A divided Illinois Supreme Court has let stand a lower court’s decision to allow lawyers to earn fees – even fees that appear overly large, compared to the amount of work being done – from real estate title companies, despite accusations that the fee-splitting arrangements amount to little more than a kickback scheme.
On May 18, with Justice Robert R. Thomas recusing himself, the other six justices of the state high court deadlocked in the case, which had been brought by plaintiffs who alleged two title insurance companies were paying real estate attorneys to refer clients to purchase title insurance policies from them.
The lack of action by the state Supreme Court means a decision by a three-justice panel of the Illinois First District Appellate Court would stand. The appeals court had ruled 2-1 in favor of the defendants in the matter, in turn upholding a decision by Cook County Judge Mary Mikva, who had also determined the title insurance companies were not outside the bounds of the law.
The state Supreme Court’s announcement of its deadlock in the case did not indicate why Justice Thomas had recused himself from the case, nor did it indicate how the court’s other justices were prepared to rule in the case. The announcement stated only that four justices could not concur on a decision in the matter, as required by the Illinois constitution, resulting in the appeal being dismissed.
In an earlier landmark case before the high court, Thomas recused himself from deciding Madison County-based Price v. Philip Morris, as his personal lawyer was added to plaintiffs' counsel at oral arguments.
In the current fee litigation, Thomas's lawyer - Joseph Power of Power Rogers & Smith in Chicago - as well as the lead firm in Price - Korein Tillery - were among plaintiffs' counsel.
The litigation arose in Cook County Circuit Court in 2006, when plaintiffs Doljin Chultem and Paul Colella filed suit against title companies Chicago Title and Trust Company and Ticor Title Insurance Company.
The putative class action lawsuit alleged the title companies would pay real estate attorneys as much as 50-80 percent of the premiums paid on policies by home purchasers referred by the attorneys to the title insurers. The plaintiffs said these payments to the lawyers came from the title companies 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.
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, meaning the arrangement amounted to illegal kickbacks, allowing attorneys to be paid twice for the same work, as both “title agents” and legal representatives of the property purchasers.
Judge Mikva had rejected the case, saying legal precedent holds attorneys need only perform some title services to allow them to be legally paid by the title companies as a “title agent.”
On appeal, two justices of the First District court in Chicago, Justices Mary Anne Mason and Terrence J. Lavin, backed Mikva. A third justice, Aurelia Pucinski, dissented.
The majority said the federal law at issue, known as the Real Estate Settlement Procedures Act (RESPA), doesn’t spell out how much work attorneys must perform to receive payment, or control the amounts attorneys can collect in return for their work on a particular title.
“…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.”
In her dissent, however, Pucinski vehemently disagreed, calling the work allegedly doled out by the title companies to the real estate lawyers little more than pro forma commitments designed as “add-ons” to the work already performed by the title companies and add-ons to the fees the title companies were already charging.
“These were plain and simple kickbacks for referrals, and no matter how you dress them up, they are still kickbacks,” Pucinski wrote in her dissent. ”They are still wrong and the class can demonstrate violations of both the federal and Illinois laws.”
In addition to attorneys at Power Rogers & Smith and Korein Tillery, plaintiffs in the action were also represented by the firm Myron M. Cherry & Associates in Chicago.
Defendants were represented by attorneys from the firms of Fidelity National Law Group; Skadden, Arps, Slate, Meagher & Flom; and Jenner & Block LLP, all of Chicago; and Hahn Loeser & Parks LLP, of Cleveland.