Mims v. Stewart Title Guar. Co.

• Decision Date: 06 November 2007
• Docket Number: Civil Action No. 3:07-CV-1078-N.
• Citation: 521 F.Supp.2d 568
• Parties: John MIMS, et al., Plaintiffs, v. STEWART TITLE GUARANTY COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Texas

521 F.Supp.2d 568

John MIMS, et al., Plaintiffs, v. STEWART TITLE GUARANTY COMPANY, Defendant.

Civil Action No. 3:07-CV-1078-N.

United States District Court, N.D. Texas, Dallas Division.

November 6, 2007.

COPYRIGHT MATERIAL OMITTED

Eric G. Calhoun, Richard J. Pradarits, Jr., Travis & Calhoun, Dallas, TX, Edward W. Ciolko, Joseph H. Meltzer, Joseph A. Weeden, Katherine B. Bornstein, Schiffrin Barroway Topaz & Kessler LLP, Radnor, PA, for Plaintiffs.

John A. Koepke, Scott M. McElhaney, Jackson Walker, Dallas, TX, Gerard D. Kelly, Jeffrey E. Crane, Jeffrey D. Klingman, Sidley Austin LLP, Chicago, IL, for Defendant.

ORDER

DAVID C. GODBEY, District Judge.

This Order addresses Defendant Stewart Title Guaranty Company's ("Stewart") motion to dismiss [6] Plaintiffs John Mims, Lucy Mims, and Helen Cotton Ragland's complaint for failure to state a claim. For the reasons explained below, the Court denies Stewart's motion.¹

I. ALLEGATIONS OF ILLEGAL OVERCHARGES AND FEE SPLITTING

In Texas, lenders of mortgage loans require borrowers to purchase title insurance as a condition of making a residential mortgage loan. See Plaintiffs' Second Amended Complaint at ¶ 6. It insures the lender against certain defects in title to the property, and it remains in effect until the loan is repaid. Id. Lenders also require borrowers to purchase title insurance policies when the homeowners refinance their homes, and these policies are sometimes referred to as "reissue policies." Id. at ¶ 7.

The Texas Department of Insurance ("TDI") fixes the premium rates to be charged by title insurance companies. Id. at ¶ 8. The required rates for a original issue title insurance policy are called the "Basic Rates." Id. at ¶ 9. TDI has also adopted mandatory rates for reissue lender title policies, and these rates are calculated by using the Basic Rate less the "reissue discount." Id. at ¶ 10. The reissue discount rate ranges from 40% to 15%, with the rate decreasing as time elapses from the date of the mortgagee policy insuring the old mortgage. Id. at ¶ 11. The discount rate is 40% for policies reissued within two years from the date of the mortgagee policy insuring the old mortgage.

Plaintiffs allege that although they were refinancing their prior mortgages and procuring a reissue policy within two years from the date of the mortgagee policy insuring the old mortgage, Stewart failed to give Plaintiffs the mandatory 40% discount. Id. at ¶¶ 15, 18. Plaintiffs also allege that Stewart split the resulting illegal profits with Stewart's title agents. Plaintiffs argue that Stewart's actions violated section 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), as codified at 12 U.S.C. § 2607(b), and support claims for unjust enrichment and money had and received. Stewart moves to dismiss the complaint for failure to state a claim.

II. RULE 12(3)(6) STANDARD

When faced with a Rule 12(b)(6) motion to dismiss, the Court must determine whether the plaintiff has asserted a legally sufficient claim for relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir.1995). According to the Supreme Court, a viable complaint must include "enough facts to state a claim to relief that is plausible on its face," i.e., "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [the claim or element]." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1965, 1974, 167 L.Ed.2d 929 (2007).² A plaintiff is required, however, to provide "more than labels and conclusions, and a formulaic recitation of a cause of action will not do." Id. at 1965. "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). In ruling on a Rule 12(b)(6) motion, the court must limit its review to the face of the pleadings, accepting as true all well-pleaded facts and viewing them in the light most favorable to the plaintiff. Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir.1999).

III. THE REISSUE DISCOUNT IS MANDATORY

Plaintiffs have sufficiently alleged that they were entitled to receive a reissue discount. Stewart argues that Plaintiffs have not alleged that they were eligible for discounts because they failed to allege that they or anyone else informed Stewarts' title issuing agent that their old mortgages were insured, or that the title issuing agent otherwise knew the old mortgages were insured. Stewart's argument fails for at least two reasons. First, Stewart has offered no support for its claim that the mandatory rates are dependent upon it having had knowledge that Plaintiffs were eligible for the discounts, and Stewart has made no argument that the knowledge imparted to it by this lawsuit does not create a duty to rectify its previous oversight (by now reimbursing Plaintiffs). Second, even if Plaintiffs' eligibility for the mandatory discount depended on Stewart knowing that the Plaintiffs' old mortgages were insured, the Plaintiffs have explained in their briefing that, given a basic understanding of the title insurance industry, Stewart and its title agent would have known that Plaintiffs' old mortgages were insured.

IV. PLAINTIFFS HAVE SUFFICIENTLY ALLEGED VIOLATIONS OF RESPA

Plaintiffs' allegation that Stewart charged illegally excessive insurance premiums, coupled with their allegation that Stewart split the charges with the its title agents, is sufficient to state a claim for violations of RESPA section 8(b). That section provides:

Splitting Charges. 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 federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b). Although Plaintiffs' allegations are vague, they can be fairly read to support the following argument: Stewart charged excessive premiums. Stewart gave, and title agents accepted, a portion of the excessive premiums. The portion accepted by the title agents were excessive and not "for services actually performed," but instead were in the nature of kickbacks or referral fees.³ Construed in this manner, Plaintiffs' allegations sufficiently state a violation of section 8(b). See Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir.2002) (noting that section 8(b) "would clearly apply to situations where a mortgage lender overcharges a consumer and splits the overcharge with a mortgage service provider"); Patino v. Lawyers Title Ins. Corp., No. 3:06-CV-1479-B, slip op. at 6 (N.D.Tex. Jan. 11, 2007) (Boyle, J.) (finding that plaintiffs stated a claim under RE SPA 8(b) when they alleged excessive charges and fee splitting).

Nonetheless, Plaintiffs ask for too much when they suggest that Stewart automatically violated section 8(b) simply because Stewart split part of the excess premiums for which it had not actually provided services. The ultimate issue is not whether Stewart actually provided services for the excessive premiums, but whether the title agents actually provided services for the split Stewart gave to them. Although the Fifth Circuit has not directly addressed the issue, it is widely acknowledged that section 8(b) is "not a broad price-control provision." Boulware, 291 F.3d at 265; accord Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49, 57 (2d Cir.2004) (noting that "Congress did not intend section 8(b) to serve as a price-control mechanism"); Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir.2002) (same). Therefore, Stewart's excessive premiums, standing alone, do not violate section 8(b). Haug v. Bank of Am., N.A., 317 F.3d 832, 836 (8th Cir.2003) ("[A]n overcharge, standing alone, does not violate Section 8(b) of RESPA."). Merely adding the fact that Stewart paid a portion of the excessive premiums to title agents does not transform the overcharges into violations. Rather, the portion accepted by the title agents must have been other than "for services actually performed," such that the portion would be in the nature of a kickback or referral fee.⁴ Although the fact that Stewart did not actually perform services for the premiums is a strong indication that Stewart's sharing with title agents was other than for services actually performed, this is not necessarily the case. The title agents may have provided a service that warranted Stewart making the payments to them.⁵

Stewart's split with the title agents may have not been for services actually performed, and hence in violation of section 8(b), if the title agents' compensation was not reasonable in relation to the services they performed. Section 8(c), clarifying section 8(b), provides that nothing shall be construed as prohibiting:

the payment of a fee ... by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance [or] the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed ....

12 U.S.C. § 2607(c). With respect to section 8(c), the Fifth Circuit has deferred to HUD's interpretation of "services actually performed," and, specifically, to HUD's "reasonable relationship" test. O'Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 741 (5th Cir.2003). Under that test, in determining whether payment was for services actually performed, the Court must consider whether "[the title agents] provided goods or services in connection with the particular transaction ... and ... whether [the title agents'] compensation is reasonably related to the value of those goods or services." Id. If, as Plaintiffs appear to allege, Stewart paid title agents portions of the excess premiums, then it is certainly plausible that the portions were not reasonably related to the value of...