consumer - RESPA - insurance kickbacks
Alexander, et al. v. WAMU, et al. - ED Pa. - June 30, 2008
The court rejected defendants' 12(b)(6) motion to dismiss class action complaint against lender for alleged violations of RESPA, 12 USC 2601 et seq., by collecting illegal referral or kickback payments in the form of reinsurance premiums. Plaintiffs obtained loans with down payments of less than 20% and were required to pay for private mortgage insurance from an insurer with whom WAMU had alleged captive reinsurance arrangement.
filed rate doctrine does not prohibit a RESPA suit
The filed rate doctrine states that where regulated companies are required by federal or state law to file proposed rates or charges with a governing regulatory agency, then any rate approved by that agency “is per se reasonable and unassailable in judicial proceedings brought by ratepayers”....The filed rate doctrine has no fraud exception; rates that are approved are per se reasonable even if obtained by fraud....“[E]very court that has considered [the issue] has rejected the notion that there is a fraud exception to the filed rate doctrine.”
However, the court found that the filed rate doctrine "does not bar the plaintiffs’ claim that defendants violated RESPA through an alleged kickback or fee-splitting scheme through their mortgage lender’s captive reinsurance arrangement. While the doctrine bars direct challenges to the insurance rate structure set by a state, it does not prohibit plaintiffs from bringing suit under RESPA for a violation of fair business practices through the use of illegal kickback payments.
RESPA safe harbor provision
RESPA's safe harbor provision states that nothing shall prohibit “the payment to any person of a bona fide salary or compensation or other payment for goods or 8 facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c)(2). HUD's two-prong test requires that the court evaluate: (1) “whether goods or facilities were actually furnished or services were actually performed for the compensation paid” and (2) “whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed.” Plaintiffs here "have sufficiently alleged that the payments in question are not covered by the safe harbor provision, since they say that some services were not actually performed.
Plaintiffs have Article III standing
The court followed the reasoning of Kahrer v. Ameriquest Mort. Co., 418 F. Supp. 2d 748 (W.D. Pa. 2006) rather than Morales v. Attorneys’ Title Ins. Fund, Inc., 983 F. Supp. 1418 (S.D. Fla. 1997) and concluded that under the plain language of the statute and its legislative history a plaintiff who is entitled to damages under § 8(d)(2) can seek three times the full amount he paid for any settlement services. Under the Kahrer line of cases, RESPA provides that plaintiffs have a right to purchase settlements services from providers who do not participate in an illegal kickback scheme. Therefore, plaintiffs’ failure to allege an overcharge for settlement services does not preclude a finding of injury in fact for the purposes of Article III standing.
Burford abstention does not apply
In Burford v. Sun Oil Co. the Supreme Court concluded that where complex issues of state administrative law are presented a federal court may in its discretion “stay its hand” and abstain from hearing the case. 319 U.S. 315, 334 (1943). The Court of Appeals has explained: Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are “difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case at bar;” or (2) where the “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.”
“While Burford is concerned with protecting complex state administrative processes from undue federal interferences, it does not require abstention whenever there is such a process”....Burford abstention does not apply to this case, where plaintiffs are claiming that defendants through their captive reinsurance program violated the anti-kickback provision of RESPA. Plaintiffs are not pursuing a state insurance code claim or challenging a state administrative decision, so their remedies are not limited to state administrative or court proceedings, and the mere existence of a state administrative procedures for insurance claims does not require abstention. Additionally, there are no prior or ongoing state proceedings with which the present action interferes.
Further, the second prong of the Burford doctrine – whether there are difficult questions of state law impacting public policy or exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy – is not implicated in this case. Plaintiffs are not challenging the filed rate or any other state policies in this matter. They allege that defendants’ alleged kickback scheme – not defendants’ charged rate – violates RESPA, a federal statute. Therefore adjudication of this matter will not interfere with Pennsylvania’s efforts to maintain a comprehensive and coherent regulatory regime.