Munoz v. Phh Corp.

• Decision Date: 18 September 2009
• Docket Number: CIV Case No. 08-0759 AWI DLB.
• Citation: 659 F.Supp.2d 1094
• Parties: Efrain MUNOZ, Leona Lovette and Stephanie Melani, individually and on behalf of all others similarly situated, Plaintiffs, v. PHH CORP., PHH Mortgage Corp., PHH Home Loans, LLC, and Atrium Insurance Corp., Defendants.
• Court: U.S. District Court — Eastern District of California

659 F.Supp.2d 1094

Efrain MUNOZ, Leona Lovette and Stephanie Melani, individually and on behalf of all others similarly situated, Plaintiffs, v. PHH CORP., PHH Mortgage Corp., PHH Home Loans, LLC, and Atrium Insurance Corp., Defendants.

CIV Case No. 08-0759 AWI DLB.

United States District Court, E.D. California.

September 18, 2009.

Alan R. Plutzik, Robert M. Bramson, Barroway Topaz Kessler Meltzer and Check, LLP, Walnut Creek, CA, Donna Siegel Moffa, James Maro, Edward W. Ciolko, Joseph H. Meltzer, Terence S. Ziegler, Barroway Topaz Kessler Meltzer and Check LLP, Radnor, PA, Eric G. Calhoun Travis and Calhoun, P.C., Dallas, TX, for Plaintiffs.

David M. Souders, Weiner Brodsky Sidman Kider PC, Washington, DC, Joseph S. Genshlea, Weintraub Genshlea Chediak, Sacramento, CA, for Defendants.

ORDER RE: MOTION ON THE PLEADINGS

ANTHONY W. ISHII, Chief Judge.

I. History¹

Defendant PHH (which comprises a number of related companies with similar names, including PHH Corporation, PHH Mortgage Corporation, and PHH Home Loans, LLC) provides real estate mortgages nationwide. Defendant Atrium Insurance Corporation is a wholly owned subsidiary of PHH. Plaintiffs are individuals who obtained mortgages from PHH who provided down payments of less than 20% of the total purchase price of the homes. Those who purchase a home with less than a 20% down payment must generally purchase private mortgage insurance ("PMI") to protect the lender against the risk of default. Borrowers in this situation pay not only their monthly mortgage payment but a monthly PMI premium as well. Plaintiffs allege PHH selected the specific PMI providers Plaintiffs used as part of the mortgage process. These PMI providers pooled the PMI contracts and reinsured with Atrium to spread the risk of default, giving Atrium a portion of the monthly PMI premiums. Plaintiffs allege that the reinsurance is a sham whereby Atrium took on little to no risk and functioned instead as a means of giving PHH a referral fee.

Plaintiffs filed suit in federal court on June 2, 2008. Plaintiffs allege that Defendants' PHH's and Atrium's scheme violates Section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 et seq. ("RESPA"). This case is a proposed class action of all PHH customers who have been directed to obtain PMI from one of the providers who then reinsured with Atrium. Defendants filed an answer and the present motion for judgment on the pleadings. Plaintiffs oppose the motion. The matter was taken under submission without oral argument.

II. Legal Standards

Under Federal Rule of Civil Procedure 12(c), "After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Because the motions are functionally identical, the same standard of review applicable to a Rule 12(b)(6) motion applies to a Rule 12(c) motion. Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir.1989). Judgment on the pleadings is appropriate when, taking all the allegations in the nonmoving party's pleadings as true, the moving party is entitled to judgment as a matter of law. Ventress v. Japan Airlines, 486 F.3d 1111, 1114 (9th Cir.2007). The allegations of the nonmoving party must be accepted as true, while any allegations made by the moving party that have been denied or contradicted are assumed to be false. MacDonald v. Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir.2006). The facts are viewed in the light most favorable to the non-moving party and all reasonable inferences are drawn in favor of that party. Living Designs, Inc. v. E.I DuPont de Nemours & Co., 431 F.3d 353, 360 (9th Cir.2005).

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. 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) . . . . a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown that the pleader is entitled to relief." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990), citing Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), overruled on other grounds at 550 U.S. 544, 127 S.Ct. 1955, 1969, 167 L.Ed.2d 929. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated . . . laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

III. Discussion

Defendants advance two arguments: PMI reinsurance is an activity not covered under RESPA and Plaintiffs suffered no injury as their monthly PMI premiums were based on rates filed and approved by the applicable state department of insurance.

A. Settlement Service

The parties dispute whether the reinsurance scheme constitutes a "settlement service" under RESPA. In relevant part, RESPA states:

(a) Business referrals. No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. (b) 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 a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607.

the term `settlement services' includes any service provided in connection with a real estate settlement including, but not limited to, the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing, and closing of settlement

12 U.S.C. § 2602(3). The Department of Housing and Urban Development ("HUD") administers and enforces RESPA.² Both parties cite to HUD regulations which provided the definition: "Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following:. . . . (10) Provision of services involving mortgage insurance." 24 C.F.R. 3500.2(b). The regulation appears to clarify the statutory definition by listing more concrete examples of acts which qualify as settlement services.

Defendants treat the PMI reinsurance as the activity that must be evaluated: "because mortgage reinsurance is secured after the settlement of a loan, and paid for on an ongoing basis from borrowers' monthly insurance premiums, it does not constitute a `settlement service' under RESPA." Doc. 31, Brief, at 5:17-19. They have focused the analysis on the wrong step. Plaintiffs allege that PHH received a referral fee for directing PMI business to certain providers. The reinsurance is only the means by which the alleged fee is transferred; the PMI itself is the settlement service at issue. Under the plain terms of the HUD regulation, providing PMI does constitute a settlement service covered by Section 2607 of RESPA. Thus, any form of referral fee or split of PMI premiums that are not for services actually performed would constitute a violation.

Defendants cite to Bloom v. Martin, 77 F.3d 318, 321 (9th Cir.1996) for the proposition that "RESPA applies only to services performed, and costs payable, at or before the closing of a real estate sale or loan." Doc....