Friedman v. Market Street Mortg. Corp.

• Decision Date: 20 March 2008
• Docket Number: No. 05-13820.,05-13820.
• Citation: 520 F.3d 1289
• Parties: Edward FRIEDMAN, Lori Friedman, Plaintiffs-Appellees, v. MARKET STREET MORTGAGE CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

520 F.3d 1289

Edward FRIEDMAN, Lori Friedman, Plaintiffs-Appellees, v. MARKET STREET MORTGAGE CORPORATION, Defendant-Appellant.

No. 05-13820.

United States Court of Appeals, Eleventh Circuit.

March 20, 2008.

Cynthia G. Swann, Weiner, Brodsky, Sidman & Kider, P.C., Washington, DC, for Defendant-Appellant.

Philip D. Parrish, Philip D. Parrish, P.A., South Miami, FL, for Plaintiffs-Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, FAY and SILER^*, Circuit Judges.

TJOFLAT, Circuit Judge:

In this appeal, Market Street Mortgage Corporation ("Market Street") contends that the district court erred in certifying a class of persons represented by Edward and Lori Friedman, in which the stated common question of law is whether Market Street violated subsection 8(b) of the Real Estate Settlement Procedures Act of 1974 ("RESPA"), codified at 12 U.S.C. § 2607(b), by requiring loan borrowers to pay an escrow waiver fee for which Market Street had performed no services. Because we find that this class certification order violated the law of the case and because we also hold that subsection 8(b) does not apply to settlement fees that are alleged to be excessive, we reverse the district court's certification order and remand the case with instructions to dismiss the Friedmans' complaint with prejudice.

The facts and procedural history are presented in Part I of this opinion. Part II discusses the application of the mandate to the Friedmans' case. Part III reads the plain language of subsection 8(b) and holds that it is not a price control provision intended to police the reasonableness of settlement fees. Part IV concludes.

I.

A.

Edward and Lori Friedman refinanced their home mortgage on September 5, 2002 with a loan amount of $222,500. According to the standard mortgage contract of the lender, Market Street, a borrower is required to make monthly payments into escrow for items such as taxes, insurance premiums, and "other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property." The escrow payments therefore protect the lender's interest in the property securing the loan.

The majority of loans originated by Market Street are escrowed loans. However, certain borrowers may prefer a different arrangement. At their sole option, borrowers can obtain a waiver of the escrow requirement by paying a one-time escrow waiver fee and assuming the primary responsibility to make payments for taxes and insurance premiums directly.¹ The benefit to borrowers who choose a non-escrowed loan is that the borrowers retain control over the monies that would otherwise be paid into escrow until such time as they make the payments directly.

The Friedmans requested and received a non-escrowed loan, for which they signed a standardized Escrow Waiver Agreement. Pursuant to that agreement, the Friedmans agreed to make timely payments to the appropriate tax and insurance entities and to provide copies of the receipts to Market Street as evidence that the payments were made. As was disclosed on the HUD-1 Settlement Statement signed by the Friedmans at the time of closing the Friedmans were charged an escrow waiver fee of a quarter of one percent of the total loan amount, or $556.25.

Consistent with common industry practice, Market Street subsequently sold the Friedmans' mortgage loan on the secondary mortgage market to Washington Mutual Bank. On October 3, 2002, Market Street notified the Friedmans that the transfer of the loan's servicing rights to Washington Mutual would be effective on November 1, 2002.

B.

On April 16, 2003, the Friedmans filed suit against Market Street in the United States District Court for the Southern District of Florida, alleging that no services were performed by Market Street in exchange for the escrow waiver fee in violation of subsection 8(b) of RESPA. That section reads, in pertinent part:

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.

Market Street moved to dismiss the action under Federal Rule of Civil Procedure 12(b)(6), arguing that the Friedmans did not state a claim under subsection 8(b) because they did not allege that the escrow waiver fee was shared or split with a third party. On June 9, 2003, the Friedmans filed a motion for class certification on behalf of "[a]ll persons who after April 16, 2002 were charged an Escrow Waiver Fee by Market Street Mortgage Corporation and thereafter Market Street Mortgage Corporation did not provide escrow services."² Consistent with the holdings of the Fourth, Seventh, and Eighth Circuits,³ the district court agreed that the plain language of the statute requires that a subsection 8(b) claim must contain an allegation that the defendant has shared or split an unearned settlement fee with a third party, and granted Market Street's motion to dismiss the Friedmans' complaint on July 1, 2003.

Our subsequent decision in Sosa v. Chase Manhattan Mortgage Corporation contained language that a single party can be held to violate subsection 8(b) by marking up the charge of another settlement service provider, because "[g]iving a portion of a charge is prohibited regardless of whether there is a culpable acceptor, and accepting a portion of a charge is prohibited regardless of whether there is a culpable giver." Sosa, 348 F.3d 979, 982-83 (11th Cir.2003). On August 20, 2003, the Friedmans appealed the district court's judgment dismissing their complaint, arguing that Sosa required reversal of the district court's decision.

In a May 26, 2004 unpublished decision, a panel of this court declined to decide whether the language in Sosa is controlling or is dicta, and affirmed the district court's judgment because "the only allegation in the Friedmans' complaint is that Market Street rendered no services in exchange for the fee, and it is clear from the pleadings that some services were contemplated in exchange for the fee, such as monitoring the payment of taxes and insurance." Friedman v. Market Street Mortgage Corp. (Friedman I), No. 03-14370 slip op. at 3, 107 Fed.Appx. 888 (11th Cir.2004).

In its opinion, the Friedman I panel expressly declined to entertain an argument that the Friedmans had not presented to the district court in their complaint, namely, that subsection 8(b) prohibits the charging of fees that are excessive in relation to services actually performed. However, the panel apparently felt that the Friedmans ought to have an opportunity to present an excessive-fee claim to the district court because its mandate included a proviso that the Friedmans be given "a limited opportunity to amend their complaint so as to allege that Market Street charged an excessive fee in exchange for the services contemplated." Id. at 3-4.⁴

The Friedmans filed an amended complaint on June 17, 2004, which re-alleged that Market Street rendered no services in exchange for the escrow waiver fee, and also alleged, in accordance with the Friedman I mandate, that the escrow waiver fee was excessive in relation to services performed. Then, on March 31, 2005, they filed a second motion for class certification, requesting the certification of "[a]ll persons who after April 16, 2002 were charged an escrow waiver fee by Market Street Mortgage Corporation." In a memorandum in support of the motion, the Friedmans argued that no individualized analysis of the value of the services (and thus the reasonableness of the fee charged) was required because their amended complaint alleged that "no services whatsoever" w"ere rendered by Market Street.

On June 8, 2005, the district court certified a class of "[a]ll persons who after April 16, 2002 were charged an escrow waiver fee by Market Street Mortgage Corporation and whose mortgage loan was sold by Market Street Mortgage Corporation within (1) one year from the date of the closing of said loan." The court found that "[t]he overriding common question of law is whether Market Street Mortgage Corporation violated RE SPA by charging an escrow waiver fee under such circumstances where no service was rendered by the defendant." (emphasis added). This order is now before us pursuant to the grant of Market Street's petition for review under Federal Rule of Civil Procedure 23(f).

II.

The Friedmans' primary argument on appeal is that nothing in the Friedman I opinion precluded them from re-pleading the claim that no services were performed by Market Street in exchange for the escrow waiver fee. Indeed, the Friedmans go even further by arguing that in Friedman I, "this Honorable Court allowed Plaintiffs the opportunity to replead and to conduct discovery to determine whether, in fact, Market Street actually performed post closing services in monitoring that the homeowner's taxes and insurance premium was paid, year after year."

We are deeply troubled by this argument. The mandate in this case was clear and specific. We held, without equivocation, that some services were rendered in this case: "[T]he only allegation in the Friedmans' complaint is that Market Street rendered no services in exchange for the fee, and it is clear from the pleadings that some services were contemplated in exchange for the fee, such as monitoring the payment of taxes and insurance." The question of whether services were rendered in this case was settled. If the Friedmans thought it was not settled, they could have moved for clarification of the mandate, or for rehearing. They did neither. Instead, the Friedmans simply obtained the district court's leave to amend their complaint so as to allege that the escrow waiver fee was excessive in relation to services performed by Market Street.

On limited remand for the specific purpose of giving...