Rehearing and Rehearing En Banc Denied September 26, 1984.
PECK, Senior Circuit Judge.
This appeal involves the issue of whether, for purposes of a criminal prosecution involving § 8(a) of the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C. § 2607(a),
A superseding six-count indictment was filed in the Eastern District of Michigan on February 11, 1983 charging four defendants with the misdemeanor of giving and accepting kickbacks in violation of § 8(a) of RESPA, 12 U.S.C. § 2607(a), and with conspiracy to violate § 8(a) of RESPA, 18 U.S.C. § 371. The defendants included Graham Mortgage Corporation (GMC), a wholly-owned subsidiary of Manufacturers National Bank, engaged in the mortgage banking business; Richard E. Chapin, an executive vice-president and director of GMC; Thomas P. Heinz, a vice-president and branch manager of GMC; and Manford Colbert, president of Rose Hill Realty, Inc. (Rose Hill), which was engaged both in traditional real estate brokerage activity and in the purchase, rehabilitation and resale of Detroit-area homes. Colbert is not a party to this appeal.
From September 1975 through May 1979, GMC provided Rose Hill with interim financing, i.e., financing of Rose Hill's purchase, rehabilitation and resale of Detroit-area residences. For each loan it received, Rose Hill agreed to refer to GMC two mortgage loan applicants from its regular brokerage business in addition to referring the purchaser of the rehabilitated house. In turn, GMC, when making Federal Housing Administration (FHA) or Veterans' Administration (VA) mortgage loans to purchasers of the rehabilitated residences sold by Rose Hill, charged Rose Hill fewer points than it charged other sellers.
Prior to trial, appellants filed a motion to dismiss the indictment on the ground, inter alia, that the activity alleged in the indictment did not involve the referral of business "incident to or part of a real estate settlement service" and, consequently, did not violate § 8(a) of RESPA. The district court denied the motion. Treating the question as one of first impression, the court held that the statutory language, viewed in light of both Congress's goal of eliminating kickbacks and referral fees that unduly inflated the cost of settlement services and the interpretation of the statute in the regulations promulgated by the Department of Housing and Urban Development (Secretary or HUD), 24 C.F.R. part 3500, appendix B, prohibited the alleged activity. 564 F.Supp. at 1242-43.
Subsequently, the appellants pleaded guilty to the conspiracy count in exchange for dismissal of the substantive counts.
II. Statutory Interpretation
In reviewing a question of statutory interpretation, we first turn to the language of the statute. Albernaz v. United States, 450 U.S. 333, 336, 101 S.Ct. 1137, 1140, 67 L.Ed.2d 275 (1981); Perrin v. United States, 444 U.S. 37, 42-43, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979); Stevens v. United States, 440 F.2d 144, 146 (6th Cir.1971). Where the language of the statute is ambiguous and can be interpreted to support readings either imposing or not imposing criminal liability on individuals for particular conduct, the court must turn to the legislative history of the statute. Dixson v. United States, 465 U.S. 482, 104 S.Ct. 1172, 1177, 79 L.Ed.2d 458 (1984) (citing Rewis v. United States, 401 U.S. 808, 812, 91 S.Ct. 1056, 1059, 28 L.Ed.2d 493 (1971)). See United States v. Ilacqua, 562 F.2d 399, 402 (6th Cir.1977), cert. denied, 435 U.S. 906, 98 S.Ct. 1453, 55 L.Ed.2d 497 (1978). "If the legislative history fails to clarify the statutory language, our rule of lenity would compel us to construe the statute in favor of ... [the] criminal defendants in this case." Dixson v. United States, supra, 104 S.Ct. at 1177. Accord United States v. Faygo Beverages, Inc., 733 F.2d 1168, 1170 (6th Cir.1984); United States v. Ilacqua, supra, 562 F.2d at 402.
A. Statutory Language
Section 8(a) of RESPA prohibits the payment or receipt of fees, kickbacks, or things of value in exchange for referrals of "business incident to or part of a real estate settlement service involving a federally related mortgage loan". 12 U.S.C. § 2607(a). Section 3(3) of RESPA defines the term "settlement services" as follows:
12 U.S.C. § 2602(3). The critical textual question is whether this definition of "settlement services", which does not expressly include within its scope the making of a mortgage loan, properly may be construed to do so implicitly.
The government advances a simple argument in support of its position that the language of § 3(3) of RESPA provides for the treatment of the making of a mortgage loan as a settlement service. The government first contends that the definition of "settlement services", by its own terms, does not purport to contain an exhaustive list of settlement services, but rather denotes "any service provided in connection with a real estate settlement." 12 U.S.C. § 2602(3) (emphasis added). The government then contends that the making of a mortgage loan is a service in the sense that it satisfies a borrower's need or demand for money. The government concludes that because the making of a mortgage loan is the service essential to a real estate settlement, it must be incidental to the settlement and fall within the scope of the definition in § 3(3) of RESPA.
There can be little question that the list of settlement services contained in § 3(3) of RESPA was not intended by Congress to be exhaustive. The language of the definition that the term includes, "but [is] not limited to," the services listed constitutes an explicit recognition that the list was not intended to be exhaustive. Accordingly, the Seventh Circuit upheld a conviction for splitting charges in violation of 12 U.S.C. § 2607(b) based, in part, on its determination that a county counterman's handling of Torrens filings is a settlement
In arguing that the making of a mortgage loan is a service provided incident to a settlement, the government appears to rely on what it contends is an ordinary meaning of the term "service", viz., that "service" denotes the supplying of some demand or need. Because the making of a mortgage loan supplies the need for money in connection with a real estate settlement, the government concludes that the making of a mortgage loan is a real estate settlement service. The problem with this argument is that, as the government concedes, the meaning of the term "service" varies depending upon the context in which the term is used. See, e.g., Central Power & Light Co. v. State, 165 S.W.2d 920, 925 (Tex.Civ.App.1942), appeal dismissed, 319 U.S. 727, 63 S.Ct. 1033, 87 L.Ed. 1691 (1943). The government cites no authority in support of its contention that "service" is used in § 3(3) of RESPA in the sense that it urges is an ordinary meaning of the term. In the one case cited by the government, King v. Central Bank, 18 Cal.3d 840, 558 P.2d 857, 135 Cal.Rptr. 771 (1977), the court held that where a bank actually provided automobile insurance in conjunction with insurance financing transactions, the bank furnished services within the meaning of the Unruh Act, Cal.Civ.Code § 1801 et seq.; the court, however, declined to hold that all routine insurance financing transactions were services within the meaning of the act. Id. at 845, 558 P.2d at 859, 135 Cal.Rptr. at 773. Moreover, to the extent that we have been able to discern any common understanding of the term "settlement services", we find that it supports the position of the appellants. For example, one commentator, who, following the enactment of RESPA, discussed the problem of kickbacks and referral fees in the context of the sale of residences, defined the "conveyancing services industry" to include "all of the ancillary services involved in the transfer of a home." Owen, Kickbacks, Specialization, Price Fixing, and Efficiency in Residential Real Estate Markets, 29 Stan.L.Rev. 931, 931 n. 5 (1977) [hereinafter Kickbacks]. See also Home Transfer Costs, supra, 62 Geo.L.J. at 1359 (proposing definition of "settlement services" that includes the handling of the settlement but not the making of the mortgage loan).
Because of the illumination provided by the list of settlement services in § 3(3) of RESPA, we need not rely upon any purported common understanding of the term "service", assuming that such an understanding exists. See Williams v. United States, 458 U.S. 279, 102 S.Ct. 3088, 3092, 73 L.Ed.2d 767 (1982); Perrin v. United States, supra, 444 U.S. at 42, 100 S.Ct. at 314. Our examination of the illustrative list of services included in § 3(3) of RESPA indicates that the common thread running among the listed services is that each is an ancillary or peripheral service that, unlike the making of a mortgage loan, is not directly related to the closing of a real estate sale covered by RESPA. As § 8(a) of RESPA makes explicit, referrals of "business incident to or a part of a real estate settlement service" are prohibited only where the settlement involves a federally related mortgage loan. 12 U.S.C. § 2607(a). Cf. Allison v. Liberty Savings, 535 F.Supp. 828, 831-32 (N.D.Ill.) (RESPA applies only to real estate settlements involving federally related mortgage loans), aff'd, 695 F.2d 1086 (7th Cir.1982). Accordingly, unlike the services listed in § 3(3), the making of a mortgage loan is central to any transaction covered by RESPA. In
Faced with the ambiguity in the language of the relevant provisions, the government argues that the structure of RESPA compels the conclusion that the making of a mortgage loan is a settlement service. The government relies in particular upon § 8(c) of RESPA, 12 U.S.C. § 2607(c), which provides in relevant part:
The government contends that there would be no need for this proviso if residential real estate financing were not a settlement service for purposes of RESPA. The government then concludes that to give full effect to every part of RESPA, the term "settlement services" must be interpreted to include real estate financing.
It is a well-worn principle of statutory construction that a statute is to be construed to give effect to every part thereof whenever reasonably possible. Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 2331, 60 L.Ed.2d 931 (1979); Meade Township v. Andrus, 695 F.2d 1006, 1009 (6th Cir.1982). Effect can be given to § 8(c), however, without construing "settlement services" to include the making of mortgage loans. Lenders traditionally have been permitted to employ agents to perform some of the services that the lender itself could perform, although they are listed as settlement services in § 3(3) of RESPA, e.g., closing by outside agents, and to charge their fees to the borrower. Home Transfer Costs, supra, 62 Geo.L.J. at 1342. Accordingly, that portion of § 8(c) of RESPA quoted above has the significant operative effect of clarifying that a lender's payment of a fee to such an agent does not violate the prohibition of fee-splitting contained in § 8(b) of RESPA.
In sum, neither the plain language of the relevant section nor the structure of RESPA affords an unambiguous reading that requires the imposition of criminal liability on the conduct alleged in the indictment. Accordingly, we turn to the legislative history of the statute.
B. Legislative History and Administrative Interpretation
The government contends that even if the language of the relevant statutes is ambiguous, the legislative history of RESPA supports the government's interpretation of the statutes. As the government states, the impetus for passage of RESPA was two-fold. First, a series of articles in the newspapers in the metropolitan Washington, D.C. area exposed abuses in the real estate business that Congress sought to end. 120 Cong.Rec. 28,262 (1974) (remarks of Rep. Blackburn); S.Rep. No. 866, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S.Code Cong. & Ad.News 6546, 6558 (additional views of Sen. Proxmire) [hereinafter Senate RESPA Report]. Second, in 1972 Congress received a joint report on mortgage settlement costs from the Secretary and the Administrator of Veterans' Affairs in which abuses, such as kickbacks and inflationary referral fees, were outlined. HUD-VA Report. See RESPA § 2(a), 12 U.S.C. § 2601(a) (referring to report). See generally Senate RESPA
In 1974, Senator Brock introduced S. 3164 to regulate certain lending practices and settlement procedures in federally related mortgage transactions. 120 Cong.Rec. 6585 (1974). The definition of "settlement services" in the bill as introduced was substantially identical to that enacted as § 3(3) of RESPA. Following passage by the Senate, the House of Representatives, when initially passing S. 3164, amended the bill by striking all of the Senate's provisions and substituting the provisions of H.R. 9989, which was a House bill generally similar to S. 3164. One significant difference, however, was in the language of the definition of "settlement services". Section 101(5) of H.R. 9989 contained the following definition:
120 Cong.Rec. 28,267 (1974). This definition, unlike that finally enacted, was closed-ended and did not include the making of a mortgage loan within its scope. The Senate declined to concur in the House amendments. 120 Cong.Rec. 31,629 (1974). At conference, an amended version of the Senate's broader definition of "settlement services" was adopted. H.R.Conf.Rep. No. 1526, 93d Cong., 2d Sess., (1974), reprinted in 1974 U.S.Code Cong. & Ad.News 6546, 6569. The question raised by the government's position is whether Congress, by adopting a definition broader than that contained in the House's amendment, intended to include the making of a mortgage loan within the scope of the term "settlement services".
The government cites two statements in support of its contention that the legislative history of RESPA indicates that Congress intended the making of a mortgage loan to be treated as a settlement service. The first statement relied on by the government is the following excerpt from the 1972 HUD-VA report on mortgage settlement costs:
HUD-VA Report, supra, at 33-34. The second statement relied upon by the government is that of Representative Blackburn in which he summarized the events leading to the 1974 legislation:
120 Cong.Rec. 28,262 (1974) (remarks of Rep. Blackburn). The government contends that these statements compel the conclusion that Congress intended to include real estate financing in its definition of "settlement services". We do not agree.
As an initial point, the HUD-VA Report, although indicative of the problems which Congress intended to address by RESPA, was more concerned with the abuses involved in the real estate conveyancing industry than with those involved in real estate financing. See Kickbacks, supra, 29 Stan.L.Rev. at 931 (summarizing HUD-VA report). More significantly, the report, provided to Congress two years prior to the enactment of RESPA, provides no indication as to the scope of the statute as enacted.
Representative Blackburn's comments are similarly unilluminating. Not only are Representative Blackburn's comments not echoed by other congressmen, but the comments were made during the debate on H.R. 9989, which, as noted above, contained a definition of "settlement services" that was substantially narrower than the definition in S. 3164 and clearly did not provide for inclusion of the making of a mortgage loan. In such circumstances, Representative Blackburn's comments are not adequate to indicate that Congress intended to treat the making of a mortgage loan as a settlement service when it enacted RESPA.
In reviewing the legislative history, we are particularly mindful of the narrow definition of "settlement services" contained in H.R. 9989 and the House's amending of S. 3164 to include the narrower definition. Our review of the legislative history of RESPA, however, is not limited to consideration of the narrow definition of "settlement services" in the Senate bill as amended by the House of Representatives because, as noted above, at conference an amended version of the Senate's broader definition of "settlement services" was adopted. H.R.Conf.Rep. No. 1526, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S.Code Cong. & Ad.News 6546, 6569. In settling upon the broader language of the Senate version, we do not believe that Congress intended to bring real estate financing within the scope of settlement services for purposes of RESPA. Instead, the following statement by Senator Proxmire indicates that the decision reflected an intention to expand the coverage not to the making of a mortgage loan but rather to the activities of realtors:
120 Cong.Rec. 38,851 (1974) (remarks of Sen. Proxmire). Accordingly, we conclude that the legislative history lacks the clarity and force to compel the conclusion that Congress intended to treat the making of a mortgage loan as a settlement service when it enacted RESPA.
As a final argument, the government contends that the administrative interpretations of RESPA promulgated by the Secretary pursuant to § 19(a) of RESPA, 12 U.S.C. § 2617(a), indicate that the making of a mortgage loan is a settlement service.
24 C.F.R. part 3500, appendix B. The government contends that, although not binding, the administrative interpretations are entitled to deference and should be followed in the absence of compelling indications that the interpretations are wrong. We find this argument to be unpersuasive.
It is undisputed that "authoritative administrative constructions should be given the deference to which they are entitled...." United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981). Perhaps the most comprehensive articulation of the role of interpretative rules in the construction of statutes can be found in Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944):
The interpretations at issue do not fare well under these standards. Of paramount importance is the failure of HUD to adhere to a consistent position. Here, two informal opinion letters issued by HUD subsequent to issuance of the illustrations in 24 C.F.R. part 3500, appendix B, take positions inconsistent with those suggested by the illustrations. HUD Informal Opinion Letter, June 10, 1977, reprinted in Barron, Federal Regulation of Real Estate A2.04 at app. 81 (rev. ed. 1983) ("The Real Estate Settlement Procedures Act (RESPA) administered by this office does not prohibit a seller from requiring a purchaser to deal only with a certain lender.") [hereinafter Federal Regulation]; HUD Informal Opinion Letter, August 22, 1980, reprinted in Federal Regulation, supra, A2.04 at app. 71 ("RESPA does not prohibit a lending institution from conditioning construction loans to builders on the placement of the buyers' permanent loan with that institution. The consumer's choice is to accept the builder's terms, including financing, or to go elsewhere. While this arrangement may not seem equitable, we know of no federal law that prohibits it.").
In light of our holdings that the language of RESPA is ambiguous with respect to the issue of whether the making of a mortgage loan is a settlement service and that the statute's legislative history does not direct any resolution of that issue, "the rule of lenity mandates judgment for the [appellants]." United States v. Faygo Beverages, Inc., supra, 733 F.2d at 1170. Accordingly, the judgments of conviction are vacated and the cause is remanded to the district court for entry of final judgments.
Black's Law Dictionary 1040 (5th ed. 1979). Points traditionally include both origination fees and loan discount payments. Whitman, Home Transfer Costs: An Economic and Legal Analysis, 62 Geo.L.J. 1311, 1341 n. 129 (1974) [hereinafter Home Transfer Costs].