Bushbeck et al v. Chicago Title Insurance Company

Filing 73

ORDER granting in part and denying in part 42 Defendant's Motion for Summary Judgment, by Judge James L. Robart.(MD)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 v. CHICAGO TITLE INSURANCE CO., Defendant. This matter comes before the court on Defendant Chicago Title Insurance MARK BUSHBECK, et al., Plaintiffs, CASE NO. C08-0755JLR ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

16 Company's ("Chicago Title") motion for summary judgment (Dkt. # 42). Having 17 considered the submissions of the parties, and having heard oral argument, the court 18 GRANTS in part and DENIES in part Chicago Title's motion for summary judgment 19 (Dkt. # 42). 20 21 I. BACKGROUND

In 2007, Plaintiffs Mark and Raelene Bushbeck refinanced the home which

22 became Mrs. Bushbeck's property when she and her ex-husband, Nicholas StyantORDER- 1

1 Browne, divorced. (See Fogarty Decl. (Dkt. # 43) Ex. 18 ("R. Bushbeck Dep.") 55:252 56:2.) The house was collateral in two loans which had been opened by Mr. Styant3 Browne: a first mortgage and a Home Equity Line of Credit ("HELOC"), both held by 4 Countrywide Home Loans ("Countrywide"). (White Decl. (Dkt. # 44), Exs. 6, 7.) On the 5 advice of their mortgage broker, the Bushbecks retained Chicago Title's office in 6 Bellevue, Washington, to perform the escrow settlement services for their refinance 7 transaction. (R. Bushbeck Dep. 62:23-63:22.) 8 When real property is refinanced, deeds of trust or liens associated with prior

9 mortgages or loans must be extinguished in a process called reconveyance. (Compl. 10 (Dkt. # 1) ¶ 13; White Decl. ¶ 6.) The documentation associated with the Styant-Browne 11 loans indicated that Countrywide would perform the reconveyances. With respect to the 12 first mortgage, (1) the deed of trust provided that, upon payoff, Countrywide would 13 complete the reconveyance (White Decl. Ex. 2 at 13 ¶ 23), and (2) the payoff statement 14 specified a reconveyance fee of $30.00 and a county recording fee of $32.00 (Id. Ex. 6 at 15 1). With respect to the HELOC, (1) the deed of trust included a provision which Chicago 16 Title understood to mean that Countrywide would perform the reconveyance (White 17 Decl. Ex. 3; Loeser Decl. (Dkt. # 60) Ex. A ("White Dep.") 45:17-46:19), and (2) 18 although the payoff statement did not specify a reconveyance fee, it, like the deed of 19 trust, included language which Chicago Title understood to mean that Countrywide 20 would perform the reconveyance. (White Decl. Ex. 7; White Dep. 142:18-143:1.) 21 On July 5, 2007, the Bushbecks signed closing documents, including a document

22 entitled "Borrower's Escrow Instructions" (White Decl. Ex. 8 ("Escrow Instructions")),
ORDER- 2

1 and an "Estimated Settlement Statement" (White Decl. Ex. 9 ("Estimated HUD-1")). In 2 relevant part, the Escrow Instructions state the following: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
ORDER- 3

BORROWER herein deposits with you under these instructions the following: Loan documents as required by lender. Estimated Settlement Statement. Amount required to close, if any. Which you are instructed to deliver and/or record when you have for the account of the undersigned [$854,750.00] Subject to any charges and/or credits authorized on the closing statement executed within this closing, and when you are able to comply with the terms and conditions required by WASHINGTON FEDERAL SAVINGS . . . ... You are instructed to disburse deposited funds pursuant to closing statement(s) examined and approved by the parties hereto and by this reference made a part hereof. Certain items shown on the closing statements may be estimated only and the final figures may be adjusted to accommodate exact amounts required at the time of disbursement. (White Decl. Ex. 8.) The Escrow Instructions also provide that Chicago Title "is acting only as an escrow holder and that it is forbidden by law from offering any advice to any party respecting the merits of this escrow transaction or the nature of the instruments utilized, and that it has not done so." Id. In addition, the Escrow Instructions acknowledge that the borrowers were "requested to seek legal counsel of [their] own choosing at [their] own expense, if [they had] any doubt concerning any aspect of this transaction." Id.

1

The first page of the Escrow Instructions refers to an attached exhibit, which states

2 the following: 3 4 5 6 7 8 The parties hereto acknowledge that Washington Federal Savings, the lender herein, may not deposit its loan proceeds until the deed of trust in its favor has been recorded; therefore, escrow will not disburse the total consideration at the time of recording as herein set forth. Escrow holder is instructed to record all documents, including but not limited to the statutory warranty deed from the purchaser to lender, and to defer all payments and disbursements of funds as set forth herein until such time as escrow holder is in receipt of good and sufficient funds from lender for said loan proceeds. You are to withhold the recording of all reconveyance and/or releases until such time as the proceeds of this escrow are disbursed in accordance with these instructions.

9 (Id. at 2 ("Escrow Exhibit") (capitalization altered for readability).) 10 11 12 13 14 15 16 17 18 19 20 21 22 The Escrow Instructions incorporate by reference the Estimated HUD-1, which details the fees the Bushbecks paid into escrow in connection with their refinance. (White Decl. Ex. 9.) The Estimated HUD-1 reflects that the Bushbecks paid the following fees to Chicago Title: (1) a settlement or closing fee of $381.15; (2) a document preparation fee of $163.95; (3) a "Courier/UPS" fee of $34.14; (4) $1,002.92 for title insurance; and (5) a reconveyance fee of $270.00. (Id. at 2.) The last fee is at issue in this case. The $270.00 reconveyance fee includes a $135.00 fee for each of the two loans being paid off in the refinance transaction. (White Decl. ¶ 15.) For accounting purposes, Chicago Title breaks each $135.00 fee into two components: a $120.00 reconveyance processing fee and a $15.00 tracking fee. (See White Decl. ¶ 17; White Dep. 48:23-49:1.) This breakdown is necessary because the tracking portion includes sales tax. (White Dep. 65:11-66:12; Loeser Decl. Ex. B at 5.)

ORDER- 4

1 At the time of the Bushbecks' refinance, Chicago Title's King County operation charged 2 a reconveyance processing fee for every loan in a refinance transaction. (See Loeser 3 Decl. Ex. B at 1-6.) Several other Chicago Title operations in Washington, however, 4 either did not charge reconveyance fees or only charged them when the loan files 5 indicated that the lender would not perform the reconveyance. (See, e.g., id. at 7-8 6 (Pierce County); 13-14 (Clark/Cowlitz Counties); 15-16 (Whatcom County).) 7 At the closing meeting, Mr. Bushbeck questioned the Chicago Title representative

8 about the reconveyance fee. (See R. Bushbeck Dep. 73:15-25, 75:1-12; Fogarty Decl. 9 Ex. 19 ("M. Bushbeck Dep.") 41:21-42:9.) The representative told the Bushbecks that 10 Chicago Title collected the reconveyance fee to cover the cost for Chicago Title to 11 perform and record the reconveyances if the lender failed to complete them; and that any 12 unused portion of the reconveyance fee would be refunded to them. (R. Bushbeck Dep. 13 74:6-12; M. Bushbeck Dep. 25:20-26:2, 42:23-43:5, 47:1-15.) Mr. Bushbeck understood 14 the reconveyance fee to be similar to an "insurance policy" to ensure that the 15 reconveyances were completed. (M. Bushbeck Dep. 48:4-12.) Based on this 16 understanding and on Chicago Title's statement that it would refund unused 17 reconveyance fees, Mr. Bushbeck "was okay with" paying the reconveyance fee. (Id. 18 25:20-26:2.) The Bushbecks understood that the reconveyance fee was a separate charge 19 from the settlement or closing fee. (R. Bushbeck Dep. 91:17-21; M. Bushbeck Dep. 20 57:7-23.) Although Mr. Bushbeck thought that the reconveyance fee was "excessively 21 high," the Bushbecks did not object to the amount of the reconveyance fee. (R. Bushbeck 22 Dep. 91:22-25; M. Bushbeck Dep. 59:1-8; 62:4-20.) Mr. Bushbeck acknowledges that
ORDER- 5

1 Chicago Title did not promise that they would receive a refund within a specific 2 timeframe; Mrs. Bushbeck does not recall whether Chicago Title made any such promise. 3 (R. Bushbeck Dep. 147:16-24; M. Bushbeck Dep. 82:22-83:4.) 4 The Bushbecks signed the closing documents and were given the mandatory three-

5 day "cooling off" period to reconsider and cancel the transaction. The Bushbecks did not 6 cancel the transaction, nor did they seek legal counsel with respect to the transaction. (R. 7 Bushbeck Dep. 83:24-84:5, 101:24-102:4; M. Bushbeck Dep. 56:7-21.) 8 The Bushbecks' refinance closed on July 10, 2007. After closing, Countrywide

9 completed the reconveyances, and the reconveyances were recorded on August 6, 2007. 10 (White Decl. Ex. 13 at 3, 6.) It is undisputed that Chicago Title did not perform or record 11 either reconveyance; rather, Countrywide and its agents performed them. (White Dep. 12 48:3-22, 157:17-158:6.) It is also undisputed that Chicago Title's Reconveyance 13 Department tracked the reconveyances to ensure that they were completed. (See White 14 Decl. ¶ 22; White Dep. 49:14-21; Resp. at 9.) 15 Because they did not receive a refund of any portion of the reconveyance fee

16 within a few months of closing, the Bushbecks believed that Chicago Title had required 17 the full reconveyance fee. (See R. Bushbeck Dep. 111:2-11; M. Bushbeck Dep. 24:1818 25:3.) The Bushbecks never contacted Chicago Title regarding their reconveyance fee. 19 (R. Bushbeck Dep. 110:16-19; M. Bushbeck Dep. 78:1-13.) 20 On May 14, 2008, the Bushbecks filed the instant class-action lawsuit. When she

21 learned of the lawsuit, Wendy White, Vice President of Chicago Title and Escrow 22 Manager for Chicago Title's King County operation, pulled the Bushbecks' file and saw
ORDER- 6

1 that Countrywide had completed the reconveyances but that no refund had been issued. 2 (White Dep. 159:17-163:7). On June 11, 2008, Chicago Title issued refunds of the 3 $120.00 reconveyance processing portions of the Bushbecks' reconveyance fees because 4 Chicago Title did not perform reconveyance processing services. (White Dep. 49:7-50:6, 5 66:7-12; White Decl. Ex. 13.) Each refund letter stated, "Also enclosed is our check in 6 the amount of $120 which represents a refund of the reconveyance fee collected at 7 closing. Because the lender processed the reconveyance we are refunding the 8 reconveyance fee less our tracking fee." (White Decl. Ex. 13 at 2, 5.) The Bushbecks 9 have not cashed the refund checks. (See M. Bushbeck Dep. 82:11-16.) 10 In March 2008, after Ms. White learned that large residential lenders were

11 performing their own reconveyances, Chicago Title's King County operation stopped 12 charging reconveyance processing fees on loans from these lenders. (Loeser Decl. Ex. B 13 at 3). In June 2009, Chicago Title King County stopped charging fees for reconveyance 14 processing altogether. (Id. at 4.) Chicago Title King County now charges only a $35.00 15 reconveyance tracking fee. (Id. at 4, 6.) 16 17 II. ANALYSIS

Summary judgment is appropriate if the evidence, when viewed in the light most

18 favorable to the non-moving party, demonstrates that "there is no genuine issue as to any 19 material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. 20 P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. County of Los 21 Angeles, 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of 22 showing there is no material factual dispute and that he or she is entitled to prevail as a
ORDER- 7

1 matter of law. Celotex, 477 U.S. at 323. If the moving party meets his or her burden, the 2 nonmoving party must go beyond the pleadings and identify facts which show a genuine 3 issue for trial. Cline v. Indus. Maint. Eng'g. & Contracting Co., 200 F.3d 1223, 1229 4 (9th Cir. 2000). 5 A. 6 Breach of Escrow Contract Washington follows the objective manifestation theory for interpreting contracts.

7 Hearst Commc'ns, Inc. v. Seattle Times Co., 115 P.3d 262, 267 (Wash. 2005). Under this 8 approach, courts attempt to determine the parties' intent "by focusing on the objective 9 manifestations of the agreement, rather than on the unexpressed subjective intent of the 10 parties." Id. The subjective intent of the parties is thus generally irrelevant if the court 11 can determine the intent from the actual words used. Id. Courts "give words in a 12 contract their ordinary, usual, and popular meaning unless the entirety of the agreement 13 clearly demonstrates a contrary intent." Id. 14 15 1. Contract Terms The Bushbecks allege that Chicago Title breached the escrow contract by: (1)

16 charging reconveyance fees in addition to the escrow services fee for no additional 17 settlement services other than those Chicago Title was already obligated to perform; and 18 (2) failing to disclose to the Bushbecks that they were not required to use Chicago Title 19 for reconveyance related settlement services and that reconveyance processing was 20 actually being performed by the prior lenders at no charge or for fees separately paid in 21 their loan payoffs. (Compl. ¶¶ 64, 65.) In their response to Chicago Title's motion for 22 summary judgment, the Bushbecks restate their breach of contract theory as follows:
ORDER- 8

1 2 3 4

(1) the Escrow Instructions obligated Chicago Title to either perform Plaintiffs' reconveyances or ensure that they occurred, (2) Chicago Title was required to follow those same Escrow Instructions because it accepted the $350 escrow services fee, and (3) Chicago Title breached the contract by collecting . . . additional reconveyance processing fees and tracking fees for services already covered by the escrow fee. (Resp. at 12-13.)

5 Chicago Title contends that summary judgment is appropriate because the Escrow 6 Instructions are unambiguous and the Bushbecks cannot identify any term that Chicago 7 Title breached. Chicago Title states that the Escrow Instructions directed it to disburse 8 9 the Estimated HUD-1 discloses both a closing fee and a separate reconveyance fee; and 10 that the Bushbecks have not alleged that Chicago Title failed to disburse the escrow funds 11 as instructed. In their response, the Bushbecks do not point to any specific terms of the 12 Escrow Instructions that create the duties they assert; rather, they argue that Chicago Title 13 has failed to show a "lack of ambiguity in the contract that is required to take this issue 14 from the trier of fact." (Resp. at 12-13.) At oral argument, however, the Bushbecks 15 asserted that the following passage from the Escrow Exhibit creates an obligation for 16 Chicago Title to perform the reconveyances in exchange for the closing fee: 17 18 19 20 21 22
At oral argument, Chicago Title conceded that the line on the Estimated HUD-1 instructing Chicago Title to disburse reconveyance fees to itself created an additional contractual obligation for Chicago Title to ensure that the reconveyances had been completed.
1

funds in accordance with the closing statements, including the Estimated HUD-11; that

You are to withhold the recording of all reconveyance and/or releases until such time as the proceeds of this escrow are disbursed in accordance with these instructions.

ORDER- 9

1 (White Decl. Ex. 8 at 2.) 2 The court finds, reading the Escrow Instructions and the Estimated HUD-1 as a

3 whole, that they are unambiguous and cannot be interpreted as requiring Chicago Title to 4 perform reconveyance services in exchange for the closing fee or to make the disclosures 5 alleged in the Bushbecks' complaint. Preliminarily, the court notes that a settlement or 6 closing fee typically covers those activities that are required to close the loan transaction. 7 Because reconveyance is not required for closing, but, rather, takes place after closing, a 8 settlement or closing fee does not, without more, cover reconveyance. See Cornelius v. 9 Fidelity Nat'l Title Co. of Wash. ("Cornelius II"), No. C08-754MJP, 2010 WL 1406333, 10 at *3 (W.D. Wash. April 1, 2010). The Escrow Exhibit does not alter this rule. Instead, 11 the Escrow Exhibit instructs Chicago Title to withhold the recording of the reconveyance 12 until after it disburses the escrow proceeds. Nothing in this passage can be interpreted as 13 requiring Chicago Title to provide reconveyance services in exchange for the closing fee 14 rather than for the reconveyance fee disclosed on the Estimated HUD-1. Moreover, the 15 Bushbecks testified that they were aware at closing that Chicago Title was charging 16 separate fees for closing services and reconveyance services and that Mr. Bushbeck was 17 "okay with" the reconveyance fee. (R. Bushbeck Dep. 91:17-21; M. Bushbeck Dep. 18 25:20-26:2, 57:7-23.) Finally, there is no term in the Escrow Instructions or in the 19 Estimated HUD-1 that mandates any disclosures by Chicago Title. 20 For these reasons, the court grants Chicago Title's motion for summary judgment

21 on the Bushbecks' breach of contract claim to the extent the Bushbecks allege that 22
ORDER- 10

1 Chicago Title was required to perform reconveyance services in exchange for the closing 2 fee and to make the disclosures alleged in the complaint. 3 4 2. Duty of Good Faith and Fair Dealing The Bushbecks allege, in the alternative, that if the Escrow Instructions allowed

5 Chicago Title to charge a separate reconveyance fee, then Chicago Title breached its 6 implied duty of good faith and fair dealing by (1) charging a reconveyance processing fee 7 even though it knew that Countrywide would perform the reconveyances; and (2) telling 8 the Bushbecks that it would refund any unused fees and then failing to do so. Under 9 Washington law, "[t]here is in every contract an implied duty of good faith and fair 10 dealing. This duty obligates the parties to cooperate with each other so that each may 11 obtain the full benefit of performance." Badgett v. Security State Bank, 807 P.2d 356, 12 360 (Wash. 1991). The Washington Supreme Court has clarified, however, that 13 14 15 16 17 18 19 20 21 22
ORDER- 11

the duty of good faith does not extend to obligate a party to accept a material change in the terms of its contract. Nor does it inject substantive terms into the parties' contract. Rather, it requires only that the parties perform in good faith the obligations imposed by their agreement. Id. (internal citations and quotation marks omitted). Chicago Title contends that the Bushbecks cannot demonstrate a breach of the duty of good faith and fair dealing because they cannot identify any contractual obligations that relate to their claim. Chicago Title relies on two recent reconveyance fee cases in this district which rejected similar claims on the ground that there could be no breach of the duty of good faith and fair dealing where the substantive obligation to ensure that the reconveyances were performed was not set forth in the contract:

1 Cornelius II, 2010 WL 1406333, at *4; and McFerrin v. Old Republic Title, Ltd., No. 2 C08-5309BHS, 2009 WL 2045212, at *6-7 (W.D. Wash. Jul. 9, 2009). There is, 3 however, a critical factual difference between these cases and the instant case. In 4 Cornelius II and McFerrin, the defendant title companies disbursed the reconveyance 5 fees to third-party vendors which were responsible for tracking the reconveyances; there 6 was no evidence that the defendants had assumed any contractual duty related to 7 reconveyance services. Cornelius II, 2010 WL 1406333, at *1, *3; McFerrin, 2009 WL 8 2045212, at *5.2 Here, by contrast, Chicago Title did not use the services of a third-party 9 vendor. Rather, Chicago Title disbursed the reconveyance fee to itself, which, as 10 Chicago Title conceded at oral argument, created a contractual obligation for Chicago 11 Title to ensure that the reconveyances were completed. As a result, Chicago Title was 12 required to perform this obligation in good faith. 13 Viewing the facts in the light most favorable to the Bushbecks, the court finds that

14 Chicago Title's failure to refund the unused portion of the Bushbecks' reconveyance fee 15 until after they filed their lawsuit misled the Bushbecks into believing that Chicago Title 16 actually performed the reconveyances and required the reconveyance fee. Because 17 Chicago Title failed to refund the unused fees in a timely manner, the Bushbecks did not 18 receive the full benefit of the contract. See Badgett, 807 P.2d at 360. The court therefore 19 20
Chicago Title also cites Jankanish v. First Am. Title Ins. Co., No. C08-1147MJP, 2009 WL 779330, at *2 (W.D. Wash. Mar. 23, 2009). Jankanish is even less persuasive than Cornelius II and McFerrin, as its holding related only to the failure to disclose claim. Jankanish, 22 2009 WL 779330, at *2.

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2

ORDER- 12

1 denies Chicago Title's motion for summary judgment on the Bushbecks' claim for breach 2 of the duty of good faith and fair dealing. 3 4 3. Voluntary Payment Doctrine Chicago Title contends that the voluntary payment doctrine bars the Bushbecks'

5 contract claims. The Washington Supreme Court has stated that "money voluntarily paid 6 under a claim of right to the payment, and with full knowledge of the facts by the person 7 making the payment, cannot be recovered back on the ground that the claim was illegal, 8 or that there was no liability to pay in the first instance." Indoor Billboard/Wash., Inc. v. 9 Integra Telecom of Wash., 170 P.3d 10, 23 (Wash. 2007). The Bushbecks argue that they 10 did not pay the reconveyance fee voluntarily because they did not have full knowledge of 11 the facts that (1) the deeds of trust required Countrywide to perform the reconveyances; 12 (2) Chicago Title had no history of processing reconveyances on Countrywide loans; and 13 (3) Chicago Title would not refund the unused reconveyance processing fees until after 14 they filed a federal lawsuit. (See White Decl. Exs. 6-7; White Dep. 160:12-162:2, 15 177:10-12; 179:13-18.) Viewing the facts in the light most favorable to the Bushbecks, 16 the court agrees that the voluntary payment doctrine does not bar the Bushbecks' contract 17 claim. 18 B. 19 Breach of Estimated HUD-1 The Bushbecks allege that Chicago Title "breached the Estimated HUD-1 by

20 failing to accurately account for the funds disbursed and by failing to disclose that 21 Plaintiffs were not required to use CTI for reconveyance or that lenders were doing the 22 reconveyances for no cost or fees already paid." (Compl. ¶ 71.) Chicago Title contends
ORDER- 13

1 that an Estimated HUD-1 is not a contract, so there can be no breach. The Bushbecks do 2 not respond to this argument. 3 In Cornelius v. Fidelity Nat'l Title Co. ("Cornelius I"), No. C08-754MJP, 2009

4 WL 596585, at * 3-4 (W.D. Wash. Mar. 9, 2009), the court held that the HUD-1 was not 5 a contract because there was no evidence of consideration given and no promise 6 contained within the document aside from a representation that what is written is a "true 7 and accurate statement of all receipts and disbursements made" on the escrow account. 8 Similarly, in Jankanish v. First Am. Title Ins. Co., No. C08-1147MJP, 2009 WL 779330, 9 at *2 (W.D. Wash. Mar. 23, 2009), the court held that the settlement statements "do not 10 include terms and conditions, reflect no fee paid as consideration for a separate HUD-1 11 contract, and contain no contractual promise to perform (or refrain from performing) 12 some act." The court agrees with the reasoning of Cornelius I and Jankanish. The court 13 therefore grants Chicago Title's motion for summary judgment on the Bushbecks' claim 14 for breach of the Estimated HUD-1. 15 C. 16 Violations of RESPA Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C.

17 § 2601 et seq., provides: 18 19 20 (b) Splitting charges. 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.

21 12 U.S.C. § 2607(b). "The language of Section 8(b) prohibits only the practice of giving 22 or accepting money where no service whatsoever is performed in exchange for that
ORDER- 14

1 money." Martinez v. Wells Fargo Home Mortgage, Inc., 598 F.3d 549, 554 (9th Cir. 2 2010). "By negative implication, Section 8(b) cannot be read to prohibit charging fees, 3 excessive or otherwise, when those fees are for services that were actually performed." 4 Id. at 554-55. A service provider violates Section 8(b) by charging the consumer a fee 5 for which it performs no services; a plaintiff need not demonstrate that the service 6 provider split the fee with another party in order to establish a violation of Section 8(b). 7 Cohen v. JP Morgan Chase & Co., 498 F.3d 111, 126 (2d Cir. 2007).3 8 The Bushbecks' Estimated HUD-1 includes a charge for reconveyance fees of

9 $270.00--$135.00 per loan--payable to Chicago Title. Chicago Title divides each 10 $135.00 reconveyance fee into a $15.00 tracking fee plus a $120.00 processing fee. 11 Although Chicago Title contends that this breakdown is only for internal accounting 12 purposes, the Bushbecks cite a number of examples in which Chicago Title, its 13 representatives, and its attorneys have described the reconveyance fee as consisting of a 14 tracking component and a processing component. (See White Decl. Ex. 13; White Dep. 15 48:23-49:1; Mot. for J. on the Pleadings Hr'g Tr. (Dkt. # 64) 13:1-5, Nov. 11, 2008; see 16
3

17 by charging an unearned fee which is not divided or split with another party. In a prior order,

The Ninth Circuit has not addressed whether a party can violate Section 8(b) of RESPA

18 to dismiss the Bushbecks' RESPA claim on the basis that the Bushbecks had not alleged a split 19 20 21 22

this court followed the Second Circuit's reasoning in Cohen and denied Chicago Title's motion of the unearned fee. Bushbeck v. Chicago Title Ins. Co., 632 F. Supp. 2d 1036, 1041-42 (W.D. Wash. 2008). See also Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384, 389 (3d Cir. 2005) (holding that a single party can violate Section 8(b) by marking up the charge of another settlement service provider and retaining the unearned portion of the fee); Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir. 2003) (same). Other circuits hold that a plaintiff must allege an illegal split of a fee with a third party in order to establish a RESPA violation. See Haug v. Bank of Am., N.A., 317 F.3d 832, 836 (8th Cir. 2003); Boulware v. Crossland Mortgage Corp., 391 F.3d 261, 265 (4th Cir. 2002); Echevarria v. Chicago Title & Trust Co., 256 F.3d 623, 627 (7th Cir. 2001). ORDER- 15

1 also Pls. Resp. to Def. Not. of Supp. Auth. (Dkt. # 67) at 2 (listing additional examples).) 2 The parties agree that Chicago Title performed tracking services but did not perform any 3 processing services. (See White Dep. 48:3-22, 49:14-21, 157:19-158:6; White Decl. ¶ 4 22; Resp. at 9.) 5 The issue, then, is whether the court, in reviewing the Bushbecks' RESPA claim,

6 should view Chicago Title's reconveyance fee as (1) a unitary $270.00 fee for which the 7 service of reconveyance tracking was performed, or (2) a $15.00 tracking fee per loan for 8 which a service was performed plus a separate $120.00 processing fee per loan for which 9 no service was performed. If the reconveyance fee is a unitary fee, then the fee was 10 charged for "services actually performed," and there is no RESPA violation. If, however, 11 the reconveyance fee is comprised of separate tracking and processing fees, then, viewing 12 the facts in the light most favorable to the Bushbecks, Chicago Title may have violated 13 RESPA by collecting a $120.00 processing fee per loan for which it performed no 14 services. The parties have not directed the court to any law addressing the scenario in 15 which a charge is allegedly comprised of one fee for which the provider performed 16 services and a second fee for which it did not perform services.4 17 Chicago Title insists that the court can look no deeper than the $270.00 charge

18 disclosed on the Estimated HUD-1 in determining whether services were performed in 19 exchange for a fee. Chicago Title's interpretation does not, however, find support in the 20
In Cohen, the plaintiff alleged that the defendant violated Section 8(b) by charging her a "post-closing" fee of $225.00 for which it had provided no services. Cohen, 498 F.3d at 113-14. The court found that a party can violate Section 8(b) by charging a fee for which no work is 22 done, and reversed the district court's dismissal of the plaintiff's RESPA claim. Id. at 126.

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4

ORDER- 16

1 language of Section 8(b). Section 8(b) specifies that "[n]o person shall give and no 2 person shall accept any portion, split, or percentage of any charge . . . other than for 3 services actually performed." 12 U.S.C. § 2607(b) (emphasis added). This language 4 contemplates that the court will scrutinize the charge disclosed on the HUD-1 to 5 determine whether the defendant accepted any portion, split, or percentage of that charge 6 but performed no services in return. Interpreting Section 8(b) to prohibit a court from 7 looking deeper than the HUD-1 would render the "portion, split, or percentage" language 8 meaningless. See Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th 9 Cir. 2003) (noting that a service provider could be culpable as an "acceptor" by accepting 10 an entire fee, knowing that part of it was not for services actually performed). In 11 addition, a service provider can violate Section 8(b) by splitting a fee with a third party 12 who performs no service, or by marking-up a third-party vendor's fees and keeping the 13 excess without performing any additional services. See Kruse v. Wells Fargo Home 14 Mortgage, Inc., 383 F.3d 49, 61-62 (2d Cir. 2004). Evaluating a Section 8(b) claim based 15 on these theories requires a court to look beyond the charge disclosed on the HUD-1 to 16 determine how it was actually divided and used. Chicago Title does not explain why a 17 Section 8(b) claim premised on a service provider's collection of an unearned fee should 18 be treated differently. The court therefore holds that Section 8(b)'s prohibition against 19 "accept[ing] any portion, split, or percentage of any charge . . . other than for services 20 actually performed" is not limited to cases where the service provider performs no 21 services for the entire charge disclosed on the HUD-1, but extends to any portion of the 22 charge for which the service provider does not perform services.
ORDER- 17

1

Chicago Title contends that Section 8(b) does not authorize courts "to divide a

2 `charge' into what they or some other person or entity deems to be its `reasonable' and 3 `unreasonable' components." Kruse, 383 F.3d at 56 & n.4 (invalidating a Department of 4 Housing and Urban Development ("HUD") interpretation of Section 8(b) that stated that 5 a service provider violates RESPA by charging a fee that exceeds the reasonable value of 6 goods or services, and noting that Congress provided no guidelines for determining a 7 reasonable charge). Here, however, the court has not been asked to determine whether a 8 charge was reasonable or to decide what portion of a charge was unreasonable. Rather, 9 the court is being asked to determine whether a portion of a charge, as determined and 10 described by the service provider itself, was collected other than for services actually 11 provided. 12 Chicago Title cites several cases which it contends support its position that a court

13 cannot parse a settlement service fee into component parts even where that parsing is 14 based on public information. In each of the three cited cases, the defendant charged the 15 plaintiff a fee for title insurance which exceeded the publicly-filed rates required under 16 Alabama state law. Hazewood v. Foundation Fin. Group, LLC, 551 F.3d 1223, 1224-25 17 (11th Cir. 2008); Morissette v. NovaStar Home Mortgage, Inc., 484 F. Supp. 2d 1227, 18 1228-29 (S.D. Ala. 2007), aff'd, 284 F. App'x 729 (11th Cir. 2008); Williams v. Saxon 19 Mortgage Servs., Inc., No. 06-0799-WS-B, 2007 WL 1845642, at *1 (S.D. Ala. Jun. 25, 20 2007). In each case, the plaintiffs argued that because state law prohibited a title 21 insurance company from charging more than the publicly-filed rate, the portion of the 22 title insurance fee which was invalid under state law was a fee for which no services were
ORDER- 18

1 actually performed in violation of RESPA. In all three cases, the courts disagreed, 2 holding that, because the defendants actually provided title insurance, the excess over the 3 publicly-filed rate constituted a permissible overcharge rather than a fee for which no 4 services were performed. Hazewood, 551 F.3d at 1225-27; Morissette, 484 F. Supp. at 5 1230; Williams, 2007 WL 1845642, at *4; see also Arthur v. Ticor Title Ins. Co. of Fla., 6 569 F.3d 154, 159 (4th Cir. 2009) (noting that RESPA is not a mechanism for enforcing 7 state law). Thus, these cases are inapposite, as they involved allegations that the 8 defendants charged too much for a service that was actually performed, rather than an 9 allegation that the defendant collected a fee for which it performed no services. 10 Finally, Chicago Title contends that summary judgment is appropriate because

11 RESPA does not apply to "conditional holdback fees." The court disagrees. Whether the 12 reconveyance fee was a "conditional holdback fee" is a question of fact, and the 13 Bushbecks have presented evidence that Chicago Title retained the processing fees 14 despite providing no reconveyance processing services and refunded the processing fee 15 only in response to the Bushbecks' lawsuit. (White Dep. 159:17-163:8.) 16 Because Section 8(b) prohibits a settlement service provider from "accept[ing]

17 any portion, split, or percentage of any charge . . . other than for services actually 18 performed," and because the evidence, viewed in the light most favorable to the 19 Bushbecks, establishes that Chicago Title charged reconveyance processing fees for 20 which it performed no services, the court, on the record before it, denies Chicago Title's 21 motion for summary judgment on the Bushbecks' RESPA claim. 22
ORDER- 19

1 D. 2

Breach of Fiduciary and Agency Duties In the escrow context, an "escrow agent's duties and limitations are defined . . . by

3 his instructions." Denaxas v. Sandstone Court of Bellevue, LLC, 63 P.3d 125, 129 4 (Wash. 2003) (quoting Nat'l Bank of Wash. v. Equity Investors, 506 P.2d 20, 35 (Wash. 5 1973)). "The tasks in the instructions must be undertaken with `ordinary skill and 6 diligence, and due or reasonable care.'" Id. "In addition, the escrow agent, as fiduciary 7 to all parties to the escrow `must conduct the affairs with which [it] is entrusted with 8 scrupulous honesty, skill, and diligence.'" Id. 9 Chicago Title contends that the economic loss doctrine bars the Bushbecks' claims

10 for breach of fiduciary and agency duties. The Washington Supreme Court has stated 11 that "the purpose of the economic loss rule is to bar recovery for alleged breach of tort 12 duties where a contractual relationship exists and the losses are economic losses." 13 Alejandre v. Bull, 153 P.3d 864, 868 (Wash. 2007). Accordingly, the doctrine "prohibits 14 plaintiffs from recovering in tort economic losses to which their entitlement flows only 15 from contract because tort law is not intended to compensate parties for losses suffered as 16 a result of a breach of duties assumed only by agreement." Id. (internal citation and 17 quotation marks omitted). 18 Here, the Bushbecks allege that Chicago Title breached its duty to act with

19 "scrupulous honesty, skill, and diligence" when it charged a reconveyance processing fee 20 even though (1) the deeds of trust required Countrywide to perform the reconveyances; 21 (2) Chicago Title had instructed Countrywide to perform the reconveyances; and (3) 22 Chicago Title understood that Countrywide would in fact perform the reconveyances.
ORDER- 20

1 This claim is duplicative of the Bushbecks' contract claim based on the breach of the 2 duty of good faith and fair dealing.5 The court therefore holds that the economic loss 3 doctrine bars the Bushbecks' claims for breach of fiduciary and agency duties, and grants 4 summary judgment on these claims to Chicago Title. 5 E. 6 Violations of the Washington Consumer Protection Act ("CPA") To establish a violation of the CPA, chapter 19.86 RCW, a plaintiff must

7 demonstrate: "(1) [an] unfair or deceptive act or practice; (2) occurring in trade or 8 commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or 9 property; (5) causation." Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 10 719 P.2d 531, 532 (Wash. 1986). To prove an unfair or deceptive act, the plaintiff need 11 not show that the defendant intended to deceive, but only that the alleged act had the 12 capacity to deceive a substantial portion of the public. Id. at 535. Although the CPA 13 does not define the term "deceptive," Washington courts have held that "implicit in that 14 term is `the understanding that the actor misrepresented something of material 15 importance.'" Stephens v. Omni Ins. Co., 159 P.3d 10, 18-19 (Wash. Ct. App. 2007) 16 (quoting Hiner v. Bridgestone/Firestone, Inc., 959 P.2d 1158, 1163 (Wash. Ct. App. 17 1998), rev'd on other grounds, 978 P.2d 505 (Wash. 1999)). In addition, "[a] loss of use 18 of property which is causally related to an unfair or deceptive act or practice is sufficient 19 injury to constitute the fourth element of a Consumer Protection Act violation." Id. at 25 20 (quoting Mason v. Mortgage Am., Inc., 792 P.2d 142, 148 (Wash. 1990)). 21
5

22 and breach of fiduciary duty were "pled and argued in the alternative."
ORDER- 21

At oral argument, counsel for the Bushbecks stated that the claims for breach of contract

1

Chicago Title argues that there can be no unfair or deceptive act where a fee was

2 disclosed "up front" during a transaction; that the Bushbecks cannot show harm because 3 they received a refund; and that it acted in good faith under an arguable interpretation of 4 the law. Preliminarily, the court takes a dim view of Chicago Title's contention that, by 5 issuing a refund in reaction to the Bushbecks' lawsuit (see White Dep. 159:17-163:8), it 6 eliminated its liability under the CPA. Moreover, as explained above, the Bushbecks 7 have presented evidence supporting their allegations that Chicago Title committed unfair 8 or deceptive acts and acted in bad faith when it collected the reconveyance processing 9 fees despite knowing that Countrywide would perform the reconveyances, promised that 10 it would refund the fees if they were not used, and then failed to refund the unused fees 11 until after the Bushbecks filed their lawsuit. Thus, viewing the facts in the light most 12 favorable to the Bushbecks, the court holds (1) that Chicago Title's practice of collecting 13 reconveyance processing fees that it knew it would not use and then failing to refund the 14 unused reconveyance processing fee may constitute an unfair or deceptive act that caused 15 injury under the CPA, and (2) that the Bushbecks have established a genuine issue of 16 material fact regarding whether Chicago Title acted in good faith. The court therefore 17 denies Chicago Title's motion for summary judgment on the Bushbecks' CPA claims.6 18 19
The Bushbecks also argue that Chicago Title committed a per se violation of the CPA 20 by violating the Washington Insurance Code ("WIC"). "A per se unfair trade practice exists when a statute which has been declared by the Legislature to constitute an unfair or deceptive act in trade or commerce has been violated." Hangman Ridge, 719 P.2d at 535. Although the WIC 21 states that the business of insurance is one "affected by the public interest," RCW 48.01.030, the Bushbecks have not identified any statute declaring that Chicago Title's alleged actions in this 22 case constitute per se unfair or deceptive practices. ORDER- 22
6

1 2

III.

CONCLUSION

For the foregoing reasons, the court GRANTS in part and DENIES in part

3 Chicago Title's motion for summary judgment (Dkt. # 42). 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
ORDER- 23

Dated this 1st day of June, 2010.

A____
JAMES L. ROBART United States District Judge