PMI Insurance: Coverage, Overcharges, Kickbacks and Maybe a Duty to Mitigate Losses — and Article 3 Standing in a Nutshell

Insurance was one of the vehicles by which borrowers were used to create “fees” that were “kicked back” essentially to the Lender or a controlled entity of the Lender. Besides the obvious violation of RESPA, I see another hidden issue — the duty to mitigate damages imposed on all “injured parties.”

Get a consult! 202-838-6345
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-
Hat tip to Bill Paatalo who writes:
In 1998, HUD issued informal advisory opinion letters to Countrywide Mortgage and a predecessor of Radian Insurance setting out the standards under which captive reinsurance could occur without offending RESPA. The standards basically called for there to be a risk transfer between the MI and the reinsurer; a disclosure by the lender to the borrower that the borrower could request that the loan not be subject to such captive reinsurance, and that any premiums paid for the reinsurance be commensurate with the risk assumed.
*
Rather than write my own article on RESPA, kickbacks, PMI insurance and “Reinsurance” I will simply quote a 2008 case that basically lays out the doctrines applicable to a claim for treble damages under RESPA — the Real Estate Settlement Procedures Act. Judge o”Neill does a better job than I could. This opinion discusses a wide range of issues including legal standing. It should be read carefully.
 *
Note the carefully and perfectly written rendition of Article 3 standing or legal standing. Relying on basic black letter law, Judge O’Neill states the obvious: the party bringing a claim must have suffered ACTUAL injury. Applying the plain wording of the law of the land in Article 3 of the U.S. Constitution, there cannot be legal standing without, in fact, injury having been suffered. This basic tenet of law cannot be used by illusion, delusion or any assumption or presumption. Hence despite many forms promulgated in each state that set forth templates for filing lawsuits for collection or enforcement of debts, those forms are missing one essential Constitutional element — an allegation of injury typically stated as follows:
As a direct and proximate result of the Defendant’s failure or refusal to make the monthly payments when due, Plaintiff has suffered financial damage.
*
Thus the court knows, at the very least, that the injured party alleges that it suffered injury. By ignoring this basic obligation of pleading, the Courts have compounded this Constitutional and common law error by not requiring proof at trial that the Plaintiff IS the party who was injured. Further complicating the issue courts are denying the right to discovery of the true party who is seeking to foreclose and why. [The answer is the Master Servicer who does not show up in the courtroom. Their interest is in closing off potential lawsuits from the fraudulent sale of RMBS to investors and to collect all the proceeds of sale by virtue of their “recovery” of servicer advances paid out of the investors’ own money.]
*
The avoidance and waiver of such an allegation has been the key to the start and the finish of nearly all foreclosures. And the denial of Motions to Dismiss based upon failure to allege injury has been the gateway for the tidal waive of foreclosures in favor of strangers to any of the transactions that were alleged or implied. That alone was the reason why millions of consumers lost their homes, their life savings, their lifestyle and in some cases, their lives, while the successful “foreclosers” and “bidders” went laughing to the bank, pardon the pun. They got away with it.
*
In no case involving claims of securitization have I ever found an injured party. Neither has anyone else. Studies have been done at the Federal, State and local levels, all concluding that the foreclosing parties were strangers tot he borrower and the alleged “loan.” It is always presumed and never offered in evidence by testimony of documentation.
*
In short, all such actions lack legal standing because the only people losing money (a) are remote investors having nothing whatever to do with the entities or people involved in the origination, servicing or enforcement of the “loans” and (b) already lost their money not because the homeowner didn’t pay but because of a loss in “Securitization Fail” (see Adam Levitin) before the loan ever existed. Investor money was fraudulently diverted from its intended use by underwriters, brokers and “Master Servicers.” All for Trusts that did not legal exist as to the subject “loan” because the trust was never in operation, never had any assets, never had any income or expenses and never even had a bank account.
 *
Mitigation of losses: It is clear that there were no losses for any named insured. The question of who was the insured hangs over the landscape like the humidity in a swamp. “Reinsurance” and possible direct Private Mortgage Insurance (in many cases) was a tool to collect money without actually providing any service — a claim for FDCPA violations lurking in there in addition to RESPA. BUT if we assume that the banks, servicers and other conduits involved are telling the truth, then insurance payments have been or should have been paid.
*
Thus arises the question under a centuries old doctrine named mitigation of losses or injury. If the opposition can prove that the insurance was real and if the risk event occurred, why was there no payment? Or, if there was payment why is not the loan receivable account reduced. Or, if the loan receivable account was reduced, why are we not battling with the insurer who is the actual party who was injured if they paid.

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ROBERT ALEXANDER and JAMES : LEE REED, individually and on behalf of : all others similarly situated :

: v. : :

WASHINGTON MUTUAL, INC.; : WASHINGTON MUTUAL BANK; : WASHINGTON MUTUAL BANK fsb; : and WM MORTGAGE REINSURANCE :

CIVIL ACTION NO. 07-4426

MEMORANDUM

*

On October 22, 2007 plaintiffs Robert Alexander and James Lee Reed filed a class action complaint alleging that defendants Washington Mutual, Inc.; Washington Mutual Bank; Washington Mutual Bank fsb; and WM Mortgage Reinsurance Company violated the Real Estate Settlement Procedures Act by collecting illegal referral or kickback payments in the form of reinsurance premiums.

*

Before me now are defendants’ motion to dismiss plaintiffs’ complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), plaintiffs’ response and defendants’ reply.

*

BACKGROUND
Defendant Washington Mutual, Inc. is a Washington corporation with its corporate headquarters in Seattle, Washington. Washington Mutual, Inc., which does business in all 50 states, is the parent company of defendants Washington Mutual Bank, Washington Mutual Bank fsb, and WM Mortgage Reinsurance Company. Defendants Washington Mutual Bank and Washington Mutual Bank fsb are federally-chartered savings associations headquartered in Seattle, Washington. Defendant WM Mortgage Reinsurance, a Hawaii corporation headquartered in Seattle, Washington, reinsures loans originated by Washington Mutual, Inc.

*

Plaintiffs Robert Alexander and James Lee Reed, residents of Westminster, Maryland and Dover, Pennsylvania, respectively, both obtained residential mortgage loans from Washington Mutual: Alexander in December of 2005, and Reed in April of 2007. Plaintiffs secured their loans with down payments of less than 20% and were required to pay for private mortgage insurance1 from an insurer with whom Washington Mutual had a captive reinsurance arrangement.2 Specifically plaintiffs allege that Washington Mutual directed them and its other clients to private mortgage insurance providers who have agreed to reinsure the clients’ mortgage

*

According to plaintiffs’ class action complaint, home buyers who are incapable of placing a full 20% down payment to secure a loan are required by banks to obtain private mortgage insurance (PMI), which helps to insulate the bank in the event of a default by the borrower. The mortgage provider generally instructs the borrower to use a particular PMI provider. If a default occurs, the PMI will pay a percentage of the value of the loan to the bank, enabling the bank to recoup its losses. Typically a PMI provider also will secure insurance to guarantee that it will be protected in the event of a default by borrowers. The insurance that an insurer obtains is known as reinsurance.

*

Generally there are two types of reinsurance: quota share and excess loss. In a quota share arrangement, the reinsurer pays a fixed percentage of all losses of the client insurance agency. In an excess loss arrangement, the reinsurer pays claims over a particular ceiling. With the excess loss arrangement, there is no guarantee of a particular loss being shifted to the reinsurer. An easy analogy would be to compare an excess loss arrangement to an insurance deductible. Under a given amount, the reinsurer has no liability, and above said amount they are liable for at least a portion of the loss.

*

According to plaintiffs’ complaint, in order to capitalize on the lucrative home insurance market some lenders have created captive reinsurance corporations. A captive reinsurance corporation is a company owned by the lending agency which issues reinsurance to PMI providers. To ensure a revenue stream, lenders will often direct their clients to a PMI provider who has agreed to reinsure the clients’ mortgage insurance with the lender’s captive reinsurer.insurance with WM Mortgage Reinsurance.

*
STANDARD OF REVIEW

*

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In ruling on a 12(b)(6) motion, I must accept as true all well-pleaded allegations of fact, and any reasonable inferences that may be drawn therefrom, in plaintiff’s complaint and must determine whether “under any reasonable reading of the pleadings, the plaintiff[] may be entitled to relief.” Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996) (citations omitted). Typically, “a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations” though plaintiffs’ obligation to state the grounds of entitlement to relief “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007). “Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted). A well-pleaded complaint may proceed even if it appears “that recovery is very remote and unlikely.” Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). When considering a Rule 12(b)(6) motion, I do not “inquire whether the plaintiff[] will ultimately prevail, only whether [he is] entitled to offer evidence to support [his] claims.” Nami, 82 F.3d at 65, citing Scheuer, 416 U.S. at 236.

DISCUSSION

*
Congress passed the Real Estate Settlement Procedures Act to protect home buyers “from unnecessarily high settlement charges caused by certain abusive practices,” provide home buyers with more effective advanced notice of settlement fees and eliminate “kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.” 12 U.S.C. § 2601(a) & (b)(1)-(2). RESPA prohibits payments or kickbacks from business referrals and forbids fee splitting or payments for services not actually rendered. 12 U.S.C. § 2607(a)- (b);3 see Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 266 (4th Cir. 2002). “While RESPA does not relate predominantly to insurance, it does explicitly refer to mortgage insurance.” Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1298 (11th Cir. 2002), citing 12 U.S.C. § 2602(3).4

3Section 2607 provides in relevant part: (a) Business referrals

*

No person shall give and no person shall accept 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.

(b) Splitting charges

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 in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607.
4Section 2602(3) defines the term “settlement services” as used in RESPA as:

[A]ny service provided in connection with a real estate settlement including, but not limited to, the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing, and closing or settlement . . . .

In its motion defendant argues: (1) plaintiff’s claim is barred by the filed rate doctrine; (2) plaintiff’s claim is barred by RESPA’s safe harbor provision; (3) plaintiff has no Article III standing; and (4) the Court should abstain from jurisdiction. I will address each argument in turn.

I. Filed Rate Doctrine
The filed rate doctrine states that where regulated companies are required by federal or state law to file proposed rates or charges with a governing regulatory agency any rate approved by that agency “is per se reasonable and unassailable in judicial proceedings brought by ratepayers.” Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir. 1994). The filed rate doctrine has no fraud exception; rates that are approved are per se reasonable even if obtained by fraud. Id. at 20 (“[E]very court that has considered [the issue] has rejected the notion that there is a fraud exception to the filed rate doctrine.”) (citing cases).

Pennsylvania law requires that all rates for policies of property insurance be filed with the Department of Insurance, 40 Pa. Stat. § 710-5(a), in part to establish rates that are “not excessive, inadequate or unfairly discriminatory.” 40 Pa. Stat. § 710-5(c)(2)(i). Defendants argue that plaintiff’s RESPA claim is barred by the filed rate doctrine because pursuant to the aforementioned statutes mortgage insurance rates are regulated by the Pennsylvania Department of Insurance and therefore they are per se reasonable and unassailable in a judicial proceeding.

I conclude that the filed rate doctrine does not bar the plaintiffs’ claim that defendants violated RESPA through an alleged kickback or fee-splitting scheme through their mortgage lender’s captive reinsurance arrangement. While the filed rate doctrine bars direct challenges to 12 U.S.C. § 2602(3) the insurance rate structure set by a state, see Morales v. Attorneys’ Title Ins. Fund, Inc., 983 F. Supp. 1418, 1429 (S.D. Fla. 1997) (granting Rule 12(b)(6) motion to dismiss RESPA claim pursuant to the filed rate doctrine because the object of plaintiffs’ kickback claim was nothing more than to challenge directly the title insurance rates that had been set by the State of Florida), courts have held that it does not prohibit plaintiffs from bringing suit under RESPA for a violation of fair business practices through the use of illegal kickback payments, see, e.g., Kay v. Wells Fargo & Co., 247 F.R.D. 572, 576 (N.D. Cal. 2007); Kahrer v. Ameriquest Mort. Co., 418 F. Supp. 2d 748, 755-56 (W.D. Pa. 2006); see also Boulware, 291 F.3d at 266. But see Stevens v. Union Planters Corp., 2000 WL 33128256, at *3 (E.D. Pa. Aug. 22, 2000) (holding that an allegation of kickbacks in a forced hazard insurance scheme was barred by the filed rate doctrine). As the United States District Court for the Northern District of California summarized in Kay:

Statutes like RESPA are enacted to protect consumers from unfair business practices by giving consumers a private right of action against service providers. Plaintiffs may not sue under the veil of RESPA if they simply think that the price they paid for their settlement services was unfair. Alternatively, plaintiffs bringing a suit under RESP A may allege a violation of fair business practices through the use of illegal kickback payments. The filed-rate doctrine bars suit from the former class of plaintiffs and not the latter. 247 F.R.D. at 576. In Kay the Court held that the plaintiffs’ RESPA claim was not barred by the filed rate doctrine where plaintiffs alleged that their mortgage lender’s captive reinsurance arrangement was actually a kickback scheme in violation of RESP A because little to no risk was actually transferred. Id. at 574-76.

In their present motion defendants rely on Morales to argue that plaintiffs’ RESPA claim is barred. Defendants correctly note that the Morales plaintiffs claimed that the title insurers violated RESPA by providing kickbacks and contended that the alleged kickbacks injured them by inflating the rates that paid for title insurance. 983 F. Supp. at 1422, 1429. However, the Morales Court determined that, though they alleged the title insurance rate structure provided for the payment of kickbacks, the plaintiffs were doing nothing more than protesting the title insurance rate structure set by the State of Florida. Id. at 1429 (“[D]espite their protestations, the plaintiffs’ claims are nothing more than a challenge to Florida’s rate structure.”). The Court recognized that “the plaintiffs are challenging, under RESPA, the defendants’ alleged practice of ‘always or nearly always’ adhering to a 70/30 split of title insurance premiums with their agents, even though such a percentage split is explicitly allowed by Florida law.” Id. at 1424.

*

In this case plaintiffs allege more than protestations that due to defendant’s adherence with the Pennsylvania’s applicable laws and regulations the price they paid for their settlement services was unfair. Plaintiffs do not challenge directly the reasonableness or fairness of any rate set by the Commonwealth of Pennsylvania. Rather, plaintiffs claim that defendants’ captive reinsurance arrangement constitutes an alleged kickback or fee-splitting scheme in violation of RESPA. Plaintiffs support their claim that the reinsurance premiums constitute kickbacks by alleging they were payments for services not actually performed. In support of this allegation plaintiff alleges that from 2000 to 2005 WM Mortgage Reinsurance received over $295 million in reinsurance premiums yet has never paid for a single loss.

The filed rate doctrine does not bar the plaintiffs’ claim in this case.

II. RESPA’s Safe Harbor Provision

RESPA contains a safe harbor provision which states that nothing shall prohibit “the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c)(2). The Department of Housing and Urban Development’s two-prong test for determining if a payment qualifies for RESPA’s safe harbor provision requires that the Court evaluate: (1) “whether goods or facilities were actually furnished or services were actually performed for the compensation paid” and (2) “whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.” RESP A Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees, 66 Fed. Reg. 53,052, 53,054 (Oct. 18, 2001); RESPA Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, 64 Fed. Reg. 10,080, 10,084 (Mar. 1, 1999); see Smith v. Litton Loan Servicing, LP, 2005 WL 289927, at *11-12 (E.D. Pa. Feb. 4, 2005).

*

In this case plaintiffs have sufficiently alleged that the payments in question are not covered by RESPA’s safe harbor provision. As stated above, plaintiffs allege that the reinsurance premiums at issue constitute kickbacks because they were payments for services not actually performed and in support allege that from 2000 to 2005 WM Mortgage Reinsurance received over $295 million in reinsurance premiums yet has never paid for a single loss. Due to these allegations, whether goods or facilities were actually furnished or services were actually performed for the compensation paid and whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed remain open questions at this stage of the litigation. I therefore refuse to dismiss plaintiffs’ complaint pursuant to RESPA’s safe harbor provision.

*

III. Article III Standing
The Supreme Court has articulated the minimum standard for what is constitutionally necessary to establish Article III standing:

*

First, the plaintiff must have suffered an “injury in fact”-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical.’ Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be “fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court.” Third, it must be “likely,” as opposed to merely “speculative,” that the injury will be “redressed by a favorable decision.”

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (citations omitted).
In the present motion defendants contend that plaintiffs’ claims should be dismissed

because: (1) plaintiffs have not stated a cognizable injury that establishes Article III standing; and (2) plaintiffs do not allege an overcharge sufficient to establish Article III standing. More specifically, defendants first argue that plaintiff cannot demonstrate cognizable injury where plaintiffs fail to allege that they paid anything other than the filed rates approved by the Pennsylvania Department of Insurance. Because filed rates are reasonable per se defendants contend that by paying the filed rate plaintiffs have not suffered any actual or threatened injury sufficient to confer jurisdiction on the Court. Defendants next argue that a private RESPA plaintiff must allege a settlement service overcharge to establish standing and that the present plaintiffs cannot plausibly allege an overcharge when they paid rates that were reasonable per se.

“The damages provision of Section 2607(d)(2) is the focal point of the standing analysis.” Carter v. Welles-Bowen Realty, Inc., 493 F. Supp. 2d 921, 924 (N.D. Ohio 2007). Section 2607(d)(2) provides:

9

Any person or persons who violate the prohibitions 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.

12 U.S.C. § 2607(d)(2).
In Yates v. All American Abstract Co. this Court recognized a split in authority among

courts interpreting § 2607(d)(2):

Morales is representative of a line of cases limiting a plaintiff’s trebled damages under RESP A to the amount the plaintiff allegedly paid as a kickback or fee split prohibited by RESPA. 983 F. Supp. at 1427-29. Kahrer, on the other hand, looks primarily at the plain language of the statute and its complete legislative history to conclude that a plaintiff who is entitled to damages under § 8(d)(2) can seek to treble the full amount she paid in settlement services to the defendants. 418 F. Supp. 2d at 751-56, see also Robinson v. Fountainhead Title Group Corp., 447 F. Supp. 2d 478 (D. Md. 2006).

487 F. Supp. 2d 579, 582 (E.D. Pa. 2007).
In Morales the Court held that because plaintiffs “have no legal right to pay anything

other than the promulgated rates, they have suffered no cognizable injury by virtue of paying said rates.” 983 F. Supp. at 1429. Courts following the reasoning in Morales accordingly have held that “absent an overcharge that is contestable by the plaintiff, a plaintiff does not have standing to sue under RESPA.” Mullinax v. Radian Guar., Inc., 311 F. Supp. 2d 474, 483 (M.D.N.C. 2004); see also Moore v. Radian Group, Inc., F. Supp. 2d 819, 826 (E.D. Tex. 2002) (holding that Congress did not intend to “allow a private plaintiff to sue for an alleged violation of RESPA’s anti-kickback provision when the plaintiff has not alleged that the referral arrangement increased any of the settlement charges at issue or that any portion of the charge for the settlement service was involved in the kickback violation”).

In Kahrer the Court, looking to the plain language of RESPA and its complete statutory history, determined that Morales was wrongly decided. Kahrer, 418 F. Supp. 2d at 756. Based on its interpretation of § 2607(d)(2), focusing on the 1983 amendment to RESPA, the Court held that a plaintiff’s failure to allege that she was overcharged for settlement services does not preclude a finding that she suffered an injury in fact or that she had standing to bring an § 8(a) claim. Kahrer, 418 F. Supp. 2d at 756; see also Boulware, 291 F.3d at 266 (“Section 8(a) prohibits the payment of formal kickbacks or fees for the referral of business and does not require an overcharge to a consumer.”); Robinson v. Fountainhead Title Group Corp., 447 F. Supp. 2d 478, 489 (D. Md. 2006) (“[I]njury in a RESPA case can be shown by harm other than allegations of overcharges. . . . the alleged § 8(a) violation presents the possibility for other harm, including a lack of impartiality in the referral and a reduction of competition between settlement service providers.”). The Court concluded that “RESPA gives consumers the right, enforceable by a private right of action for statutory damages, to purchase settlement services from companies that have not participated in a kickback scheme.”5 Kahrer, 418 F. Supp. 2d at 756. According to the Kahrer line of cases, under § 2607(d)(2) “the proper measure of damages under RESPA is three

The Court stated:

The statute was amended in 1983, however, at which time the language entitling one to recover three times the “thing of value” was replaced by the language at issue here which provides for liability for violating the statute in an amount equal to three times the amount of “any charge paid for such settlement services.” Had Congress intended for liability to be limited to three times the overpayment or the “thing of value” as it had been since 1974 it would have had no need to amend the statute as it did. In short, it is simply nonsensical to suggest that Congress still intended to provide for damages in an amount three times the proscribed payment when it eliminated that very language from the statute.

Kahrer, 418 F. Supp. 2d at 755.

11

times the entire amount paid for the settlement services involved in the alleged kickback scheme, not three times the difference between what was actually paid and what should have been paid.” Id. (citation and internal quotation marks omitted).

Considering the conflict in the case law and the cases cited by both parties, I find the reasoning of Kahrer to be more persuasive than that of Morales and accordingly conclude that under the plain language of the statute and its legislative history a plaintiff who is entitled to damages under § 8(d)(2) can seek three times the full amount he paid for any settlement services.6 Under the Kahrer line of cases, with which I agree, RESPA provides that plaintiffs have a right to purchase settlements services from providers who do not participate in an illegal kickback scheme. Therefore, plaintiffs’ failure to allege an overcharge for settlement services does not preclude a finding of injury in fact for the purposes of Article III standing.
IV. Burford Abstention Doctrine

In Burford v. Sun Oil Co. the Supreme Court concluded that where complex issues of state administrative law are presented a federal court may in its discretion “stay its hand” and abstain from hearing the case. 319 U.S. 315, 334 (1943). The Court of Appeals has explained:

6Defendants urge that the Northern District of Ohio’s decision in Carter, which expressly rejected the reasoning of Kahrer and agreed with Morales and Moore, is better reasoned than Kahrer and more consistent with RESPA’s history and purpose. See Carter, 493 F Supp. 2d at 927. However, I, like the Court in Kahrer, conclude that the reading proposed by Carter and Morales is in conflict with the plain meaning of RESPA: “[T]he literal language of § 2607(d)(2) provides for three times the amount of any charge paid for the settlement services which would appear to encompass all of the charges associated with the services provided rather than only treble the amount of any overpayment. . . . Moreover, the language relied upon by the Court in Morales – that recovery may be had by the person charged for the settlement services involved in the violation – does not, in our view, suggest that only the overpayment is to be trebled.” Kahrer, 418 F. Supp. 2d at 753 (emphasis in original) (citations and internal quotation marks omitted).

12

Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are “difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case at bar;” or (2) where the “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.”

Riley v. Simmons, 45 F.3d 764, 771 (3d Cir. 1995), quoting New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350 (1989). “While Burford is concerned with protecting complex state administrative processes from undue federal interferences, it does not require abstention whenever there is such a process.” New Orleans Pub. Serv., Inc., 491 U.S. at 362.

I conclude that Burford abstention does not apply to this case, where plaintiffs are claiming that defendants through their captive reinsurance program violated the anti-kickback provision of RESPA. With respect to the first prong of the doctrine – whether timely and adequate state-court review is available – defendants argue that plaintiffs should pursue their administrative remedies, pointing to Pennsylvania’s extensive administrative procedures for pursuing claims under its Insurance Code. See 40 Pa. Stat. Ann. §§ 1171.8-1171.13 (providing that such claims are to be pursued under the Pennsylvania Administrative Procedure Act). However, as discussed above, RESPA provides plaintiffs with a private cause of action in this case, and plaintiffs brought their action under RESPA’s anti-kickback provision appropriately in federal court. As plaintiffs presently neither pursue a claim under Pennsylvania’s Insurance Code nor challenge an administrative decision of Pennsylvania, plaintiffs’ remedies are not limited to state administrative or court proceedings, and the mere existence in Pennsylvania of

13

administrative procedures for insurance claims does not require abstention. Additionally, there are no prior or ongoing state proceedings with which the present action interferes.

Further, the second prong of the Burford doctrine – whether there are difficult questions of state law impacting public policy or exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy – is not implicated in this case. Defendants correctly note that Pennsylvania has enacted comprehensive insurance regulations and that state administrative regimes have special competence to establish policies concerning insurance rate premiums. Yet plaintiffs do not challenge the filed rate or any other state policies in this matter. Plaintiffs allege that defendants’ alleged kickback scheme – not defendants’ charged rate – violates RESPA, a federal statute. Therefore adjudication of this matter will not interfere with Pennsylvania’s efforts to maintain a comprehensive and coherent regulatory regime. I will not abstain from hearing this case under the principles set forth in Burford.

An appropriate Order follows.

14

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ROBERT ALEXANDER and JAMES : LEE REED, individually and on behalf of : all others similarly situated :

: v. : : WASHINGTON MUTUAL, INC.; : WASHINGTON MUTUAL BANK; : WASHINGTON MUTUAL BANK fsb; : and WM MORTGAGE REINSURANCE : COMP ANY :

ORDER

CIVIL ACTION NO. 07-4426

AND NOW, this 30th day of June 2008, upon consideration of defendants’ motion to dismiss plaintiffs’ class action complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), plaintiffs’ response and defendants’ reply, it is ORDERED that defendants’ motion to dismiss is DENIED.

The parties shall agree upon and submit a briefing schedule regarding the issue of class certification within ten (10) business days from date.

s/Thomas N. O’Neill, Jr. THOMAS N. O’NEILL, JR., J.

One Response

  1. We notified our alleged mortgagee that there is an endorsement required to deposit a insurance proceeds check, The alleged mortgagee and servicer refused to so as they told us that it would be applied to backed up mortgage payment.

    Not only that when we were living in a motel B of A sent someone to change locks on our home.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: