Donaldson v. Primary Residential Mortg., Inc., Civil Action No. ELH-19-1175

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
Writing for the CourtEllen Lipton Hollander United States District Judge
Docket NumberCivil Action No. ELH-19-1175
Decision Date12 June 2020

RICHARD DONALDSON, et al., Plaintiffs,

Civil Action No. ELH-19-1175


June 12, 2020


This putative class action concerns an alleged kickback scheme between defendant Primary Residential Mortgage, Inc. ("PRMI" or "Primary Residential") and All Star Title, Inc. ("All Star"). Plaintiffs Richard Donaldson and Walter and Dawn Sperl, who are mortgagors, have sued defendant PRMI, alleging that PRMI made referrals of their loans and the loans of others to All Star for title and settlement services and, in exchange, All Star laundered payments to PRMI, largely through third party marketing companies. As a result of the scheme, plaintiffs allegedly paid inflated settlement fees. See ECF 1 (the "Complaint"). In particular, plaintiffs allege that the kickback scheme violates Section 8(a) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2607(a) (Count I) and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (Count III).1 The Complaint, which is about 60 pages in length, is supported by more than 40 exhibits.

Primary Residential has moved to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(6), and 12(b)(2). They assert that plaintiffs lack standing to advance their claims;

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have failed to state a claim; and the Court lacks personal jurisdiction with regard to the claims of certain putative class members. ECF 9. The motion is supported by a memorandum of law (ECF 9-1) (collectively, the "Motion") and an exhibit. ECF 9-2. Plaintiffs oppose the Motion (ECF 12), supported by a memorandum of law (ECF 12-1) (collectively, the "Opposition"). Defendant has replied. ECF 13. The parties have also directed the Court's attention to supplemental authority. See ECF 14; ECF 19.

All Star is not a party to this case. But, All Star's conduct is at issue here and in other suits in this District. Plaintiffs' lawyers in this case are also counsel to the plaintiffs in the other cases involving All Star in this District. See Somerville v. West Town Bank & Trust, PJM-19-0490; Walls v. Sierra Pacific Mortgage Co., Inc., GLR-19-595; Ekstrom v. Congressional Bank, ELH-20-1501.

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion in part and deny it in part.

I. Factual Background2

A. The Scheme

According to plaintiffs, Primary Residential, through its agents and employees, "received and accepted illegal kickbacks [from All Star] in exchange for the assignment and referral of residential mortgage loans, refinances and reverse mortgages to All Star for title and settlement services. . . ." ECF 1, ¶ 3. Further, plaintiffs assert that the borrowers of PRMI absorbed the

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"supracompetitive charges for title and settlement services," because the charges "were financed into the borrower's loans...." Id. ¶ 5. In furtherance of this scheme, plaintiffs contend that Primary Residential "laundered the kickbacks through third party marketing companies," id. ¶ 3, and "continuously and regularly used the U.S. Mail and interstate wires," in furtherance of the scheme, "over a period of at least five years. . . ." Id. ¶ 6.

Plaintiffs allege that since at least 2008, All Star "design[ed] and execut[ed] a scheme. . . with lenders and their mortgage brokers, loan officers and other employees. . . to charge borrowers higher prices for title and settlement services and defraud borrowers of their money through the use of U.S. Mail and wires." Id. ¶ 16. According to plaintiffs, in exchange for "assignment and referral of residential mortgage loans, refinances and reverse mortgages to All Star for title and settlement services," All Star paid "kickbacks" to mortgage lenders, based on the number of loans referred to All Star and the amount of profit All Star derived from the loan referrals. Id. ¶¶ 17, 18. Pursuant to the alleged scheme, All Star "charge[d] borrowers higher prices for title and settlement services than is possible in a competitive market," and was able "to exclude other title and settlement service companies from the market for title and settlement services on residential mortgage loans, refinances and reverse mortgages." Id. ¶ 30. Through these agreements, plaintiffs contend that All Star sought to "exclude All Star's competitors from the market for title and settlement services. . . and to deprive borrowers of their choice of title and settlement service provider on loans generated by the All Star funded kickbacks." Id. ¶ 36.

According to plaintiffs, these kickbacks took various forms. All Star sometimes purchased "marketing materials" for the mortgage lenders, "most commonly postage to be used by a [mortgage] lender to send direct mail solicitations." Id. ¶ 20. This money was paid directly to a "third party marketing company" and applied "to an invoice for marketing services for the

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benefit" of the participating mortgage lender. Id. ¶ 22. These third-party marketing companies, including Best Rate Referral, Influence Direct, and Camber Marketing Group, "specializ[ed]" in direct mail solicitations, production for direct mail solicitations, and "'live transfer' leads," in which potential borrowers who call a "centralized telemarketing company" are transferred "'live'" to a participating lender. Id. ¶ 23. On other occasions, All Star wrote checks directly to the mortgage lenders, which were deposited into a "sham entity set up for the express purpose of receiving and accepting kickbacks and concealing the same." Id. ¶ 21.

Moreover, plaintiffs allege that All Star and the participating lenders requested the third-party marketing companies to "issue sham invoices falsely stating the payment [was] being made by All Star for the purpose of purchasing marketing services from the third party marketing company." Id. ¶ 24. These invoices, according to plaintiffs, "creat[ed] the false impression that All Star [was] purchasing marketing services" for itself, rather than on behalf of the participating mortgage lender. Id. Plaintiffs assert that the payments were actually kickbacks to the participating lenders, made "in exchange for the assignment and referral of loans to All Star under the Kickback Agreement." Id. The "sham invoices conceal[ed] the fact that any thing of value [was] exchanged between All Star" and the mortgage lender. Id. ¶ 25. Sometimes, the invoices were "split" between All Star and the mortgage lender, id. ¶ 26, concealing the "coordinated business relationship" between All Star and the lender because the lender was not identified on the invoice paid by All Star. Id. ¶ 27.

Further, plaintiffs allege that All Star and the mortgage lenders "conceal[ed] the kickback payment[s] entirely by creating sham payment records." Id. ¶ 28. To accomplish the concealment, the participating mortgage lender would allegedly direct All Star "to launder a

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kickback through the third-party marketing company without the use or issuance of any invoice." Id.

According to plaintiffs, All Star and various mortgage lenders "conspire[d] to and form[ed] a cartel. . .", id. ¶ 31, in order to "fix the prices All Star charges the [mortgage lenders'] borrowers for title and settlement services on loans assigned and referred to All Star. . . ." Id. ¶ 32. They also agreed on minimum prices to charge borrowers. Id. ¶ 33. According to plaintiffs, these agreed-upon prices were "supracompetitive and higher than the prices that borrowers would have been charged for title and settlement services" in the absence of these agreements. Id. ¶ 35. The participating mortgage lenders agreed to "refuse to deal with any other title and settlement services company on those loans generated by All Star-funded kickbacks. . . ." Id. ¶ 34. The mortgage lenders benefited from these agreements because the higher prices resulted in higher interest and commissions, and because "the costs for title and settlement services fees were financed into the loan and paid for by borrowers from loan proceeds such that the [mortgage lenders] earn[ed] interest and other fees on the supracompetitive pricing." Id. ¶ 37.

In addition, plaintiffs contend that All Star and the participating mortgage lenders "use[d] the kickback payments to lure borrowers into the All Star Scheme, and in turn use[d] the interstate mails and wires to identify, solicit and lure borrowers" into the scheme. Id. ¶ 39. According to plaintiffs, some of the third party marketing companies would generate "leads lists," id. ¶ 40, which were then used to target "printed direct mail pieces. . .that encourage borrowers to contact the [mortgage lenders] and apply for a residential mortgage loan, refinance or reverse mortgage." Id. ¶ 41. These mailers included "false representations," including that a borrower would save "30-40% on title fees" through All Star. Id. ¶ 42. These false representations, according to plaintiffs, served to "prevent a borrower from trying to use a

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different title and settlement services company" and to "create the false impression that the prices charged the borrower for title and settlement services would be lower than the prices charged by All Star competitors." Id.

Plaintiffs also allege that All Star and the mortgage lenders used the leads generated by the third-party marketing companies "to solicit borrowers over the telephone and internet. . ." and to use "interstate wires to make these telemarketing calls to potential borrowers." Id. ¶ 44. According to plaintiffs, All Star requires the mortgage lenders "to make false representations" in these calls that are similar to those on the mail pieces. Id. Further, plaintiffs contend that live transfer leads, which utilize interstate wires, resulted in the mortgage lenders "negotiating, agreeing to and enforcing the fixed prices. . . ." Id. ¶¶ 45, 47. And, plaintiffs assert: "All Star's records...

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