Cohen v. Jp Morgan Chase & Co.

• Decision Date: 06 August 2007
• Docket Number: Docket No. 06-0409-cv.
• Citation: 498 F.3d 111
• Parties: Sylvia C. COHEN, on behalf of herself and all other persons similarly situated, Plaintiff-Appellant, v. JP MORGAN CHASE & CO. and JP Morgan Chase Bank, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

498 F.3d 111

Sylvia C. COHEN, on behalf of herself and all other persons similarly situated, Plaintiff-Appellant, v. JP MORGAN CHASE & CO. and JP Morgan Chase Bank, Defendants-Appellees.

Docket No. 06-0409-cv.

United States Court of Appeals, Second Circuit.

Argued: September 27, 2006.

Decided: August 6, 2007.

Catherine E. Anderson, Giskan & Solotaroff, New York, New York, for Plaintiff-Appellant.

Gary C. Tepper, Arent Fox PLLC, Washington, D.C., for Defendants-Appellees.

Christine N. Kohl, Civil Division, United States Department of Justice, Washington, D.C., for Amicus Curiae the United States Department of Housing and Urban Development in support of Plaintiff-Appellant.

Before: WALKER, KATZMANN, and RAGGI, Circuit Judges.

REENA RAGGI, Circuit Judge.

Plaintiff Sylvia C. Cohen sued defendants JP Morgan Chase & Co. and JP Morgan Chase Bank (hereinafter referred to collectively as "Chase") in the United States District Court for the Eastern District of New York (Charles P. Sifton, Judge), alleging that Chase's collection of an unearned "post-closing fee" in connection with its refinancing of her home mortgage violated Section 8(b) of the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C. § 2607(b), and New York General Business Law § 349. In a judgment entered on March 16, 2005, Cohen v. J.P. Morgan Chase & Co., No. CV-04-4098(CPS) (E.D.N.Y. Mar. 16, 2005), the district court dismissed Cohen's complaint on the ground that it failed to state a claim under RESPA § 8(b) because (1) the fee at issue was analogous to an "overcharge," which Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49, 55-57 (2d Cir.2004), held was not prohibited by § 8(b); and (2) plaintiff had, in any event, failed to plead that the challenged fee represented part of a charge split between Chase and one or more third parties. The district court similarly concluded that Cohen failed to state a deceptive practices claim under state law because the pleaded facts demonstrated that the challenged fee was disclosed.

For the reasons stated herein, we conclude that Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d at 55-57, does not control this case. We further conclude that RESPA § 8(b) is ambiguous as to whether its protections can apply to undivided, as well as divided, unearned fees. Because the Department of Housing and Urban Development ("HUD"), the agency charged with administering RESPA, reasonably resolves this ambiguity by construing the statute to apply to undivided fees, we accord that construction deference pursuant to Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), and we vacate the dismissal of Cohen's federal claim. We similarly vacate the dismissal of Cohen's state claim because, if she can show that the challenged fee violated RESPA, that fact might allow her to establish a deceptive business practice under New York law. Accordingly, we remand this case to the district court for reinstatement of the complaint and further proceedings consistent with this opinion.

I. Factual Background

In September 2003, when Sylvia Cohen refinanced her home mortgage, Chase presented her with a closing statement listing various fees incurred in connection with that transaction. Among these was a $225 "post-closing fee," which Cohen paid. Cohen alleges that Chase provided no services for this fee. Although Chase disputes this contention, on review of a judgment of dismissal, we must assume its truth. See, e.g., McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007).

On September 22, 2004, Cohen instituted this action, suing on behalf of herself and a putative class of persons who had also refinanced home mortgages with Chase and paid similar unearned fees. See Fed. R.Civ.P. 23.¹ Following the district court's grant of Chase's motion to dismiss and its denial of Cohen's motion for reconsideration, see Cohen v. J.P. Morgan Chase & Co., No. CV-04-4098(CPS), 2006 WL 20596 (E.D.N.Y. Jan.4, 2006), Cohen filed this appeal.

II. Discussion

A. Cohen's RESPA Claim

1. RESPA § 8(b) and the Standard of Review

Cohen's federal claim against Chase is premised on RESPA § 8(b), which states:

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(b). In a formal policy statement, HUD has construed this statutory section to proscribe unearned fees in three contexts:

[where] (1)[t]wo or more persons split a fee for settlement services, any portion of which is unearned; or (2) one settlement service provider marks-up the cost of services performed or goods provided by another settlement service provider without providing additional actual, necessary, and distinct services, goods, or facilities to justify the additional charge; or (3) one service provider charges the consumer a fee where no, nominal, or duplicative work is done, or the fee is in excess of the reasonable value of goods or facilities provided or the services actually performed.

Statement of Policy 2001-1, 66 Fed.Reg. 53,052, 53,059 (Oct. 18, 2001) (codified at 24 C.F.R. § 3500.14(c)) ("Policy Statement") (emphasis added). The third numbered provision in fact references two circumstances. Cohen relies on the first, highlighted circumstance in pursuing her claim that "one service provider," such as Chase, cannot charge a consumer a fee for which "no . . . work is done," what we refer to hereinafter as an "undivided unearned fee."² The second, unhighlighted circumstance prohibits charges over and above "reasonable value." We invalidated this part of the third provision in Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d at 57, discussed infra at 115-16.

We review the district court's decision to dismiss Cohen's § 8(b) claim de novo, both because it is a ruling of law pursuant to Federal Rule of Civil Procedure 12(b)(6), see McCarthy v. Dun & Bradstreet Corp., 482 F.3d at 191, and because it depends on statutory construction, see Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d at 54. Further, "the question of the appropriate level of deference to accord agency regulations is one purely of law, subject to de novo review." Coke v. Long Island Care at Home, Ltd., 376 F.3d 118, 122 (2d Cir. 2004), vacated on other grounds, 546 U.S. 1147, 126 S.Ct. 1189, 163 L.Ed.2d 1125 (2006).

2. Kruse Does Not Control This Case

Because the district court ruled that Cohen's claim was precluded as a matter of law by our construction of RESPA § 8(b) in Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d at 57, we consider at the outset whether that decision does, in fact, control this case. We conclude that it does not.

In Kruse, we considered two parts of the quoted Policy Statement: numbered provision 2, referencing mark-ups; and the second part of numbered provision 3, referencing fees in excess of reasonable value. The Kruse plaintiffs alleged that Wells Fargo had violated § 8(b) by marking up the price of services provided by a third party. We concluded that RESPA § 8(b) was "not clear and unambiguous with respect to its coverage of mark-ups." Id. at 58.³ Because the second prong of HUD's Policy Statement reasonably resolved that ambiguity to prohibit mark-ups, we accorded Chevron deference to that agency interpretation. See id. at 58, 61. The Kruse plaintiffs further alleged that defendants violated § 8(b) by charging fees in excess of the reasonable value of services that they did provide. We held that this agency interpretation, which effectively imposed price controls on settlement fees, was contrary to the plain meaning of the statute. See id. at 56. We explained that RESPA § 8(b) does not authorize courts to break down a single charge into "reasonable" and "unreasonable" components. Id. ("Whatever its size, such a fee is `for' the services rendered by the institution and received by the borrower."). Thus, we invalidated that part of the Policy Statement's third prong prohibiting fees exceeding the "reasonable value" of the services rendered. Id.

On this appeal, Cohen relies on neither of the Policy Statement provisions at issue in Kruse to support her § 8(b) claim. Instead, she invokes only that part of the third numbered provision wherein HUD interprets § 8(b) to prohibit undivided un-earned fees charged by a single service provider. Each party to this action nevertheless contends that Kruse compels resolution of this appeal in its favor. Cohen (with the support of HUD) argues that the twin rulings in Kruse effectively establish that, while § 8(b) does not authorize price controls for services actually performed, it does proscribe fees for no services, whether structured as a divided or undivided charge. Chase counters that Kruse approved the application of § 8(b) to mark-ups only because a mark-up, by allowing one person to piggy-back an unearned fee onto the charge of a third-party service provider, effectively constitutes a divided charge. For its part, the district court concluded that Cohen's claim failed because the challenged fee was sufficiently analogous to the overcharges that Kruse held were beyond the reach of the statute.

In fact, Kruse had no occasion to consider and, therefore, did not address the critical issue on this appeal: whether RESPA § 8(b)'s reference to "any portion, split, or percentage of any charge" clearly and unambiguously indicates Congress's intent to prohibit unearned fees only when incorporated in charges divided among two or more persons, thereby precluding HUD's construction of the statute to prohibit "one service provider" from "charg[ing] the consumer a fee where no, nominal, or duplicative work is done," Policy Statement, 66 Fed.Reg. at 52,052. In this quoted language, HUD's focus is not on lenders who...