LPS Sees Fee-Splitting Lawsuit Dismissed

A highly-followed and publicized case involving the former Fidelity National Information Services (FIS) and the current Lender Processing Services, Inc. (LPS), centering on allegedly improper fee arrangements involving the servicers and attorneys the company works with, was dismissed Wednesday morning by the Houston-based judge presiding over the case, HousingWire has learned. The case had been seen by industry insiders as a litmus test for the firm’s core business model; LPS maintains the nation’s largest mortgage default management outsourcing operation, among its other businesses. Judge Lynn N. Hughes, who presides over United States District Court in the Southern District of Texas, signed the dismissal order Wednesday, the same day lawyers representing LPS filed a motion to dismiss the case, a review of court records show. The news comes as a huge win for Jacksonville-based LPS, which had been under attack in the case as garnering illegal “kick-backs” of fees charged to attorneys on behalf of the servicers the firm works with. Known in the industry simply as “the Harris case,” plaintiffs Ernest and Mattie Harris had sued Fidelity National after learning during bankruptcy proceedings that the firm was collecting a fee to provide administrative support on behalf of Fort Worth-based Saxon Mortgage Services, now a unit of New York-based Morgan Stanley (MS). The case was largely watched by industry insiders, who had suggested a ruling against Fidelity National/LPS could significantly alter the landscape for default servicing. HousingWire Magazine ran a feature story on the case in our inaugural print issue, in Sept./Oct. Judge Hughes dismissed the case with prejudice, as well, which in plain English means the right of the claimant to file another case on the claim is barred — big news for anyone in the default industry, and a strong deterrent to future legal action covering similar claims, legal experts suggested to HousingWire. Officials at LPS had not yet commented on the ruling when this story was published, nor could attorneys representing the Harrises be reached for comment on the dismissal by Wednesday’s deadline. But LPS officials had steadfastly maintained throughout the legal proceedings that its business model helped generate efficiencies that would help servicers and consumers alike. LPS spokesperson Michelle Kersch told HW in September that the firm’s fees cover services, including software it provides, that make it easier to track files, documents, payments and “other important issues related both to bankrupcty and foreclosure matters.” Strong results from the firm’s default management business helped propel LPS to a $51.3 million third quarter profit, largely offsetting revenue declines in the firm’s origination-centric business lines due to the ongoing mortgage market mess. Operating revenue in the firm’s default-related businesses had risen nearly 98 percent from last year’s levels by the end of Q3. LPS was recently spun-off from Fidelity National. Shares in LPS were at $22.21, up 3.49 percent, on the New York Stock Exchange when this story was published. Write to Paul Jackson at [email protected]. Disclosure: The author was long common shares of LPS when this story was published. Additional indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.