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Alston v. Countrywide Financial Corp.

October 28, 2009

MARY ALSTON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED; KEVIN COLLIER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED; BRAD AUGUNAS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
v.
COUNTRYWIDE FINANCIAL CORPORATION; COUNTRYWIDE HOME LOANS, INC.; BALBOA REINSURANCE COMPANY MARY ALSTON; KEVIN COLLIER; BRAD AUGUNAS, APPELLANTS



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 07-cv-03508) District Judge: Honorable James T. Giles.

The opinion of the court was delivered by: Barry, Circuit Judge

PRECEDENTIAL

Argued: September 22, 2009

Before: BARRY, FISHER and JORDAN, Circuit Judges

OPINION OF THE COURT

This putative class action was brought by homebuyers who sought to recover statutory treble damages pursuant to section 8(d)(2) of the Real Estate Settlement Procedures Act of 1974 ("RESPA"), codified at 12 U.S.C. § 2607(d)(2). Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful "captive reinsurance arrangement"-essentially, a kickback scheme-operated by their mortgage lender, Countrywide Home Loans ("Countrywide"), and its affiliated reinsurer, Balboa Reinsurance Co. ("Balboa"), in violation of RESPA section 8(a) and section 8(b), 12 U.S.C. § 2607(a)-(b).*fn1

The thrust of their complaint was that, in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide's invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing. The District Court disagreed and dismissed the complaint without prejudice for lack of jurisdiction. We have jurisdiction over plaintiffs' appeal under 28 U.S.C. § 1291.

What is before us for decision turns on a question of statutory interpretation-does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does. Accordingly, we will reverse the Order of the District Court.

I. Background

A. Statutory Background

The focus of our attention in this appeal is RESPA section 8 and, thus, we begin by setting forth its various subsections. Section 8(a) prohibits "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). Section 8(b) prohibits unearned fees: "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 . . . other than for services actually performed." Id. § 2607(b). Section 8(c) is a safe harbor provision for certain activities otherwise prohibited by section 8(a) and section 8(b), including the provision of "bona fide . . . payment[s] . . . for services actually performed." Id. § 2607(c)(2).

Congress charged the Department of Housing and Urban Development ("HUD") with the administration and enforcement of RESPA. Id. §§ 2607(d)(4), 2617. To that end, HUD can "prescribe such rules and regulations" and "make such interpretations . . . as may be necessary to achieve the purposes of [the Act]." Id. § 2617(a). HUD's regulations-compiled in the somewhat mysteriously titled "Regulation X"-are set forth at 24 C.F.R. pt. 3500.

RESPA section 8 has a penalties subsection, section 8(d), that both prescribes criminal penalties for section 8 violations, 12 U.S.C. § 2607(d)(1), and authorizes HUD, state attorneys general, and insurance commissioners to bring civil actions for injunctive relief. Id. § 2607(d)(4). Congress also authorized private actions against a person who violates section 8. As amended in 1983, section 8(d)(2) provides that "[a]ny person or persons who violate the prohibition or limitations of this section shall be jointly and severally liable to the person or persons charged for the settlement service involved in the violation in an amount equal to three times the amount of any charge paid for such settlement service." Id. § 2607(d)(2). It is this subsection of section 8 that is the primary focus of our attention and the one we are called upon to construe.

B. Facts

Plaintiffs obtained home mortgages from Countrywide in 2005 and 2006. Because each plaintiff made a down payment of less than twenty percent, Countrywide required that he or she obtain private mortgage insurance ("PMI").*fn2 Plaintiffs alleged that Countrywide referred them to mortgage insurers that would "reinsure" their PMI policies with Balboa, a Countrywide affiliate, pursuant to a "captive reinsurance arrangement."*fn3

Under a "captive reinsurance arrangement," according to plaintiffs, the lender's affiliate typically provides reinsurance to an unrelated primary mortgage insurer. That insurer and the lender-affiliated reinsurer enter into an agreement under which the former pays the latter a portion of the borrower's insurance premiums; in return, the reinsurer assumes a portion of the primary insurer's risk. Reinsurance agreements generally fall into one of two categories. In a "quota share" agreement, the reinsurer bears a set percentage of all insured losses. In an "excess loss" agreement, the type of agreement at issue here, the primary insurer pays, and is solely responsible for, claims arising out of a given book of business up to a predetermined amount, after which the ...


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