WHITE et al v. THE PNC FINANCIAL SERVICES GROUP, INC. et al

Filing 284

MEMORANDUM AND/OR OPINION. SIGNED BY CHIEF JUDGE LAWRENCE F. STENGEL ON 8/24/17. 8/24/17 ENTERED AND COPIES EMAILED TO COUNSEL. (jaa, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
NELSON WHITE, JR., et al.,
Plaintiffs,
v.
THE PNC FINANCIAL SERVICES
GROUP, INC., et al.,
Defendants.

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CIVIL ACTION
NO. 11-7928

MEMORANDUM
STENGEL, C. J.
I.

August 24, 2017

INTRODUCTION
This is a putative class action brought by homeowners claiming violations of the

Real Estate Settlement Procedures Act, 12 U.S.C. § 2607 (RESPA). The plaintiffs filed a
Motion to Strike several of the defendants‘ affirmative defenses.
II.

BACKGROUND
The plaintiffs claim the defendants carried on a ―captive reinsurance scheme‖ in

which the defendants enjoyed kickbacks, referrals, and fees that are prohibited by
RESPA. Plaintiffs allege that the defendant insurers, lenders, and reinsurers have
colluded to create a scheme that violates RESPA. Plaintiffs maintain that the lenders, as a
general practice, form subsidiary companies that become the reinsurers. These lenders
then systematically refer homeowners to the insurers to buy mortgage insurance. In
exchange for a constant stream of profit-producing homeowner-borrowers, the insurers
then pay a kickback to the reinsurer who, as a subsidiary, is really just an extension of the
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lender. Plaintiffs claim this ―pay-to-play‖ scheme harms homeowners because, by
colluding, the insurers, reinsurers, and lenders, were able to reduce competition in the
mortgage insurance market, thereby increasing the premium payments the homeownerplaintiffs are required to pay to maintain their mortgage insurance.
Several months ago, in allowing plaintiffs to amend their claims, I held that
RESPA was violated each time an allegedly illegal kickback, fee, or referral was given or
received. White v. PNC Fin. Servs. Grp., Inc., 11–cv–7928, 2017 WL 85378, at *13
(E.D. Pa. Jan. 10, 2017). I also held that the continuing violations doctrine applied to
plaintiffs‘ claims, thereby saving them from RESPA‘s one-year statute of limitations. Id.
at *6. Following that decision, defendant The PNC Financial Services Group, Inc.
(―PNC‖) filed an interlocutory appeal. The Third Circuit rejected PNC‘s attempt to
appeal my decision. (Doc. No. 264). The case then proceeded to discovery, which is
where it stands now.
The plaintiffs move to strike PNC‘s following affirmative defenses:
First Defense
Plaintiffs‘ claims and those of the putative class are or may be barred by the
applicable statute of limitations. Without in any way limiting the foregoing, PNC
specifically reserves all rights to challenge the Court‘s determination that
RESPA‘s one-year statute of limitations is subject to the ―continuing violation‖
doctrine. Further, even under the continuing violation theory asserted by Plaintiffs,
PNC asserts that any period PMI premium paid prior to December 31, 2010 is
barred by the RESPA limitations period. PNC asserts the same principles with
respect to the unjust enrichment claim. (Doc. No. 265, Answer at 50–51).
Third Defense
Plaintiffs‘ RESPA claims fail because PNC did not make any referrals to the
Mortgage Insurers after December 31, 2010. (Answer at 51).
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Seventh Defense
Plaintiffs‘ claims against PNC are barred because Plaintiffs paid mortgage
insurance rates filed with and/or approved by state regulators. (Answer at 52).
Eighth Defense
Plaintiffs lack standing under Article III and RESPA to bring some or all of their
claims in this case, including claims related to reinsurance agreements that are
inapplicable to their loans. (Answer at 52).
III.

LEGAL STANDARD
Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, a party may move

to ―strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter.‖ The pleading standard for an affirmative defense is
set forth in Rule 8(c), which requires a party to ―affirmatively state any avoidance or
affirmative defense.‖ An affirmative defense is ―[a] matter asserted by defendant which,
assuming the complaint to be true, constitutes a defense to it.‖ In re Sterten, 546 F.3d
278, 284 n.9 (3d Cir. 2008) (alteration in original) (citing BLACK‘S LAW DICTIONARY 60
(6th ed. 1990)).
The striking of a pleading is ―a ‗drastic remedy‘ to be used sparingly because of
the difficulty of deciding a case without a factual record.‖ Dann v. Lincoln Nat‘l Corp.,
274 F.R.D. 139, 142 (E.D. Pa. 2011) (quoting BJ Energy, LLC v. PJM Interconnection,
LLC, Nos. 08–3649, 09–2864, 2010 WL 1491900, at *1 (E.D. Pa. Apr. 13, 2010)).
Accordingly, a motion to strike will not be granted if ―the sufficiency of a defense
depends on disputed issues of fact. Even when the facts are not in dispute, Rule 12(f) is

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not meant to afford an opportunity to determine disputed and substantial questions of
law.‖ Dann, 274 F.R.D. at 143.
Motions to strike are generally disfavored. Id. at 142. Such motions are usually
denied unless the allegations ―have no possible relation to the controversy and may cause
prejudice to one of the parties, or if the allegations confuse the issues.‖ River Road Dev.
Corp. v. The Carlson Corp., Civ. A. No. 89–7037, 1990 WL 69085, at *3 (E.D. Pa. May
23, 1990) (citing 5 CHARLES ALLAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE
AND PROCEDURE

§ 1382, at 807 (1969)). Nevertheless, a motion to strike under Rule

12(f) ―is the ‗primary procedure‘ for objecting to an insufficient affirmative defense.‖
Mifflinburg Telegraph, Inc. v. Criswell, 80 F. Supp. 3d 566, 573 (M.D. Pa. 2015)
(quoting United States v. Marisol, Inc., 725 F. Supp. 833, 836 (M.D. Pa. 1989)). In some
cases, motions to strike ―serve a useful purpose by eliminating insufficient defenses and
saving the time and expense which would otherwise be spent in litigating issues which
would not affect the outcome of the case.‖ Id. (quoting Marisol, 725 F. Supp. at 837);
New Jersey v. RRI Energy Mid-Atlantic Power Holdings, LLC, Civ. A. No. 07–cv–5298,
2010 WL 3958777, at *4 (E.D. Pa. Sept. 30, 2010) (―[M]otions to strike save time and
expense by making it unnecessary to litigate claims that will not affect the outcome of the
case.‖).
IV.

DISCUSSION
Plaintiffs move to strike PNC‘s first, third, seventh, and eighth affirmative

defenses.

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A.

First and Third Defenses: Statute of Limitations

At this stage of the litigation, I will deny the plaintiffs‘ motion to strike PNC‘s
first and third affirmative defenses. The sufficiency of these defenses depends upon
disputed issues of fact that remain unclear because discovery has not concluded.
Plaintiffs argue that, in White v. PNC Fin. Servs. Grp., Inc., 11–cv–7928, 2017
WL 85378 (E.D. Pa. Jan. 10, 2017), I found the continuing violations doctrine applicable
to plaintiffs‘ claims. Plaintiffs are correct. Under the continuing violations doctrine, a
statute of limitations begins to run from the date of the last violation rather than the date
of the first violation. Id. at *5. In this case, the alleged ―violations‖ are the kickbacks,
fees, and referrals paid by the lenders, banks, and insurers. 12 U.S.C. § 2607. Finding the
doctrine applicable to plaintiffs‘ claims, I concluded in the above decision that:
Defendants violated RESPA—assuming the veracity, at this stage, of
plaintiffs‘ allegations—each time an allegedly illegal kickback, fee, or
referral was given or received. This captive reinsurance scheme, as pled,
constitutes a continuing violation of RESPA. Because I find the continuing
violations doctrine applicable, the statute of limitations runs from the date
of the last RESPA violation rather than the first.
White, 2017 WL 85378, at *13.
The above decision was made under our motion to dismiss standard, which
requires me to assume the truth of the plaintiffs‘ allegations. Here, by contrast, I may not
grant the plaintiffs‘ motion to strike the first and third affirmative defenses—which relate
to the statute of limitations—because ―the sufficiency of [these] defense[s] depends on
disputed issues of fact.‖ Dann, 274 F.R.D. at 143. Even though the continuing violations
doctrine applies to plaintiffs‘ claims, plaintiffs still must prove that the defendants
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violated RESPA by actually making illegal kickbacks, fees, or referrals. Whether this
happened is a factual dispute.1
Accordingly, I will deny plaintiffs‘ motion to strike PNC‘s first and third
affirmative defenses.
B.

Seventh Defense: Filed Rate Doctrine

I will grant plaintiffs‘ motion to strike PNC‘s seventh affirmative defense.
PNC‘s seventh affirmative defense states: ―Plaintiffs‘ claims against PNC are
barred because Plaintiffs paid mortgage insurance rates filed with and/or approved by
state regulators. (Answer at 52). This type of defense implicates what is known as the
―filed rate doctrine.‖ ―The filed rate doctrine provides that a rate filed with and approved
by a governing regulatory agency is unassailable in judicial proceedings brought by
ratepayers.‖ Alston v. Countrywide Fin. Corp., 585 F.3d 753, 763 (3d Cir. 2009).

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If and to the extent discovery reveals violations of RESPA, plaintiffs are correct
that under the ―law of the case‖ doctrine, the continuing violations doctrine would apply
to save their claims from the statute of limitations. See Hamilton v. Leavy, 322 F.3d 776,
786 (3d Cir. 2003) (―The law of the case doctrine limits relitigation of an issue once it has
been decided in an earlier stage of the same litigation.‖). In other words, the continuing
violations doctrine undoubtedly applies to this case, assuming that illegal kickbacks,
referrals, or fees occurred. The question that remains is: will the facts revealed by
discovery show that illegal kickbacks, referral, or fees actually occurred? Without the
benefit of discovery, I cannot answer this question at this stage and consequently must
deny the motion to strike.
To be sure, my denial of this motion to strike should in no way be misconstrued as
an invitation for PNC to urge me to rule differently than I did in White v. PNC Fin.
Servs. Grp., Inc., 11–cv–7928, 2017 WL 85378 (E.D. Pa. Jan. 10, 2017) on the
continuing violations issue. Under the law of the case doctrine, that ruling remains
binding. The only way the continuing violations doctrine would not apply to save
plaintiffs‘ claims from the statute of limitations is if it somehow turns out that no illegal
kickbacks, fees, or referrals occurred.
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In Alston v. Countrywide Financial Corp., 585 F.3d 753 (3d Cir. 2009), the U.S.
Court of Appeals for the Third Circuit held that the filed rate doctrine does not bar
plaintiffs from bringing captive-reinsurance-scheme claims under Section 8(a) of
RESPA. Key to the Third Circuit‘s decision was the fact that the plaintiffs did not
challenge the fairness of the mortgage insurance rates set by Pennsylvania state
regulators. Alston, 585 F.3d at 764. Rather, the plaintiffs challenged the defendants‘
conduct with respect to their mortgage insurance: carrying on a captive reinsurance
scheme in violation of RESPA. Id. Thus, when there is—as here—a challenge to the
―allegedly wrongful conduct, not the reasonableness or propriety of the rate that triggered
that conduct,‖ the filed rate doctrine simply does not apply. Id. at 765.
PNC recognizes that its filed-rate-doctrine defense is foreclosed by Third Circuit
precedent. (Doc. No. 277 at 11) (―PNC acknowledges that the Third Circuit held in
Alston that the filed rate doctrine did not apply to bar claims brought under Section 8(a)
of RESPA.‖). However, PNC argues that it should still be allowed to pursue this defense
in order to seek a potential ruling from the U.S. Supreme Court in its favor. PNC is
incorrect. Under basic principles of stare decisis, ―[a]bsent a Supreme Court decision to
the contrary, district courts are compelled to follow mandates of appellate courts.‖ Briley
v. City of Trenton, 164 F.R.D. 26, 29 (D.N.J. 1995) (quoting Litman v. Massachusetts
Mut. Life Ins. Co., 825 F.2d 1506, 1508 (11th Cir. 1987), cert. denied, 484 U.S. 1006
(1988)); see also Hammond v. Commonwealth Mtg. Co. of Am., 156 B.R. 943, 947 (E.D.
Pa. 1993) (―In view of the Supreme Court‘s reticence, principles of stare decisis

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command this Court to follow the law as set forth by the Court of Appeals for the Third
Circuit.‖), aff‘d, 27 F.3d 52 (3d Cir. 1994)).
PNC may be correct that there is a circuit split regarding the filed rate doctrine‘s
applicability to claims brought under Section 8(a) of RESPA. However, my job is not to
resolve circuit splits. The Third Circuit has squarely ruled on the filed rate doctrine‘s
applicability to the exact claims brought in this case. Alston, 585 F.3d at 763–65. The
Third Circuit clearly held that the filed rate doctrine does not apply in these kinds of
cases. I am bound to follow this precedent. Hammond, 156 B.R. at 947; cf. Munoz v.
PHH Corp., No. 1:08–cv–759, 2013 WL 1278509, at *7–8 (E.D. Cal. Mar. 26, 2013)
(granting plaintiffs‘ motion to strike filed-rate-doctrine defense in a RESPA case, under
the law of the case doctrine, and rejecting defendants‘ position that relied on non-binding
out-of-circuit precedent). PNC‘s seventh affirmative defense is clearly insufficient under
this Circuit‘s precedent.
Accordingly, I will grant the plaintiffs‘ motion to strike PNC‘s seventh affirmative
defense.2

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PNC argues that even though its seventh affirmative defense is clearly foreclosed
by Third Circuit precedent, it would be ―efficient‖ to allow PNC to engage in discovery
on this issue so that PNC may prepare a factual record for appeal. PNC has the cart
before the horse. See Criswell, 80 F. Supp. 3d at 573 (noting that in some circumstances
motions to strike may ―serve a useful purpose by eliminating insufficient defenses and
saving . . . time and expense‖). It is crystal clear that, in this Circuit, the filed rate
doctrine is not a viable defense to a claim under Section 8(a) of RESPA in which a
captive reinsurance scheme is alleged. Alston, 585 F.3d at 763–65. That is the exact type
of claim brought here. PNC‘s disagreement with our binding precedent does not entitle
PNC to expend this Court‘s resources, its own resources, or the plaintiffs‘ resources in
discovery. With that said, I will deny the plaintiffs‘ motion to strike the seventh
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C.

The Eighth Defense: Standing

I will deny plaintiffs‘ motion to strike PNC‘s eighth affirmative defense with one
caveat.
PNC‘s eighth affirmative defense states: ―Plaintiffs lack standing under Article III
and RESPA to bring some or all of their claims in this case, including claims related to
reinsurance agreements that are inapplicable to their loans.‖ (Answer at 52). Plaintiffs
argue that—like its filed rate doctrine defense—PNC‘s standing defense is foreclosed by
Alston.
In Alston, the Third Circuit addressed whether plaintiffs bringing a claim under
Section 8(a) of RESPA have standing to sue even if they allege no ―overcharge‖ by the
defendant. 585 F.3d at 759–63. The Third Circuit answered that question in the
affirmative. PNC argues that its standing defense does not relate to Alston‘s standing
holding. PNC purports to challenge the named plaintiffs‘ standing to bring claims on
behalf of purported class members whose loans are not impacted by a reinsurance
arrangement. To the extent that PNC does not raise the same sort of standing argument
already foreclosed by Alston, I will deny the plaintiffs‘ motion to strike PNC‘s eighth
affirmative defense. Although the plaintiffs argue that PNC‘s eighth affirmative defense

affirmative defense only as the defense applies to the plaintiffs‘ unjust enrichment claims.
The resolution of that issue is not clearly settled by Third Circuit precedent.
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is not exactingly clear, it provides ―fair notice‖ of the issue involved. Tyco Fire Prods. LP
v. Victaulic Co., 777 F. Supp. 2d 893, 901 (E.D. Pa. 2011).3
Accordingly, the plaintiffs‘ motion to strike PNC‘s eighth affirmative defense is
denied to the extent PNC‘s standing argument relates to issues not already resolved in
Alston.4
V.

CONCLUSION
For all the reasons stated above, the plaintiffs‘ motion to strike PNC‘s affirmative

defenses is granted in part and denied in part.

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Unlike the pleading of a claim, ―[a]n affirmative defense need not be plausible to
survive; it must merely provide fair notice of the issue involved.‖ Tyco, 777 F. Supp. 2d
at 900.
4

In its brief, PNC claims that its eighth affirmative defense ―is not limited to the
‗overcharge‘ issued addressed in Alston.‖ (Doc. No. 277 at 14). This seems to imply that
PNC is also challenging the binding import of Alston‘s holding regarding standing. Such
a defense would be insufficient—just as PNC‘s filed-rate-doctrine defense is. See supra §
IV(B). Thus, to the extent PNC attempts to relitigate the standing issues already resolved
by Alston, the plaintiffs‘ motion to strike PNC‘s eighth affirmative defense is granted.
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