In re G-Fees Antitrust Litigation

• Decision Date: 29 October 2008
• Docket Number: Civil Action No. 05-114 (RWR).
• Citation: 584 F.Supp.2d 26
• Parties: In re: G-FEES ANTITRUST LITIGATION. This Document Relates To: All Actions.
• Court: U.S. District Court — District of Columbia

584 F.Supp.2d 26

In re: G-FEES ANTITRUST LITIGATION This Document Relates To: All Actions.

Civil Action No. 05-114 (RWR).

United States District Court, District of Columbia.

October 29, 2008.

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Jennifer W. Sprengel, Patrick E. Cafferty, Cafferty Faucher LLP, Ann Arbor, MI, Joe R. Whatley, Jr., Whatley Drake & Kallas, LLC, New York, NY, Marvin A. Miller, Miller Law LLC, Chicago, IL, Peter H. Burke, Gordon Douglas Jones, Richard P. Rouco, Whatley Drake, LLC, Birmingham, AL, Keith T. Vernon, Climaco, Lefkowitz, Peca, Wilcox & Garofoli Co., L.P.A., Reuben A. Guttman, Wolf Haldenstein Adler Freeman & Herz, LLP, Washington, DC, Adam J. Coates, Michael J. Walsh, Jr., O'Melveny & Meyers, LLP, Graciela Maria Rodriguez, Megan Kathleen Greene, King & Spalding, LLP, Kristen Ceara Limarzi, U.S. Department of Justice, Washington, DC, Jeffrey Q.Smith, McKee Nelson, L.L.P., New York, NY, for In re G-Fees Antitrust Litigation.

MEMORANDUM OPINION AND ORDER

RICHARD W. ROBERTS, District Judge.

Plaintiffs, putative representatives of a nationwide class, have sued defendants Federal National Mortgage Home Loan Association ("Fannie Mae") and Federal National Home Loan Mortgage Corporation ("Freddie Mac"), alleging federal antitrust violations and violations of selected state antitrust and consumer protection laws. Defendants have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss all claims asserted in plaintiffs' consolidated class action complaint for failure to state a claim upon which relief may be granted. Plaintiffs have opposed the motion. Because plaintiffs have failed to state a claim upon which relief may be granted except as to federal treble damage claims and certain groups of plaintiffs arising under certain state laws, the motion to dismiss will be granted in part and denied in part. Specifically, the motion will be denied as to plaintiffs' damages claims arising under (1) § 4 of the Clayton Act, 15 U.S.C. § 15, because plaintiffs have pled sufficient facts to establish antitrust standing; (2) Arizona's Antitrust Act, Ariz. Rev.Stat. § 44-1401 et seq., because plaintiffs have pled sufficient facts to establish a cognizable antitrust claim; (3) Minnesota's Antitrust Act, Minn. Stat. § 325D.52 et seq., because plaintiffs have pled sufficient facts to establish a cognizable antitrust claim; (4) Florida's Deceptive and Unfair Trade Practices Act, Fla. Stat. Ann. § 501.201 et seq., because plaintiffs have sufficiently alleged that they suffered a loss as a result of a violation of the statute; (5) West Virginia's antitrust statutes, § 47-18-1 et seq., because plaintiffs have sufficiently alleged that they suffered an antitrust injury under the private damages provision of the statute; (6) Wisconsin's antitrust statute, Wis. Stat. Ann. § 122.01 et seq., because plaintiffs have sufficiently alleged an antitrust injury under Wisconsin law; and (7) the common law of Arizona, Colorado, Connecticut, Florida, Idaho, Minnesota, New Jersey, New York, Pennsylvania, West Virginia, Wisconsin and Texas, because plaintiffs have alleged facts sufficient to support an inference of unjust enrichment under the common law of those jurisdictions. Defendants' motion to dismiss will be granted as to all other claims because plaintiffs have failed to allege a future injury justifying injunctive relief under federal or state laws, plaintiffs have not alleged an antitrust injury cognizable under the New Jersey or New York antitrust statutes, plaintiffs have not alleged an injury cognizable under the consumer protection statutes of the District of Columbia, New York, or Virginia, and plaintiffs have failed to establish standing to bring suit under the laws of states where no plaintiff is alleged to have purchased a mortgage.

BACKGROUND

Defendants Fannie Mae and Freddie Mac are federally chartered corporations with shares that are traded publicly on the New York Stock Exchange. Fannie Mae was established by Congress to "provide stability in" and "ongoing assistance to the secondary market for residential mortgages ... by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing[.]" 12 U.S.C. § 1716(3). It was authorized to "manage and liquidate federally owned mortgage portfolios," 12 U.S.C. § 1716, and to "purchase, service, sell" certain residential mortgages. 12 U.S.C. § 1717(b). For similar reasons, Freddie Mac was "authorized to purchase ... residential mortgages" within statutorily prescribed limits. 12 U.S.C. § 1454.

According to plaintiffs, Fannie Mae and Freddie Mac operate exclusively in the secondary mortgage market and are expressly prohibited by their charters from lending directly to consumers. ("Consolidated Class Action Compl. ("Compl.") ¶ 28.) Fannie Mae and Freddie Mac purchase portfolios of residential mortgages originated by commercial lenders in the primary mortgage market and package the portfolios to create mortgage-backed securities as liquid instruments that trade in capital markets. (Id. ¶¶ 23, 29, 30.) The payment stream from the pooled mortgages underlying a mortgage-backed security flows through to the certificate holder of the security and constitutes its core value. (Id. ¶¶ 29, 30.) When Fannie Mae and Freddie Mac package mortgages as securities, they guarantee to the certificate holders the timely payment of the mortgages' principal and interest. (Id. ¶¶ 30, 45.)

Fannie Mae and Freddie Mac insure this guarantee against the possibility of defaults in the underlying portfolio by collecting a guarantee fee ("G-fee"). (Id. ¶ 30.) Any lender hoping to sell its residential mortgages to Fannie Mae or Freddie Mac must negotiate to become an approved seller/servicer, and then must originate mortgages that conform to Fannie Mae's or Freddie Mac's specifications, which include the G-fee. (Id. ¶¶ 38-42.) The amount of the G-fee is generally paid by the mortgage holder on a monthly basis from a portion of the interest payment received on the underlying mortgage loans. (Id. ¶ 47.) Plaintiffs allege that lenders pass on to the borrowers all of the G-fee cost. (Id. ¶ 42.) In most cases, the borrower is unaware of the G-fee, which is incorporated into the pricing of the mortgage loan (id. ¶ 46) and paid by the borrower "in the form of higher monthly payments (i.e., higher interest rates)." (Id. ¶ 39; see also id. ¶ 47.)

To the extent that the borrowers in the underlying mortgage portfolios do not default, the G-fees become profit for the defendants. (Id. ¶ 32.) Alternatively, to the extent that borrowers default, the collected G-fees must be tapped to make good on the guarantees to the certificate holders. (Id.) On average, G-fees amount to nearly two-tenths of one percent, or 0.0019, of the loan (id. ¶¶ 2, 44), but may vary across originating lenders. The exact amount collected by each lender is negotiated in secret between that lender and Fannie Mae or Freddie Mac and is, at Fannie Mae's or Freddie Mac's insistence, maintained in secret. (Id. ¶ 46.)

Plaintiffs are individuals or entities, residents and presumed citizens of Arizona, Colorado, Connecticut, Florida, Idaho, Minnesota, New Jersey, New York, Pennsylvania, Texas, West Virginia, and Wisconsin, who have obtained, after January 1, 2001, from a commercial lender operating in the primary mortgage market in the United States a conforming mortgage loan that contains a G-fee set by one of the defendants.¹ (Id. ¶¶ 1, 10, 15, 28.) Plaintiffs allege that Fannie Mae and Freddie Mac conspired with each other to fix the price of the G-fee when instead they should have been competing with each other in G-fee pricing. As a result, plaintiffs say, they have suffered damages to the extent that the alleged conspiracy produced higher G-fees than competitive pricing would have produced. (Id. ¶¶ 47-48, 52-58, 63, 65-66, 73-75, 76.) Specifically, plaintiffs allege that defendants have violated the federal antitrust law, 15 U.S.C. § 1, by engaging in a horizontal contract, combination or conspiracy in unreasonable restraint of trade, and seek both treble damages and declaratory and injunctive relief for defendants' alleged federal violations. Plaintiffs also seek damages and injunctive relief for alleged violations of the antitrust laws of twenty-two states and the District of Columbia, for alleged violations of Florida's Deceptive Trade Practices Act, for Fannie Mae's alleged violation of the District of Columbia's consumer protection law, and for Freddie Mac's alleged violation of Virginia's consumer protection statute. Finally, plaintiffs seek the equitable remedies of restitution, disgorgement or a constructive trust for the alleged unjust enrichment resulting from the conspiracy in restraint of trade. Defendants argue that each of plaintiffs' claims should be dismissed for failure to state a claim upon which relief may be granted.

DISCUSSION

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). A court considering a Rule 12(b)(6) motion to dismiss assumes all factual allegations in the complaint to be true, even if they are doubtful. Bell Ail. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007); Kowal v. MCI Communc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994) (noting that a court must construe the complaint "liberally in the plaintiffs' favor" and "grant plaintiffs the benefit of all inferences that can be derived from the facts alleged"). A court need not, however, "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Nor must [a] court accept legal conclusions cast in the form of factual allegations." Kowal, 16 F.3d at 1276. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual...