Munoz, et al. vs. PHH Mortgage Corp., et al.

Filing 266

ORDER Granting 256 Motion for Partial Judgment on the Pleadings and Granting Leave to Amend, signed by District Judge Anthony W. Ishii on 8/11/2014. (IT IS HEREBY ORDERED that: 1. Defendants motion for partial judgment on the pleadings is GRANTED for both equitable tolling and equitable estoppel/fraudulent concealment pleadings; and 2. Plaintiff-intervenor shall have one opportunity to file and serve a further amended complaint to cure deficiencies. Plaintiff-intervenor is afforded twenty (20) days upon filing of this order to comply. Plaintiff-intervenor may not amend any section of the complaint outside of the scope of equitable tolling and equitable estoppel pleadings.) (Gaumnitz, R)

1
2
3
4
5

UNITED STATES DISTRICT COURT

6

EASTERN DISTRICT OF CALIFORNIA

7
8
9

EFRAIN MUNOZ, et al., individually and
on behalf of all others similarly situated;
Plaintiffs

10
11
12
13

v.

CASE NO. 1:08-CV-00759
ORDER GRANTING MOTION FOR
PARTIAL JUDGMENT ON THE
PLEADINGS AND GRANTING LEAVE
TO AMEND

PHH CORPORATION, et al.,
(Doc. No. 256)
Defendants

14
15
16
17
18

Before the Court is a motion for partial judgment on the pleadings filed by PHH
Corporation, PHH Mortgage Corporation, PHH Home Loans, LLC, and Atrium Insurance
Corporation (“Defendants,” collectively). Doc. No. 256, (“Mot.”). The motion for partial judgment

19
20

on the pleadings pertains to the intervention of Plaintiff-Intervenor Marcella Villalon (“Plaintiff-

21

intervenor”), and all others similarly situated. The motion is predicated upon the failure to plead

22

facts sufficient to state a claim for application of equitable tolling and/or equitable estoppel to the

23

1-year statute of limitations, 12 U.S.C. § 2614, for alleged violations of Real Estate Settlement

24

Procedures Act (“RESPA”) Section 8, 12 U.S.C. § 2607. Defendants‟ motion for partial judgment

25

on the pleadings will be granted. Plaintiff-intervenor will be granted leave to amend for equitable

26
tolling and equitable estoppel.
27
28

I.

1

Background1

Defendant PHH provides real estate mortgages nationwide. PHH wholly-owns Atrium

2
3

Insurance Corporation. Atrium provides reinsurance services to private mortgage insurance

4

(“PMI”) providers. Typically, PMI providers are unaffiliated with the mortgage provider. In turn,

5
6

PMI providers decrease their risk by acquiring reinsurance, through companies such as Atrium, in
exchange for a percentage of the PMI provider‟s premiums. Captive reinsurance occurs when the

7
8

mortgage provider also provides the reinsurance.
Congress enacted RESPA to increase real estate settlement process transparency and

9
10

protect consumers from abusive business practices. See 12 U.S.C. § 2601. In relevant part, Section

11

8(a) provides:

12

“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.”

13
14
15

12 U.S.C. § 2607(a). Contrarily, Section 8(b) provides:

16

“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.”

17
18
19

12 U.S.C. § 2607(b).

20
21

Plaintiffs acquired mortgages from PHH and provided down payments of less than 20% of
the home purchase prices. PHH required Plaintiffs, due to their less-than-20% down payments, to

22
purchase PMI in order to protect PHH against the risk of default. Plaintiffs allege that PHH
23
24

organized a scheme whereby PHH selected the specific PMI provider. In turn, PHH required

25

selected PMI providers to acquire reinsurance through Atrium. Plaintiffs allege that reinsurance

26

through Atrium was illusory, no actual transfer of risk occurred. Specifically, Plaintiffs allege:

27

1

28

Motions to dismiss accept as true the background factual allegations alleged in the complaint as required by Rule
12(c) of the Rules of Federal Procedure. The Court does not adjudge these allegations to be true or false, and the Court
merely references them as alleged facts.

2

1

“The millions of dollars in premiums accepted from private mortgage insurers: (a) were not for

2

services actually furnished or performed; and/or (b) exceeded the value of such services.” Doc.

3

No. 96, FAC at ¶ 90. Thus, Atrium‟s share of PMI premiums constituted kickbacks and fee-splits

4

in violation of RESPA Section 8.

5
6

On June 02, 2008, Efrain Munoz, Leona Lovette, and Stephanie Melanie (“Plaintiffs,”
collectively) filed a class action complaint against Defendants for alleged violations of RESPA

7
8
9

Section 8, Doc. Nos. 1 and 2, each plaintiff having obtained their home loan within one year prior
to filing the complaint, Doc. No. 96, FAC at ¶¶ 10-15. On December 10, 2010, Plaintiffs filed

10

their First Amended Complaint (“FAC”). Doc. No. 96, FAC. The FAC included arguments for the

11

application of equitable tolling and equitable estoppel to RESPA‟s one-year statute of limitations

12

for Section 8 claims. Doc. No. 96, FAC at ¶¶ 99-111.

13

The FAC lacked a named plaintiff for the putative tolled class of plaintiffs. On May 30,

14
2013, Plaintiff-intervenor, who obtained her loan on March 1, 2007, filed a motion to intervene on
15
16

behalf of the tolling class of individuals who obtained mortgage loans and private mortgage

17

insurance through PHH‟s alleged captive mortgage reinsurance arrangements between January 1,

18

2004 and June 1, 2007. Doc. No. 231. In lieu of filing a pleading, Plaintiff-intervenor filed a

19

declaration and adopted the FAC allegations, including the equitable tolling and equitable estoppel

20

allegations as set forth in FAC at ¶¶ 99-111. Doc. No. 231-4, (“Ciolko Decl. 1”), Exhibit B at ¶ 9.

21

On November 27, 2013, Defendants subsequently filed the present motion, a Rule 12(c)

22
partial judgment on the pleadings. Plaintiff-intervenor opposes the motion. Doc. No. 259,
23
24
25

(“Opposition”). Defendants filed a reply brief to Plaintiff-intervenor‟s opposition. Doc. No. 260,
(“Reply”).

26
27
28
3

II.

1
2
3

Discussion

a. Legal Standard
“After the pleadings are closed--but early enough not to delay trial--a party may move for

4

judgment on the pleadings.” Fed. R. Civ. P. 12(c). In the Ninth Circuit, “Rule 12(c) is functionally

5

identical to Rule 12(b)(6) and … the same standard of review applies to motions brought under

6

either rule.” Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 n. 4 (9th

7
8
9

Cir. 2011) (internal quotations omitted). “When considering a Rule 12(c) dismissal, we must
accept the facts as pled by the nonmovant.” Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc.,

10

637 F.3d 1047, 1053 (9th Cir. 2011). “A judgment on the pleadings is properly granted when,

11

taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled

12

to judgment as a matter of law.” Ventress v. Japan Airlines, 603 F.3d 676, 681 (9th Cir. 2010).

13

“Courts have discretion to grant leave to amend in conjunction with 12(c) motions.” Moran v.

14
Peralta Community College Dist., 825 F. Supp. 891, 893 (N.D. Cal. 1993) (citing Amersbach v.
15
16
17

City of Cleveland, 598 F.2d 1033, 1038 (6th Cir. 1979)).
On a Rule 12(c) motion, if matters not contained in the pleadings are presented to the court

18

and the court relies upon them, the court must convert the motion to one for summary judgment

19

under Rule 56. Fed. R. Civ. P. 12(d). Courts may, nonetheless, avoid converting to a motion for

20

summary judgment and still consider matters not contained in the pleadings if the matters are

21
22

documents incorporated by reference or matters of judicial notice. United States v. Ritchie, 342
F.3d 903, 908 (9th Cir. 2003). “[C]ourts must consider the complaint in its entirety, as well as

23
24

other sources courts ordinarily examine when ruling on [Rule 12(c) motions for judgment on the

25

pleadings], in particular, documents incorporated into the complaint by reference, and matters of

26

which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.

27

308, 322 (2007). “[A] court may consider a writing referenced in a complaint but not explicitly

28

incorporated therein if the complaint relies on the document and its authenticity is unquestioned.”
4

1

Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007); United States v. Ritchie, 342 F.3d 903,

2

908 (9th Cir. 2003) (“Even if a document is not attached to a complaint, it may be incorporated by

3

reference into a complaint if the plaintiff refers extensively to the document or the document

4

forms the basis of the plaintiff's claim.”); see also Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th

5
6

Cir. 1998) (superceded by statute on other grounds as recognized in Abrego v. The Dow Chem.
Co., 443 F.3d 676, 681 (9th Cir.2006)) (under a Rule 12(b)(6) motion, allowing the District Court

7
8
9
10
11
12
13
14

to consider ERISA-regulated plan documents that were referenced in the complaint and first
amended complaint but that were not attached to either pleading, but upon which plaintiff‟s claims
necessarily relied and whose authenticity was not challenged).
b. Pleading Contents
The Court must decide what information is within its purview to consider when ruling on
the present motion. Defendants adamantly object to the Court considering the Deed of Trust (Doc.
No. 259-1, (“Ciolko Decl. 2”), Exhibit B) that was first provided after Defendant filed the present

15
16

motion. Doc. No. 260, Reply at 2-3. Defendants firmly assert that, “[T]he sole support for

17

[Plaintiff-intervenor‟s] assertions resides in the newly attached Disclosure” and Plaintiff-

18

intervenor is attempting to amend the pleading to include this “integral” document. Doc. No. 260,

19

Reply at 2:24-3:1, 3:7.

20
21

Defendants rely on Parrino v. FHP, Inc., 146 F.3d 699 (9th Cir. 1998) to assert that,
“[T]he law does not permit such extrinsic reliance by Plaintiffs.” Doc. No. 260, Reply at 4:1-2.

22
Defendants misunderstand Parrino‟s application of the doctrine of incorporation by reference. In
23
24

Parrino, an insured man sued his health insurance carrier for refusing to authorize payment for

25

brain tumor therapy. The plaintiff attempted to surmount the defendant‟s motion to dismiss by not

26

referencing health plan documents in his complaint. Parrino v. FHP, Inc., 146 F.3d 699, 705-06

27

(9th Cir. 1998). Defendants are correct that Parrino upheld the applicability of the doctrine of

28

incorporation by reference to allow the defendant to introduce evidence that was crucial to the
5

1

plaintiff‟s complaint but to which the plaintiff failed to reference in his complaint. Parrino v.

2

FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). Parrino did not, however, preclude the plaintiff

3

from invoking incorporation by reference.

4
5
6

The Court is not aware of any Ninth Circuit case law that eliminates Rule 12(c)‟s
permissive nature of allowing plaintiffs to attach or not attach exhibits to pleadings. Cf. Fed. R.
Civ. P. 8(a)(2) (“A pleading that states a claim for relief must contain a short and plain statement

7
8
9

of the claim showing that the pleader is entitled to relief.”). To the contrary, the Ninth Circuit has
explicitly held “that documents whose contents are alleged in a complaint and whose authenticity

10

no party questions, but which are not physically attached to the pleading, may be considered in

11

ruling on a Rule 12(b)(6) motion to dismiss.” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994).

12

Defendants also invoke Fabbrini v. City of Dunsmuir, 544 F. Supp. 2d 1044 (E.D. Cal.

13

2008) for the proposition that “a party cannot amend a complaint through an opposition brief.”

14
Doc. No. 260, Reply at 3:2. Defendants‟ reliance on Fabbrini, is misplaced. In Fabbrini, the
15
16

plaintiff brought a multiplicity of claims against the City of Dunsmuir, including defamation. The

17

City moved to dismiss the defamation claim under California‟s Anti-SLAPP statute. Id. at 1050. In

18

the plaintiff‟s opposition to the motion, the plaintiff offered to “dismiss the defamation claim as

19

alleged.” Id. The court recognized that to accept the plaintiff‟s offer in an opposition brief to

20

dismiss the claim as alleged would be inappropriate procedure to amend the complaint. Id.

21

Here, Plaintiff-intervenor does not attempt to amend or dismiss claims in the complaint.

22
Plaintiff-intervenor provides a sample of a loan document, the type that is extensively referenced
23
24

throughout the FAC. Doc. No. 96, FAC at ¶¶ 10, 11, 12, 13, 14, 15, 73, 89, 102. Notably,

25

Defendants do not challenge the authenticity of the Deed of Trust. And, the document is an

26

admissible certified copy of a notarized deed of trust. See Fed. R. Evid. 803(14). Because a court

27

may consider a writing referenced in a complaint but not explicitly incorporated therein if the

28

complaint relies on the document and its authenticity is unquestioned, the Court may consider the
6

1
2

Deed of Trust under the FAC as adopted by Plaintiff-intervenor.
More directly, as the Court already ruled: “[I]f faced with a motion on the pleadings, the

3

court would have to functionally read Plaintiff-intervenor‟s affidavit as part of the operative

4

pleading.” Doc. No. 247, Recon. Order at 4:24-26. As part of the operative pleading, on May 30,

5
6

2013, Plaintiff-intervenor‟s declaration specifically references PHH Home Mortgage Loan
Number 0041528951. Doc. No. 231-4, Exhibit B, Villalon Decl. at ¶ 3. The Disclosure that

7
8
9

Defendants seek to exclude from the Court‟s consideration is contained in PHH Home Mortgage
Loan Number 00041528951. Doc. No. 259-1, Ciolko Decl., Exhibit B at 1. If the Court were

10

unable to consider the Disclosure premised upon the FAC‟s reliance on it, the Plaintiff-

11

intervenor‟s declaration‟s specific identification of the loan number should leave no doubt that the

12

Court may consider the document as incorporated in the Plaintiff-intervenor‟s declaration.

13

c. Equitable Tolling

14
Defendants seek partial judgment on the pleadings, alleging that Plaintiff-intervenor has
15
16

not pled facts sufficient to state a claim for equitable tolling. Doc. No. 256-1, Mot.-1. Specifically,

17

Defendants allege that the FAC and Plaintiff-intervenor‟s declaration “are devoid of any factual

18

statements alleging that Ms. Villalon was diligent in pursuing her rights.” Doc. No. 256-1, Mot.-1

19

at 6:4-5. Plaintiff-intervenor contends that she “exercised reasonable due diligence by full

20

participation in her loan transaction.” Doc. No. 259, Opposition at 3:11-12 (citing Doc. No. 96,

21
22

FAC at ¶ 110).
“Equitable tolling may be applied if, despite all due diligence, a plaintiff is unable to

23
24

obtain vital information bearing on the existence of his claim. This doctrine focuses on a plaintiff's

25

excusable ignorance and lack of prejudice to the defendant.” Garcia v. Brockway, 526 F.3d 456,

26

465 (9th Cir.2008) (internal quotations omitted). “Generally, a litigant seeking equitable tolling

27

bears the burden of establishing two elements: (1) that he has been pursuing his rights diligently,

28

and (2) that some extraordinary circumstance stood in his way.” Pace v. DiGuglielmo, 544 U.S.
7

1

408, 418 (2005). The doctrine “focuses on whether there was excusable delay by the plaintiff: If a

2

reasonable plaintiff would not have known of the existence of a possible claim within the

3

limitations period, then equitable tolling will serve to extend the statute of limitations for filing

4

suit until the plaintiff can gather what information he needs.” Johnson v. Henderson, 314 F.3d

5
6

409, 414 (9th Cir. 2002) (internal citation omitted).
This Circuit has recently had an influx of class action certifications for alleged claims

7
8
9

against national mortgage providers for violations of RESPA Section 8 through improper
reinsurance schemes. See, e.g., Samp v. JPMorgan Chase Bank, N.A., EDCV 11-1950VAP SPX,

10

2013 WL 1912869, at *3 (C.D. Cal. May 7, 2013); Orange v. Wachovia Bank, N.A., EDCV 12-

11

01683 VAP, 2013 U.S. Dist. LEXIS 157695, at *5 (C.D. Cal. May 6, 2013); McCarn v. HSBC

12

USA, Inc., 1:12-CV-00375 LJO, 2012 WL 5499433, at *1 (E.D. Cal. Nov. 13, 2012); Kay v. Wells

13

Fargo & Co., 247 F.R.D. 572, 574 (N.D. Cal. Nov. 30, 2007). In each case, plaintiffs asserted

14
arguments for the application of equitable tolling to allow time-barred plaintiffs to proceed on
15
16

their claims. See, e.g., Samp v. JPMorgan Chase Bank, N.A., EDCV 11-1950VAP SPX, 2013 WL

17

1912869, at *6-7 (C.D. Cal. May 7, 2013); Orange v. Wachovia Bank, N.A., EDCV 12-01683

18

VAP, 2013 U.S. Dist. LEXIS 157695, at *8-13 (C.D. Cal. May 6, 2013); McCarn v. HSBC USA,

19

Inc., 1:12-CV-00375 LJO, 2012 WL 5499433, at *6 (E.D. Cal. Nov. 13, 2012); Kay v. Wells

20

Fargo & Co., 247 F.R.D. 572, 578 (N.D. Cal. Nov. 30, 2007).

21

Here, Plaintiff-intervenor alleges that “borrowers were not put on notice of their claims

22
and, despite exercising reasonable due diligence, reviewing their loan documents, reasonably
23
24

could not have discovered their claims within the applicable statute of limitations,” Doc. No. 96,

25

FAC at ¶ 102, and that she was “able to discover the underlying basis for the claims alleged herein

26

only with the assistance and investigation of counsel.” Doc. No. 96, FAC at ¶ 105. The Court finds

27

that PHH‟s loan document disclosure adequately placed Plaintiff-intervenor on notice of her claim

28

and that she fails to allege extraordinary circumstances that prevented her from timely filing.
8

1

The loan documents PHH provided to the time-barred plaintiffs are substantively similar to

2

those discussed in other cases. For example, the Samp court provided the loan terms that were

3

offered to their plaintiffs as such:

4
5
6
7
8
9
10

“If I am required to have mortgage guaranty insurance, [JPMorgan Chase Bank] will
arrange for an insurance company to provide [mortgage guaranty insurance coverage] at
[Plaintiffs'] expense. The insurance company may ask another insurance company to
assume some or all of the risk under the insurance policy in exchange for a portion of the
insurance premium. This is called “reinsurance” and may result in a financial gain to the
company providing the reinsurance. [JPMorgan Chase Bank] has an affiliate, Cross
Country Insurance Company, that provides reinsurance to mortgage guaranty insurance
companies; however, a reinsurance arrangement with [JPMorgan Chase Bank] will
not change my mortgage guaranty insurance premiums. Even though a reinsurance
arrangement involving [JPMorgan Chase Bank's] affiliate will not increase my premiums, I
understand that I may exclude my mortgage guaranty insurance coverage from this
arrangement.”

11
Samp v. JPMorgan Chase Bank, N.A., EDCV 11-1950VAP SPX, 2013 WL 1912869, at *6 (C.D.
12
13
14
15
16
17
18

Cal. May 7, 2013) (quoting exhibits to complaint (emphasis in original)). In this instance, the PHH
disclosure states:
“Mortgage insurers evaluate their total risk on all such insurance in force from time to time
and may enter into agreements with other parties that share or modify their risk or reduce
losses. These agreements are on terms and conditions that are satisfactory to the mortgage
insurer and the other party (or parties) to these agreements. These agreements may require
the mortgage insurer to make payments using any source of funds that the mortgage
insurer may have available (which may include funds obtained from Mortgage Insurance
premiums).

19
20
21
22
23
24
25

“As a result of these agreements, Lender, any purchaser of the Note, another insurer, any
reinsurer, any other entity, or any affiliate of the foregoing may receive (directly or
indirectly) amounts that derive from (or might be characterized as) a portion of
Borrower’s payments for Mortgage Insurance in exchange for sharing or modifying
the mortgage insurer’s risk, or reducing losses. If such agreement provides that an
affiliate of Lender takes a share of the insurer’s risk in exchange for a share of the
premiums paid to the insurer, the arrangement is often termed ‘captive
reinsurance.‟”
Doc. No. 259-1, Ciolko Decl. 2, Exhibit B at 8-9 (emphasis added). Both the Samp loan disclosure

26

and the PHH loan document disclosure explain the requirement of mortgage insurance, the

27

purpose of mortgage insurance, the borrower‟s rights and responsibilities under mortgage

28

insurance, and the potential occurrence of captive reinsurance. See Doc. No. 259-1, Ciolko Decl.
9

1

2, Exhibit B at 8-9; Samp, 2013 WL 1912869, at *6 (C.D. Cal. May 7, 2013). The Samp court

2

determined that the loan disclosure adequately disclosed the relationship between the bank and the

3

reinsurance subsidiary to place the plaintiffs on notice of their claim. Samp v. JPMorgan Chase

4

Bank, N.A., EDCV 11-1950VAP SPX, 2013 WL 1912869, at *6 (C.D. Cal. May 7, 2013) quoting

5

Kay v. Wells Fargo & Co., 247 F.R.D. 572, 578 (N.D. Cal. Nov. 30, 2007) (“[T]he law does not

6

insist that plaintiffs be aware of every particular element of their claim. Rather, all that is required

7
8
9

is that plaintiffs be aware of the „possible existence‟ of a clam.”). Similarly, in Kay v. Wells Fargo
& Co., 247 F.R.D. 572, 578 (N.D. Cal. Nov. 30, 2007), the court found that since each borrower

10

was given a disclosure of the reinsurance arrangement, they should have “known of the possible

11

existence” of the claim. In Orange v. Wachovia Bank, N.A., EDCV 12-01683 VAP, 2013 U.S.

12

Dist. LEXIS 157695, at *10 (C.D. Cal. May 6, 2013), the court found the “disclosure gave

13

Plaintiffs adequate notice regarding the possibility of a captive reinsurance arrangement.”

14
Here, there is no excusable ignorance of the captive reinsurance scheme. As in Kay,
15
16

Orange, and Samp, the loan disclosure document put Plaintiff-intervenor on notice of the possible

17

existence of a claim by informing her of the very nature and use of the captive reinsurance

18

arrangement. Despite being on notice, Plaintiff-intervenor does not allege any diligence beyond

19

reviewing loan documents. See Doc. No. 96, FAC at ¶ 102; see also McCarn v. HSBC USA, Inc.,

20

1:12-CV-00375 LJO, 2012 WL 5499433, at *6 (E.D. Cal. Nov. 13, 2012) (finding that plaintiff

21

placing a phone call to the mortgage provider seeking information on the reinsurance program was

22
still insufficient to constitute diligence in pursuing rights). Thus, Plaintiff-Intervenor inadequately
23
24
25

pleads diligence in pursuing her rights despite being on notice of the possible existence of her
claim.

26

Assuming arguendo that Plaintiff-intervenor was diligent in pursuing her rights, to

27

establish that extraordinary circumstances stood in her way, Plaintiff-intervenor first alleges that

28

the time-barred class did not possess the information or skills necessary to discover the RESPA
10

1

violation “due to the complex, undisclosed and self-concealing nature of PHH‟s scheme.” Doc.

2

No. 96, FAC at ¶ 100. Plaintiff-intervenor next alleges that time-barred plaintiffs reasonably could

3

not have discovered “Defendants‟ conduct as alleged herein absent specialized knowledge and/or

4

assistance of counsel.” Doc. No. 96, FAC at ¶ 105.

5
6

In McCarn v. HSBC USA, Inc., 1:12-CV-00375 LJO, 2012 WL 5499433, at *6 (E.D. Cal.
Nov. 13, 2012), the plaintiff argued that “reasonable diligence on his part would have been futile

7
8
9

because the „complex, undisclosed and self-concealing nature of Defendants‟ scheme would have
prevented him from discovering the existence of a possible RESPA claim, and that he was only

10

able to discover the basis of his claim with the assistance of counsel.” The McCarn court found

11

that the complex, self-concealing nature of the reinsurance scheme was not enough to constitute an

12

extraordinary circumstance. Id. The McCarn court further emphasized that plaintiffs failed to

13

explain what prevented them from obtaining assistance from counsel earlier and how lack of

14
counsel constituted an extraordinary circumstance. Id.; see also, Samp v. JPMorgan Chase Bank,
15
16

N.A., EDCV 11-1950VAP SPX, 2013 WL 1912869, at *7 (C.D. Cal. May 7, 2013) (rejecting

17

argument that plaintiffs inability to discover their RESPA claim without assistance of counsel

18

warranted relief under equitable tolling). In accordance with other district courts in this Circuit, the

19

Court finds that an alleged complex and self-concealing nature of a reinsurance scheme and the

20

failure to timely obtain counsel do not constitute extraordinary circumstances.

21

The Court finds no need to depart from the well-founded consensus that equitable tolling is

22
not available to time-barred plaintiffs under these allegations.
23
24

d. Equitable Estoppel/Fraudulent Concealment

25

Defendants also argue that Plaintiff-intervenor has failed to plead an affirmative act of

26

concealment above and beyond the underlying RESPA claim. Doc. No. 256-1, Mot.-1 at 8-9.

27

Plaintiff-intervenor responds that Defendants‟ argument is unfounded because it relies upon

28

decisions of courts in this Circuit that “fundamentally misunderstood (or overlooked) the nature of
11

1

Plaintiffs‟ RESPA Claims….” Doc. No. 259, Opposition at 9:6-7. Plaintiff-intervenor notes that

2

the Court has already recognized “the basis for Plaintiffs‟ claims is Defendants‟ violations of

3

RESPA‟s „blanket prohibition‟ against kickbacks, referral payments, and unearned fees in

4

connection with real estate services.” Doc. No. 259, Opposition at 9:9-11.2 Thus, Plaintiff-

5

intervenor alleges Defendants‟ misrepresentations and false assurances are acts of concealment

6

separate and apart from the underlying RESPA violations. Doc. No. 259, Opposition at 9.

7
“Equitable estoppel, also termed fraudulent concealment, halts the statute of limitations

8
9

when there is active conduct by a defendant, above and beyond the wrongdoing upon which the

10

plaintiff's claim is filed, to prevent the plaintiff from suing in time. The plaintiff must demonstrate

11

that he relied on the defendant‟s misconduct in failing to file in a timely manner….” Guerrero v.

12

Gates, 442 F.3d 697, 706-07 (9th Cir. 2006) (internal quotations omitted); see also Cervantes v.

13

Countrywide Home Loans, Inc., 656 F.3d 1034, 1046 (9th Cir. 2011) (citing Guerrero v. Gates).

14
In essence, the test for fraudulent concealment has four parts. First, the offender must act to
15
16

conceal an occurrence. Guerrero v. Gates, 442 F.3d 697, 706 (9th Cir. 2006). Second, the basis for

17

fraudulent concealment must be separate from the cause of action. Lukovsky v. City & Cnty. of San

18

Francisco, 535 F.3d 1044, 1052 (9th Cir. 2008). Third, the act must be done with the intent of

19

preventing the transgressed from filing suit. Guerrero v. Gates, 442 F.3d 697, 706 (9th Cir. 2006).

20

Fourth, the plaintiff must rely on the misrepresentations in a manner that prevented her from filing

21

on time. Guerrero v. Gates, 442 F.3d 697, 707 (9th Cir. 2006).

22

The circumstances of fraudulent concealment “must be pled with particularity under Rule

23
24
25
26
27
28

9(b) of the Federal Rules of Civil Procedure.” Marzan v. Bank of Am., 779 F. Supp. 2d 1140, 1149
(D. Haw. 2011).
2

In Munoz v. PHH Corp., 659 F. Supp. 2d 1094 (E.D. Cal. 2009), the Court actually recognized “Plaintiffs‟ claim to
be solely that there were kickbacks or fee-splits in violation of RESPA and not that there was any overcharging.” Id.
at 1100 (emphasis added). In that instance, the Court made no determination about the scope of Plaintiffs‟ RESPArelated kickback and fee-splitting claims. Correctly understood, the Court acknowledged that Plaintiffs‟ claims were
limited to RESPA-related kickback and fee-splitting claims and did not require overcharging.

12

1
2

i. RESPA Violations
RESPA Section 8 creates two distinct causes of action: one cause of action for

3

referrals/kickbacks and one cause of action for fee-splitting. See Freeman v. Quicken Loans, Inc.,

4

132 S.Ct. 2034, 2043 (2012) (“In short, each subsection reaches conduct that the other does

5

not….Subsection (a) prohibits certain kickbacks (those agreed to in exchange for referrals) and

6

subsection (b) prohibits certain unearned fees (those paid from a part of the charge to the

7
8
9

customer).”); Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1014 (9th Cir. 2002) (“Section
8(a) relates to referrals and § (b) to fee-splitting.”). Thus, to invoke fraudulent concealment,

10

Plaintiff-intervenor must allege with particularity an act of concealment wholly apart from a

11

kickback or fee-splitting for services that have not been performed.

12
13

Plaintiff-intervenor alleges Defendants violated both Sections 8(a) and (b). Doc. No. 96,
FAC at ¶¶ 91 and 92. To violate Section 8(a): (1) a person must give or accept a thing of value and

14
(2) the exchange must be for a business referral. See 12 U.S.C. § 2607(a). Plaintiff-intervenor
15
16

alleges that, through Atrium, PMI providers gave and PHH accepted millions of dollars. Id. at ¶

17

91. The millions of dollars were given and accepted in exchange for the referral of federally-

18

related mortgage loans. Id. Therefore, the alleged kickback scheme was complete when Atrium

19

received payment for the reinsurance.

20
21

To violate Section 8(b): (1) a person must give or accept a fee-split, (2) the fee-split must
be related to a real estate settlement service charge, and (3) the service must not have been

22
performed. See 12 U.S.C. § 2607(b). Plaintiff-intervenor alleges that PMI providers gave and PHH
23
24

accepted a percentage of the PMI premiums paid by PHH customers. Doc. No. 96, FAC at ¶ 92.

25

PHH customers paid the PMI premiums as part of real estate settlement services. Id. PMI

26

providers charged PHH customers the premiums for services that were not actually performed. Id.

27

Plaintiff-intervenor, therefore, alleges that PHH violated Section 8(b).

28

ii.

Fraudulent Concealment Applied
13

Plaintiff-intervenor has not distinguished between the Section 8(a) and (b) claims for

1
2

purposes of alleging fraudulent concealment, instead premising fraudulent concealment for both

3

violations on Defendants‟ intentional misrepresentation that Atrium accepted fees without

4

legitimately assuming risk. Plaintiff-intervenor alleges that, “PHH made affirmative, intentional

5
6

misrepresentations concerning its captive reinsurance program. PHH affirmatively represented to
Plaintiffs and the Class that any amounts it received from its captive reinsurance arrangements

7
8

were for services actually performed.” Doc. No. 96, FAC at ¶ 106.
The Court finds that Defendants did not hide PHH‟s relationship with Atrium. PHH‟s form

9
10

loan document explicitly spells out the reinsurance scheme. In relevant part, the PHH Disclosure

11

states:

12
13
14
15
16
17
18
19
20
21
22

“As a result of these agreements, Lender, any purchaser of the Note, another insurer, any
reinsurer, any other entity, or any affiliate of the foregoing may receive (directly or
indirectly) amounts that derive from (or might be characterized as) a portion of
Borrower’s payments for Mortgage Insurance in exchange for sharing or modifying
the mortgage insurer’s risk, or reducing losses. If such agreement provides that an
affiliate of Lender takes a share of the insurer’s risk in exchange for a share of the
premiums paid to the insurer, the arrangement is often termed ‘captive reinsurance.’
Further,
“(a) Any such agreement will not affect the amounts that Borrower has agreed to
pay for Mortgage Insurance, or any other terms of the Loan. Such agreements will not
increase the amount Borrower will owe for Mortgage Insurance, and they will not entitle
Borrower to any refund.”
Doc. No. 259-1, Ciolko Decl. 2, Exhibit B at 8-9 (emphasis added).
As with legal writing and many court rulings, mortgage documents can appear convoluted
and be torturous to read – particularly to an untrained borrower. Yet, a plain reading of PHH‟s

23
24

disclosure clearly and unequivocally indicates that the Lender (PHH) or any of its affiliates

25

(Atrium) may receive a portion of the mortgage insurance premiums in exchange for reinsurance,

26

“an arrangement that is often termed „captive reinsurance.‟” Id. Not only does the disclosure detail

27

the scheme by which reinsurance is instituted, but PHH explicitly states that they may engage in

28

„captive reinsurance.‟
14

1

Contrary to Plaintiff-intervenor‟s assertion that Defendants held the reinsurance scheme

2

out to be legitimate in the loan disclosure, Doc. No. 259, Opposition at 9-10, the PHH disclosure

3

does not contain such an assurance. See Orange v. Wachovia Bank, N.A., EDCV 12-01683 VAP,

4

2013 U.S. Dist. LEXIS 157695, at *16 (C.D. Cal. May 6, 2013) (finding that “nothing in the

5

mortgage document promised that Defendants would not enter into illegitimate schemes...”).

6

Therefore, the form loan document cannot serve as the act of concealment.

7
8
9

Plaintiff-intervenor does, however, allege that through a 2007 SEC filing “PHH
represented that its captive reinsurer provided actual reinsurance services in return for the

10

premiums that it received from its borrowers [sic] private mortgage insurance providers.” Doc.

11

No. 96, FAC at ¶ 106. The Court understands Plaintiff-intervenor alleges that through the 2007

12

SEC filing, PHH represented that Atrium took on risk for the fees it collected. Plaintiff-intervenor

13

alleges that in actuality, Atrium did not assume adequate risk; therefore they did not perform the

14
services for which they were paid, thus giving rise to the RESPA violations. On this point,
15
16
17

Plaintiff-intervenor has sufficiently pled an act of concealment.
Next, Plaintiff-intervenor alleges that PHH‟s representation of Atrium‟s level of risk

18

assumption constitutes an act of concealment wholly apart from the underlying RESPA claims.

19

Doc. No. 96, FAC at ¶ 107 (“[B]y purposefully arranging for kickbacks to be funneled through

20

Atrium…Defendants affirmatively acted to conceal and prevent Plaintiffs from discovering the

21

underlying basis for this action.”). Plaintiff-intervenor adamantly argues that Defendants

22
knowingly and falsely represented Atrium as a legitimate reinsurance service while in actuality
23
24

Atrium did not assume risk commensurate with the fees it received. Doc. No. 259, Opposition at

25

9-10. However, Plaintiff-intervenor clarified in her Reply in Support of Certification that Atrium‟s

26

lack of risk assumption is part of her underlying claims. See Doc. No. 138, Reply in Support of

27

Certification at 22:9-10, 29:8-10, 32:5-7, and 45:18-20. Therefore, Plaintiff-intervenor asserts that

28

PHH violated RESPA Section 8 by operating an illegitimate reinsurance scheme and concealed
15

1

the violation by holding itself out as not operating an illegitimate scheme. Plaintiff-intervenor

2

failed to plead an act of concealment separate and apart from her underlying claim. See Spears v.

3

First Am. eAppraiseIt, 5-08-CV-00868-RMW, 2013 WL 1748284, at *5 (N.D. Cal. Apr. 23, 2013)

4

(finding property appraisal company that held itself out as providing unbiased appraisers was “part

5

and parcel” with the scheme to defraud creditors and failed equitable estoppel as a matter of law).

6

Additionally, Plaintiff-intervenor attempts to establish a separate act of concealment by

7
8
9

alleging that Defendants failed to adequately describe the relationship between settlement service
providers pursuant to RESPA Section 8(c) and 24 C.F.R. 3500.7. Doc. No. 96, FAC at ¶ 108.

10

Even if true, Defendant PHH‟s failure to inform Plaintiff-intervenor of PHH‟s relationships cannot

11

support fraudulent concealment as it would merge the act of concealment with the basis for a

12

RESPA claim. See Marzan v. Bank of Am., 779 F. Supp. 2d 1140, 1149 (D. Haw. 2011) (finding

13

plaintiffs‟ failure to discover Truth in Lending Act (“TILA”) violations “due to Defendants‟

14

failure to effectively provide the required disclosures and notices” established nothing more than a

15
16

TILA violation itself); Gerhart v. Beazer Homes Holdings Corp., CIV S-08-1650 FCDKJM, 2009

17

WL 799256, at *7 (E.D. Cal. Mar. 23, 2009) (finding home-purchasing plaintiffs failed to

18

demonstrate how a home builder‟s relationship with a wholly-owned title insurance subsidiary

19

created a duty to make disclosures “above and beyond those required by RESPA”). On this point,

20

Plaintiff-intervenor has not sufficiently pled fraudulent concealment apart from an underlying

21

RESPA claim.

22
Additionally, Plaintiff-intervenor has failed to show reliance upon the 2007 SEC filing or
23
24
25
26
27
28

that Defendants filed the 2007 SEC filing with the intent of preventing Plaintiff-intervenor from
timely filing.
Accordingly, the Court finds that Plaintiff-intervenor insufficiently pleads equitable
estoppel/fraudulent concealment.
III.

Conclusion
16

1

Based on the foregoing, IT IS HEREBY ORDERED that:

2

1. Defendant‟s motion for partial judgment on the pleadings is GRANTED for both

3

equitable tolling and equitable estoppel/fraudulent concealment pleadings; and

4

2. Plaintiff-intervenor shall have one opportunity to file and serve a further amended

5
6

complaint to cure deficiencies. Plaintiff-intervenor is afforded twenty (20) days upon
filing of this order to comply. Plaintiff-intervenor may not amend any section of the

7
8
9

complaint outside of the scope of equitable tolling and equitable estoppel pleadings.
Parties are advised to provide pinpoint citations when relying on hundreds of pages

10

long documents, particularly when the party does not provide those documents to the

11

Court.

12
13

IT IS SO ORDERED.

14
Dated: August 11, 2014
15

SENIOR DISTRICT JUDGE

16
17
18
19
20
21
22
23
24
25
26
27
28
17