuals. The Defendants noted that, when the General Assembly amended RP § 14-127 in 2010 to provide specific references and citations to RESPA, it was aware that RESPA provided a private right of action with respect to similar conduct, yet the legislature chose not to expressly include the same in RP § 14-127.

To resolve this dispute, the Court of Appeals considered three questions from a test the Supreme Court established in Cort v. Ash, 422 U.S. 66 (1975): (1) Is the plaintiff one of the class for whose special benefit the statute was enacted? (2) Is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? (3) Is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? But before applying the Cort test to RP § 14-127, the Court first reviewed three decisions at length in which it has previously conducted such an analysis. Perhaps forecasting the result in the case, the Court noted that in all three prior cases it found no implied private right of action. See Erie Ins. Co. v. Chops, 322 Md. 79 (1991) (holding that there is no private right of action under Md. Code Ann., Transp. § 17-106(b), which required insurers to immediately notify the Motor Vehicle Administration of terminations in coverage under certain circumstances); Baker v. Montgomery County, 427 Md. 691 (2012) (holding that there was no private right of action under Md. Code Ann., Transp. § 21-809(j), which prohibited the operator of a speed monitoring system on behalf of Montgomery County from charging a fee that was contingent on the number of citations issued); Scull v. Groover, Christie & Merritt, P.C., 435 Md. 112 (2013) (no implied private right of action under the Maryland Health Maintenance Organization Act, Md. Code Ann., Health-Gen. §§ 19-701 to 19-735, which prohibits a healthcare provider from billing an HMO member for amounts beyond those that are provided in the HMO’s plan).

Notwithstanding an excellent oral argument before the Court by Timothy Maloney on behalf of the Plaintiffs,[1] the Court in Fangman once again declined to find an implied right of action when the legislature did not expressly include such an action in the statute.  Applying the Cort test to RP § 14-127, the Court first considered whether the Plaintiffs were part of a class for whose special benefit the statute was enacted. The Court recognized that RP § 14-127 “could inure to the benefit of consumers or members of the public who use residential and commercial settlement services because the prohibition in RP § 14-127(c)(1) could theoretically keep costs down by eliminating hidden costs and excess fees that may be associated with the solicitation, obtainment, or arrangement of real estate settlement business.”

Nevertheless, for this part of the Cort test, the Court found it telling that RP § 14-127 does not expressly provide a right to a particular class of persons. For example, the prohibition in RP § 14-127(c)(1) does not provide that “all consumers of settlement services have the right to have kickback-free settlement services”; rather, it contains a general prohibition — namely, that persons connected “with the settlement of real estate transactions involving land in the State may not pay to or receive from another any consideration to solicit, obtain, retain, or arrange real estate settlement business.” And, the Court explained, RP § 14-127(c)(1) “appears to confer only, as a result of the prohibition, a generalized benefit that inures to consumers of settlement services.”

As to whether there was any indication of legislative intent, either explicit or implicit, to create or deny a private right of action, the Court concluded that there was none. First, the Court noted that nothing in RP § 14-127’s plain language expressly provides a private right of action for anyone allegedly harmed by a violation of RP § 14-127(c)(1). Thus, the Court next examined RP § 14-127’s legislative history – going back to 1967 – to determine whether an implied private right of action existed.

The Court found it significant that the House bill that originally created the anti-kickback provision was silent as to any intent to create a private right of action on behalf of consumers of settlement services who would allegedly be harmed by its violation. By contrast, a related House bill from the same session would have made title insurance companies financially liable for any misuse of funds that changed hands in real-estate settlements. This latter provision was not enacted, but it showed that the General Assembly did consider a private right of action in related legislation involving defalcations of funds in settlements. According to the Court, the legislature’s concomitant silence with respect to civil liability for engaging in prohibited kickbacks spoke volumes about its intent. In a footnote, the Court also agreed with the Defendants that it was significant that, in 2010, when the General Assembly amended RP § 14-127, it failed to include or otherwise incorporate a private right of action into RP § 14-127 even though RESPA expressly contains one.

Finally, the Court concluded from RP § 14-127’s plain language and legislative history that its purpose is to criminalize kickbacks in settlement services, not to protect a certain class of individuals or create a private right of action for them. According to the Court, it was telling that RP § 14-127’s predecessor, Art. 27, § 465A, was in the “Crimes and Punishments” article — which, the Court reasoned, was “not consistent with the intent to create a private right of action, but rather supports the conclusion that RP § 14-127’s purpose is—and has always been—to criminalize behavior related to settlement kickbacks.” The existence of a criminal misdemeanor penalty in RP § 14-127 also militated against a finding of an implied right of action.

If there had been no remedy at all – criminal or civil – expressly provided in the statute, the argument for implying a private right of action would have been stronger. But the presence of a criminal penalty with no accompanying express civil remedy bolstered the argument that the legislative purpose of the provision was solely to provide a criminal remedy. Further, as the Court noted, its holding did not leave the Plaintiffs with no private remedy; it is clear that they have a remedy under RESPA for the type of kickbacks they alleged.

Those of us who represent plaintiffs probably should be getting the hint by now: Maryland courts are not going to go out on a limb to recognize implied private rights of actions. Even if you can persuade a trial court not to dismiss a cause of action that you have argued should be implied from the language of a statute, on appeal the Court of Special Appeals and Court of Appeals will likely be very skeptical. It probably would be more fruitful for trial lawyers to lobby the legislature to add express private causes of action to statutes where experience has shown that victims often cannot be adequately compensated through other avenues.

 

[1]           The case was well argued by both sides. On behalf of the Defendants, George Kruger faced tough questioning from several judges, but the unanimous opinion shows that he assuaged their concerns about the lack of a private remedy in RP § 14-127. The video recording of the oral argument can be found here.

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