Melissia Henson et al v. Fidelity National Financial, Inc.

Filing 33

ORDER DENYING DEFENDANTS MOTION FOR JUDGMENT ON THE PLEADINGS 29 by Judge Otis D. Wright, II . (lc). Modified on 4/29/2014 (lc).

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United States District Court
Central District of California

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Case No. 2:14-cv-01240-ODW(RZx)

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MELISSA HENSON and KEITH

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TURNER on behalf of themselves and

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others similarly situated,

ORDER DENYING DEFENDANT’S
MOTION FOR JUDGMENT ON

Plaintiffs,

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THE PLEADINGS [29]

v.

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FIDELITY NATIONAL FINANCIAL

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INC.,

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Defendant.
I.

INTRODUCTION

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This Court has previously been called upon to solemnly interpret considerable

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issues of federal law with far-reaching implications. This is not one of those cases.

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Instead, the Court must confront a surprisingly unsettled issue in the often-perplexing

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Real Estate Settlement Procedures Act (“RESPA”): what Congress meant when it

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precluded liability “for services actually performed,” including what the word

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“services” means. See 12 U.S.C. § 2607(c)(2).

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Plaintiffs Melissa Henson and Keith Turner contend that Defendant Fidelity

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National Financial Inc. violated RESPA when it received “marketing” fees from UPS,

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Federal Express, and OnTrac in exchange for referring overnight delivery business to

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the carriers via Fidelity’s escrow subsidiaries. Fidelity moved to dismiss Plaintiffs

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Melissa Henson and Keith Turner’s putative class-action Complaint, and the Court

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granted in part that Motion—thus eliminating Henson from the action as well as

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Turner’s claim under 12 U.S.C. § 2607(b).

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After answering, Fidelity moved for judgment on the pleadings, arguing that the

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Court’s previous findings regarding Fidelity’s provision of actual services in exchange

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for its marketing fees apply equally to Turner’s sole remaining claim under § 2607(a).

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But the Court finds that a genuine dispute of fact presented on the face of the

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pleadings precludes judgment in Fidelity’s favor and thus DENIES the Motion for

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Judgment on the Pleadings.1 (ECF No. 29.)
II.

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FACTUAL BACKGROUND

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The Court and parties are readily familiar with this case’s facts, as the Court

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just recently granted in part Fidelity’s Motion to Dismiss. (ECF No. 26.) The Court

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therefore includes only a brief factual background here and incorporates the summary

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set forth in its previous Order.

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Fidelity is the controlling parent of various escrow subsidiaries. (Compl. ¶ 13.)

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These escrow subsidiaries use UPS, FedEx, and OnTrac (the “Delivery Companies”)

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to handle overnight deliveries in connection with processing and closing federally

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related mortgage loans. (Id.) The subsidiaries charge escrow customers for these

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delivery services during closing of real-estate transactions. (Id.)

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Turner alleges that Fidelity had separate, written “master” agreements with each

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of the Delivery Companies by which Fidelity—through a subsidiary called EC

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Purchasing—accepted kickbacks in exchange for referring delivery services to the

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companies. (Id. ¶ 14; Mizes Decl. ¶ 11.) Fidelity characterizes these payments as

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“marketing” fees from the Delivery Companies, which it receives in relation to the

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volume of business that Fidelity and its escrow subsidiaries transact with the carriers.

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(Compl. ¶ 15; Mizes Decl. ¶ 12.) Fidelity’s compliance department has repeatedly

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After carefully considering the papers filed with respect to this Motion, the Court deems the matter
appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.

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instructed its escrow subsidiaries to use the Delivery Companies for overnight

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delivery services. (Compl. ¶ 17.) But Turner contends that Fidelity exercises such

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control over the subsidiaries that they did not need “marketing” services to ensure that

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they complied with the master agreements. (Id. ¶ 18.)

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On September 11, 2012, Turner refinanced his house in Los Angeles,

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California, with a federally related mortgage loan. (Id. ¶ 24.) Lawyers Title, another

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Fidelity subsidiary, handled the escrow. (Id.) Lawyers Title’s “Final Settlement

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Statement (HUD-1)” included a charge for overnight deliveries through FedEx and

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OnTrac.

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On September 9, 2013, Henson and Turner filed this putative class action

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against Fidelity, alleging that Fidelity received kickbacks and fee splits in violation of

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RESPA. (ECF No. 1.) Fidelity subsequently moved to dismiss the Complaint for

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failure to state a claim. The Court granted in part that Motion, eliminating Henson

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from the action as well as Turner’s claim under 12 U.S.C. § 2607(b).

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On April 11, 2014, Fidelity moved for judgment on the pleadings. Turner
timely opposed. That Motion is now before the Court for decision.
III.

LEGAL STANDARD

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A motion for judgment on the pleadings is “functionally identical” to a Rule

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12(b) motion to dismiss; the only major difference is that a Rule 12(c) motion is

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properly brought “after the pleadings are closed and within such time as not to delay

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the trial.” Mag Instrument, Inc. v. JS Prods., Inc., 595 F. Supp. 2d 1102, 1106–07

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(C.D. Cal. 2008) (citing Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th

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Cir. 1989)). The allegations of the nonmoving party are accepted as true, denials of

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these allegations by the moving party are assumed to be false, and all inferences

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reasonably drawn from those facts must be construed in favor of the responding party.

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Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir.

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1989). But conclusory allegations and unwarranted inferences are insufficient to

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defeat a motion for judgment on the pleadings. In re Syntex Corp. Sec. Litig., 95 F.3d

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922, 926 (9th Cir. 1996). A court should grant judgment on the pleadings when, even

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if all material facts in the pleading under attack are true, the moving party is entitled to

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judgment as a matter of law. Hal Roach Studios, 896 F.2d at 1550.
IV.

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DISCUSSION

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Fidelity moves for judgment on the pleadings, arguing that its subsidiary EC

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Purchasing performed “actual services” in exchange for the “marketing” fee it

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received from the Delivery Companies, thus precluding any RESPA liability under

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§ 2607(c)(2). But the Court finds that a factual dispute on the face of the pleadings

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regarding whether EC Purchasing performed bona fide services in exchange for this

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fee precludes judgment in Fidelity’s favor at this stage.

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A.

Statutory interpretation

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Fidelity’s Motion requires the Court to break open its statutory-interpretation

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toolbox to construe the definition and scope of the term “for services actually

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performed” within § 2607(c)(2). The Court finds that the term means “settlement

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services” and contains no qualitative requirement.

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1.

Definition of “services” in § 2607(c)(2)

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After the Court’s previous Order, Turner’s only remaining claim is for violation

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of § 2607(a). That section provides that “[n]o person shall give and no person shall

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accept any fee, kickback, or thing of value pursuant to any agreement or

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understanding, oral or otherwise, that business incident to or a part of a real estate

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settlement service involving a federally related mortgage loan shall be referred to any

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person.” 12 U.S.C. § 2607(a). But the section goes on to exempt certain payments as

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permissible under RESPA. Section 2607(c) states that “[n]othing in this section shall

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be construed as prohibiting . . . (2) the payment to any person of a bona fide salary or

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compensation or other payment for goods or facilities actually furnished or for

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services actually performed . . . .” Id. (c)(2) (emphasis added).

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When interpreting a statute, a court must first start with the statute’s plain

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language.    BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004). If the

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language is unambiguous, the court may look no further; a court may consult extrinsic

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materials such as legislative history only if the language is unclear. Id.; Heppner v.

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Alyeska Pipeline Serv. Co., 665 F.2d 868, 871 (9th Cir. 1981). A court may clarify a

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word’s meaning by considering surrounding words and phrases under the maxim of

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noscitur a sociis. United States v. Stevens, 559 U.S. 460, 474 (2010). There is also a

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presumption that Congress used a given term to mean the same thing throughout a

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statute. Barber v. Thomas, 560 U.S. 474, 483–84 (2010).

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Fidelity contends that the term “for services actually performed” means the

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same thing in § 2607(c)(2) as it does in § 2607(b). Fidelity points out that the Court

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previously found that “Fidelity did in fact provide services by promoting the Delivery

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Companies to its escrow subsidiaries via internal compliance memoranda.” (ECF

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No. 26, at 15.) Defendant therefore seeks to incorporate this finding of nonliability

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into Turner’s claim under § 2607(a).

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Turner agrees that while § 2607(c)(2) does not define the term “settlement

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services,” it is clear that is what Congress meant when it used the word “services”

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standing alone.

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The Court concurs. Congress did not specifically use the phrase “settlement

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services” in § 2607(c)(2) when it stated that RESPA does not prohibit payment “for

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services actually performed.” But it would be curious for Congress to use the word

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“services” in a broader sense than it used with “settlement services.”

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specifically defined “settlement services” as “any service provided in connection with

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a real estate settlement.”

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RESPA’s purposes by permitting kickbacks as long as the recipient performed any

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service—even if the service bore no relationship to a real-estate settlement. The Court

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therefore interprets § 2607(c)(2) as exempting payments “for [settlement] services

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actually performed.” See  Cohen v. J.P. Morgan Chase & Co., 608 F. Supp. 2d 330,

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344–45 (E.D.N.Y. 2009) (interpreting the word “services” in § 2607(b) to mean

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“settlement services”).

12 U.S.C. § 2602(3).

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Congress

Congress would have vitiated

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2.

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In his Opposition, Turner invites the Court on a tour of RESPA’s legislative

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history in an attempt to interpret the term “services” in the phrase “settlement

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services.” Turner argues that the Department of Housing and Urban Development

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(“HUD”) has interpreted services to mean services that are actual, necessary,

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substantial (i.e., not nominal), and distinct (not duplicative).

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Settlement Procedures Act Statement of Policy 2001-1: Clarification of Statement of

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Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance

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Concerning Unearned Fees Under Section 8(b), 66 FR 53052-01, 53059 (Oct. 18,

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Scope of “settlement services”

See Real Estate

2001).

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But Fidelity points out that “[o]f course, that laundry list of qualifiers appears

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nowhere in the statute.” (Reply 4.) Fidelity also argues that since Congress used the

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term “services” alone in § 2607(c)(2) but used the full term “settlement services”

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elsewhere, Congress expressed its intent to bar RESPA liability so long as a payment

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recipient performs some service in exchange for the fee. See Russello v. United

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States, 464 U.S. 16, 23 (“[W]here Congress includes particular language in one

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section of a statute but omits it in another section of the same Act, it is generally

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presumed that Congress acts intentionally and purposely in the disparate inclusion or

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exclusion.” (internal quotation marks omitted)).

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The United States Supreme Court has determined that courts must engage in a

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two-pronged inquiry in deciding whether to defer to an agency’s statutory

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interpretation. If Congress has directly spoken on an issue in a statute, the court must

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give effect to Congress’s language without resort to the agency’s interpretation.  

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Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984).

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But if the statute is silent or ambiguous with respect to a specific issue, the court must

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determine whether the agency’s interpretation is a permissible construction of the

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statute. Id. at 843. An agency’s interpretation receives controlling weight unless it is

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arbitrary, capricious, or manifestly contrary to the statute. Id. at 843–44.

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As previously noted, Congress specifically defined the term “settlement

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services” to mean “any service provided in connection with a real estate settlement.”

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12 U.S.C. § 2602(3). The Regulation accords with this definition. 24 C.F.R. § 3500.2

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(“Settlement service means any service provided in connection with a prospective or

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actual settlement . . . .”). Both RESPA and its regulations provide nonexhaustive lists

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of settlement services such as originating a federally related mortgage, attorney

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services, preparation of documents, and mortgage insurance. Id.; see also 12 U.S.C.

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§ 2602(3). But neither limits what can constitute a settlement service so long as the

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service performed is “provided in connection with a real estate settlement.” Id.

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HUD’s interpretation that a service must be “actual, necessary and distinct”

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generally comports with the actual legal definition of “settlement services.” For

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example, payment for services in connection with a real-estate settlement is only

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permissible if the service is “actually performed.” Id. But it is unclear what HUD

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means by “necessary.” To the extent that HUD sought to restrict the settlement-

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service definition beyond RESPA’s plain text, the Court may not defer to that

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interpretation.

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Turner is not correct that HUD interpreted “services” to mean “substantial.”

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The Regulations provide that a “charge by a person for which no or nominal services

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are performed or for which duplicative fees are charged is an unearned fee and

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violates this section.” 24 C.F.R. § 3500.14(c) (emphasis added). But not nominal

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does not necessarily mean substantial.

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Dictionary 786 (10th ed. 1993) (defining “nominal” as “trifling, insignificant”), with

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id. at 1170 (defining “substantial” as “considerable in quantity”). Rather, the services

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must only be something more than trifling or insignificant, i.e., the services must be

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genuine, real, and actually performed in connection with a real-estate settlement. In

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fact, as the Court previously interpreted, the “services” element is more of an on/off

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switch: a payment recipient bears no liability as long as it actually performed some

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bona fide services in exchange for the benefit.

Compare Merriam-Webster’s Collegiate

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The Court declines Turner’s invitation to delve into RESPA’s undoubtedly

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labyrinthine legislative history to muster up support for his notion that the services

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must be “substantial.”

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U.S.C.C.A.N. 6546, 6551. Given the extensive definitions and examples provided by

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Congress, the term “settlement services” is not ambiguous—thus precluding resort to

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drafting materials.

See, e.g., S. Rep. No. 93-866, reprinted in 1974

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The Court also finds Fidelity’s reading of “services” unpersuasive. The Court

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recognizes that Congress used two different terms—“settlement services” and

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“services”—in various parts of RESPA. But one must not blindly follow statutory-

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construction canons into the realm of absurdity. To think that Congress sought to

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create a liability safe harbor so long as a recipient of some otherwise illegal benefit

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performed any service—even one not related to a real-estate settlement—in exchange

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for the fee would lead to illogical results. For example, this would mean that EC

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Purchasing could have insulated itself from liability so long as it did anything for the

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Delivery Companies, such as picking up their board members’ dry cleaning. If that

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were the case, RESPA’s prohibition against kickbacks would quickly erode into

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nothingness.

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B.

Whether Fidelity performed actual services

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Fidelity argues that the Court’s previous finding that Fidelity, through EC

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Purchasing, had performed actual services for its marketing fee—such as promoting

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the Delivery Companies to Fidelity’s subsidiaries—should apply equally to

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§ 2607(c)(2)’s exemption. This would preclude Turner’s last remaining claim for

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violation of § 2607(a). Fidelity cites several cases that are factually similar to this

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action, in which the courts found that locating, engaging, and arranging services of

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third parties suffices to constitute services actually performed.  Friedman v. Mkt. St.

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Mortg. Corp., 520 F.3d 1289, 1296 (11th Cir. 2008); Sosa v. Chase Manhattan Mortg.

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Corp., 348 F.3d 979, 983–84 (11th Cir. 2003) (“Moreover, even if Chase could not be

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credited with the actual delivery, Chase benefitted the borrowers by arranging for

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third party contractors to perform the deliveries. Under these circumstances, we find

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it impossible to say that Chase performed no services for which its retention of a

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portion of the fees at issue was justified.”); Morales v. Countrywide Home Loans,

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Inc., 531 F. Supp. 2d 1225, 1228 (C.D. Cal. 2008) (interpreting the phrase “other than

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services actually performed”).

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But Turner contends that Fidelity and EC Purchasing did not perform “delivery

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services,” because insuring delivery services of third-party vendors and negotiating

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discount rates are not settlement services within RESPA’s meaning. Turner points out

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that Fidelity only argues that Turner “benefitted” from its services, but § 2607(c)(2)

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requires that the payment be “for” services rendered. Additionally, Turner asserts that

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there is no temporal proximity between Turner’s September 2012 transaction and EC

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Purchasing’s negotiation of discounted overnight fees at some untold point in the past

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for EC Purchasing’s 130,000 members. Finally, Turner argues that the courts in

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Friedman, Sosa, and Morales wrongly decided those cases, so this Court should not

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follow their holdings.

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After reviewing the parties’ submissions, the Court notes that the parties have

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engaged in a shell game with respect to § 2607(c)(2)’s services-actually-performed

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inquiry. Despite their being three different parties involved with varied benefits

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flowing to each, they invoke disparate relationships between any two of them

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whenever convenient to their RESPA arguments notwithstanding which parties are

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actually relevant under the particular RESPA provision.

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Section 2607(a) provides that “[n]o person shall give and no person shall

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accept” any thing of value in exchange for referring real-estate settlement business.

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The plain text of the statute suggests that two parties are relevant: the person who

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gives the thing of value and the person who accepts it.

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requirement that a benefit somehow flow to the real-estate buyer for the recipient to

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legally receive a payment. So, in this case, Fidelity/EC Purchasing and the Delivery

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Companies are the relevant parties—not Turner. It is therefore also legally irrelevant

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There is no textual

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whether Turner received a benefit from EC Purchasing—such as the insurance for the

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deliveries that the company allegedly provides and which the parties hotly dispute.

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Section 2607(c)(2) exempts from RESPA liability payments “for services

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actually performed.” Either the giver or recipient of the “thing of value” can invoke

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this complete defense since Congress did not limit it only to a particular individual in

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a certain position vis-à-vis the real-estate settlement. Therefore, the crucial inquiry is

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whether the alleged kickback was really given “for services actually performed.”

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The purported kickback at issue here is the “marketing” fee EC Purchasing—

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and thus ostensibly Fidelity—received periodically from the Delivery Companies in

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exchange for EC Purchasing/Fidelity promoting the Delivery Companies to Fidelity’s

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escrow subsidiaries. If EC Purchasing performed no actual services for this fee, that

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would be a violation of § 2607(a).

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Turner has presented an interesting argument. One may easily characterize EC

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Purchasing’s acts of promoting the Delivery Companies to Fidelity’s escrow

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subsidiaries as actual services—thus earning its “marketing fee” and removing itself

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from RESPA liability.

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receiving a fee is just a prohibited kickback by another name. Indeed, in any quid pro

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quo kickback, a person necessarily gets a fee (the quid) for (pro) promoting or

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encouraging another to use the item, service, or other thing at issue (the quo).

But, looking at it another way, promoting services and

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Essentially, whether marketing and promotion are just euphemisms for

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prohibited referrals is a dispute of fact raised on the pleadings that necessarily

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precludes judgment in Fidelity’s favor at this point. See Gen. Conference Corp. of

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Seventh-Day Adventists v. Seventh-Day Adventist Congregational Church, 887 F.2d

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228, 230 (9th Cir. 1989).

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The Court also finds Friedman, Sosa, and Morales readily distinguishable from

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this case. In all of those cases, the issue was whether the defendant was liable under

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RESPA for receiving some fee in connection with a real-estate settlement. All three

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courts found that the defendants bore no liability, because they performed some

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settlement services in exchange for the fee. Friedman, 520 F.3d at 1296 (noting that

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Market Street Mortgage Corporation “perform[ed] the service of locating and

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arranging for a third party contractor to perform tax monitoring services”); Sosa, 348

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F.3d at 983–84 (“Through its agents, therefore, Chase performed the deliveries that

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were the subject of the [messenger] charges.”); Morales, 531 F. Supp. 2d at 1228

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(finding that Countrywide Home Loans bore no RESPA liability in a markup

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situation).

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But here, Fidelity did not perform the overnight delivery that is the basis for the

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fee appearing on Turner’s settlement statement. From what the Court can glean from

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the pleadings, Fidelity simply acted as a passive intermediary with respect to the

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delivery charge, passing the charge from the buyer on to FedEx and OnTrac. The

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dispute focuses on the marketing fee Fidelity/EC Purchasing received later on in time.

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The Court therefore cannot simply match up something Fidelity did at closing with the

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overnight-delivery fee and find no liability per § 2607(c)(2)

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C.

HUD-1 settlement statement

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The Court also finds Turner’s argument that the EC Purchasing’s services are

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somehow invalid because they did not appear on his HUD-1 settlement statement

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unavailing. The Regulations provide that the “settlement agent shall state the actual

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charges paid by the borrower and seller on the HUD–1, or by the borrower on the

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HUD–1A. The settlement agent must separately itemize each third party charge paid

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by the borrower and seller.” 24 C.F.R. § 3500.8(b)(1).

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Noticeably absent is any basis for somehow rendering a service uncompensable

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simply because they do not appear, or appear inaccurately, on the settlement

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statement. HUD seems to have aimed the Regulation at providing a borrower with the

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most accurate information possible concerning the charges she or her lender is to pay

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at closing. But it does not follow that HUD also sought to invalidate those charges

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that contravened its disclosure requirements; indeed, such a result would find little

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basis in the statute it sought to implement. See 12 U.S.C. § 2603(a) (requiring a

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settlement statement but not invalidating any omitted charges).

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misreads the disclosure requirement. They only apply to “all charges imposed upon

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the borrower and all charges imposed upon the seller in connection with the

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settlement”—a marketing fee received by EC Purchasing is not a “charge” but rather a

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benefit received. There is therefore no requirement that any services performed by EC

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Purchasing have appeared on Turner’s HUD-1 statement.
V.

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Further, Turner

CONCLUSION

For the reasons discussed above, the Court DENIES Fidelity’s Motion for
Judgment on the Pleadings. (ECF No. 29.)
IT IS SO ORDERED.

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April 29, 2014

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____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE

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