In re EPIC Mortg. Ins. Litigation
| Decision Date | 28 July 1988 |
| Docket Number | M.D.L. No. 680. |
| Citation | 701 F. Supp. 1192 |
| Parties | In re EPIC MORTGAGE INSURANCE LITIGATION. |
| Court | U.S. District Court — Eastern District of Virginia |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
James T. Williams, Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, N.C., Paul C. Madden, Saul, Ewing, Remick & Saul, Thomas A. Allen, White & Williams, Philadelphia, Pa., Robert E. Payne, McGuire, Woods, Battle & Boothe, Richmond, Va., Irving P. Margulies, Weiner, McCaffrey, Brodsky & Kaplan, Washington, D.C., for plaintiffs.
William L. Stauffer, Jr., Frank, Bernstein, Conaway & Goldman, Tysons Corner, Va., Edward M. Posner, Drinker, Biddle & Reath, Philadelphia, Pa., Warren L. Dennis, Ballard, Spahr, Andrews & Ingersoll, Richard P. Schifter, Steven G. Reade, Michele J. Brace, Arnold & Porter, James L. Nolan, Jenner & Block, Washington, D.C., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case involved two private mortgage guaranty insurance companies seeking to rescind mortgage insurance contracts covering loans originated by EPIC Mortgage, Inc. ("EMI") and sold by EMI to unaffiliated third parties in the form of whole loan pools and mortgage pass-through certificates.
The action brought by United Guaranty concerns the validity of certificates of mortgage insurance issued by United Guaranty to EMI. United Guaranty contends that its insurance was obtained by fraud and misrepresentation, and that it is entitled to rescind that coverage.
The action brought by Foremost seeks to rescind its insurance certificates, alleging fraud, misrepresentation, omissions and RICO violations on the part of EMI and Community. Defendant Dominion Federal contends that it is entitled to recover on the certificates of insurance, and for other damages, under principles of contract law, estoppel, and because the certificates became "unconditionally enforceable" once the loans were sold by EMI to Dominion; FNB contends that its certificateholders were entitled to recover on the certificates of insurance, and for other damages, based on principles of contract law, and because Foremost had violated sections 10(b) and 17(a) of the Securities Acts of 1933 and 1934, had aided and abetted any underlying fraud which may have been committed by EMI and had committed common law fraud, misrepresentation or constructive fraud; PSFS asserted that it was entitled to recover on the certificates of insurance, and for other damages, on essentially the same theories as those asserted by FNB, except that it did not assert liability for aiding and abetting securities fraud.
The EPIC product loans at issue in this litigation are loans which were either (a) acquired by the non-EPIC defendants herein prior to August of 1985 or (b) in the possession of EMI or CSL at the time the Maryland conservatorship was imposed.
All or virtually all of the EPIC product loans at issue in this litigation are in default.
These proceedings began as five separate cases, two of which were filed originally in this district and three others filed elsewhere. All cases were sent to this court by the panel on multi-district litigation for discovery and were consolidated for trial by order of this court on July 24, 1987. The court now makes the following findings of fact and conclusions of law, pursuant to Rule 52, Federal Rules of Civil Procedure.
1. Plaintiff United Guaranty Residential Insurance Company (United Guaranty) is a stock mortgage insurance company, organized and existing under the laws of the State of Iowa with its principal place of business at 201 North Elm Street, Greensboro, North Carolina. United Guaranty is engaged in the business of writing private mortgage insurance, and is approved to do so by the Federal Home Loan Mortgage Corporation (FHLMC). United Guaranty maintains offices in several locations, including Annandale, Virginia.
2. Foremost Guaranty Corporation ("Foremost") is a stock mortgage insurance company, organized and existing under the laws of the State of Michigan with its principal place of business at 131 West Wilson Street, Suite 801, Madison, Wisconsin. Foremost maintains offices in several locations throughout the United States. Foremost is in the business of writing private mortgage insurance, and is approved to do so by the FHLMC.
3. Defendant Dominion Federal Savings and Loan Association, which purchased whole loans from EMI, is a federally chartered savings and loan association with its principal place of business at 7799 Leesburg Pike, Tysons Corner, Fairfax, Virginia.
4. Defendant First National Bank of Maryland, Trustee ("FNB"), is a national banking association with its principal place of business at 25 South Charles Street, Baltimore, Maryland. FNB serves as trustee for certificate-holders pursuant to certain pooling and servicing agreements. In connection with this litigation it is trustee for:
5. Silverado, Anchor, and Home Federal are not currently named defendants herein, but have agreed to be bound by whatever final judgment is reached as to FNB.
6. Defendant EPIC Mortgage, Inc. ("EMI") was a Delaware corporation with its principal place of business at 5111 Leesburg Pike, Suite 800, Falls Church, Virginia.
7. Defendant Community Savings and Loan ("Community") was a savings and loan association organized under the laws of the state of Maryland and insured by the Maryland Savings Share Insurance Corporation. Its principal place of business was in Bethesda, Maryland.
8. In September of 1985, Community was placed in conservatorship under the laws of the state of Maryland. The conservatorship was subsequently converted to a receivership. The Maryland Deposit Insurance Fund ("MDIF") is currently the receiver of Community.
9. All defendants herein, other than EMI or CSL (the "non-EPIC defendants"), purchased either mortgage pass-through certificates ("certificateholders") or whole loans ("whole loan holders").
10. EMI was a mortgage banking corporation which, among other things, originated the mortgage loans on the properties acquired by the EPIC partnerships ("EPIC product loans"). EMI was an indirect subsidiary of Community.
11. EMI ultimately sold the EPIC product loans to, among others, the non-EPIC defendants.
12. Equity Programs Investment Corporation (EPIC) was founded in 1974 based upon the concept that model homes could be purchased and leased back to builders. The EPIC Program, as of July 1981, was "national in concept and in practice."
13. EPIC was founded by Mr. Tom Billman in 1975. Mr. Billman held a substantial interest in EPIC and its affiliated organizations until approximately late February 1985, when the EPIC organization was restructured. Prior to February 1985, Billman owned 80% of EPIC Holdings, Ltd. (the ultimate parent of CSL and the EPIC group of companies); McCuistion owned 20%.
14. EPIC was in the business of organizing, syndicating, operating, and serving as general partner of certain real estate limited partnerships ("the EPIC partnerships").
15. In the earlier years of EPIC, the houses bought by EPIC limited partnerships were typically model homes, which would then be leased back to the seller/builder. Those leases would call for rent greater than that available from the public. Positive cash flow was generated, and those partnerships were therefore called "income partnerships."
16. In the latter years of EPIC's operation (including the time-period in which Foremost dealt with EPIC), the EPIC limited partnerships primarily bought "production" rather than "model" houses. Those houses would be leased to the general public at rates inadequate to cover expenses; accordingly, the limited partner investors sought and received tax deductions as one benefit of their investments, and these partnerships were called "tax partnerships." Typically these were "two-to-one" deals, whereby (for example) a limited partner might invest $10,000 and be entitled to take a $20,000 deduction on his tax return.
17. In its first full year of operation, 1975, EPIC purchased sixty-eight model homes at a total capitalized cost of approximately $4,000,000. EPIC had developed a novel idea of promoting the purchase and syndication of model homes. It perceived that home builders would be interested in selling their model homes to EPIC and leasing them back at an agreed upon rent. EPIC entered these sale-leaseback transactions with the intent to syndicate the homes into real estate limited partnerships. The limited partners would realize tax benefits and the possibility of appreciation in the properties. The EPIC system was described as a six step process:
To continue reading
Request your trial
-
State of Md. Deposit Ins. Fund Corp. v. Billman
...Foremost Guaranty Corp. v. Meritor Savings Bank, 910 F.2d 118 (4th Cir.1990), aff'g in part and rev'g in part In re Epic Mortgage Ins. Litigation, 701 F.Supp. 1192 (E.D.Va.1988).6 Specifically, MDIF claimed the total of the purchase prices, $417,340, and the total of the tax payments, $397,......
-
Hollinger v. Titan Capital Corp.
...has not explicitly found recklessness to be sufficient, district courts in that circuit have so held. See In re EPIC Mortgage Ins. Litig., 701 F.Supp. 1192, 1250 (E.D.Va.1988) (citing cases), aff'd in part, rev'd in part on other grounds sub nom. Foremost Guar. Corp. v. Meritor Sav. Bank, 9......
-
In re Microstrategy, Inc. Securities Litigation
...to allege that the Defendants acted recklessly or with the intent to deceive, manipulate, or defraud...."); In re EPIC Mortgage Ins. Litig., 701 F.Supp. 1192, 1250 (E.D.Va.1988) (observing that recklessness has been a sufficient ground for scienter), aff'd in part, rev'd in part on other gr......
-
US v. Crysopt Corp.
...directors of a corporation were allegedly liable "persons" and the corporation itself was the "enterprise"). In In re EPIC Mortgage Ins. Litig., 701 F.Supp. 1192 (E.D.Va 1988), aff'd in part and rev'd in part on different grounds sub nom. Foremost Guaranty Corp. v. Meritor Sav. Bank, 910 F.......
-
Misrepresentations in insurance applications: dangers in those lies.
...STAT. ANN. [section] 304.14-110. (54) See Mooney v. Nationwide Mut. Ins., 577 N.Y.S.2d 506, 508 (N.Y. App. Div. 3d Dep't 1991). (55) 701 F. Supp. 1192, 1242 (E.D. Va. (56) See Patterson v. Liberty Nat'l Life Ins., 903 So. 2d 769 (Ala. 2004); Rubes v. Mega Life & Health Ins. Co., Inc., 6......