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Blake v. JPMorgan Chase Bank, N.A.

United States District Court, E.D. Pennsylvania

March 28, 2018

CHRISTOPHER BLAKE and JAMES ORKIS, individually and on behalf of all others similarly situated, Plaintiffs,


          STENGEL, C.J.

         I. Introduction

         This is a putative class action brought by homeowners claiming violations of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607 (RESPA). The plaintiffs claim that the defendants carried on a “captive reinsurance scheme, ” through which they enjoyed kickbacks, referrals, and fees that are prohibited by RESPA. Defendants move to dismiss the amended complaint as untimely. (Doc. No. 52.) Plaintiffs oppose the motion. (Doc. No. 55.)

         II. Background

         A. The Nature of Plaintiffs' RESPA Claims

         Many people who purchase a home cannot afford to make a 20% down payment. To protect lenders in the event of default, homeowners who are unable to make a 20% down payment are required to purchase private mortgage insurance. Once a homeowner enters into a mortgage insurance contract with an insurance company (an “insurer”), often times, the insurer then enters into a separate “reinsurance” arrangement with another company (a “reinsurer”). In theory, and under RESPA, the reinsurer is required to assume part of the risk that the insurer took on when it entered into a contract with the homeowner.

         In this case, the plaintiffs allege that the defendant insurers, lenders, and reinsurers have colluded to create a scheme that violates RESPA. The plaintiffs maintain that the lenders, as a general practice, form subsidiary companies that become the reinsurers. These lenders then systematically refer homeowners to the insurers to buy mortgage insurance. In exchange for a constant stream of profit-producing homeowner-borrowers, the insurers then pay a kickback to the reinsurer who, as a subsidiary, is really just an extension of the lender. The plaintiffs claim that this “pay-to-play” scheme harms homeowners because, by colluding, the insurers, reinsurers, and lenders, were able to reduce competition in the mortgage insurance market, thereby increasing the premium payments the homeowner-plaintiffs are required to pay to maintain their mortgage insurance.

         There is nothing inherently wrong with-or unlawful about-reinsurance contracts. Nonetheless, RESPA prohibits certain captive reinsurance schemes that result in “sham” services. See Alston v. Countrywide Fin. Corp., 585 F.3d 753, 755-57 (3d. Cir 2009) (explaining how certain captive reinsurance schemes, like the one alleged here, may violate RESPA). Specifically, Section 8(a) of RESPA prohibits fees and kickbacks paid in exchange for business referrals involving federally related mortgage loans. 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). In this case, the plaintiffs allege that the defendants violated these provisions of RESPA because: (1) they systematically gave and received kickbacks; (2) the reinsurers did not assume any real risk; and (3) the reinsurers never “actually performed” any true reinsurance services.

         B. Procedural Background

         The plaintiffs filed their initial complaint on November 4, 2013, asserting claims for RESPA violations and common law unjust enrichment. (Doc. No. 1.) Shortly thereafter, the defendants moved to dismiss the plaintiffs' RESPA claims as untimely. (Doc. No. 13.)

         Prior to receiving a disposition on the motion to dismiss, on May 22, 2014 the parties filed a joint motion to stay all proceedings pending the Third Circuit's decision in Riddle v. Bank of America Corp., 588 F. App'x 127 (3d Cir. 2014). (Doc. No. 25.) Riddle addressed the issue of equitable tolling with respect to RESPA's statute of limitations. After the Third Circuit decided Riddle, the stay was lifted on October 28, 2014. (Doc. No. 27.) I then ordered the parties to file supplemental briefs on the motion to dismiss. Before the motion to dismiss was decided, however, on February 19, 2015, the parties filed another joint motion to stay all proceedings pending the Third Circuit's decision in Cunningham. (Doc. No. 30.) In the joint motion to stay, the parties agreed that “the ultimate resolution of the central issue in the Cunningham action, i.e. the applicability and application of the doctrine of equitable tolling, has a very reasonable likelihood of informing this Court on the resolution of such matters in this case, and advancing the ultimate disposition of this action.” (Id. at 2.) Months later, during this Cunningham stay, the Consumer Financial Protection Bureau (“CFPB”) issued a decision in a landmark RESPA case, holding that RESPA's statute of limitations did not bar claims for kickbacks that occurred after the closing of home loans.

         Several months after this CFPB decision, the Third Circuit decided Cunningham. The plaintiffs in Cunningham were homeowners who brought the same type of RESPA claim-based on reinsurance kickbacks-that the plaintiffs brought in this case. 814 F.3d at 158. Those plaintiffs did not file their complaint until years after RESPA's one-year statute of limitations had expired. Id. They relied on equitable tolling to argue that their claims were timely. Id. In fact, they made the same exact argument that has previously been made in this litigation: the first time they became aware of their RESPA claims was when they received letters informing them of the potential viability of the claims. Id. at 162. The Third Circuit expressly rejected this equitable tolling argument. Id. at 160-62. It found that the plaintiffs became aware of their RESPA claims much earlier: on the date of closing when they read certain disclosures that explained reinsurance. Id. at 161-64. The court held that the Cunningham plaintiffs were not reasonably diligent in bringing their claims, which is required of them to enjoy the doctrine of equitable tolling based on fraudulent concealment. Id. at 163-64.

         The defendants then moved to lift the stay on July 15, 2016, which the plaintiffs did not oppose, and I ordered the stay lifted on February 17, 2017. On July 20, 2016, plaintiffs moved for leave to file an amended class action complaint (Doc. No. 34) and defendants opposed the motion. (Doc. No. 35.) The plaintiffs asserted that their proposed RESPA claim was substantively identical to the RESPA claim alleged in the original complaint, and that the only difference was that they no longer relied on equitable tolling. Instead, plaintiffs argued that their RESPA claims were triggered each time a kickback payment was made under the continuing violations doctrine. Plaintiffs also sought to amend the complaint to add RICO claims.

         On April 26, 2017, I entered an Order granting in part and denying in part plaintiffs' motion to amend the complaint. (Doc. No. 47.) I denied plaintiffs' motion to amend the complaint to include RICO claims in Counts One and Two. (Id.) I granted plaintiffs' complaint with respect to the RESPA claim in Count Three. (Id.) My memorandum opinion analyzed the application of the continuing violations doctrine to claims arising under RESPA, including the plain text of the statute and relevant Third Circuit and Supreme Court precedent. Under the doctrine, “the statute of limitations runs from the date of the last alleged violation rather than the first.” (Doc. No. 48 at 11 (citing Burnette v. City of Phila., No. 02-5369, 2003 WL 21293682, at *2 (E.D.Pa. Jan. 14. 2003)) (citing Cowell v. Palmer Twp., 263 F.3d 286, 292 (3d Cir. 2011)).) I held that defendants violated RESPA each time they allegedly paid an illegal kickback or fee, or made an illegal referral, in connection with private mortgage insurance premiums. In other words, each violation triggered a new statute of limitations period under the continuing violations doctrine and plaintiffs' RESPA claim was timely.

         On June 14, 2017 defendants filed the instant motion to dismiss the amended complaint. (Doc. No. 52.) Plaintiffs opposed defendants' motion. (Doc. No. 55.) Defendants filed a reply on August 31, 2017. (Doc. No. 56.) Plaintiffs then moved for leave to file a sur-reply (Doc. No. 57) which defendants opposed. (Doc. No. 58.) On January 23, 2018, defendants filed supplemental authority in further support of their motion to dismiss (Doc. No. 61) and plaintiff filed a response. (Doc. No. 62.)

         III. Legal Standard

         A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure challenges the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). To sustain this challenge, the factual allegations in the complaint must be sufficient to make the claim for relief more than just speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Conclusory allegations are insufficient to support a facially plausible claim; the facts asserted must allow the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In determining whether to grant a motion to dismiss, a federal court must construe the complaint liberally, accept all factual allegations as true, and draw all reasonable inferences in favor of the plaintiff. Twombly, 550 U.S. at 555; see also D.P. Enters. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir. 1984). The court asks “not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Twombly, 550 U.S. at 563 n. 8 (2007) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         When presented with a motion to dismiss for failure to state a claim, district courts conduct a two-part analysis. First, the factual and legal elements of a claim should be separated. The court must accept all of the complaint's well-pleaded facts as true but may disregard legal conclusions. Iqbal, 556 U.S. at 679. Second, a district court must determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a “plausible claim for relief.” Id. In other words, a complaint must do more than allege entitlement to relief. A complaint has to “show” such an entitlement with its facts. Id.; see also Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). “Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679; see also Phillips, 515 F.3d at 232-34 (holding that: (1) factual allegations of a complaint must provide notice to the defendant; (2) the complaint must allege facts indicative of the proscribed conduct; and (3) the complaint's “‘[f]actual allegations must be enough to raise a right to relief above the speculative level.'”) (quoting Twombly, 550 U.S. at 555) (alterations in original)).

         Under Federal Rule of Civil Procedure 8(a)(2), a pleading need not contain detailed factual allegations, but must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Twombly, 550 U.S. at 545. A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Id. at 555. Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual enhancement.” Id. at 557.

         IV. Discussion

         A. The continuing violations doctrine is generally applicable to ...

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