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Thomas J. Riddle, Individually and On Behalf of All v. Bank of America

April 11, 2013


The opinion of the court was delivered by: Schiller, J.


Thomas Riddle, Marilyn Fischer, and Jeffrey Stanton filed a class action lawsuit against Bank of America Corporation ("BAC"), Bank of America, N.A. ("BOA"), Bank of America Reinsurance Corporation ("BOARC") (collectively, "BOA Defendants"), United Guaranty Residential Insurance Company ("United"), Triad Guaranty Insurance Corporation ("Triad"), Republic Mortgage Insurance Company ("Republic"), Mortgage Guaranty Insurance Corporation ("MGIC"), Radian Guaranty, Inc. ("Radian"), and Genworth Mortgage Insurance Corporation ("Genworth"). Plaintiffs allege that Defendants were all participants in a scheme that violated the Real Estate Settlement Procedures Act ("RESPA"). Specifically, BOA referred borrowers to private mortgage insurance providers in exchange for a kickback of the private mortgage insurance payment to BOA. In reality, however, BOA did not assume any real risk in exchange for the payments, thus rendering illusory the reinsurance coverage it assumed. Presently before the Court are the motions to dismiss of BOA Defendants, United, Radian, and Genworth.*fn1 They argue that Plaintiffs' claims are barred by RESPA's statute of limitations. For the reasons that follow, the Court denies the motions.


A. Facts

BAC is a large financial institution that owns BOA, which originated the home loans. (Am. Compl. ¶¶ 28-29.) BOARC is a captive reinsurer and also a subsidiary of BAC. (Id. ¶ 30.)United, Genworth, and Radian are private mortgage insurers charged here with ceding premiums to BOARC and participating in the alleged kickback scheme. (Am. Compl. ¶¶ 31, 33, 35.) Plaintiffs Riddle, Fischer, and Stanton all bought their homes through mortgages with BOA and all three were required to purchase private mortgage insurance selected by the lender. (Id. ¶¶ 25-27.) Specifically, Riddle's private mortgage insurer was Genworth, Fischer's private mortgage insurer was United, and Stanton's private mortgage insurer was, upon information and belief, Radian. (Id.)

Homeowners who do not make a twenty percent down payment on their homes typically must buy private mortgage insurance. (Id. ¶¶ 8, 46.) This private mortgage insurance protects lenders if the borrower defaults. (Id.) The borrower typically pays for the private mortgage insurance, either through monthly premiums added to the mortgage payment or a higher interest rate on the loan. (Id. ¶ 49.) The terms and conditions of private mortgage insurance are set by the lender and the provider of the insurance. (Id. ¶ 50.) According to Plaintiffs, lenders such as BAC and BOA, along with their affiliated mortgage reinsurer, BOARC, colluded with various private mortgage insurers such as Radian, Genworth, and United to evade federal laws that prohibit lenders from accepting kickbacks or referral fees from any person providing a real estate settlement service or accepting any portion of a settlement service fee, other than for services actually performed. (Id. ¶¶ 9-10.) BOA agreed to allocate its mortgage insurance business on a rotating basis and the private mortgage insurers agreed to accept a portion of the business to ensure a steady stream of income. (Id. ¶¶ 12-13, 108.)

Lenders, like BOA, created reinsurance subsidiaries like BOARC "to enter into contracts with providers of private mortgage insurance, whereby the reinsurer typically agrees to assume a portion of the private mortgage insurer's risk with respect to a given pool of loans." (Id. ¶ 63.) According to Plaintiffs, lenders such as BOA have funneled unlawful kickbacks from private mortgage insurers to the reinsurance subsidiaries that the lenders created. (Id. ¶ 74.) The lender refers its borrowers to a private mortgage insurer who has agreed to reinsure with the lender's captive insurer. (Id. ¶ 75.) In return, the private mortgage insurer cedes a percentage of the borrower's premiums to the lender's captive reinsurer to ensure a steady stream of business. (Id.)

These contracts were structured so that the reinsurer received hundreds of millions of dollars in premiums but assumed little or no actual risk. (Id. ¶ 77.) The premiums were placed into a trust but the agreements "limit the lenders' liability/payment responsibilities . . . through provisions that permit the captive reinsurer to effectively opt out of the contracts at will by simply failing to adequately capitalize the trust supporting the reinsurance contract." (Id. ¶ 81.) Furthermore, once the trust was depleted, the private mortgage insurersassumed any remaining obligations and the captive reinsurer was off the hook. (See id. ¶ 124.)

Plaintiffs allege that "each of these reinsurance contracts . . . effectively allowed the reinsurer to opt out of the scheme at its choosing and without suffering adverse consequences." (Id. ¶ 106.) Ultimately, Plaintiffs contend, borrowers paid more for mortgage insurance because the price included the kickbacks to lenders. (Id. ¶¶ 111, 147 ("These arrangements tend to keep premiums for private mortgage insurance artificially inflated over time because a percentage of borrowers' premiums are not actually being paid to cover actual risk, but are simply funding illegal kickbacks to lenders.").) The scheme perpetrated by Defendants failed to constitute a real, risk-transferring reinsurance agreement between BOARC and the private mortgage insurers. (Id. ¶ 125.) As alleged by Plaintiffs,

Payments from the reinsurance trusts to the Private Mortgage Insurers do not constitute 'losses' to the reinsurer. The reinsurer will either: (1) receive more in premiums from the Private Mortgage Insurers than the trusts will ever transfer to the Private Mortgage Insurers in 'reinsurance claims,' or (2) have the option to 'walk-away' from its reinsurance obligations if it is called upon to pay more in reinsurance claims than is available in the trust accounts. The premiums received and deposited into the trust accounts effectively cover all 'losses' or reinsurance claims payments. (Id. ¶ 131.)

B. Tolling Allegations

Plaintiffs claim that RESPA's statute of limitations should be tolled "based upon principles of equitable tolling, fraudulent concealment and/or the discovery rule." (Id. ¶ 161.) Plaintiffs, despite the exercise of due diligence, could not have discovered the underlying basis for their claims. (Id.) Additionally, Defendants "knowingly and actively concealed the basis for Plaintiffs' claims by engaging in a scheme that was, by its very nature and purposeful design, self-concealing." (Id.) Defendants' scheme was complicated and Plaintiffs did not have the requisite information or expertise to uncover what was occurring without the aid of lawyers. (Id. ¶¶ 162-65.) "Further, Defendants engaged in affirmative acts and/or purposeful non-disclosure to conceal the facts and circumstances giving rise to the claims asserted herein and made false representations about the nature of [their] reinsurance arrangements. Such acts are separate and distinct from the conduct violative of RESPA." (Id. ¶ 169.) Plaintiffs' mortgages failed to disclose the nature of the agreements involved in the captive reinsurance arrangements. (Id. ¶¶ 171, 178.) Defendants misrepresented the legitimacy of their captive reinsurance arrangements, noting only that lender affiliates might receive money from a portion of the borrower's mortgage insurance payment. (Id. ¶¶ 178-79.) Putative class members were diligent in pursuing their rights by "fully participating in their loan transactions." (Id. ¶ 182.) Additionally, Plaintiffs Riddle, Fischer, and Stanton recount phone calls they placed to BOA in 2012 in which representatives of BOA were unable to provide them information about their mortgage reinsurance. (Id. ¶¶ 166-68.)

Count I is brought under RESPA, 12 U.S.C. § 2607, and claims that Plaintiffs collectively paid over $284.7 million for private mortgage insurance premiums, but that certain Defendants ceded premiums for services that were not actually furnished or performed, and/or exceeded the value of such services. (Id. ¶¶ 186-190.) Defendants also allegedly violated 12 U.S.C. § 2607(b) of RESPA when BOA Defendants accepted a portion, split, or percentage of charges received by the private mortgage insurers for the rendering of real estate settlement services and/or business incident to real estate settlement services other than for services actually performed. (Id. ¶ 191.) Plaintiffs' settlement services were tainted by kickbacks and referrals and affected by inflated premiums and their inability to buy settlement services from providers that did not participate in the unlawful scheme. (Id. ¶¶ 192-94.) Count II is an unjust enrichment claim. (Id. ¶¶ 199-203.)


In reviewing a motion to dismiss for failure to state a claim, a district court must accept as true all well-pleaded allegations and draw all reasonable inferences in favor of the non-moving party. See Bd. of Trs. of Bricklayers & Allied Craftsmen Local 6 of N.J. Welfare Fund v. Wettlin Assocs., 237 F.3d 270, 272 (3d Cir. 2001). A court need not, however, credit "bald assertions" or "legal conclusions" when deciding a motion to dismiss. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

"Factual allegations [in a complaint] must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive a motion to dismiss, a complaint must include "enough facts to state a claim to relief that is plausible on its face." Id. at 570. Although the federal rules impose no probability requirement at the pleading stage, a plaintiff must present "enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s]" of a cause of action. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. Simply reciting the elements will not suffice. Id. (holding that pleading that offers labels and conclusions without further factual enhancement will not survive motion to dismiss); see also Phillips, 515 F.3d at 231.

The Third Circuit Court of Appeals has directed district courts to conduct a two-part analysis when faced with a motion to dismiss for failure to state a claim. First, the legal elements and factual allegations of the claim should be separated, with the well-pleaded facts accepted as true but the legal conclusions disregarded. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). Second, the court must make a commonsense determination of whether the facts alleged in the complaint are sufficient to show a plausible claim for relief. Id. at 211. If the court can only infer the mere possibility of misconduct, the complaint must be dismissed because it has alleged-but has failed to show-that the pleader is entitled to relief. Id.

When faced with a motion to dismiss for failure to state a claim, courts may consider the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim. Lum v. Bank of Am., 361 F.3d 217, 222 n.3 (3d Cir. 2004).

A district court may also consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss, if the plaintiff's claims are based on the document. Pension Benefit Guar. Corp. v. ...

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