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Consumer Financial Protection Bureau v. Borders & Borders, PLC

United States District Court, W.D. Kentucky, Louisville

July 13, 2017



          Charles R. Simpson III, Senior Judge

         I. Introduction

         This matter is before the Court on the motion of Defendants Borders & Borders, PLC, Harry Borders, John Borders, Jr., and J. David Borders (collectively, “Borders & Borders”) for summary judgment under Federal Rule of Civil Procedure 56(a), ECF No. 128. Plaintiff the Consumer Financial Protection Bureau (“the Bureau”) responded, ECF No. 137. Borders & Borders replied, ECF No. 146.

         The Bureau filed a motion for partial summary judgment, ECF No. 129. Borders & Borders responded, ECF No. 140. The Bureau replied, ECF No. 148.

         Borders & Borders also moved to strike the declarations of Kirsten Ivey-Colson and Ryan Thomas, which were submitted in support of the Bureau's motion for partial summary judgment, ECF No. 138. The Bureau responded, ECF No. 144. Borders & Borders replied, ECF No. 151.

         Because these motions concern similar facts and issues, the Court will address them in a single memorandum opinion and order. For the reasons explained below, the Court will grant Borders & Borders' motion for summary judgment. The Court will deny the Bureau's motion for partial summary judgment. The Court will also deny Borders & Borders' motion to strike the declarations as moot.

         II. Background

         A. The Regulatory Framework of the Real Estate Settlement Procedures Act (RESPA)

         Congress enacted the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601, et seq., in 1974. Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 725 (6th Cir. 2013). RESPA regulates real estate “settlement services.” Id. Settlement services include checking a real estate title for its validity, obtaining a pest control company to check for termites on the property, and retaining an attorney to check the sales contract for errors. Id.

         RESPA's leading provision, Section 8(a), prohibits people from giving and receiving “any fee, kickback, or thing of value pursuant to any agreement or understanding . . . that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred in any person.” 12 U.S.C. § 2607(a). Persons who violate the anti-kickback provision of RESPA face up to one year in prison, civil liability, and/or public enforcement actions. Id. § 2607(d). While the United States Department of Housing and Urban Development (HUD) once was responsible for public enforcement actions under RESPA, later legislation transferred this role to the Bureau. Carter, 736 F.3d at 725.

         In 1983, in response to uncertainty about RESPA's application to referrals among affiliated companies, Congress enacted a safe harbor provision. Id. This provision shelters “affiliated business arrangements.” 12 U.S.C. § 2607(c)(4). To qualify for the safe harbor provision, the business arrangement must be disclosed to the person being referred to an affiliated business, “such person is not required to use any particular provider of settlement services, ” and “the only thing of value that is received from the arrangements . . . is a return on the ownership interest or franchise relationship.” Id. The safe harbor provision further provides:

[T]he following shall not be considered a violation of clause (4)(B): (i) any arrangement that requires a buyer, borrower, or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction, or (ii) any arrangement where an attorney or law firm represents a client in a real estate transaction and issues or arranges for the issuance of a policy of title insurance in the transaction directly as agent or through a separate corporate title insurance agency that may be established by that attorney or law firm and operated as an adjunct to his or its law practice.

Id. § 2607(c).

         B. Borders & Borders

         Borders & Borders is a family-owned law firm that primarily performs residential real estate closings in Louisville, Kentucky. Borders & Borders' Mem. Supp. Mot. J. on the Pleadings 4, ECF No. 20-1. J. David Borders established the law firm in 1971. Id. His sons, Harry Borders and John Borders, Jr., currently manage and operate the law firm. Id. Borders & Borders employs six attorneys and nineteen staff members. John D. Borders, Jr. & Harry B. Borders Decl. ¶ 2, ECF No. 128-3.

         Lenders hire Borders & Borders to prepare real estate conveyance and mortgage documents, and to conduct real estate closings. Borders & Borders' Mem. Supp. Mot. J. Pleadings 4, ECF No. 20-1. Borders & Borders is also an authorized agent to issue title insurance policies for First American Title Insurance Company, Old Republic National Title Insurance Company, Chicago Title Insurance Company, and Commonwealth Land Title Insurance Company. John D. Borders, Jr. & Harry B. Borders Decl. ¶ 2, ECF No. 128-3. The law firm is a member of the American Land Title Association. John D. Borders, Jr. & Harry B. Borders Decl. ¶ 2, ECF No. 128-3.

         C. Borders & Borders' Relationship with the Title LLCs

         In 2006, Borders & Borders established joint ventures with principals of nine real estate service providers in Louisville, id. ¶ 26, including (1) Associates Home Title, LLC, (2) Catalyst Title, LLC, (3) East Title, LLC, (4) KMT Title, LLC, (5) Leo Title, LLC, (6) My Kentucky Home Title, LLC, (7) Opia Title, LLC, (8) TBD Title, LLC, and (9) WS Title, LLC. Borders & Borders' Resp. HUD Info. Request 2, ECF No. 129-5. Harry Borders was mostly responsible for the creation of these nine joint ventures (the “Title LLCs”). Harry Borders Dep. 17, ECF No. 129-10. Harry Borders also identified at least one principal as a good match for a joint venture partner. John D. Borders, Jr. Decl. 25, ECF No. 129-8.

         One of the joint venture partners testified that Borders & Borders described the Title LLCs as partnership agreements through which real estate title insurance would be offered to home buyers. Parks Dep. 7, ECF No. 129-19. More specifically, the Title LLCs served as title insurance agencies in real estate closings when the lenders did not maintain an internal, lender-owned title agency. John D. Borders, Jr. & Harry B. Borders Decl. ¶ 27, ECF No. 128-3. When Borders & Borders closed on a transaction for a lender without an affiliated title agency, Borders & Borders referred the title insurance underwriting to the Title LLC affiliated with the real estate agent involved in the underlying transaction. Id. ¶ 35.

         The relationship between Borders & Borders and the Title LLCs was disclosed to the borrowers and buyers when Borders & Borders referred them to the Title LLCs to obtain title insurance. Id. ¶ 37. Borders & Borders gave an Affiliated Business Arrangement Disclosure Form (“the standard disclosure form”) to borrowers and buyers at the closings. Id. ¶ 40. The borrowers and buyers had 30 days from the date of the closings to decide whether to purchase owner's title insurance from the Title LLCs. Id. Between October 24, 2009 and February 2011, the Title LLCs issued more than 1, 000 title insurance policies for more than 700 real estate closings. Id. ¶ 38.

         David Borders, Harry Borders, and John Borders, Jr. were 50% owners of each of the Title LLCs. Id. ¶ 29. The venture partners held the remaining 50% ownership in the Title LLCs. Id. One venture partner explained that the members of her affiliated Title LLC, including Borders & Borders, would meet once a year to complete necessary tax-related paperwork. Parks Dep. 8, ECF No. 129-19.

         Each Title LLC had a written operating agreement, was authorized to conduct business in Kentucky, was approved by either Chicago Title Insurance Company or Old Republic National Title Insurance to issue title insurance policies, was subject to audit, had a separate operating banking account, had a separate escrow banking account, maintained an errors & omissions insurance policy, issued lender's and owner's policies, had operating expenses, generated revenue, made profit distributions, ...

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