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Krzalic v. Republic Title Co.

December 26, 2002


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 01 C 9979--Charles P. Kocoras, Chief Judge.

Before Bauer, Posner, and Easterbrook, Circuit Judges

The opinion of the court was delivered by: Posner, Circuit Judge


Section 8(b) of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607(b), provides that "no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." The plaintiffs in this class action suit contend that the defendant, the closing agent in their purchase of a home, charged them $50 for recording their mortgage yet paid the county recorder only $36. The plaintiffs (who conceded in the district court, but forgot in this court, that they lack standing to challenge a second alleged overcharge, made by the sellers of the house for the release of the previous mortgage) claim that the $14 difference pocketed by the defendant represented the receipt of a portion of a charge other than for a service actually performed, and so violated the statutory provision that we quoted.

In Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 62628 (7th Cir. 2001), we held, as have other courts, see Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265-68 (4th Cir. 2002); Willis v. Quality Mortgage USA, Inc., 5 F. Supp. 2d 1306, 1309 (M.D. Ala. 1998), that section 8(b) is an anti-kickback provision. There was no kickback in that case, and there is none here. But in response to our decision, the Department of Housing and Urban Development, which Congress has authorized to "prescribe such regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of" the Act, 12 U.S.C. § 2617(a), issued a policy statement in which, clarifying its previous views on the subject, which had been ambiguous, see, e.g., 24 C.F.R. 3500.14(c); 57 Fed. Reg. 49600, 49605 (Nov. 2, 1992); Echevarria v. Chicago Title & Trust Co., supra, 256 F.3d at 627-28, it stated its disagreement with our decision and made clear its view that section 8(b) is not "limited to situations where at least two persons split or share an unearned fee." HUD, Real Estate Settlement Procedures Act Statement of Policy 2001-1, 66 Fed. Reg. 53052, 53057 (Oct. 18, 2001). Any repricing of charges, the statement contends, is unlawful. The policy statement was not adopted in a notice and comment rulemaking proceeding or with any other deliberative formalities, and the district judge, refusing on that ground to give the statement Chevron deference and declare Echevarria defunct, granted the defendant's motion to dismiss the suit for failure to state a claim. HUD has filed an amicus brief in this court in support of the plaintiffs' appeal.

When a statute administered by a federal agency is unclear and the agency is authorized to interpret it, the agency's interpretation, unless unreasonable, may bind a reviewing court in accordance with Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984). Ordinarily issues of statutory interpretation are treated as pure issues of law, and no deference is given the interpretation adopted by executive or other officials. But Chevron, in effect equating statutory interpretation to policymaking (cf. Hans Kelsen, Pure Theory of Law 351-353 (Max Knight trans. 1967)), hands over (with certain qualifications) interpretive responsibility to the officials responsible for making policy judgments, when the ordinary interpretive tools used by courts, such as textual interpretation, do not work well.

By taking this position the Court appears to have shifted power from the legislative to the executive branch, and to the so-called "independent" administrative agencies as well, by limiting judicial authority to preserve the deal struck by contending interest groups in the original legislation. For while in principle Congress can step in and curb a straying agency, the practice is often different because of the obstacles to legislating that are built into the federal legislative process, including bicameralism and the Presidential veto. William N. Eskridge, Jr., Dynamic Statutory Interpretation 164-67 (1994); Jonathan T. Molot, "Reexamining Marbury in the Administrative State: A Structural and Institutional Defense of Judicial Power Over Statutory Interpretation," 96 Nw. U.L. Rev. 1239, 1282 (2002); see also William N. Eskridge, Jr. & John Ferejohn, "The Article I, Section 7 Game," 80 Geo. L.J. 523, 538-43 (1992). These obstacles give agencies a degree of running room.

Small-d democrats might question Chevron's shift of legislative power to the bureaucracy. But realists, while acknowledging the point and also that it is a fiction to suppose Chevron itself an interpretation of the statutes to which it applies or that the exercise of power by appointed officials is democratic merely because it is authorized by elected officials, will applaud the Supreme Court's recognition that the interpretation of an ambiguous statute is an exercise in policy formulation rather than in reading.

Adams Fruit Co. v. Barrett, 494 U.S. 638, 649-50 (1990), might seem to cast doubt on Chevron's applicability to the Real Estate Settlement Procedures Act, however, because the Court said that "Congress has expressly established the Judiciary and not the Department of Labor as the adjudicator of private rights of action arising under the statute [a statute for the protection of farm workers]. A precondition to deference under Chevron is a congressional delegation of administrative authority . . . . No such delegation regarding AWPA's enforcement provisions is evident in the statute. Rather, Congress established an enforcement scheme independent of the Executive and provided aggrieved farmworkers with direct recourse to federal court where their rights under the statute are violated." RESPA too is enforced by private actions rather than by judicial or administrative proceedings instituted by HUD. But whereas the farm workers' statute had not delegated to the Department of Labor authority to fill gaps in the statute, RESPA explicitly delegates such authority to the Department of Housing and Urban Development, in 12 U.S.C. § 2617(a), which we quoted earlier. Two of the three courts to have considered the question have concluded, albeit without discussion of Adams Fruit, that at least some HUD interpretations of RESPA are within the scope of Chevron. Heimmermann v. First Union Mortgage Corp., 305 F.3d 1257, 1261-62 (11th Cir. 2002); Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004, 1012 (9th Cir. 2002).

The third court, in Glover v. Standard Federal Bank, 283 F.3d 953, 961-63 (8th Cir. 2002), reached a similar result by the old-fashioned route, mapped in Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), of granting the degree of deference that an agency's decision invites by virtue of the cogency of its reasoning in relation to the nature of the issue. The more technical the issue is, the less guidance the statute provides to its correct resolution, the more sensible-seeming the agency's decision, and the more deliberative and empirical the procedures employed in arriving at that decision, the greater the deference that a reviewing court will give it.

Barnhart v. Walton, 122 S. Ct. 1265, 1272 (2002), the Supreme Court's most recent decision interpreting Chevron, suggests a merger between Chevron deference and Skid- more's and Glover's approach of varying the deference that agency decisions receive in accordance with the circumstances: "the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the Agency has given the question over a long period of time all indicate that Chevron provides the appropriate legal lens through which to view the legality of the Agency interpretation here at issue." Or in the words of Professor Pierce, "legislative rules and formal adjudications are always entitled to Chevron deference, while less formal pronouncements like interpretative rules and informal adjudications may or may not be entitled to Chevron deference. The deference due a less formal pronouncement seems to depend on the results of judicial application of an apparently open-ended list of factors that arguably qualify as 'other indication[s] of a comparable congressional intent' to give a particular type of agency pronouncement the force of law." Richard J. Pierce, Jr., Administrative Law Treatise § 3.5, pp. 6-7 (4th ed. Supp. 2003).

We need not penetrate more deeply into this thicket; for even if HUD's interpretations of RESPA are entitled to Chevron deference, that deference is not total and as it happens section 8(b) of RESPA will not bear, as a matter of straightforward judicial interpretation (for if such interpretation dissipates any possible statutory ambiguity and fills any possible gap in the statute, Chevron deference is not owed), the meaning that HUD wants to give it. Republic Title did not "accept any portion, split, or percentage of any charge." No one agreed to divide a receipt with Republic. The statutory language describes a situation in which A charges B (the borrower) a fee of some sort, collects it, and then either splits it with C or gives C a portion or percentage (other than 50 percent--the situation that the statutory term "split" most naturally describes) of it. A might be a lawyer, and C a closing agent like Republic Title, and A might charge a legal fee to B and kick back a share of it to C for recommending to the borrower that he use A's services. That would be a form of commercial bribery and is the target of section 8(b). Republic, however, received no part of a fee charged by someone else. The plaintiffs' beef is that the county recorder did not charge $50 to record their mortgage; and so he could not have divided it with Republic. Recall, too, that the statute forbids the giving as well as the receiving of any portion, split, or percentage. On the plaintiffs' understanding, they themselves violated the statute because they gave Republic a portion of the fee charged by the county recorder!

In United States v. Gannon, 684 F.2d 433, 435-36 (7th Cir. 1981) (en banc), the strongest case for HUD and the plaintiffs but not strong enough, a county clerk charged more than the stated fee and kept the difference. He was accepting in his personal capacity a portion of the fee that he was imposing in his official capacity. It was as if he had kicked back the difference to Republic.

Usually when a statutory provision is clear on its face the court stops there, in order to preserve language as an effective medium of communication from legislatures to courts. If judges won't defer to clear statutory language, legislators will have difficulty imparting a stable meaning to the statutes they enact. But if the clear language, when read in the context of the statute as a whole or of the commercial or other real-world (as opposed to lawworld or word-world) activity that the statute is regulating, points to an unreasonable result, courts do not consider themselves bound by "plain meaning," but have recourse to other interpretive tools in an effort to make sense of the statute. E.g., Public Citizen v. U.S. Dept. of Justice, 491 U.S. 440, 453-55 (1989); Green v. Bock Laundry Machine Co., 490 U.S. 504, 527 (1989) (Scalia, J., concurring); AM Int'l, Inc. v. Graphic Management Associates, Inc., 44 F.3d 572, 577 (7th Cir. ...

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