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Cunningham v. M&T Bank Corp.

United States District Court, Third Circuit

October 30, 2013

JUDITH CUNNINGHAM, et al., Plaintiffs,
M&T BANK CORP., et al., Defendants.


CHRISTOPHER C. CONNER, Chief District Judge.

Presently before the court in the above-captioned matter are two motions to dismiss plaintiffs' first amended complaint (Doc. 56) filed by M&T Bank Corp., M&T Bank, and M&T Mortgage Reinsurance Co. (Doc. 66) and Genworth Mortgage Insurance Corp. ("Genworth"), Mortgage Guaranty Insurance Corp. ("MGIC"), and Radian Guaranty, Inc., ("Radian") (Doc. 69). The parties have briefed the issues and the motions are ripe for disposition. For the reasons that follow, the court will grant in part and deny in part both motions.

I. Factual and Procedural History

This is a putative class action involving captive reinsurance in the residential mortgage insurance industry. Plaintiffs are individual borrowers who entered into residential mortgage loan transactions with M&T Bank Corporation through its subsidiary, M&T Bank (collectively, "M&T"). (Doc. 56 at ¶¶ 21-25). The plaintiffs' various mortgage loans were executed between October 19, 2004, and December 29, 2008. (Id.). As a condition of their mortgage, each plaintiff was required to obtain private mortgage insurance. (Id.). Consistent with custom in the residential mortgage industry, the private mortgage insurer was selected by the lender. (Id. at ¶ 48). While the lender is the beneficiary of the mortgage insurance agreements, the borrower pays the insurance premium, either through inclusion of premiums in his or her monthly mortgage payment or indirectly through higher interest rates on the loan. (Id. at ¶ 47). Each plaintiff obtained mortgage insurance through M&T and paid monthly premiums ranging from $26.01 to $156.79. (Id. at ¶¶ 21-25).

Plaintiffs claim that M&T and its affiliate, M&T Mortgage Reinsurance Co. ("M&T RE") acted with private mortgage insurers Genworth, MGIC, and Radian (collectively, the "primary insurers") to carry out a captive reinsurance scheme in violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq. (Id. at ¶¶ 187-200), which prohibits referral fees, kickbacks, and unearned fee-splitting in any business incident to real estate settlement services. According to the amended complaint, M&T referred plaintiffs' mortgage transactions to the primary insurers. (Id.). The primary insurers issued private mortgage insurance policies with respect to each plaintiff's mortgage, (id. at ¶¶ 21-25), and, in exchange for M&T's referral of business, reinsured the policies with M&T's captive reinsurer, M&T RE. (Id. at ¶¶ 69-71). Hence, these contracts were "shams" because they did not create a bona fide reinsurance relationship between the primary insurers and M&T RE; according to plaintiffs, no risk was ever transferred between the primary insurer and M&T RE, and the sole purpose of the agreements was to allow the primary insurers to kick insurance proceeds back to M&T RE in exchange for the mortgage insurance referral. (Id. at ¶¶ 187-200).

Plaintiffs commenced this action with the filing of a three-count complaint (Doc. 1) on June 28, 2012. On October 9, 2012, with the consent of all defendants, the plaintiffs filed the now-operative first amended complaint (Doc. 56) which, inter alia, added two plaintiffs to the lawsuit.[1] Therein, plaintiffs assert claims for violation of RESPA (Count I), for unjust enrichment (Count II), and for violation of New York General Business Law § 349(a) (Count III). On December 10, 2012, the M&T defendants and the primary insurers each filed motions (Doc. 66, 69) to dismiss the first amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The defendants primarily contend that the statute of limitations on each plaintiff's claims has expired and cannot be equitably tolled, subjecting the claims to dismissal under Rule 12(b). After the motions were fully briefed, the parties filed several notifications of supplemental authority (Doc. 84-90, 92, 94-95, 98-99, 102-03, 106-07, 111-12, 115, 118, 121), and the court scheduled oral argument for August 15, 2013. At the request of counsel, the scheduled argument was adjourned for sixty days. (Doc. 123). On October 17, 2013, the court held oral argument and, at the conclusion thereof, took the motions under advisement.

II. Standard of Review

Federal notice and pleading rules require the complaint to provide "the defendant notice of what the... claim is and the grounds upon which it rests." Phillips, 515 F.3d at 232 (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)). To test the sufficiency of the complaint in the face of a Rule 12(b)(6) motion, the court must conduct a three-step inquiry. See Santiago v. Warminster Twp. , 629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, "the court must tak[e] note of the elements a plaintiff must plead to state a claim.'" Id . (quoting Ashcroft v. Iqbal , 556 U.S. 662, 675 (2009)). Next, the factual and legal elements of a claim should be separated; well-pleaded facts must be accepted as true, while legal conclusions may be disregarded. Id .; see also Fowler v. UPMC Shadyside , 578 F.3d 203, 210-11 (3d Cir. 2009). Once the well-pleaded factual allegations have been isolated, the court must determine whether they are sufficient to show a "plausible claim for relief." Iqbal , 556 U.S. at 679 (citing Twombly , 550 U.S. at 556); Twombly , 550 U.S. at 555 (requiring plaintiffs to allege facts sufficient to "raise a right to relief above the speculative level"). 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. When the complaint fails to present a prima facie case of liability, however, courts should generally grant leave to amend before dismissing a complaint. See Grayson v. Mayview State Hosp. , 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver , 213 F.3d 113, 116-17 (3d Cir. 2000).

III. Discussion

Although the pending motions focus primarily on statute of limitations and equitable tolling issues, the defendants also lodge various challenges with regard to the merits of the plaintiffs' three claims. The court will first address the equitable tolling dispute before turning to the parties' ancillary arguments with respect to the merits of the RESPA, unjust enrichment, and Section 349 claims.

A. Applicability of Equitable Tolling

The plain language of RESPA requires that claims involving unlawful kickbacks and unearned referral fees be brought within one year of "the date of the occurrence of the violation." 12 U.S.C. § 2614. Plaintiffs acknowledge the one year statute of limitations and concede that the most recent of the plaintiffs' mortgage loans was executed more than three years and five months before this action was commenced. (Doc. 78 at 22). Plaintiffs posit, however, that the defendants collectively and fraudulently concealed the impropriety of their reinsurance arrangements and prevented the plaintiffs from discovering the RESPA violation within one year of the violation, equitably tolling the statute of limitations. (Id.). Defendants contend that plaintiffs have satisfied neither the heightened pleading standard for fraudulent conduct stated in Federal Rule of Civil Procedure 9(b), which all parties agree is applicable here, nor the standard governing equitable tolling. (Doc. 70 at 9; Doc. 74 at 2-3).

M&T asserts as a threshold matter that the Third Circuit Court of Appeals has never explicitly adopted equitable tolling in the context of a RESPA claim and that, for this reason alone, the court should reject plaintiffs' equitable tolling claim. (Doc. 74 at 10). Although the Circuit has never directly endorsed equitable tolling in a RESPA case, an overwhelming majority of authority supports its application. See Riddle v. Bank of Am., 2013 U.S. Dist. LEXIS 52091, *15-18 (E.D. Pa. Apr. 11, 2013); Barlee v. First Horizon Corp. (Barlee I), 2013 U.S. Dist. LEXIS 26636, *4 (E.D. Pa. Feb. 27, 2013); Garczynski v. Countrywide Home Loans, Inc. , 656 F.Supp.2d 505, 516 (E.D. Pa. Aug. 12, 2009); Marple v. Countrywide Financial Corp. , 2008 U.S. Dist. LEXIS 37705, *8 (D.N.J. May 7, 2008); see also White v. PNC Fin. Servs. Group, 2013 U.S. Dist. LEXIS 86650, *8 n.4 (E.D. Pa. June 20, 2013) (collecting cases). Outside of this Circuit, district and appellate courts across the country have routinely reached the same conclusion. See, e.g., Lawyers Title Ins. Corp. v. Dearborn Title Corp. , 118 F.3d 1157, 1166-67 (7th Cir. 1997); Minter v. Wells Fargo Bank, N.A. , 675 F.Supp.2d 591, 595 (D. Md. Dec. 16, 2009); Boudin v. Residential Essentials, LLC, 2007 U.S. Dist. LEXIS 50331, *13-16 (S.D. Ala. July 10, 2007); Carr v. Home Tech Co. , 476 F.Supp.2d 859, 869 (W.D. Tenn. Mar. 6, 2007); Pedraza v. United Guar. Corp. , 114 F.Supp. 1347, 1352-53 (S.D. Ga. Apr. 25, 2000). Not only does a substantial body of decisional law support tolling for RESPA plaintiffs, this determination is consistent with the established principle that equitable tolling shall be read into all federal statutes of limitation absent express congressional intent to the contrary. Ramadan v. Chase Manhattan Corp. , 156 F.3d 499, 504 (3d Cir. 1998). Therefore, the court will join the long line of federal district and appellate courts that have previously concluded that equitable tolling applies to RESPA claims.

Turning to the substance of the tolling debate, the parties substantially agree as to the applicable equitable tolling standard but dispute the proper application of that standard to the plaintiffs' first amended complaint. As a general rule, equitable tolling is appropriate if: (1) the defendant has actively misled the plaintiff regarding her claim; (2) the plaintiff has in "some extraordinary way" been prevented from pursuing her rights; or (3) the plaintiff has timely asserted her rights in the wrong forum. Oshiver v. Levin, Fishbein, Sedran & Berman , 38 F.3d 1380, 1387 (3d Cir. 1994); Hedges v. United States , 404 F.3d 744, 751 (3d Cir. 2005). Plaintiffs proceed on only the first ground, contending that the defendants fraudulently concealed the nature of their reinsurance ...

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