Case: 09-30902 Document: 00511296323 Page: 1 Date Filed: 11/17/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 17, 2010
No. 09-30902 Lyle W. Cayce
Clerk
TAMMY FORET FREEMAN; LARRY SCOTT FREEMAN,
Plaintiffs - Appellants
v.
QUICKEN LOANS, INC.; TITLE SOURCE, INC.,
Defendants - Appellees
PAUL SMITH; IRMA SMITH,
Plaintiffs - Appellants
v.
QUICKEN LOANS, INC; TITLE SOURCE, INC.,
Defendants - Appellees
JOHN J. BENNETT, III; STACEY B. BENNETT, individually and on behalf of
all others similarly situated,
Plaintiffs - Appellants
v.
QUICKEN LOANS, INC; TITLE SOURCE, INC.,
Defendants - Appellees
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No. 09-30902
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, and HIGGINBOTHAM, and ELROD, Circuit
Judges.
EDITH H. JONES, Chief Judge:
This appeal concerns whether section 8(b) of the Real Estate Settlement
Procedures Act (“RESPA”), 12 U.S.C. § 2607(b), prohibits lenders and others
from charging “unearned, undivided” fees to borrowers at the closing of a
mortgage transaction. The district court granted summary judgment to Quicken
Loans, finding such charges permissible. We affirm, holding that RESPA § 8(b)
requires that the challenged fee be split with another party in order to be
actionable.
I. BACKGROUND
The Freemans, Bennetts, and Smiths each obtained a mortgage from
Quicken Loans in 2007. At the closing of their mortgage transactions, Quicken
charged the Freemans and Bennetts each a “loan discount fee” and charged the
Smiths a “loan origination fee” as well as a “loan processing fee”—although
Quicken contends the loan origination fee was misstated and was actually a loan
discount fee similar to those charged to the Freemans and Bennetts. The
Freemans and Bennetts contend that a loan discount fee may only be charged
when there is a corresponding interest rate reduction and that otherwise it is an
unearned fee for settlement services in violation of RESPA. As Quicken
allegedly did not decrease the interest rate for either the Freemans’ or Bennetts’
loan, the couples argue the fee was unlawful. The Smiths allege that the loan
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origination fee was duplicative of the loan processing fee, and thus an unearned
fee for settlement services, or alternatively, that it was an unlawful loan
discount fee akin to the fees charged to the Freemans and Bennetts.
Each couple filed suit separately in state court, seeking class treatment
and alleging violations of RESPA and state law. Quicken removed the cases to
federal court where they were consolidated. Quicken then moved for summary
judgment, claiming that the couples’ claims were not actionable under
RESPA § 8(b) as the fees were not split with another party, and contending that
as a result the state law claims failed. The district court agreed and granted
summary judgment.
The couples appeal the district court’s interpretation of RESPA. They
concede their state law claims are contingent on the RESPA claim, but argue
that because they should succeed on their RESPA claim, their state claims also
survive.
II. STANDARD OF REVIEW
This court reviews a district court’s grant of summary judgment de novo
applying the same standard as the district court. DePree v. Saunders, 588 F.3d
282, 286 (5th Cir. 2009). The court examines the evidence in the light most
favorable to the nonmoving party, and summary judgment is appropriate if there
is no genuine issue as to any material fact. Id. The essential facts are not
disputed; on appeal the sole question is the interpretation of RESPA, which we
review de novo.
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III. DISCUSSION
The Appellants characterize Quicken’s charges in the form of loan discount
and loan origination fees as “undivided unearned” fees. RESPA § 8(b) states
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.
12 U.S.C. § 2607(b). Appellants contend that the loan discount fees are charges
for a real estate settlement service and that, as there was no interest rate
reduction, the charges did not represent “services actually performed.” Quicken
counters that RESPA does not prohibit undivided unearned fees by a sole
provider; to fall under the statute, fees must be divided between two parties such
that they resemble a kickback or bribe.1
A.
RESPA § 8(b) has been the subject of several lawsuits to determine its
scope. Additionally, in 2001, HUD, the agency responsible for enforcing RESPA,
issued a statement of policy that identified four types of overcharge schemes that
this provision could potentially cover:
1. Fee splitting, where two or more persons split a fee, any
portion of which is unearned;
1
Alternatively, Quicken cursorily contends that the loan discount fees are not for
settlement services, and therefore are not covered by the statute. See Wooten v. Quicken
Loans, Inc., No. 07-00478-CG-C, 2008 WL 687379, at *5 (S.D.Ala. Mar. 10, 2008) (exempting
“the substantive terms of a loan” from the scope of “settlement services”). Our disposition of
the case on the remaining language of RESPA § 8(b) makes it unnecessary to reach this
argument.
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2. Mark-ups, where a service provider charges the borrower for
services performed by a third party in excess of the cost of the
services to the service provider but keeps the excess itself;
3. Undivided unearned fees, where a service provider charges
the borrower a fee for which no correlative service is
performed; and
4. Overcharges, where a service provider charges a borrower for
services actually performed but in excess of the service’s
reasonable value.
Statement of Policy 2001-1, 66 Fed. Reg. 53,052 (Oct. 18, 2001). HUD proceeded
to assert that RESPA § 8(b) prohibits all four types of transactions. Id. All
circuits agree that the statute plainly prohibits fee splitting. See, e.g., Krzalic
v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002). Similarly, every circuit
addressing the issue has rejected the contention that simple overcharges are
actionable under the statute. See Martinez v. Wells Fargo Home Mortgage Inc.,
598 F.3d 549, 553-54 (9th Cir. 2010) (noting the Second, Third and Eleventh
Circuits have all specifically held overcharges are not actionable and joining
their conclusion); Patino v. Lawyers Title Ins. Corp., No. 3:6-CV-1479-B,
2007 WL 4687748, at *3 (N.D. Tex. Jan. 11, 2007) (unpublished) (collecting
cases).
The circuits disagree on the remaining two types of fees: mark-ups and
undivided unearned fees. The Fourth,2 Seventh,3 and Eighth 4 Circuits have each
held that RESPA § 8 is exclusively an anti-kickback provision. Accordingly,
RESPA § 8(b) requires two culpable parties, a giver and a receiver of the
2
Boulware v. Crossland Mortgage Corp., 291 F.3d 261 (4th Cir. 2002).
3
Krzalic, 314 F.3d at 879.
4
Haug v. Bank of America, 317 F.3d 832 (8th Cir. 2003).
5
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unlawful fee, rendering mark-ups by a sole services provider not actionable. The
Second,5 Third,6 and Eleventh7 Circuits have rejected the two-party requirement
and held that RESPA § 8(b) prohibits mark-ups. Only the Second Circuit has
explicitly addressed whether RESPA § 8(b) prohibits a sole provider’s undivided
unearned charges and found that it did. Cohen v. JP Morgan Chase & Co.,
498 F.3d 111 (2d Cir. 2007).8 Presumably, the three circuits that require two
culpable actors would not find undivided unearned charges actionable.
B.
With these divergent positions in mind, we enter the interpretive fray. “If
the intent of Congress is clear, . . . the court, as well as the agency, must give
effect to the unambiguously expressed intent of Congress.” Chevron U.S.A. v.
Natural Res. Def. Council, Inc. 467 U.S. 837, 842-43, 104 S. Ct. 2778 (1984).
We hold that the language of RESPA § 8(b) is unambiguous and does not
cover undivided unearned fees. First, the language “No person shall give and no
person shall accept” is not ambiguous as to whether a sole actor’s undivided fees
are covered. The term “and” normally means that both of the listed conditions
must be satisfied. “The use of the conjunctive ‘and’ indicates that Congress was
clearly aiming at an exchange or transaction, not a unilateral act.” Boulware,
5
Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004).
6
Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005).
7
Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979 (11th Cir. 2003).
8
The Third Circuit recently passed up an opportunity to evaluate whether a provider
could charge fees for work it did not perform. Tubbs v. N. Am. Title Agency, Inc., No. 09-2757,
2010 WL 3044067 (3d Cir. August 5, 2010) (unpublished). The dissent in Tubbs argued that
remand was unnecessary, despite error by the district court, because the allegations failed to
state a claim. Id. at *2 (Hardiman, J., dissenting).
6
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291 F.3d at 266. Thus, the provision requires two parties each committing an
act: one party gives a “portion, split, or percentage,” and another party receives
a “portion, split, or percentage.” See id. at 265 (“Therefore, § 8(b) only prohibits
overcharges when a ‘portion’ or ‘percentage’ of the overcharge is kicked back to
or ‘split’ with a third party.”); Mercado v. Calumet Federal Sav. & Loan Ass’n,
763 F.2d 269, 270 (7th Cir. 1985) (“The statute requires at least two parties to
share fees.”). This is not a prohibition on the undivided fees of a sole provider
like those charged to the Appellants.
Second, RESPA § 8(b) must be read in conjunction with its companion
provision, RESPA § 8(a). RESPA § 8(a) uses language identical to RESPA § 8(b):
No person shall give and no person shall accept any fee, kickback, or
thing of value pursuant to any agreement or understanding, oral or
otherwise, that business incident to or a part of a real estate
settlement service involving a federally related mortgage loan shall
be referred to any person.
12 U.S.C. § 2607(a) (emphasis added). That “no person shall give and no person
shall accept” a kickback clearly requires two culpable actors. “A term appearing
in several places in a statutory text is generally read the same way each time it
appears.” Ratzlaf v. United States, 510 U.S. 135, 143, 114 S. Ct. 655 (1994); see
also National Credit Union Admin. v. First Nat. Bank & Trust Co., 522 U.S. 479,
501, 118 S. Ct. 927 (1998) (identifying “the established canon of construction that
similar language contained within the same section of a statute must be
accorded a consistent meaning”). To be consistent with RESPA § 8(a), RESPA
§ 8(b) should require two culpable actors as well.
Third, RESPA § 8(b)’s language “any portion, split or percentage” requires
that two parties share something. See Boulware, 291 F.3d at 265 (“By using the
language ‘portion, split, or percentage,’ Congress was clearly aiming at a sharing
7
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arrangement rather than a unilateral overcharge.”). The definitions of all three
words require less than 100% or the whole of something. Webster’s defines
“portion” as “an individual’s part or share of something” or “a part of a whole.”
W EBSTER’S T HIRD N EW I NTERNATIONAL D ICTIONARY 1768 (2002). “Split” means
“a product of division by or as if by splitting,” or “a share (as of booty, winnings,
profits).” Id. at 2202. “Percentage” means a “part of a whole expressed in
hundredths.” Id. at 1675.
The Appellants note, citing the Second Circuit, that certain statutes use
“any portion” and “any percentage” to include situations that involve the entirety
of something. Cohen, 498 F.3d at 118-19 (citing anti-embezzlement statutes).
But this is the exception, not the rule, and there are several reasons not to apply
that interpretation here. None of the statutes cited by Cohen uses all three
terms: portions, split and percentage. Using all three terms collectively
emphasizes that Congress intended “part of a whole.” “The traditional canon of
construction, noscitur a sociis, dictates that words grouped in a list should be
given related meaning.” Dole v. Steelworkers, 494 U.S. 26, 36, 110 S. Ct. 929
(1990) (internal quotations and citations omitted). Under the doctrine of
noscitur a sociis, the court “avoid[s] ascribing to one word a meaning so broad
that it is inconsistent with its accompanying words, thus giving unintended
breadth to the Acts of Congress.” Gustafson v. Alloyd Co., 513 U.S. 561, 575,
115 S. Ct. 1061 (1995) (internal citations and quotations omitted). A court
stretches the definition of “portion, split or percentage” to its breaking point to
mean 100% of a charge. Further, none of the other statutes uses “split.” While
portion or percentage may be ambiguous in some limited cases, “split” requires
dividing a single thing among several parties.
8
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Finally, when read in its entirety, RESPA is an anti-kickback statute, not
an anti-price gouging statute. Congress stated RESPA’s purpose in 12 U.S.C.
§ 2601(b). It explicitly and exclusively prohibits kickback and referral fees:
(b) It is the purpose of this chapter to effect certain changes in
the settlement process for residential real estate that will
result—
(1) in more effective advance disclosure to home buyers
and sellers of settlement costs;
(2) in the elimination of kickbacks or referral fees that tend
to increase unnecessarily the costs of certain settlement
services;
(3) in a reduction in the amounts home buyers are required
to place in escrow accounts established to insure the
payment of real estate taxes and insurance; and
(4) in significant reform and modernization of local record
keeping of land title information.
12 U.S.C. § 2601(b) (emphasis added). Section 2601's purpose statement does
not discuss, mention, or even hint about a general prohibition on overcharges or
unearned fees or other forms of price abuse. If Congress meant to ban other
forms of price abuse, such as undivided unearned fees or unearned fees
generally, then surely it would not have used such limited language. Unearned
fees are not kickbacks, and RESPA does not cover them.9
9
There is no reason to recite legislative history given the clarity of the statutory text.
Nonetheless, if we must look to the legislative history, the Senate Report that details
Congress’s intent, S. REP . NO . 93-866 (1974), reprinted in 1974 U.S.C.C.A.N. 6545, supports
this interpretation. When discussing RESPA § 8, the Senate Report begins by saying that:
Section [8] is intended to prohibit all kickback or referral fee arrangements
whereby any payment is made or ‘thing of value’ furnished for the referral of
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C.
The Appellants attempt to rehabilitate their argument by urging us to
follow HUD’s 2001 policy statement. They assert that this policy statement is
entitled to Chevron deference and, accordingly, the court must adopt HUD’s
interpretation that RESPA § 8(b) covers undivided unearned fees. The Second
Circuit adopted this rationale in Cohen. 498 F.3d at 115 (citing Kruse, 383 F.3d
at 57).10
We are unpersuaded. When the statutory provision is clear on its face,
there is no need to look to any regulatory interpretation, such as the HUD 2001
statement. Chevron, 467 U.S. at 842-43. If the statute is ambiguous, the court
is only required to defer to an agency’s interpretation that “reasonably
effectuate[s] Congress’s intent.” Texas v. United States, 497 F.3d 491, 506 (5th
Cir. 2007). Otherwise, an agency interpretation lacks the “force of law” and will
real estate settlement business. The section also prohibits a person or company
that renders a settlement service from giving or rebating any portion of the
charge to any other person except in return for services actually performed.
Reasonable payments in return for services actually performed or goods actually
furnished are not intended to be prohibited.
Id. at 6551. (emphasis added). Just as in § 2601(b), nothing can be fairly read to cover
undivided fees. The description clearly and only covers the classic kickback situation where
one party refers a client to another party in exchange for a fee.
Further, all of the examples listed in the Senate Report reference charges divided
among multiple parties. Id. If Congress meant to prohibit other forms of price gouging, such
as unearned fees generally, then the Senate Report would have listed at least one example
that does not involve a referral. That Congress did not list such examples strongly implies
that RESPA § 8(b) did not cover such other actions.
10
Other circuits have avoided the issue of whether the HUD statement is entitled to
Chevron deference. See Santiago, 417 F.3d at 389 n.4 (“because we would find HUD’s
interpretation to be persuasive under Skidmore, we would not need to reach whether Chevron
deference is warranted.”); Krzalic, 314 F.3d at 879; Sosa, 348 F.3d at 984.
10
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not receive Chevron deference, but instead will be granted Skidmore deference
and given “respect proportional to its ‘power to persuade.’” United States v.
Mead Corp., 533 U.S. 218, 235, 121 S. Ct. 2164 (2001). Even assuming arguendo
that this RESPA provision is ambiguous, the HUD statement is not due Chevron
deference because there is no indication that the HUD statement carries the
force of law. See Krzalic, 314 F.3d at 882 (Easterbrook, J., concurring) (stating
that regulatory interpretations that do not follow rule-making guidelines under
the APA are entitled to Skidmore deference only). “Interpretations such as those
in opinion letters–like interpretations contained in policy statements, agency
manuals, and enforcement guidelines, all of which lack the force of law–do not
warrant Chevron-style deference.” Christensen v. Harris County, 529 U.S. 576,
587, 120 S. Ct. 1655 (2000). Where the agency has not used a deliberative
process such as notice-and-comment rulemaking, or where the process by which
the agency reached its interpretation is unclear, the court cannot presume
Congress intended to grant the interpretation the force of law. For example, the
Fifth Circuit has denied Chevron deference to IRS revenue rulings,11 the CMS
Medicaid Manual,12 FTC interpretive rules,13 and litigation briefs.14 Unlike other
HUD regulations interpreting RESPA, the HUD Statement of Policy was not
promulgated through traditional notice-and-comment rulemaking or any similar
deliberative process and does not identify any clear methodology by which it
11
Kornman & Assocs, 527 F.3d 443 (5th Cir. 2008).
12
S.D. ex rel. Dickson v. Hood, 391 F.3d 581 (5th Cir. 2004).
13
Walton v. Rose Mobile Homes, 298 F.3d 470 (5th Cir. 2002)
14
Pool Co. v. Cooper, 274 F.3d 173, 177 n.3 (5th Cir. 2001).
11
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reached its conclusion. Accordingly, the HUD statement is not due Chevron
deference.
Even under Skidmore deference, the HUD statement is unpersuasive. The
discussion of RESPA § 8(b) is perfunctory and conclusory. It expresses
disagreement with the Seventh Circuit’s interpretation of RESPA § 8(b) in
Echevarria v. Chicago Title & Trust Co., 256 F.3d 623 (7th Cir. 2001) but
provides no concrete reasoning for its conclusion. 66 Fed. Reg. at 53,053. HUD
claims to have a “long-standing interpretation” that RESPA covers undivided
unearned fees but offers no clear evidence for this point. Id. at 53,058. It asserts
that a fee need not be split because of the disjunctive word “or,” but offers no
discussion, just a conclusory statement. Id. It does not address any legislative
history or alternate interpretation. Because we are interpreting a statute, HUD
must provide some manner of statutory interpretation that would bolster its
position. HUD failed to do so.
D.
Finally, the Appellants argue that RESPA should ban undivided unearned
fees because this type of pricing scheme puts consumers in the same economic
position as a kickback. The Third Circuit found this “same economic position”
argument persuasive when analyzing whether RESPA § 8(b) prohibited
markups. Santiago, 417 F.3d at 388-89.
This is not so much an argument as a quarrel with Congress. By its terms,
RESPA does not regulate economic outcomes; it only bans certain predatory
methods. Congress did not mean to criminalize the charging of fees for
settlement services, however they are characterized, as long as they are
disclosed and not within RESPA § 8(a) or (b). 12 U.S.C. § 2607(d) (imposing
12
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criminal penalties and potential imprisonment for any violations of
RESPA § 8(b)).15
IV. CONCLUSION
Because the statutory text is clear, RESPA prohibits only kickbacks and
referral fees, not unearned fees by a sole provider of settlement services. The
charges imposed by Quicken on Appellants for loan discount fees and a loan
processing fee are not prohibited by RESPA § 8(b).
The judgment of the district court is AFFIRMED.
15
Our disposition of the RESPA claim necessarily requires rejection of Appellants’
dependent state law claims.
13
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HIGGINBOTHAM, Circuit Judge, dissenting:
I respectfully dissent. I would, in the main, take the path set forth in the
Second Circuit’s well-reasoned opinion in Cohen v. JP Morgan Chase &
Company1 and hold that unearned undivided loan discount fees violate § 8(b) of
the Real Estate Settlement Procedures Act (“RESPA”).2
The lone aspect of Cohen I would not adopt is its decision to give Chevron
deference3 to the interpretation of RESPA § 8(b) articulated by the Department
of Housing and Urban Development (“HUD”) in its Statement of Policy 2001-1.4
This Court is only required to grant Chevron deference to an agency’s
interpretation of an ambiguous statute if the interpretation has “the force of
law,”5 a description generally reserved for interpretations that are the product
of “a relatively formal administrative procedure tending to foster the fairness
and deliberation that should underlie a pronouncement of such force,” 6 such as
traditional notice-and-comment rulemaking. The HUD Statement of Policy was
not promulgated through traditional notice-and-comment rulemaking, and I am
not persuaded that the process through which it was promulgated was
sufficiently considered to merit Chevron deference. I share the Seventh Circuit’s
concern over the Statement of Policy’s lack of analysis, which expresses
disagreement with that court’s decision in Echevarria v. Chicago Title & Trust
1
498 F.3d 111, 114-26 (2d Cir. 2007).
2
12 U.S.C. § 2607(b).
3
See generally Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837
(1984).
4
Statement of Policy 2001-1, 66 Fed. Reg. 53,052 (Oct. 18, 2001).
5
See United States v. Mead Corp., 533 U.S. 218, 226-27 (2001).
6
Id. at 229.
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Company7 but gives no reason for that disagreement “except that HUD has
always regarded such fees as forbidden by the statute, though previously it had
failed to make this clear. No evidence or interpretive methodology is mentioned;
no abuse pointed to that might justify the contorted interpretation urged by
HUD.”8 As Judge Posner explained, “something more formal, more deliberative,
than a simple announcement” was needed to invoke Chevron deference and “[a]
simple announcement is all we have here.”9 While I agree with the Second
Circuit that the policy statement is more than a simple announcement,10 without
a more formalized process through which the Agency’s views might be
challenged and sharpened—such as what occurs in a formal adjudication or
notice-and-comment rulemaking—I would not conclude that the Statement of
Policy warrants deference under Chevron. Per Skidmore,11 I would give HUD’s
interpretation only such respect as is proportional to its power to persuade.
This concern aside, I would adopt the approach and conclusions of Judge
Raggi’s fine opinion in Cohen. The statutory phrase “any portion, split, or
percentage of any charge . . . other than for services actually performed” is
ambiguous with respect to Congress’s intent to prohibit unearned undivided fees.
Prohibiting such fees strikes at a core objective of RESPA: promoting
transparency of costs associated with settlement. RESPA is aimed at reducing
abuses by those in the mortgage industry through charging borrowers fees for
work not actually performed. While the greatest concern may be when that fee
7
256 F.3d 623 (7th Cir. 2001)
8
Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir. 2002) (citations omitted), cert.
denied, 539 U.S. 958 (2003).
9
See Krzalic, 314 F.3d at 881 (citing Barnhart, 535 U.S. at 212, and Mead Corp., 533
U.S. at 229–31).
10
See Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49, 59-61 (2d Cir. 2004).
11
See Mead, 553 U.S. at 234-35 (citing Skidmore v. Swift & Co., 323 U.S. 134 (1944)).
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is part of a hidden referral relationship, the damage done to borrowers is similar:
they are led to believe they are paying for something they are not. Following
Cohen would not lead us down the path to a rate-setting regime. The task of the
court is very different when determining whether any service was provided as
opposed to whether the price charged is a reasonable one. When the fee is
entirely unearned, the court is not forced to determine the reasonableness of a
fee—a task for which courts are not well suited—because the reasonable fee for
nothing is nothing.
Accordingly, I respectfully dissent.
16