Texas law gives a price break on title insurance to people who refinance their home equity loans in less than seven years.  Many don't know about their right to a discount.  Title insurers don't always tell them.

In Sims v. Stewart Title Guaranty Co., No. 09-10127 (5th Cir. Dec. 9, 2009), John and Lucy Mims and Helen Cotton Ragland alleged that Stewart Title shorted them — and bunch of other Texans — on the mandatory discount.  They sued Stewart under the Real Estate Settlement Procedure Act and Texas law.  The district court in Dallas certified both the federal and state law claims under Rule 23(b)(3) as a class action.  Stewart appealed.

The Fifth Circuit reversed as to RESPA.  It viewed the claim as asserting that Stewart violated the law not by splitting the excess charges with its agents but by charging home owners an unreasonable amount for the agents' services.  That standard, the court held, "requires an inquiry into the reasonableness of the payments for goods and services."  Sims, slip op. at 11. "[T]hat inquiry must be performed on a transaction-by-transaction basis."  Id.   And that meant "class issues do not predominate and class certification on the RESPA claim was improper."  Id. 

But the court affirmed certification of the state law claim.  Although some class members may not have qualified for the Texas "R-8" discount, "[c]lass certification is not precluded simply because a class may include persons who have not been injured by the defendant’s conduct."  Id. at 13 (citing Kohen v. Pacific Investment Management Co., LLC, 571 F.3d 672, 677 (7th Cir. 2009)).  Nor did "the equitable nature of plaintiffs' state law claims" require "an individualized factual inquiry". Id.  The court concluded:

Granting the R-8 to eligible borrower[s] is mandatory.  Under Texas law, disclosure of the discount and waiver are irrelevant because the rate rule sets the maximum amount, net of the applicable discount, that Stewart and other title insurers may charge for reissue title insurance.  Accordingly, the district court did not abuse its discretion by certifying the class as to the state law claims.

Id. at 13-14.  The panel remanded the case so the district court could decide whether or not to exercise "discretionary supplemental jurisdiction" over the class state law claim under 28 U.S.C. 1367(c).  But it hinted at the outcome it thought proper, citing a "strong argument" for ruling that the BIG class claim under state law dwarfed the little individual federal claims.

Blawgletter hopes people who see the outcome will remember it next time they hear somebody say class actions are a low-risk way to make easy money.

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