Alston v. Countrywide Financial Corp.
| Decision Date | 28 October 2009 |
| Docket Number | No. 08-4334.,08-4334. |
| Citation | 585 F.3d 753 |
| Parties | Mary ALSTON, individually and on behalf of all others similarly situated; Kevin Collier, individually and on behalf of all others similarly situated; Brad Augunas, individually and on behalf of all others similarly situated v. COUNTRYWIDE FINANCIAL CORPORATION; Countrywide Home Loans, Inc.; Balboa Reinsurance Company. Mary Alston; Kevin Collier; Brad Augunas, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Edward W. Ciolko, Esq., (Argued), Joseph H. Meltzer, Esq., Donna S. Moffa, Esq., Terence S. Ziegler, Esq., Barroway, Topaz, Kessler, Meltzer & Check, Radnor, PA, Eric G. Calhoun, Esq., Travis & Calhoun, Dallas, TX, for Appellants.
Christine N. Kohl, Esq. (Argued), Michael J. Singer, Esq., United States Department of Justice, Civil Division, Washington, DC, for USA-Intervenor.
David L. Permut, Esq. (Argued), Thomas Hefferon, Esq., Sallie F. Pullman, Esq., Goodwin Procter, Washington, DC, Martin C. Bryce, Jr., Esq., Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, for Appellees.
Before: BARRY, FISHER and JORDAN, Circuit Judges.
This putative class action was brought by homebuyers who sought to recover statutory treble damages pursuant to section 8(d)(2) of the Real Estate Settlement Procedures Act of 1974 ("RESPA"), codified at 12 U.S.C. § 2607(d)(2). Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful "captive reinsurance arrangement" — essentially, a kickback scheme — operated by their mortgage lender, Countrywide Home Loans ("Countrywide"), and its affiliated reinsurer, Balboa Reinsurance Co. ("Balboa"), in violation of RESPA section 8(a) and section 8(b), 12 U.S.C. § 2607(a)-(b).1 The thrust of their complaint was that, in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide's invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing. The District Court disagreed and dismissed the complaint without prejudice for lack of jurisdiction. We have jurisdiction over plaintiffs' appeal under 28 U.S.C. § 1291.
What is before us for decision turns on a question of statutory interpretation — does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does. Accordingly, we will reverse the Order of the District Court.
The focus of our attention in this appeal is RESPA section 8 and, thus, we begin by setting forth its various subsections. Section 8(a) prohibits "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." 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). Section 8(c) is a safe harbor provision for certain activities otherwise prohibited by section 8(a) and section 8(b), including the provision of "bona fide ... payment[s] ... for services actually performed." Id. § 2607(c)(2).
Congress charged the Department of Housing and Urban Development ("HUD") with the administration and enforcement of RESPA. Id. §§ 2607(d)(4), 2617. To that end, HUD can "prescribe such rules and regulations" and "make such interpretations ... as may be necessary to achieve the purposes of [the Act]." Id. § 2617(a). HUD's regulations — compiled in the somewhat mysteriously titled "Regulation X" — are set forth at 24 C.F.R. pt. 3500.
RESPA section 8 has a penalties subsection, section 8(d), that both prescribes criminal penalties for section 8 violations, 12 U.S.C. § 2607(d)(1), and authorizes HUD, state attorneys general, and insurance commissioners to bring civil actions for injunctive relief. Id. § 2607(d)(4). Congress also authorized private actions against a person who violates section 8. As amended in 1983, section 8(d)(2) provides that "[a]ny person or persons who violate the prohibition 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." Id. § 2607(d)(2). It is this subsection of section 8 that is the primary focus of our attention and the one we are called upon to construe.
Plaintiffs obtained home mortgages from Countrywide in 2005 and 2006. Because each plaintiff made a down payment of less than twenty percent, Countrywide required that he or she obtain private mortgage insurance ("PMI").2 Plaintiffs alleged that Countrywide referred them to mortgage insurers that would "reinsure" their PMI policies with Balboa, a Countrywide affiliate, pursuant to a "captive reinsurance arrangement."3
Under a "captive reinsurance arrangement," according to plaintiffs, the lender's affiliate typically provides reinsurance to an unrelated primary mortgage insurer. That insurer and the lender-affiliated reinsurer enter into an agreement under which the former pays the latter a portion of the borrower's insurance premiums; in return, the reinsurer assumes a portion of the primary insurer's risk. Reinsurance agreements generally fall into one of two categories. In a "quota share" agreement, the reinsurer bears a set percentage of all insured losses. In an "excess loss" agreement, the type of agreement at issue here, the primary insurer pays, and is solely responsible for, claims arising out of a given book of business up to a predetermined amount, after which the reinsurer is obligated to reimburse the primary insurer's claims up to another predetermined amount.4 Above that band of reinsurance the primary insurer is solely responsible for additional losses.
Plaintiffs alleged that Balboa did not assume risk commensurate with the amount of premiums it received from plaintiffs' primary mortgage insurers. According to the complaint, Balboa has collected over $892 million in reinsurance premiums since 1999 and has paid nothing in claims. Plaintiffs thus contended that the reinsurance premiums paid to Balboa, Countrywide's affiliate, were kickbacks to Countrywide by the primary insurer, in return for Countrywide's referral of PMI business to the primary insurer, thereby violating RESPA's anti-kickback provision, section 8(a). Plaintiffs also alleged that, under this scheme, Countrywide accepted a portion of the PMI premiums but provided no services in return — it offered only "sham" reinsurance coverage, in violation of section 8(b). As a result of this scheme, plaintiffs contended, they were overcharged for mortgage insurance. They maintained, however, that even if such practices did not result in overcharges — the same assumption we will make in resolving this appeal — they were nonetheless entitled to kickback-free settlements and, thus, the statutory damages set forth at section 8(d)(2). These arrangements, they argue, harm consumers, and harmed them, even in the absence of overcharges, by:
(1) keeping premiums for PMI artificially inflated because a percentage of borrowers' premiums are not actually being paid to cover actual risk, but are simply funding illegal kickbacks to lenders such as Countrywide; (2) decreasing (or, in fact, eliminating) competition and choice among PMI providers which completely dis-incentivizes them from trying to earn more business through legitimate means such as price or product improvement; and (3) mak[ing] true disclosure of settlement-related costs or potential conflicts of interest difficult or obfuscation of the same easier.
Plaintiffs, we note, had yet another reason for pleading a violation of section 8 without alleging a resultant overcharge. In Pennsylvania, PMI providers are required to file their rates with the Pennsylvania Insurance Department ("PID"). See 40 Pa. Stat. Ann. § 710-5(a). Once a rate is approved by the PID, the providers cannot charge premiums that vary from that rate. Plaintiffs do not dispute that they paid rates for mortgage insurance that were filed with and approved by the PID. Accordingly, and viewed narrowly, whether or not a portion of their PMI premiums were repackaged as kickbacks to Countrywide, plaintiffs paid the same premiums they would have paid had their policies not been reinsured.
Countrywide moved to dismiss the complaint, arguing, inter alia, that plaintiffs' monthly PMI premiums were filed with the PID and, therefore, per se reasonable under the filed rate doctrine. Indeed, said Countrywide, the very reason plaintiffs could not allege an overcharge was because, as Pennsylvania residents, their PMI rates had been approved by the state. Absent an overcharge allegation, Countrywide argued, plaintiffs lacked standing to file suit under RESPA section 8, and lacked as well the requisite injury-in-fact to establish Article III standing. Countrywide also claimed that dismissal was warranted under RESPA's safe harbor provision, section 8(c), which excepts charges for settlement services, otherwise violative of section 8(a) or section 8(b), that are reasonably related to the value of goods or services provided. 12 U.S.C. § 2607(c)(2).
The District Court granted Countrywide's motion to dismiss. It first noted that, because "[p]laintiffs paid the only legal rate they could have paid for mortgage insurance in Pennsylvania," and those rates were "per...
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