Menichino v. Citibank, N.A.
| Decision Date | 19 July 2013 |
| Docket Number | Civil Action No. 12-0058 |
| Parties | LINDA MENICHINO, et al., individually and on behalf of all others similarly situated, Plaintiffs, v, CITIBANK, N.A., et al., Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
This is a putative class action for mortgage services fraud pursuant to the Real Estate Settlement and Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., Plaintiff Linda Menichino, on behalf of herself and others similarly situated, alleges that Defendants Citibank, N.A., CitiMortgage, Inc., ABN AMRO Mortgage Group (the mortgagees), Citibank Mortgage RE, AAMBG RE (the captive reinsurers), and Radian Guaranty Inc., Genworth Mortgage Insurance Corporation, and Mortgage Guaranty Insurance Corporation (the primary mortgage insurers, or PMIs) engaged in an unlawful fee-splitting and kickback arrangement in connection with the Plaintiffs' residential mortgages. The Plaintiffs also bring a state-law unjust enrichment claim pursuant to 28 U.S.C. § 1367. They request treble damages, attorneys' fees, and costs. The Defendants have filed Motions to Dismiss in accordance with Federal Rule of Civil Procedure12(b)(6),1 arguing that the Plaintiffs' claims are untimely because they were brought outside of RESPA's one-year statute of limitations. See 12 U.S.C. § 2614.
Because the Plaintiffs' claims are facially untimely and they have not pled nearly enough to save their claims via any recognized tolling doctrine, the Defendants' Motions to Dismiss (ECF Nos. 92, 96) will be granted, without prejudice.
The facts set forth below are derived entirely from the Plaintiffs' First Amended Complaint ("FAC" or "Complaint," ECF No. 64). The Plaintiffs allege that the Defendants engaged in a reinsurance scheme where no real risk was transferred between the PMIs and the mortgagees' reinsurance subsidiaries in violation of RESPA's prohibition on kickbacks and unearned fees. (Id. at ¶¶ 11, 64-98; see also 12 U.S.C. § 2607(a)-(b).) Although the Plaintiffs concede that their claims fall outside of RESPA's one-year statute of limitations, they contend that they were prevented from learning about their claims' existence because the Defendants fraudulently concealed the true purpose of the arrangement. The Plaintiffs argue that: (1) RESPA's one-year statute of limitations may be equitably tolled, and (2) they have pled sufficient facts to toll the statute here. The Defendants contend that the claims are unsalvageable.
The thirteen (13) named Plaintiffs in this lawsuit obtained residential mortgages from one of the two mortgagee defendants between 2005 and 2008. (FAC at ¶¶ 12-21.) They reside in sixstates: Pennsylvania, North Carolina, Georgia, Maryland, New York, and Illinois. (Id.) Because the Plaintiffs made down payments of less than 20 percent of the price of their homes, the mortgagee Defendants required them to purchase mortgage insurance from the various PMI defendants. (Id. at ¶¶ 2, 12-21.) Primary mortgage insurance protects the mortgagee in the event that the borrower defaults on the loan. (Id. at ¶ 2.) In a typical primary mortgage insurance arrangement, the PMI will indemnify the mortgagee only up to the first 20-30 percent of the potential claim for coverage. (Id. at ¶ 51.) The insurance premiums are paid by the borrower to the mortgagee either directly through additional monthly premium or indirectly through a higher interest rate; the mortgagee then remits the premium to the PMI. (Id. at ¶¶ 50-52.) The terms of the policy, including the selection of the PMI, are arranged entirely by the mortgagee without the borrower's involvement. (Id. at ¶ 53.) The mortgagee is the policy's sole beneficiary. (Id.)
Once the PMI has contracted with the mortgagee to provide insurance coverage, the PMI will in turn hedge its position by purchasing its own insurance, or "reinsurance," on a portion of the risk that it has assumed under the insurance contract. (Id. at ¶ 54.) Reinsurance in the mortgage industry is sold in one of two forms: as a "quota share," where the reinsurer agrees to assume a fixed percentage of the PMI's total loss under the insurance contract with the mortgagee, or as an "excess-of-loss," where the reinsurer is liable to the PMI only for a specified dollar "band" of loss, such that dollar losses below the band and dollar losses above the band are borne entirely by the PMI. (Id. at ¶¶ 55-57.)
As the Plaintiffs explain in their voluminous Complaint, (Id. at ¶ 58.) To increase their presence in thismarket space, many mortgage lending companies created reinsurance subsidies "to enter into contracts with private mortgage insurance providers, whereby the reinsurer typically agreed to assume a portion of the private mortgage insurer's risk with respect to a given pool of loans," (Id.) Essentially, in exchange for the mortgagee's steady stream of business, PMIs agree to reinsure their interests with that mortgagee exclusively through the mortgagee's reinsurance subsidiary. This arrangement is known as "captive" reinsurance because the PMI is not free to contract with other reinsurers with respect to the loans it insures for the particular mortgagee. Captive reinsurance was and still is widespread within the mortgage services industry, and is lawful as long as there is "a real transfer of risk" between the PMI and the captive reinsurer. (Id. at ¶¶ 58-59, 61.)
RESPA prohibits the delivery or acceptance of any referral fee, kickback, or fee-split in connection with the provision of real estate settlement services. 12 U.S.C. § 2607(a)-(b). Fees for "services actually performed" do not fall within this prohibition. Id. The statute's purpose is to provide home buyers with accurate information on the nature and costs of the real estate settlement process and to protect them from unnecessarily high settlement charges and other abusive practices designed to increase fees. § 2601.
Not surprisingly, captive reinsurance arrangements are vulnerable to scrutiny under RESPA because the mortgage lender's parent company is also the parent of the reinsurer. By 1997, the U.S. Department of Housing and Urban Development began advising mortgagees that captive reinsurance arrangements where "there is no reasonable expectation that the reinsurer will ever have to pay claims" to the PMI would warrant scrutiny because such transactions contain no "real transfer of risk" between the parties. (FAC at ¶ 61; see also ECF No. 64, Ex. 22.) The Financial Accounting Standards Board has decreed that to meet the risk transferrequirement, it must be reasonably likely that the reinsurer could sustain a significant loss from the transaction. (FAC at ¶¶ 68-75.)
The named plaintiffs in this lawsuit closed on their residential mortgages between 2005 and 2008. (Id. at ¶¶ 12-21.) Each purchased their mortgage from either Citibank or ABN AMRO and their primary mortgage insurance from either Genworth, Radian, or Mortgage Guaranty, each of whom in turn was reinsured through either Citibank RE or AAMBG RE, their mortgagee's respective reinsurance subsidiary.
The mortgage documents that the Plaintiffs signed at closing contained disclosures regarding their mortgagee's captive reinsurance arrangement. For instance, ABM AMRO's disclosure states that it "may have entered into or may in the future enter into a reinsurance treaty with AAMBG Reinsurance," a subsidiary with whom ABN maintained "a business relationship."2 (Id. at ¶ 121.) Similarly, CitiMortgage's disclosure states that its captive reinsurer "Citibank Mortgage Reinsurance, Inc. will assume a portion of the risk associated with the Mortgage Insurance on your loan."3 (Id. at ¶ 122.) Both disclosures state that the PMI wouldbuy reinsurance only through the mortgagee's reinsurance subsidiary and would do so with a portion of the Plaintiffs' remitted mortgage payment.
Between September 2011 and August 2012, the Plaintiffs, after "obtain[ing] the assistance of counsel," began contacting their mortgagees and PMIs "in an effort to obtain further information about the reinsurance of the private mortgage insurance on [their] current mortgage[s]." (Id. at ¶¶ 126-40.) Each Plaintiff alleges that he or she spoke with a handful of customer service representatives who either could not provide any specific information about the loan's PMI or reinsurer, or claimed that they did not know the meaning of "captive reinsurance," or could not confirm who the particular Plaintiff's PMI was or if the mortgage was reinsured, or just provided flatly wrong information. Only named Plaintiff Rosemary Jackson alleges that she spoke with someone above the level of a customer service representative, namely a customer service supervisor who was still unable to answer her questions. (Id. at ¶ 134.)
The Plaintiffs contend that it was only after these inquiries that they were "put on notice of the possibility" of their claims, because the mortgage agreements that they signed at closing were "incomplete, inaccurate and/or misleading" "form documents" that were designed to foolthem into believing that real and significant risk was being transferred between the PMI and captive reinsurer. (Id.; see also ¶¶ 118-19.) Despite this allegation, however, the Plaintiffs also acknowledge (as they must) that the documents affirmatively indicated that the mortgages were almost certain to be reinsured by the mortgagees' respective reinsurance subsidiary because they made down payments of less than 20 percent. (Id. at ¶¶ 121-23.)
This action was originally filed on January 13, 2012. The Plaintiffs filed their FAC on ...
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