In October 2017, the New York State Department of Financial Services (DFS) announced sweeping new regulations aimed at curtailing marketing expenses, such as meals and sporting events, that title companies ultimately pass on to their customers.
The regulations were quickly challenged in court by the New York State Land Title Association (“the Association”) on behalf of the title insurance industry, who argued that DFS exceeded its authority when promulgating the regulations. In July 2018, Judge Eileen A. Rakower of the New York State Supreme Court found in favor of the Association and annulled the regulations. Judge Rakower found that the regulations issued by DFS had exceeded the intent of the statute, calling it an “absurd proposition” to suggest that the Legislature intended to “prohibit title insurance corporations from marketing themselves for business.”
In January 2019, Judge Rakower’s decision was confirmed in part and reversed in part by the Appellate Division. Writing for the appellate court, Justice Anil Singh asserted that DFS did not exceed its authority under the statute and reinstated the bulk of the regulations. The appellate court then remanded the case back to the lower court to address the remaining claims brought by the Association.
On August 2, 2019, Judge Rakower handed down her decision on those remaining claims. Judge Rakower again struck down the regulations in their entirety, this time finding that the regulations violated both the due process rights and free speech rights of the title insurance industry.
Judge Rakower found that the regulations “violate the Due Process Clause of the Constitution,” holding that the core requirement in the regulations (that “any expense be reasonable and customary, and not lavish or excessive”) “is not sufficiently informative on its face to ensure that business can conform their conduct to the dictates of the law.”
Further, Judge Rakower held that the regulations violate the title industries’ First Amendment rights; while “there may be a compelling state interest in protecting consumers from excessive spending by title insurers that increases premiums,” the regulations “imprecisely prohibit constitutionally protected speech without narrowly tailoring the regulations to fit the state’s needs, which invites arbitrary enforcement and chills corporations from engaging in these forms of constitutionally protected speech under the First Amendment.”
The key determination running through both of these holdings is that the regulations, as written, are “impermissibly vague.”
This determination by Judge Rakower is a clear victory for the Association and the title industry at large; however, it may be short-lived. DFS will almost certainly appeal the decision in the hopes of, once again, obtaining a more favorable outcome. This is not the end of the road.