Jonathan Bilyk Dec. 11, 2015, 11:49am

Two title insurance companies did not participate in an illegal kickback scheme by splitting fees with Chicago area real estate lawyers in return for those attorneys referring clients to them, a state appeals panel has ruled, finding lawyers are allowed to be paid fees by the title companies – even fees that may appear large, relative to the work they actually performed – if they perform any work related to clearing a title, at all.

On Dec. 9, a split three-justice panel of the Illinois First District Appellate Court by a 2-1 decision ruled to uphold a lower court decision dismissing class actions brought against defendant businesses Chicago Title and Trust Company and Ticor Title Insurance Company.

Named plaintiffs in the actions included Doljin Chultem and Paul Colella.

The appellate opinion was authored by Justice Mary Anne Mason, with Justice Terrence J. Lavin concurring. Justice Aurelia Pucinski dissented, but did not publish an opinion along with the majority opinion.

The cases against the title companies arose in 2006, after the named plaintiffs alleged the title companies were improperly paying real estate attorneys to refer clients to purchase title insurance policies from them. According to the complaints, the title insurers would pay the attorneys as much as 50-80 percent of the premium paid on the policy by the home purchasers, even though the attorneys allegedly performed few, if any, “core title services,” which, under federal law, they must perform to be entitled to split the premiums with the title insurance companies.

Essentially, plaintiffs alleged the work purportedly done by the real estate attorneys related to the title had already been completed by the title insurers, and was represented in the document packets sent to the attorneys, so the sharing of the information for the attorneys to ostensibly review, in fact, disguised illegal kickbacks, allowing attorneys to be paid twice for the same work, as both “title agents” and legal representatives of the property purchasers. This violated federal law, the plaintiffs alleged.

Early on, a Cook County judge rejected the case against the title companies, and refused to certify a class in the case. The appellate court later overturned that decision, and ordered the court to certify a class.

However, after certifying a class including anyone who purchased title insurance from Chicago Title from 2001-2005 and from Ticor from 2000-2005, the lower court ruled against plaintiffs, saying legal precedent holds attorneys need only perform some “core title services” specified in the law to allow them to legally receive payment from the title insurance companies as a “title agent.”

After plaintiffs appealed, a majority on the First District appeals court agreed with Cook County Judge Mary L. Mikva.

Justices said the federal law at the heart of the case, the Real Estate Settlement Procedures Act (RESPA), does not stipulate how much work attorneys must perform to receive payment, or control the amounts attorneys can collect in return for their work relative to any particular property title.

Justices said, under precedent, and particularly the U.S. Supreme Court’s 2012 decision in Freeman vs Quicken Loans, “the only reasonable interpretation … is that it (RESPA) prohibits fee splitting with a party where no services are provided in return for the fee, which is consistent with RESPA's underlying purpose of preventing the abusive practice of paying a party merely for the referral of business.”

In these cases, the justices said, court documents and testimony revealed the attorneys appeared to provide some of the core title services referenced in the law, including verifying legal descriptions and property identification numbers, attending closings, determining legal exceptions and which ones should be waived to get final title policies issued, and determining whether title search packages were complete.

“As Freeman tells us, RESPA is not concerned with whether the attorney agents were paid too much for their actual services, but asks only whether actual services were rendered,” the majority wrote. “Thus, the title companies' payments were not unlawful.”

Chultem and Colella represented themselves in the action.

Chicago Title was represented by Kirkland & Ellis, of Chicago. Ticor was represented by Skadden Arps Slate Meagher & Flom, of Chicago.

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Organizations in this Story

Skadden, Arps, Slate, Meagher & Flom LLP
155 North Upper Wacker Drive
Chicago, IL 60606

Kirkland & Ellis LLP
300 N LaSalle St
Chicago, IL 60654

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