Fourth Circuit Rejects RESPA Lawsuit—No Concrete Harm

A three-judge panel of the Fourth Circuit Court of Appeals recently held that plaintiffs claimed their real estate company’s marketing agreement violated RESPA because they lacked standing to sue under Article III of the U.S. Constitution could not show a concrete injury-in-fact.  

This decision in Baehr v. The Creig Northrop Team will make it more difficult for class action representatives to sue in federal court based on a procedural violation of RESPA. Here’s why the case is significant. 

The Supreme Court’s Non-Decision in First American and Decision in Spokeo

In 2012, the real estate industry eagerly awaited the U.S. Supreme Court to rule in the case of First American Financial Corp. v. Edwards, which would have resolved a longstanding dispute among federal courts over whether a plaintiff in a RESPA lawsuit lacks standing to sue in a federal court under Article III if they have not been negatively affected by the price or quality of the settlement service purchased. The Supreme Court ultimately ducked the issue and decided not to issue a decision. 

In 2016, the Supreme Court in Spokeo, Inc. v. Robins laid out the framework for determining whether a plaintiff who alleges a statutory violation of the Fair Credit Reporting Act (FCRA) without tangible harm has an injury-in-fact required to obtain Article III standing to sue. 

The Court in Spokeo acknowledged that the injury need not be tangible but said that Article III standing requires a concrete injury-in-fact. In determining whether an intangible harm constitutes a concrete injury, it said that both history and the Congress’s judgment when it enacted the statute is instructive and important. When enacting the FCRA, Congress sought to curb the dissemination of false information. Still, a violation of one of the FCRA’s procedural requirements (such as disseminating an incorrect zip code) without more may not result in any actual harm. Therefore, the Court held that a plaintiff could not achieve standing under Article III by alleging a mere statutory violation of the FCRA in the absence of concrete harm.

The Baehr Case

The Baehrs engaged a real estate agent of The Creig Northrop Team to handle the 2008 purchase of their home. In 2013, they filed a lawsuit against The Northrup Team and Lakeview Title Company, which had a marketing agreement with the Northrup Team and provided the settlement services needed to complete the transaction. The Baehrs claimed that the monthly payments made by Lakeview to The Northrup Team were illegal kickbacks under Section 8 of RESPA. They did not claim that they were overcharged or that the settlement services were inadequate, but alleged that they “were deprived of an impartial and fair competition between settlement service providers in violation of RESPA.” 

In 2018, the district court awarded summary judgment to the defendants because the Baehrs lacked Article III standing because they were not overcharged for settlement services and had not otherwise suffered a concrete injury. 

The Baehrs appealed, once again claiming that the deprivation of impartial and fair competition between settlement services providers is a concrete injury under RESPA, even in the absence of an overcharge. They also advanced three new allegations of concrete injury: (1) that the Northrop Team had a fiduciary duty to disclose and remit any fees paid by Lakeview; (2) that it was unjustly enriched by their engagement of Lakeview; and (3) that they paid for settlement services provided in contravention of RESPA.

The Baehr Decision

The Fourth Circuit panel applied the principles used in Spokeo to reject the Baehrs’ claim that the deprivation of impartial and fair competition among settlement service providers by itself is concrete harm under RESPA that justifies standing. An allegation of a statutory violation cannot satisfy the injury-in-fact requirement of Article III without showing that the harm stemming from the statutory violation is the type of harm Congress sought to prevent when it enacted the statute. When enacting RESPA, Congress intended to protect consumers from “certain abusive practices that had resulted in “unnecessarily high settlement charges.” 

“The upshot is that the deprivation of impartial and fair competition between settlement services providers—untethered from any evidence that the deprivation thereof increased settlement costs—is not a concrete injury under RESPA,” the panel concluded.

The panel also rejected the plaintiffs’ three new arguments to show concrete injury, saying that (1) they had not established that the Northrop Team owed them a fiduciary duty; (2) any unjust enrichment by the defendants did not harm them; and (3) payment for a service in an allegedly unlawful transaction was still just a mere statutory violation insufficient to provide standing.  Accordingly, it directed the district court to dismiss the plaintiffs’ complaint.

Why Baehr is Important

Federal statutes like RESPA, which authorize statutory damages in addition to or instead of actual damages, long have been attractive targets for class action attorneys. Individual plaintiffs like the Baehrs base their standing to sue on the mere fact that the statute was violated, and request class certification. Under RESPA’s treble damages provision, the class often asks for millions of dollars in damages without alleging or proving any concrete injury.

The Baehr decision is only applicable to federal courts in the Fourth Circuit (Maryland, the Eastern District of North Carolina, and the Middle District of North Carolina). The Baehrs can still ask for a review of the panel’s decision by the full Fourth Circuit. Nevertheless, this ruling establishes a strong precedent in federal courts that alleged violations of RESPA must comply with Spokeo—which means that the court will look beyond allegations of bare statutory violations to whether there is any concrete injury


Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant. n