Weizeorick v. Abn Amro Mortg. Group, Inc.

• Decision Date: 24 July 2003
• Docket Number: No. 02-2801.,02-2801.
• Citation: 337 F.3d 827
• Parties: Gregory & Margaret WEIZEORICK, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. ABN AMRO MORTGAGE GROUP, INCORPORATED, a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

337 F.3d 827

Gregory & Margaret WEIZEORICK, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. ABN AMRO MORTGAGE GROUP, INCORPORATED, a Delaware Corporation, Defendant-Appellee.

No. 02-2801.

United States Court of Appeals, Seventh Circuit.

Argued January 15, 2003.

Decided July 24, 2003.

Rehearing and Rehearing En Banc Denied September 17, 2003^*.

James Shedden, Michael S. Hilicki (argued), Beeler, Schad & Diamond, Chicago, IL, for Plaintiff-Appellant.

Mark A. Rabinowitz (argued), Piper Rudnick, Chicago, IL, for Defendant-Appellee.

Before MANION, KANNE, and DIANE P. WOOD, Circuit Judges.

MANION, Circuit Judge.

I.

On February 1, 2001, Gregory and Margaret Weizeorick filed suit alleging that ABN AMRO Mortgage Group Inc. violated the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq., and state law provisions, by illegally splitting a fee with the closing agency without performing any services. The district court determined that no fee split had occurred as a matter of law and dismissed their federal allegations for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The Weizeoricks appeal, and because they successfully pleaded a claim for relief, we reverse.

II.

On July 24, 2000, Gregory and Margaret Weizeorick closed on the sale of their home in Chicago, Illinois. In connection with the closing and the repayment of their mortgage, ABN AMRO Mortgage Group ("AAMG"), as holder of the mortgage, provided the Weizeoricks and the closing company with a "Payoff Statement" on July 18, 2000. The Payoff Statement included a charge of $10.00 for a "Recording Discharge/Release of Lien Fee." The Weizeoricks paid this fee at the closing of the sale of their home as part of the payoff of their mortgage loan. Also at closing, the Weizeoricks were charged a "Release Fee" of $25.60 by the closing company, Attorneys' Title Guaranty Fund, Inc, as part of the "settlement charges" owed as the seller of the home. The Weizeoricks paid that fee as well.

On February 1, 2001, the Weizeoricks filed a class action lawsuit alleging that AAMG's practice of collecting $10.00 for "recording" services from borrowers at the closing on the sale of their homes violates the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601, et seq., as well as state law. Specifically the Weizeoricks invoked Section 8(b) of RESPA, or 12 U.S.C. § 2607(b), which prohibits the receipt of a portion of a fee paid for real estate services without actually performing the service. Id. The Weizeoricks alleged that AAMG violated RESPA and Illinois state law by receiving $10.00 of the $35.60 fee for recording the discharge of their lien, even though AAMG did not record the release of the mortgage. According to the Weizeoricks' allegations, the title company, not AAMG, recorded the discharge/release of their mortgage.

AAMG subsequently moved to dismiss the Weizeoricks' entire complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). The Weizeoricks withdrew their motion for class certification, likely because of the unique and somewhat complex series of transactions that occurred between the closing company and the title company. They instead proceeded as individual plaintiffs. On November 16, 2001, the district court, relying on Echevarria v. Chicago Title and Trust Co., 256 F.3d 623 (7th Cir.2001), dismissed the Weizeoricks' RESPA claim with prejudice, finding that the Weizeoricks had failed to allege that AAMG had illegally split fees with the closing agent. The district court determined that because the title company and AAMG had each independently charged the Weizeoricks a standard fee for the recording service, there was no split of an unearned fee to a third party, as required by the statute. The Weizeoricks then moved to reconsider the dismissal of the RESPA claim and AAMG contemporaneously moved under 28 U.S.C. § 1367(c)(3) to dismiss the Weizeoricks' state law claims. The district court denied the Weizeoricks' motion, granted AAMG's motion, and dismissed the Weizeoricks' case in its entirety.

III.

On appeal, the Weizeoricks contend that the district court erred in dismissing their claim against AAMG because their allegations were sufficient to state a claim under § 2607(b) of RESPA.¹ They contend that the district court impermissibly interpreted § 2607(b) by requiring a plaintiff to allege that the defendant arranged for a third party to receive unearned fees in order to show a violation of the statute. The district court erred in this conclusion, they argue, because § 2607(b) of RESPA only prohibits a person from accepting an unearned portion of a charge for settlement services and does not require an allegation of whether or not the defendant had control of the settlement fee overcharge.

This court reviews de novo the district court's grant of AAMG's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). See International Mktg., Ltd. v. Archer-Daniels-Midland Co., 192 F.3d 724, 729 (7th Cir.1999). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).

To determine if dismissal was appropriate in this case we turn to the statutory basis for the Weizeoricks' suit. Section 8(b) of the RESPA 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 a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b).

The initial question then is whether Section 8(b) prohibits a party to a real estate transaction from simply accepting an unearned fee, or does it require that the unearned amount be part of a split or percentage of a charge. This court has explained that Section 8(b), entitled "Prohibition against kickbacks and unearned fees," is an anti-kickback measure that prohibits real estate settlement overcharges when a "portion" or "percentage" of the charge is kicked back to or "split" with a third party who performs no service.

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 ..., 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 8(b).

Krzalic v. Republic Title Co., 314 F.3d 875, 881 (7th Cir.2002). Our case law has consistently held that Section 8(b) is not violated unless the defendant splits a fee with a third party. Krzalic, 314 F.3d at 881; Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 627 (7th Cir.2001); Mercado v. Calumet Fed. Sav. & Loan Ass'n, 763 F.2d 269, 270 (7th Cir.1985). We have stressed that "under RESPA's express terms," the broad protection of the statute "extends only over transactions where the defendant gave or received any portion, split, or percentage of any charge to a third party." Durr v. Intercounty Title Co., 14 F.3d 1183, 1187 (7th Cir.1994) (internal quotation omitted). For example, in Echevarria, we affirmed dismissal under Fed.R.Civ.P. 12(b)(6) when the plaintiffs failed to plead facts tending to show the third-party involvement required for a Section 8(b) claim. Echevarria, 256 F.3d at 626. There, the plaintiffs alleged that the Chicago Title and Trust Co. had overcharged them for the recording service, and then split this amount with the Cook County Recorder by paying the recorder its fee and pocketing the overage. Id. at 625. We held that Section 8(b) did not apply because the title company both collected and retained fees from the plaintiffs in the same capacity. Id. We noted that if we subjected a settlement service provider to RESPA liability for keeping an overcharge without requiring an allegation that the unearned fee was shared with a third party, "we would radically, and wrongly, expand the class of cases to which RESPA applies." Echevarria, 256 F.3d at 627. Therefore, insofar as the Weizeoricks argue that liability attaches to AAMG under Section 8(b) simply for accepting an overcharge as part of a real estate settlement transaction, they are incorrect. A well-pleaded complaint based upon a violation of Section 8(b) must allege that the defendant shared an unearned fee with a third party to the real estate transaction. Echevarria, 256 F.3d at 627. See also, Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir.2002).²

In response, the Weizeoricks argue that even if they cannot succeed by merely challenging AAMG's receipt of an unearned fee, they have nonetheless alleged a fee split consistent with the statute. In support of this position the Weizeoricks direct our attention to a similar Section 8(b) case where a district court denied a motion to dismiss where the plaintiffs alleged a similarly atypical fee-split. See Christakos v. Intercounty Title Co., 196 F.R.D. 496 (N.D.Ill.2000). In Christakos, the title company, Intercounty Title, was responsible for handling the paperwork associated with refinancing a home loan. Id. at 499-500. The bank holding the initial mortgage agreed to file the paperwork to release the mortgage, but Intercounty Title twice charged the plaintiff to have the mortgage released, once by the bank and once by Intercounty. Id. at 500. However, only the bank actually prepared and filed the release. The court found that the plaintiffs successfully alleged a split in violation of Section 8(b) because Intercounty shared the fee with a third party, the bank. See ...