District Court Erred in Dismissing RESPA Class Action because Kickback Prohibition does not Require that Consumers Suffer an Overcharge as a Prerequisite to Prosecuting Claim for RESPA Violation Third Circuit Holds
Plaintiffs filed a putative class action against Countrywide Financial Corporation, Countrywide Home Loans and Balboa Reinsurance Company alleging violations of the federal Real Estate Settlement Procedures Act of 1974 (RESPA); the class action complaint was “brought by homebuyers who sought to recover statutory treble damages pursuant to section 8(d)(2) of [RESPA], codified at 12 U.S.C. § 2607(d)(2).” Alston v. Countrywide Fin. Corp., 585 F.3d 753 (3d Cir. 2009) [Slip Opn., at 1, 3]. According to the allegations underlying the class action complaint, “[plaintiffs’] private mortgage insurance premiums were channeled into an unlawful ‘captive reinsurance arrangement’ – essentially, a kickback scheme – operated by their mortgage lender, Countrywide Home Loans… and its affiliated reinsurer, Balboa Reinsurance…in violation of RESPA section 8(a) and section 8(b),” id., at 3. The class action alleged that “in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide’s invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing.” Id. Defense attorneys moved to dismiss the class action complaint for lack of jurisdiction on the ground that “plaintiffs’ monthly PMI premiums were filed with the PID [Pennsylvania Insurance Department] and, therefore, per se reasonable under the filed rate doctrine.” Id., at 7. Defense attorneys also argued that because plaintiffs’ PMI rates had been approved by the state, they could not have suffered an overcharge and, absent an overcharge, they had not suffered the “injury-in-fact” required for Article III standing. Id. The district court granted the motion and dismissed the class action without prejudice. Id., at 3, 7-8. Plaintiffs appealed, and the Third Circuit reversed.
The class action was premised on the theory that Countrywide steered homebuyers who needed PMI insurance to companies that would “reinsure” the PMI policies with Balboa pursuant to a “captive reinsurance arrangement.” Alston, at 5. Further, the lawsuit claimed that because “Balboa did not assume risk commensurate with the amount of premiums it received” – having purportedly collected almost $900 million without paying any money in claims – the premiums paid to Balboa constituted “kickbacks to Countrywide by the primary insurer, in return for Countrywide’s referral of PMI business to the primary insurer, thereby violating RESPA’s anti-kickback provision,” id., at 6. In other words, Countrywide “offered only ‘sham’ reinsurance coverage,” id. Plaintiffs alleged that because of the kickback scheme they were entitled to statutory damages under RESPA even if the scheme did not result in overcharges to the consumer. Id., at 6-7. The Circuit Court defined the issue as follows: “What is before us for decision turns on a question of statutory interpretation—does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does. Accordingly, we will reverse the Order of the District Court.” Id., at 3.
We do not here summarize the Third Circuit’s statutory interpretation analysis. See Alston, at 9-16. The Circuit Court concluded that “the plain, unambiguous language of section 8(d)(2)…resolv[ed] the overcharge question,” id., at 16. We also do not here discuss the Third Circuit’s Article III standing analysis, see id., at 16-17. We also do not summarize the Court’s analysis of the filed rate doctrine, see id., at 17-20. We note only that the Circuit Court concluded at page 20, “It is absolutely clear that the filed rate doctrine simply does not apply here. Plaintiffs challenge Countrywide’s allegedly wrongful conduct, not the reasonableness or propriety of the rate that triggered that conduct.” Accordingly, the Court reversed the district court order and reinstated the class action complaint. Id., at 20.