diaz thank you drew case number ten days three nine two two eric carter at all first as well as bowen realty incorporated at all argument not to exceed twenty minutes to be shared by the intent and the purpose of twelve u s c twenty six zero seven commonly referred to as respa that purpose is to prevent the fees and kickbacks in a federally related mortgage transaction congress wanted to protect consumers from paying excessive fees at closing because referral based kickbacks were leading to inappropriate services what congress did not do was to spell out the specifics as to how to protect those consumers instead congress as it often does defer to an agency congress that that agency had the expertise in this case hood to interpret the statute and carry out the flies in the face of the very purpose of that statute and that is protecting the consumer a pelleas interpretation of twenty six zero seven led to unscrupulous entities setting up sham operations to perform little or no substan e work but collective massive bloated premiums for title insurance and closing costs the frustrating the very purpose of rest in the first place pelleas position directly contradicts the policy statement issued in one nine hundred ninety six which states that the exemption for referrals found in twenty six zero seven c four must be made by a provider of settlement services and quote these provisions do not authorize compensation to show entities or sham arrangements what are not bona fide providers of settlement services these sham entities that were identified in the  public policy statement process were doing exactly what both well known title and integrity as to how we use here are doing that is doing almost no real title work no real settlement work and collecting notice and comment regulations as opposed to kind of going to the internal policy statement of your i think the government had to would be better positioned to speak to that one of the reasons i believe though is that they were unaware of the problem until the mortgage brokers association filed a written complaint indicating that the sham organizations were a problem in that they were not providing real services but collecting funds apart  the insurance premiums and that in fact well just say well ok well let's let's let the government or argue that what happens in the policy statement is not binding on the courts just hypothetically  it's something to guide but it doesn't bind the courts for whatever reason what that happens to your case given the existence of the statutory state department i think is it is at but that's my i guess that's the question i'm trying to get you to answer let's take a step ron get more out of it for whatever reason just hypothetically the court says the policy statement the ten factor test is for the agency to use but it doesn't bind the courts and get more purposes it doesn't suffice to affect our interpretation of the statute what then happens given the statutory safe harbor is that is that the end of the case from your perspective or what would be your backup argument is not i think the court is then obliged to look at the statute in its in its entirety and its purpose and in doing so it's clear that the congress did not want to these collecting insurance premiums and closing costs they were not doing actual services other words they didn't want to back them the congress spelled that out very clearly so  us guidance give all of the public guidance as to what is a shim what is not in the trial court one of the primaries of the trial court is of a there of court picked of the district court picked out certain phrases page document picked out for  five raises in a ten page document and ignored samples two and four of the five examples example to specifically states exactly what a title company could do to be in compliance  obligation is to enforce the policy and intent and purpose of the statute and it is not so vague as the court can't do that it was husband and i i may agree with you that it's actually the statute i think i guess i would say that's your problem the statute is too clear i mean so initially you have this very strict rule which doesn't allow for shared ownership they decide to create an exam exemption for shared ownership and that becomes a safe harbor and in writing that statutory safe harbor there showing an awareness of the sham problem i mean see it's about making sure the only thing of value is not these take that but a return on the ownership interest so it seems what seems hard to me if you take the policy statement out of the equation is they seem to fit under the statute which is why i'm wondering if the policy statement is and that is the the real grab them and the claim is that there's a real question in fact of where these entities are complying with the statute and that the policy statement really gives  itself or at least alluded to page twenty nine to sixty one the agency didn't have to the real estate settlement procedures act specifically section twenty six seventeen a is quite broad and the authority that congress has tested in the agency gives it not only authority to issue rules and regulations pursuant to rule making it also explicitly authorizes the agency to issue whatever interpretation that the agency think are necessary in order to carry out the purposes of the statute can i stop you there this is judge sutton again i just i'm just not familiar with the concept of something being authoritative and i guess i will agree with you for the sake of argument that the provision you're referring to allows them to adopt a board seat is w binding is very strange to say they're binding on the court and i will agree with you that it is that it is strange and perhaps three you can make clear that what the policy statement does is really two things the first part of it and the essential part of it it is interpreted the phrase provider of settlement services in the statutory definition of affiliated business arrangements in that section twenty six zero seven twenty six zero two subsection seven and what the agency is saying in that respect is that a provider of settlement services has to be bona fide not a sham so in other words what the agency did here was make exploits that what is surely implicit in the statute is after all this is a consumer protection statute and the purpose of the statute are quite clearly stated in section twenty six zero one what you have just what do you what do you mean when you say it's not binding maybe that would help and that your honor goes to the second part of the policy statement and those are the ten factors or ten inquiries that the the policy statement sets forth along with the five concrete examples of how this will play out what that part of the policy statement does is provide a framework of applies here to the actual interpretation of the word provider at settlement service in other words an agency statement that that must be a bona fide operation not a sham at the agency is directly interpreting the statute there pursuant to its authority where is that where is that argument your brief throughout is not as i stated said it's not stated perhaps as clearly as it should have been but we certainly maybe maybe in a different maybe an agency can interpret your brief and come up with the right that's what it meant well no i don't think it's quite like that i think there are plenty of places throughout the pre fight i don't i can't put my fingers on the right this minute where we make it clear that the agency is interpreted that section of the statute itself but when we talk about the parts that it's not directly binding it's that framework for analysis in other words the whole point of policy statements in those kind of factors is to give a decision maker the flexibility that it needs because this is the very fact that fake inquiry regard listen whether you're talking about a settlement service provider or any entity that where a question arises as to whether or not it's a legitimate bona fide entity or the court has recognized that it's entirely appropriate for a decision maker to inquire into the bona fides of a particular entity that subject of regulation that's what the statute that's what the policy statement to the phrase no rights but then you have a policy statement that says this prevents shans and if that part of it that part of the policy statement that chevron chevron applies and that would be binding on the court and then what binds the court about the rest of the policy statement to ten factors is our deference because that's interpreting the right not a reg but interpreting the other part of the policy statement is that the steps of the analysis not the ten factors plus the five six stamps are not so much interpret ing something they're providing a framework for analysis it's guy i know that you're saying it's binding on the court i'm trying to understand i'm trying i'm actually trying to help you here i'm trying to understand the theory that would make that last part of this binding on us because that's the whole point of chevron well again your honor and  i'm trying to be clear and i apologize if i'm not the binding part is that some analysis might be undertaken to determine whether or not the provider settlement service the new entity that's been created is bona fide and that we don't have to follow the ten factor test though the ten factor tests are there to help the agency and to provide the properly with information as to what to provide by the mortgage industry and others now here we have in this case a situation where the district court completely disregarded not only the ten factors in the five examples that went along with them statute itself the court threw that out entirely and said it didn't make any inquiry into the bona fides of the operation instead it simply said it provided a service that satisfies the three addict you a question that i just want to make sure i'm following you position again i'm going to say this not argumentatively but just to try to make sure i'm getting it i'm getting it you're saying there's a sham inquiry which is binding on the court maybe it's directly by me from the statute or maybe it's binding because of part of the policy statement so that's part of what you're saying and then the second thing you're saying is also for the policy statement of these factors and i realize that for guidance for the public but guidance for the department but i don't hear you to be saying those are binding on us the courts in determining whether there's a sham if i've got the framework right how do you deal with what i perceive is this problem let's say you're right we do have to investigate whether there's a sham but what i'm struggling with is why i don't do that t vehicle of two six zero seven c for c i mean that's a way to get a chance is there a thing of value and long as you've met that in the other parts of the s the way we're going to proceed as i think is it was suggested earlier is finished the argument the department of justice lawyer had one question going to get to in just a second let her finish answering that question then will be your turn then will be  rebuttal you'll get a chance after the argument to hear the whole argument if there's something that came up earlier you'll have a chance you know within ten days to file of supplemental response and of course it triggers a response from the others that their ga s i would say if i were in your position as an advocate these would be the key moments of what was going on before you came on number one not a single judge asked anything about void for vagueness most of the  has related exclusively to administrative law issues and particularly chevron skidmore deference issues and what i'm going to say now is a summarizing question that i just put to the department of justice lawyer which i'm going to let her finish answering and then you'll be able to hear the question itself so if i'm understanding the department of justice is positioned there aren't any applicable regulations concerning the statute and particularly this phrase affiliated business arrangements but you have a policy statement and if i'm understanding the partons position one part of that policy statement is is binding on the court's not just out there to give notice the binding on the courts and that's that the statute prohibits shand transactions then the question i was putting to the department just as lawyer is you then have the rest the policy statement which has this ten factor test in these examples and the question is whether that is binding on the courts or some form of skidmore deference or just something we can consult now the question the more specific question was if we assume the department of justice is right that we have to take it as a given that the statute together with policy statement means that sham transactions  why why does the court have to look at these ten statements as opposed to the court looking at the statute itself where it seems to be implementing one of the ways you would have what we could call it that and that is two six zero seven c four big see this thing a value point which obviously you're not getting things of value that's that's getting to a sham problem so i guess in this cold i can't remember what part of this you answer but why don't you try to answer that the policy statement is addressed to the predicate issue as to whether there's a bona fide provider the three conditions that  you refer to that are in the statutory provision that provides the safe harbor it's a different provision that's the twenty six zero seven c four part those are different conditions as the policy statement itself you don't even get to those issues until you've got a a an arrangement that satisfies the affiliated business arrangement definition which is twenty six  two and as part of that inquiry it's necessary to determine was it the words provider and settlement service in that definition does that mean just anybody who provides something or does it mean what it and what the agency necessarily thinks that must be given the purposes of the statute and that is that it has to be a bona fide provider of settlements or in other words  separate kind of inquiries you've got the three conditions that are retired and ordered the thing i'm not understanding is the alleged sham entity did provide some services i mean once you show there was a provision of some services it seems to me you've satisfied that part of the safe harbor well that's where the government has a different reading understanding of the statute and that's the purpose for the policy statement for example  s that had has not addressed arrangements that performs some but not all of the settlement service functions that purports to provide this on page twenty nine to sixty one and then it goes on from that point to explain where the problems have a risk that the safe harbor provision was enacted and nine hundred eighty three probably and over the next decade or so is when there were a lot of these new entities created that they create something that well maybe you do one minor settlement service but in fact that entity is really set the final illegal kickbacks and violation of the statutory prohibition but this policy statement was specifically designed to address that particular problem and it explains that on the page that i just gave you and again that's a different that's a point is that maybe you just say you think this is what bad stands for pretty amazing to me but the agency's position is that the definition of something that has criminal consequences the criminal statute it's criminal and civil but the definition of say proceeds in a statute was civil and criminal application can vary from one presidential administration to another so the definition of what is a crime could get vary from one presidential administration to another co exist whichever in other words the chevron analysis is undertaken a part of that analysis is that you have to have an agency that is specifically authorized to interpret a particular statute and the interpretation has to be a reasonable one but at the end of the day it's a court were to decide that that interpretation still doesn't result in a grievous ambiguity in the statute that imposes criminal reasonable interpretation of the for the interruption with regard to your present case and yes your honor can you hear me ok i apologize i'm talking through a speakerphone on a cell phone the definitive roadmap for resolving the question the main questions currently before this court provided in the us supreme court most recent pronouncements on respite section eight interpret a policy  so you have basically two things in the in the regulations you have a right that says transactions are prohibited and here's how you identify sham transactions would you be in trouble with that point no your honor the way the supreme court looked at it is the way the same way that this court should look at the situation before starting with the plain meaning of the statute and then even if there the advocates that this court do and that is look to the dictionary definition of provide the statute itself defines settlement services so you go from there with the dictionary definition provided a to me that the argument you are making then leads to the inevitable conclusion that the state of or exception did any possibility of a and being identified so that means when congress passed and then nine hundred eighty three they really i didn't know what they were doing because the legislative history as cited in the policy statement said that congress did not if i was interrupting the term sham entity was created by hood in the policy statement it's nowhere in the statute so you can start there with in terms of what is the plain language but if you look at fr later and what the supreme court said in freeman was that at the time respire was passed in one nine hundred seventy four there was a separate directive to hud specifically directing them to notify and recommend further would be would make no sense and so here there's a similar situation because when congress passed a be a safe harbor in one nine hundred eighty three it also included a separate section specifically empowered to convene administrative investigations to issue subpoenas in the purpose of it was to recommend additional legislation is needed and the way to do that was with the new section so tried to do through a policy statement through the backdoor what congress explicitly told it to do through the front door definition then you have that protection there now another aspect of freeman that should help guide this decision decision is how the supreme court dealt with the idea of the slippery slope absurdity it seems to me the agency would have authority to defy provider of services that's what's that's what's hard about this case and they just didn't do it the normal route they did in the route that's not binding on them and  that's the part that thought about it but if you map this case against freeman i would have thought the full court would agree that provider of services can be defined and probably i would think could be defined to deal with sham providers and services well it could do so in a way that is contrary to the plain language of the statute and contrary to the overall intent i mean recall your honor that congress  well i mean the a b a s thing the value they can define thing of value right i mean that's not that's not self evident you don't just pick up a dictionary look at provider of services a thing of value and say ah there's no room to maneuver definition i don't know that they would have it within the structure of what congress appended your honor and that the question of whether there was a gap or not and we would submit that that you know what's important here is that the government hasn't contended that the term provider is ambiguous and that's why a problem gaited the factor test instead what the government has said is that it received complaints from provider of settlement services that it acted on on those grounds in terms of the  s a measure of grievous ambiguity here this court can refer to it earlier decision in bell mare and that decision a municipal ordinance unconstitutionally vague based on the fact part relies on what's called a what the government calls a subjective balancing process and it says the government tells us in the policy statement that it weighs the factors in light of the specific facts of each case say for instance one of the factors is the entity managed its own affairs and here the a b a s have separate managers who manage the day to day activities of their of their a b they handle all the paperwork in not so we would say that they meet the managers well the partners would say that well because those managers consult with the owners for big business decisions like who to hire me when to move the office or what not that they do not manage those entities but you can't look to the ten fact to test for guidance on that even something like factor for which is office space th the policy statement offers you two options either have your own office space or rent from one of your parent companies had a market rate what we don't know is that are they is one better than the other  if you pay market rent or let you pay slightly less than market rent does that mean you don't comply in all or does it mean that those partial compliance or if you have let's say you pay more than market rent is that some sort of bonus credit that you could carry over to another factor we don't know when no one would know how about factor nine which is actively competing in the marketplace for business the factor says you can whether the a b a receives four attempts to obtain business from third parties here the a b s have gone out they have marketing budgets they have websites they advertise in the yellow pages history or the a b a safe harbor congress expressly considered whether to adopt a twenty percent limitation on the amount of referrals from parent entities and they specifically declined to adopt that and that the better route to go was not only the three factors that are listed in the statute but also empowering to make additional recommendations for further is another way of saying that you can never know what the line of prohibited conduct is affirm the district court's ruling on class certification the district court found in accordance with this court's prior authority and with courts all over the country that the presence of statutory here especially true here given that there's a strong argument that congress didn't even attend class actions arrest the section eight because it specifically listed the ability to have class actions and respa section five but didn't include the district court found that individual common issues would not for dominate individual issues specifically with respect to determining whether a mortgage with a federally related mortgage and also individualized determination of damages was necessary because the a b a s would be titled entitled to payment for services a reasonable payment for services actually rendered under the statute so in  closing the same factors that led the supreme court and freeman to give the policy statement no effect are present here and should therefore lead to the same result furthermore the district court did not abuse of discretion in denying class certification final thank you your honor referred to the number one rule of interpreting instead to the net is the plain meaning of the statute the second part of that though is to carry out the stated purpose of the statute and the interpretation would would make it possible for each entity to do practically no services which is clearly the stated purpose of the statute is attempting to prevent in fact it did happen in just that way and that's why the policy statement interpreted in the statute was was rendered by hud in one thousand nine hundred six to stop the very wrong that is attempting to be prevented by the act of congress now it's true the statute does not use the term is is the compensation issue that you're receiving without benefit and under those under eight hundred twenty six o two i believe also the term bonafide use if i remember correctly the context of salary or compensation well i think the government spoke to that in we agree with that that this is a layer of first a month and to determine whether or not there's actually services being performed and whether you're  you might term them bona fide entity as compared to someone who simply getting paperwork for that i thought it was i thought i thought everyone agreed in this case there were some services provided well i think that's what the whole purpose of the the complaint from the mortgage brokers act association and the hud policy statement is that there were basically some services being provided but is part of a sham operation further guidance from time to time and if there was a criminal violation prior to one nine hundred ninety six without guidance from hood then i think you're problematic but here anything after nine hundred ninety six is in our position is very clear not vague in any way shape or form as if you believe look at the entire policy statement as to what congress intended in and what is a violation of statute i just think the strange it seems strange to me that given that congress defined crime and not courts or congress and not agencies just seems fine to me that from one administration to the next the definition of a crime to change just seems really  honor i just want to make a few quick points first of all the freeman decision by the supreme court has absolutely nothing to do with this case it evolved a different provision of respa and as the court noted the court never even considers the policy statement there which was a totally different policy statement second point is apple is argument essentially boils down to nor the regulations imposed or defined a requirement that a settlement service provider be bona fide that's quite a statement to make and it's totally contrary to congress intent as judge par pointed out when congress created the safe harbor for a b a s back in one nine hundred eighty three it specifically said there is no intent to repeal the prohibition against things like kickbacks and was lawful rafal so the notion that it would be ok to come up with some creative a arrangement that could get around those prohibitions is totally contrary to both congresses and town as well as the purposes of the statute and for that matter for that reason there is no further legislation that was needed for the agency to step up and respond to these various complaints and requests for further clarification that the provider at settlement services referred to in the statutory definition of an a p a needs to be a bona fide one so again with the agency has done here is make explicit whether surely implicit in the statute there's also these me there's also no bright line requirement that has ever been necessary in order for  statute or regulation to pass constitutional muster that the court but this court in the supreme court have repeatedly stated that that level of specificity that the district court here would require is commit to it itself is binding on it well again this goes back to my original argument and you know i think when we do talk about this on pages thirty to thirty one of our opening brief what the agency was interpreted was this provision provider as a settlement services and obviously it was ambiguous because there were a lot of complaints about the sham operations that were being created so that's why the agency stepped up and that the agency can speak through policy statement and to formally interpret the statute so the binding part of this is the part that says that a provider must be bona fide and not a sham operation the rest of the policy statement the ten factors in the five concrete examples that's there to provide the framework for and now with this to determine whether  quite the same thing as an interpretation the interpretation that is entitled to chevron deference is the fundamental question our issue as to whether or not the provider settlement services should be  this should be put into conference by judge before i know you have to go really quick is i'm hoping everyone still in the line just real quick so i can confirm attorneys i'm going to call you back as soon as i get the computer down to i t i will have them load the the recording on our website and i'm going to call you and let you all know when that is complete and then i believe you gave mr diaz ten days to respond if you need to  i wouldn't think they would need more than five days i can't really imagine that there's much that needs to come ok i just want to confirm everything before we all disconnect  judge matsch or just wait and will confirm attorneys you may hang up at this time i'll be calling you back shortly and i love clerk for judge bars a law you may disconnect unless judge bars like you need them the same thing to them really quick