Haehl v. Washington Mut. Bank, F.A.

• Decision Date: 12 August 2003
• Docket Number: No. 4:02-CV-225-DFH.,4:02-CV-225-DFH.
• Citation: 277 F.Supp.2d 933
• Parties: Brian D. HAEHL and Vera Quinn, individually and on behalf of all others similarly situated, Plaintiffs, v. WASHINGTON MUTUAL BANK, F.A., Washington Mutual, Inc., Defendants.
• Court: U.S. District Court — Southern District of Indiana

277 F.Supp.2d 933

Brian D. HAEHL and Vera Quinn, individually and on behalf of all others similarly situated, Plaintiffs, v. WASHINGTON MUTUAL BANK, F.A., Washington Mutual, Inc., Defendants.

No. 4:02-CV-225-DFH.

United States District Court, S.D. Indiana, New Albany Division.

August 12, 2003.

J. Spencer Harmon, Stites & Harbison, LLP, Jeffersonville, IN, K. Gregory Haynes, John W. Woodard, Jr., Michelle D. Wyrick, Wyatt, Tarrant & Combs, Louisville, KY, for Defendants.

Peter D. Palmer, Matthew J. Schad, Schad & Schad, New Albany, IN, for Plaintiffs.

ENTRY ON MOTION TO DISMISS

HAMILTON, District Judge.

This putative class action challenges the lending practices of a federally chartered and regulated savings association. Named plaintiffs Brain D. Haehl and Vera Quinn assert that defendant Washington Mutual Bank, F.A. violated the anti-kickback and unearned fee provision of the federal Real Estate Settlement Practices Act ("RESPA"), 12 U.S.C. § 2607, by charging and collecting "reconveyance" fees in connection with residential mortgages. In addition, plaintiffs allege state law claims for (1) fraud; (2) concealment, nondisclosure, and breach of a duty of good faith and fair dealing; (3) breach of fiduciary duty; (4) unjust enrichment; (5) conversion; and (6) violation of the Indiana Consumer Credit Code, Ind.Code § 24-4.5-2-202.

Washington Mutual Bank has moved to dismiss plaintiffs' first amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Washington Mutual Bank contends that plaintiffs have failed to allege a violation of RESPA and that plaintiffs' state law claims are preempted by the regulations promulgated pursuant to the federal Home Owners' Loan Act of 1933 ("HOLA"), 12 U.S.C. § 1461 et seq. In addition, defendant Washington Mutual, Inc. contends that it should be dismissed as a party to this suit. As explained below, the court grants the motion to dismiss.¹ Dismissal Standard Under Rule 12(b)(6)

For purposes of a motion to dismiss under Rule 12(b)(6), the court takes as true the factual allegations of the party asserting the claims and draws all reasonable inferences in favor of that party. Veazey v. Communications & Cable of Chicago, Inc., 194 F.3d 850, 853 (7th Cir. 1999). "Dismissal for failure to state a claim is proper only where the court is convinced, beyond a reasonable doubt, that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 625 (7th Cir.2001) (affirming dismissal of claims under RESPA).

Factual Allegations

Taking the well-pleaded factual allegations as true, plaintiffs Haehl and Quinn obtained residential mortgages from Washington Mutual Bank, F.A., a federally chartered savings association. Washington Mutual Bank charged plaintiffs a "reconveyance fee" despite the fact that they never conveyed their property interests to Washington Mutual Bank, so there was no reconveyance at all. Plaintiffs assert that Washington Mutual Bank, by charging the reconveyance fee, collected additional monies from its customers without providing any additional services. Plaintiffs also allege that Washington Mutual Bank included the reconveyance fee in the mortgage documents so that customers would believe that the payment was for services authorized or required by law.²

Discussion

I. The Federal Claim Under RESPA

Washington Mutual Bank is entitled to dismissal of the RESPA claim because plaintiffs have not alleged that it accepted a kickback or split an unearned fee with a third party. RESPA prohibits the payment of kickbacks and unearned fees in real estate settlements that involve a "federally related mortgage loan." 12 U.S.C. § 2607; Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 627 (7th Cir.2001). Plaintiffs have alleged that in charging reconveyance fees, Washington Mutual Bank was collecting unearned fees, which they argue constitutes a per se violation of RESPA. Am. Cplt. ¶¶ 40-41.

"At its core, `RESPA is an anti-kickback statute.' ... Its purpose is to `prohibit all kickback and referral fee arrangements whereby any payment is made or `thing of value' [is] furnished for the referral of real estate settlement business.'" Durr v. Intercounty Title Co. of Illinois, 14 F.3d 1183, 1186 (7th Cir.1994), quoting Mercado v. Calumet Fed. Sav. & Loan Ass'n, 763 F.2d 269, 270-71 (7th Cir.1985), in turn quoting S.Rep. 93-866, 93d Cong., 2d Sess. (1974), reprinted in 1974 U.S.Code Cong. & Admin.News 6551. Section 2607(a) prohibits a person from giving or receiving "any fee, kickback, or thing of value pursuant to any agreement or understanding ... [that is] a part of a real estate settlement service involving a federally related mortgage loan ..." 12 U.S.C. § 2607(a). Section 2607(b) prohibits fee splitting and provides that no person shall give or receive "any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service...." 12 U.S.C. § 2607(b). As the Seventh Circuit noted in Krzalic v. Republic Title Co.:

The statutory language describes a situation in which A charges B (the borrower) a fee of some sort, collects it, and then either splits it with C or gives C a portion or percentage (other than 50 percent—the situation that the statutory term "split" most naturally describes) of it. A might be a lawyer, and C a closing agent like Republic Title, and A might charge a legal fee to B and kick back a share of it to C for recommending to the borrower that he use A' s services. That would be a form of commercial bribery and is the target of section [2607(b)].

314 F.3d 875, 879 (7th Cir.2002) (affirming dismissal for failure to state a claim where plaintiffs alleged that a $14 overcharge by defendant constituted an "unearned fee" under RESPA).

Plaintiffs do not allege or argue that Washington Mutual Bank received unearned fees from a third party or gave a kickback to a third party. Rather, plaintiffs contend that the Seventh Circuit has interpreted RESPA broadly enough to include claims involving "bogus" unearned fees even when such fees are not shared with third parties. Pl. Br. at 12. In support of this proposition, plaintiffs cite United States v. Gannon, 684 F.2d 433 (7th Cir.1981) (en banc). Gannon does not help plaintiffs here.

In Gannon, a county employee in the recorder's office accepted payments in excess of the fee authorized by state law and pocketed the difference. The Seventh Circuit affirmed a criminal conviction for violation of RESPA. Although the court interpreted Congress' purpose broadly ("to stop all abusive practices that unreasonably inflate federally related settlement costs to the public"), the court explained that there was a limited set of circumstances in which a single individual or entity could violate RESPA: "We believe a single individual can violate § 2607(b) by receiving in his official capacity a `charge' for the rendering of settlement services, but personally keeping a portion of the charge in fact for something other than performance of those services." Id. at 438 (emphasis in original). The court's reasoning in Gannon was premised on the dual public and private capacities in which the employee had acted, so that the official Gannon was splitting the fee with the private Gannon. Subsequent Seventh Circuit cases have limited Gannon to that situation, which does not apply here.

In Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 626 (7th Cir.2001), the court clarified the holding of Gannon. In Echevarria, plaintiffs had accused their closing agent of overcharging them the recording fee and pocketing the difference in violation of RESPA's unearned fee provision. Plaintiffs relied on Gannon. In affirming the district court's dismissal of plaintiff's RESPA claim for failure to state a claim, the court distinguished Gannon on the basis that plaintiffs' closing agent had not "split the fee" by acting in a dual capacity:

We found [in Gannon] that these gratuities were an unearned regular portion of recording fees charged by the employee in his official capacity and accepted by him in his individual capacity. The case at issue, however, is easily distinguished from Gannon. Here, Chicago Title collected the fees from the plaintiffs in its capacity as a title company and retained the overcharges in that same capacity. We cannot employ a legal fiction to treat Chicago Title as both the giver and third party receiver of unearned fees because it acted in the same legal capacity when it overcharged plaintiffs and when it retained the monies in excess of the recording fees.

256 F.3d at 626. The court reasoned that subjecting to RESPA liability a company that kept an overcharge "without requiring allegations that it shared an unearned fee with a third party, [would be to] radically, and wrongly, expand the class of cases to which RESPA § 8(b) applies." Id. at 627.

After Echevarria was decided, the United States Department of Housing and Urban Development ("HUD") issued a policy statement disagreeing with the Seventh Circuit's decision in that case, stating that section 2607 is not "limited to situations where at least two persons split or share an unearned fee." HUD, Real Estate Settlement Procedures Act Statement of Policy 2001-1, 66 Fed.Reg. 53052, 53057 (Oct. 18, 2001), as quoted in Krzalic v. Republic Title Co., 314 F.3d 875, 877 (7th Cir.2002) (affirming dismissal for failure to state a claim under RESPA). In Krzalic, the Seventh Circuit later considered and flatly rejected HUD's broad interpretation of RESPA. Homeowners alleged that their real estate closing agent violated RESPA when he charged them more for recording their mortgages than he was charged by the recorder. On appeal, HUD filed an amicus brief in support of the homeowners.

In rejecting HUD's arguments and affirming the district court's dismissal of the...