Mortgage Banking & Consumer Financial
Products Alert
April 2009
Authors:
Phillip L. Schulman
phil.schulman@klgates.com
202.778.9027
Irene C. Freidel
irene.freidel@klgates.com
617.951.9154
Holly Spencer Bunting
holly.bunting@klgates.com
202.778.9853
K&L Gates comprises approximately
1,900 lawyers in 32 offices located in
North America, Europe, and Asia, and
represents capital markets participants,
entrepreneurs, growth and middle
market companies, leading FORTUNE
100 and FTSE 100 global corporations,
and public sector entities. For more
information, please visit
www.klgates.com.
Court Rejects Bar Association’s Attempt to
Restrict the Issuance of Title Insurance in
Massachusetts
On April 13, 2009, the United States District Court for the District of Massachusetts
entered summary judgment for Defendants National Real Estate Information
Services and National Information Services, Inc. (collectively “NREIS”) in The Real
Estate Bar Association For Massachusetts, Inc. v. National Real Estate Information
Services, et al., Civil Action No. 07-10224-JLT (D. Mass.) (Tauro, J.). The federal
district court dismissed all claims brought by Massachusetts’s Real Estate Bar
Association (“REBA”) alleging that NREIS, a Pittsburgh, Pennsylvania-based multistate real estate settlement service provider (or “vendor manager”) was engaged in
the unauthorized practice of law in Massachusetts. The Court also granted summary
judgment to NREIS on its Dormant Commerce Clause counterclaim and issued a
permanent injunction enjoining REBA from enforcing its unconstitutional
interpretation of the Massachusetts state unauthorized practice of law provisions
against NREIS. As a result, the Court’s decision rejects REBA’s attempt to prevent
non-lawyers from participating in the business of title insurance and closing-related
services and allows non-attorney-owned title insurance agencies and vendor
management companies to continue to deliver title insurance services in
Massachusetts.
Background
REBA, formerly known as the Massachusetts Conveyancers Association, Inc., is a
bar association comprised of approximately 3,000 real estate attorneys in
Massachusetts. NREIS is a vendor management company that performs settlement
services in connection with real estate transactions on a nationwide basis. In
Massachusetts, NREIS orders title searches and deed preparation services from third
parties and engages a Massachusetts attorney to conduct the real estate closing.
After the closing, NREIS disburses settlement funds, reviews the transaction
documents for accuracy, and ensures the mortgage documents are properly recorded.
NREIS also issues title insurance commitments and the title insurance policies.
In an attempt to block NREIS’s performance of these services, REBA filed suit
against NREIS and alleged that NREIS’s business activities in Massachusetts, as a
settlement service provider and title insurance agent, constituted the unauthorized
practice of law in violation of Massachusetts General Laws Chapter 221, Sections 46
and 46A. REBA also alleged that NREIS’s practice of hiring Massachusetts
attorneys to attend the closings of residential real estate transactions merely as
“witnesses” or “notaries” also constituted the unauthorized practice of law.
Mortgage Banking & Consumer Financial Products Alert
Theories Advanced in the Case
REBA’s core theory throughout the litigation was
that a residential real estate transaction is an
interconnected series of events and activities that all
constitute the practice of law. REBA argued that the
(i) examination of legal title; (ii) the resolution of
defects in title; (iii) the settlement or closing
(including the drafting of documents); and (iv) the
recordation of documents and the disbursement of
mortgage loan proceeds are inseparable events that
must be performed or supervised by a Massachusetts
attorney, no matter how administrative, ministerial
or clerical the task. On this theory, REBA sought
declaratory and injunctive relief that would have
prohibited NREIS from engaging in the alleged
unauthorized practice of law in Massachusetts –
seeking, in practical effect, to drive NREIS, and all
other non-attorneys, from the Massachusetts
residential real estate market.
In response, NREIS denied REBA’s claims and filed
a counterclaim alleging that REBA’s interpretation
of “the practice of law” violated the Dormant
Commerce Clause of the United States Constitution.
NREIS countered that REBA’s definition of the
practice of law, if enforced, would directly
discriminate against and unduly burden interstate
commerce.
The Decision
After receiving the parties’ briefs and an amicus
brief from the Massachusetts Bar Association in
support of its sister bar association REBA, the Court
issued an opinion entering judgment in NREIS’s
favor. First, the Court rejected REBA’s theory of
the practice of law by finding that “REBA’s
interpretation of the term ‘conveyancing’ for
purposes of defining what constitutes the practice of
law is undercut by the very case on which REBA
relies” 1 and “[l]ater opinions of the [Massachusetts
Supreme Judicial Court (“SJC”)] also appear to
reject REBA’s broad reading” of the law. 2
Accordingly, the Court recognized that the SJC has
traditionally addressed the issue of what constitutes
the practice of law on a case-by-case basis, and it
noted “the absence of an SJC opinion directly on
point, [as well as] principles of federalism.” The
Court, therefore, declined to adopt REBA’s “novel
construction of the practice of law as encompassing
all the interconnected steps of a real estate
conveyance.” 3 The Court also rejected REBA’s
unsupported and “conclusory allegation” that the
attorneys engaged to attend residential real estate
closings are “mere notaries,” 4 and explicitly held
that the issuance of title insurance does not
constitute the practice of law in Massachusetts. 5 In
doing so, the Court declined to follow the reasoning
of the Massachusetts Superior Court decision in
Mass. Conveyancers Ass’n, Inc. v. Colonial Title &
Escrow, Inc. finding that it has no precedential
value. 6
The Court further held that REBA’s theory of
conveyancing as the practice of law violated the
Dormant Commerce Clause of the United States
Constitution. 7 The Court relied primarily on the
First Circuit Court of Appeal’s 1986 opinion in
National Revenue Corporation v. Violet, 8 in which
the First Circuit found that a Rhode Island statute
purporting to restrict all debt collection activities to
Rhode Island licensed attorneys violated the
Dormant Commerce Clause. 9 The Court, here,
noting that the motivation behind REBA’s
interpretation of the practice of law was primarily
“to benefit the local bar,” found that REBA’s
construction of the practice of law directly
discriminates against out-of-state commerce
because “conferring the ‘practice of law’ label on an
activity ‘effectively bars out-of-staters from offering
a commercial service within [the Commonwealth’s]
borders and confers the right to provide that service
– and to reap the associated economic benefit –
upon a class largely composed of [Massachusetts]
citizens.’” 10 Thus, the Court rejected REBA’s
interpretation as a per se violation of the Dormant
Commerce Clause. 11
In addition, the Court found that REBA’s
“overbroad definition” of the practice of law would
likely drive up expenses for consumers engaging in
residential real estate transactions and “‘deprive[ ]
the citizens of [Massachusetts] of any benefits
arising from competition.’” 12 Accordingly, the
Court held that:
NREIS is entitled to a declaratory judgment that
REBA’s interpretation of the practice of law as
encompassing all the interconnected steps of a
real estate conveyance violates the Dormant
Commerce Clause. Because NREIS has
satisfied the requirements for a permanent
April 2009
2
Mortgage Banking & Consumer Financial Products Alert
injunction, NREIS is also entitled to an order
enjoining REBA from enforcing its construction
of the practice of law. NREIS has prevailed on
the merits. NREIS would suffer severe
economic hardships if REBA were able to
enforce its interpretation of the practice of law
so as to preclude NREIS from performing real
estate conveyancing and title insurance services
in Massachusetts. NREIS’s economic hardships
would outweigh any harm that REBA would
suffer in being precluded from enforcing its
overbroad interpretation of the practice of law.
And the public interest would be best served by
preserving competition in the markets for real
estate conveyancing and title insurance
services. 13
Implications for Settlement Service
Industry
The Court’s sweeping holding is a powerful
constitutional check on a local bar association’s
efforts to use the “unauthorized practice of law” as a
way to restrict competition in the marketplace.
Under the Court’s decision, tasks, such as title
searches, completion of forms in preparation for
closing, the recording of mortgage documents, and
the issuance of title insurance policies do not raise
“unauthorized practice of law” concerns for nonattorneys in Massachusetts.
This decision means that competition for the
delivery of title-related services in the
Commonwealth of Massachusetts will not be
restricted to members of the bar, and it protects the
1
2
In re Opinion of the Justices, 194 N.E. 313 (Mass. 1935).
Court’s Memorandum dated April 13, 2009 at 9-10.
3
Id. at 13.
4
Id. at 14.
5
Id. at 15 (relying on Rule 5.7(b) of the Massachusetts
Rules of Professional Conduct, which expressly permits
non-lawyers to issue title insurance in Massachusetts as
agents of an underwriter).
6
In Mass. Conveyancers Ass’n, Inc. v. Colonial Title &
Escrow, Inc., the Massachusetts Superior Court held that
the following activities constitute the practice of law: (1)
evaluating title to real estate to determine the interest
created, transferred or terminated and communicating that
evaluation to any interested party to a residential real
right of non-attorney-owned title insurance
agencies, vendor management companies, and joint
ventures to provide title insurance-related services
in Massachusetts. The rejection of REBA’s
unconstitutional interpretation of Massachusetts’
unauthorized practice of law statute should preserve
the benefits to consumers of choices among
settlement service providers that will result in lower
prices for settlement services. The Constitutional
principle upheld in this case may result in greater
competition and consumer choice in other states in
which the “unauthorized practice of law” debate
will likely be renewed. Ultimately, this decision is
an important victory against economic
protectionism for both title insurance providers and
the consumers of Massachusetts. While REBA may
still appeal the Court’s decision, at this point, the
decision creates new opportunities that will reach
far beyond Red Sox nation.
*
*
*
*
NREIS was represented in the REBA case by K&L
Gates attorneys Michael DeMarco, Michael D.
Ricciuti, Irene C. Freidel, and Robert W. Sparkes,
III of the Boston office of K&L Gates. If you have
questions about the case or would like to discuss the
implications for national title companies and vendor
management companies across the country, please
contact Phillip L. Schulman
(phil.schulman@klgates.com / 202.778.9027) or
Irene Freidel (irene.freidel@klgates.com /
617.951.9154).
estate transaction; (2) evaluating and ensuring that parties to a
real estate transaction have complied with their agreements;
(3) preparing, drafting or reviewing legal documents that
affect title to real estate or affect the obligation of the parties
to the real estate transactions; (4) explaining at the closing any
documents relating to the interest in the real estate being
created, transferred or terminated and relating to the
agreement of the parties; (5) issuing title certification or
policy of title insurance premised on evaluation of title to real
estate; (6) holding itself out to lenders, title insurance
companies or members of the public as willing and able to
perform the functions enumerated above; and (7) representing
lenders as their closing agents. No. Civ.A. 96-2746-C, 2001
WL 669280, *7-8 (Mass. Super. Ct. Jun. 5, 2001). The
United States District Court for the District of Massachusetts
gave this decision no weight in reaching the conclusion that
the issuance of title insurance in Massachusetts does not
constitute the practice of law.
April 2009
3
Mortgage Banking & Consumer Financial Products Alert
7
See id. at 15-22.
8
Nat’l Revenue Corp. v. Violet, 807 F.2d 285 (1st Cir.
1986).
9
See id. at 17.
10
Id. at 19-20 (quoting Violet, 807 F.2d at 290).
11
Id. In a footnote, the Court also found that REBA’s
proposed interpretation of the practice of law would
violate the less strict Pike balancing test – reserved for
regulations that merely incidentally burden interstate
commerce – holding that “the burden on interstate
commerce would be clearly excessive in relation to the
putative local benefits.” Id. at 19 n.81 (internal quotation
omitted).
12
Id. at 20 (quoting Violet, 807 F.2d at 290).
13
Id. at 21-22.
April 2009
4
Mortgage Banking & Consumer Financial Products Alert
K&L Gates’ Mortgage Banking & Consumer Financial Products practice provides a comprehensive range of
transactional, regulatory compliance, enforcement and litigation services to the lending and settlement
service industry. Our focus includes first- and subordinate-lien, open- and closed-end residential mortgage
loans, as well as multi-family and commercial mortgage loans. We also advise clients on direct and indirect
automobile, and manufactured housing finance relationships. In addition, we handle unsecured consumer
and commercial lending. In all areas, our practice includes traditional and e-commerce applications of
current law governing the fields of mortgage banking and consumer finance.
For more information, please contact one of the professionals listed below.
LAWYERS
Boston
R. Bruce Allensworth
Irene C. Freidel
Stephen E. Moore
Stanley V. Ragalevsky
Nadya N. Fitisenko
Brian M. Forbes
Andrew Glass
Phoebe Winder
Charlotte
John H. Culver III
Los Angeles
Thomas J. Poletti
Miami
Paul F. Hancock
New York
Philip M. Cedar
Elwood F. Collins
Steve H. Epstein
Drew A. Malakoff
San Francisco
Jonathan Jaffe
Seattle
Holly K. Towle
Washington, D.C.
Costas A. Avrakotos
Melanie Hibbs Brody
Daniel F. C. Crowley
Eric J. Edwardson
Anthony C. Green
Steven M. Kaplan
Phillip John Kardis II
Rebecca H. Laird
Laurence E. Platt
Phillip L. Schulman
Nanci L. Weissgold
Kris D. Kully
Morey E. Barnes
David L. Beam
Emily J. Booth
bruce.allensworth@klgates.com
irene.freidel@klgates.com
stephen.moore@klgates.com
stan.ragalevsky@klgates.com
nadya.fitisenko@klgates.com
brian.forbes@klgates.com
andrew.glass@klgates.com
phoebe.winder@klgates.com
+1.617.261.3119
+1.617.951.9154
+1.617.951.9191
+1.617.951.9203
+1.617.261.3173
+1.617.261.3152
+1.617.261.3107
+1.617.261.3196
john.culver@klgates.com
+1.704.331.7453
thomas.poletti@klgates.com
+1.310.552.5045
paul.hancock@klgates.com
+1.305.539.3378
phil.cedar@klgates.com
elwood.collins@klgates.com
steve.epstein@klgates.com
drew.malakoff@klgates.com
+1.212.536.4820
+1.212.536.4005
+1.212.536.4830
+1.216.536.4034
jonathan.jaffe@klgates.com
+1.415.249.1023
holly.towle@klgates.com
+1.206.370.8334
costas.avrakotos@klgates.com
melanie.brody@klgates.com
dan.crowley@klgates.com
eric.edwardson@klgates.com
anthony.green@klgates.com
steven.kaplan@klgates.com
phillip.kardis@klgates.com
rebecca.laird@klgates.com
larry.platt@klgates.com
phil.schulman@klgates.com
nanci.weissgold@klgates.com
kris.kully@klgates.com
morey.barnes@klgates.com
david.beam@klgates.com
emily.booth@klgates.com
+1.202.778.9075
+1.202.778.9203
+1.202.778.9447
+1.202.778.9387
+1.202.778.9893
+1.202.778.9204
+1.202.778.9401
+1.202.778.9038
+1.202.778.9034
+1.202.778.9027
+1.202.778.9314
+1.202.778.9301
+1.202.778.9215
+1.202.778.9026
+1.202.778.9112
April 2009
Mortgage Banking & Consumer Financial Products Alert
Holly Spencer Bunting
Krista Cooley
Elena Grigera
Melissa S. Malpass
David G. McDonough, Jr.
Stephanie C. Robinson
Kerri M. Smith
David Tallman
Director of Licensing
Washington, D.C.
Stacey L. Riggin
holly.bunting@klgates.com
krista.cooley@klgates.com
elena.grigera@klgates.com
melissa.malpass@klgates.com
david.mcdonough@klgates.com
stephanie.robinson@klgates.com
kerri.smith@klgates.com
david.tallman@klgates.com
+1.202.778.9853
+1.202.778.9257
+1.202.778.9039
+1.202.778.9081
+1.202.778.9207
+1.202.778.9856
+1.202.778.9445
+1.202.778.9046
stacey.riggin@klgates.com
+1.202.778.9202
Regulatory Compliance Analysts
Washington, D.C.
Dameian L. Buncum
dameian.buncum@klgates.com
Teresa Diaz
teresa.diaz@klgates.com
Jennifer Early
jennifer.early@klgates.com
Robin L. Gieseke
robin.gieseke@klgates.com
Allison Hamad
allison.hamad@klgates.com
Joann Kim
joann.kim@klgates.com
Brenda R. Kittrell
brenda.kittrell@klgates.com
Dana L. Lopez
dana.lopez@klgates.com
Patricia E. Mesa
patty.mesa@klgates.com
Jeffrey Prost
jeffrey.prost@klgates.com
+1.202.778.9093
+1.202.778.9852
+1.202.778.9291
+1.202.778.9481
+1.202.778.9894
+1.202.778.9421
+1.202.778.9049
+1.202.778.9383
+1.202.778.9199
+1.202.778.9364
K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and
maintaining offices throughout the U.S., in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Singapore
(K&L Gates LLP Singapore Representative Office), and in Shanghai (K&L Gates LLP Shanghai Representative Office); a limited liability partnership
(also named K&L Gates LLP) incorporated in England and maintaining our London and Paris offices; a Taiwan general partnership (K&L Gates)
which practices from our Taipei office; and a Hong Kong general partnership (K&L Gates, Solicitors) which practices from our Hong Kong office.
K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for
inspection at any K&L Gates office.
This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2009 K&L Gates LLP. All Rights Reserved.
April 2009