Opinion
CIVIL NO. 98-00412SPK, CIVIL NO. 98-00565SPK, (CONSOLIDATED).
November 5, 1999.
ORDER CONSOLIDATING CASES, GRANTING MOTIONS FOR SUMMARY JUDGMENT, AND DENYING MOTION FOR CLASS CERTIFICATION INTRODUCTION
This Order corresponds to three sets of motions filed in connection with two cases before this Court. First, Defendants Honolulu Mortgage Co. ("HMC") and Home Financial Services, Inc. ("Home Financial") move for summary judgment against Plaintiffs Robert and Mary Johnson (the "Johnsons"). Second, Defendants HMC and Associated Mortgage, Inc. ("Associated") move for summary judgment against Plaintiffs Michael and Staci Ann Kapeliela (the "Kapelielas"). Third, both the Johnsons and the Kapelielas (collectively, "Plaintiffs") move for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure.
As an initial matter, the Court notes that both cases involve common issues of law. Accordingly, the cases are CONSOLIDATED pursuant to Rule 42(a) of the Federal Rules of Civil Procedure.
For the reasons set forth, the Court GRANTS summary judgment in favor of HMC against both the Johnsons and the Kapelielas, GRANTS summary judgment in favor of Home Financial, GRANTS summary judgment in favor of Associated, and DENIES Plaintiffs' Motion for Class Certification.
BACKGROUND
The basis of Plaintiffs' claims against HMC, Home Financial, and Associated (collectively, "Defendants") is the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2607. Plaintiffs seek class-wide relief against Defendants' alleged violations of RESPA's anti-referral and anti-kickback provisions.
HMC is a mortgage lender and servicer of residential mortgages. Home Financial and Associated are mortgage brokerage companies that help home buyers arrange mortgage loans. In both cases, Home Financial and Associated placed the loans of the respective plaintiffs with HMC. Home Financial and Associated did not actually fund the loans — HMC provided the funds for the loans. This is known as "table funding." Pursuant to a Loan Correspondent Agreement, HMC paid Home Financial and Associated a "service release premium" and/or a "yield spread premium" in connection with loans they placed with HMC.
I. THE JOHNSONS
In 1996, Robert and Mary Johnson, a married couple, made an offer to purchase their current residence for $675,000. Based on the recommendation of their real estate broker, the Johnsons hired Robert Isonaga, a mortgage broker, to help them find a mortgage loan of $310,000. Mr. Isonaga, a senior loan officer at Home Financial, placed the Johnsons' loan with HMC. In arranging the loan, Home Financial rendered a variety of services, such as helping the Johnsons fill out their loan application, analyzing their income and debt, prequalifying them for their loan, discussing loan options available to them, arranging for an appraisal of the mortgaged property, and facilitating the loan closing.
On January 23, 1996, Home Financial provided the Johnsons with two disclosure documents. The first, entitled "Estimated Closing Costs," disclosed an interest rate of 7%, a loan origination fee of 1%, loan discount points of 1%, a service release fee of $3,100, and various closing costs, including a document preparation fee of $250, a notary fee of $20, a credit report fee of $65, and recording fees of $60. The second disclosure, entitled "Good Faith Estimate" ("GFE"), disclosed a loan origination fee of $3,100, loan discount points of $3,100, a $250 document preparation fee, $20 notary fee, and a service release fee of $3,100 that would be "paid outside of closing." The Johnsons read and signed both documents.
On March 14, 1996, the Johnsons' loan closed at a below-par fixed interest rate of 6.875% with HMC as lender. At the closing, the Johnsons were provided with a HUD-1 Settlement Statement indicating that they paid, inter alia, a $3,100 loan origination fee, a $150 document preparation fee, a $16 notary fee to Home Financial, a $3,100 loan discount to HMC, and a $3,100 service release premium paid by HMC.
In connection with the Johnsons' loan, Home Financial received $6,366 in compensation, $3,266 of which came from the $3,100 loan origination fee, $250 document preparation fee, and $16 notary fee. HMC paid the remaining $3,100 in the form of a service release fee.
II. THE KAPELIELAS
The Kapelielas, a married couple, were interested in obtaining a loan to buy a home. In 1994, after shopping around for mortgage rates, Mr. Kapeliela was referred to Associated by American Savings Bank. Over the next two years, Wanda Hee, a loan officer with Associated, helped the Kapelielas improve their finances so that they could qualify for a loan.
During that two-year period, Ms. Hee prepared several GFE statements for the Kapelielas. The last statement Associated provided to them, on December 1, 1995, disclosed an adjustable interest rate of 6.5%. Thereafter, Ms. Hee found a fixed-rate loan for the Kapelielas. Ms. Hee informed Mr. Kapeliela about the loan, and after discussing several options with the Kapelielas, they chose to place a loan with HMC at the above-par interest rate of 7.5% and reduced closing costs. The loan of $134,991 closed on or before February 13, 1996, at a fixed interest rate of 7.5%.
The options included higher-rate loans with little or no up-front closing costs and lower-rate loans with higher closing costs.
The HUD-1 Settlement Statement provided to the Kapelielas at closing disclosed an origination fee of $1,300.50 paid directly by the Kapelielas to Associated, a $1,012.43 service release fee and a $1,518.65 yield spread premium. Pursuant to the terms of the loan, the Kapelielas paid $1,300.50 of Associated's compensation. HMC paid the remainder of Associated's compensation in the form of a $1,012.43 service release fee and $1,518.65 yield spread premium. Associated's total compensation was $3,831.58.
The Johnsons and the Kapelielas filed suit on April 24, 1998, and June 4, 1998, respectively. They seek relief for alleged violations of RESPA § 8, breach of fiduciary duty, unfair and deceptive trade practices (as prohibited by Haw. Rev. Stat. § 480-2), and unjust enrichment. Defendants move for summary judgment as to all claims. Plaintiffs also seek certification of two classes.
DISCUSSION
I. MOTIONS FOR SUMMARY JUDGMENT
A. The RESPA Claims
Plaintiffs' RESPA claims are the heart of the instant lawsuit. As an initial matter, however, the Court must address whether the RESPA claims were brought within the statute of limitations. A claim under § 8 of the RESPA must be brought within one year from the date of the alleged violation. 12 U.S.C. § 2614. Defendants argue that any violations of the RESPA occurred at the time Plaintiffs closed their loans. The Johnsons and the Kapelielas closed their loans on March 14, 1996, and February 13, 1996, and filed suit on April 24, 1998, and June 4, 1998, respectively. Since both Plaintiffs initiated their actions well beyond a year after the closing date of their loans, Defendants argue that their RESPA claims are time-barred.
1. Accrual
"Under federal law a cause of action accrues when the plaintiff is aware of the wrong and can successfully bring a cause of action." Acri v. Int'l Ass'n of Machinists Aerospace Workers, 781 F.2d 1393, 1396 (9th Cir.), cert. denied, 479 U.S. 816 (1986). "[K]nowledge of injury is essential for a cause of action to accrue." Shiny Rock Mining Corp. v. United States, 906 F.2d 1362, 1364 (9th Cir. 1990). However, actual knowledge is not required, as constructive knowledge of the injury will suffice.See id. at 1364-65.
Plaintiffs point out that the compensation arrangement between their mortgage brokers and HMC was not disclosed to them at the time of the closing. However, it is not the compensation arrangement per se that forms the basis of Plaintiffs' RESPA claims. The payment of service release fees and/or yield spread premiums are the target of Plaintiffs' suit, and those payments were disclosed to Plaintiffs at or before the time their loans closed. Disclosure of the fees was sufficient to have put Plaintiffs on inquiry notice to investigate whether Defendants' practices violated the RESPA. Thus, at the time the Plaintiffs' loans closed, there was actual disclosure that commenced the running of the statute of limitations. See Katz v. Bank of California, 640 F.2d 1024, 1025 (9th Cir. 1981), cert. denied, 454 U.S. 860 (1981).
2. Equitable Tolling
Notwithstanding the expiration of the limitation period, Plaintiffs contend that equitable tolling applies in this case. There is a split of authority as to whether claims under § 8 of the RESPA are subject to equitable tolling. See Bloom v. Martin, 865 F. Supp. 1377 (N.D. Cal. 1994) (recognizing split in authority).
One line of cases holds that RESPA's statute of limitations is jurisdictional, and therefore, to be construed strictly. See Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp. 2d 894 (S.D. Miss. 1998); Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Van Vorst Indus., Inc., 800 F. Supp. 587 (N.D. Ill. 1992); Hardin v. City Title Escrow Co., 797 F.2d 1037 (D.C. Cir. 1986).
Other courts follow an opposite interpretation of the limitations provision for several reasons. See Kerby v. Mortgage Funding Corp., 992 F. Supp. 787 (D. Md. 1998); Butala v. Agashiwala, 916 F. Supp. 314 (S.D.N.Y. 1996); Moll v. U.S. Life Title Ins. Co. of New York, 700 F. Supp. 1284 (S.D.N.Y. 1988). First, these courts view Hardin, the first decision holding that the RESPA limitations provision is jurisdictional, misplaced reliance on Rust v. Quality Car Corral, Inc., 614 F.2d 1118 (6th Cir. 1980). See Moll, 700 F. Supp. at 1286-87; Kerby, 992 F. Supp. at 794-97. Rust held that the limitations provision of the Truth-in-Lending Act ("TILA") was jurisdictional rather than procedural. See Rust, 614 F.2d 1118. Rust has since been overruled, thereby divesting its holding of precedential value.See Bartlik v. U.S. Dep't of Labor, 62 F.3d 163, 166 n. 1 (6th Cir. 1995) (en banc). In any event, Rust did not stand for the proposition that the TILA's statute of limitations was not subject to equitable tolling. Instead, Rust addressed the narrow issue of whether the computation of the one-year limitations period under 15 U.S.C. § 1640(e) should exclude the actual date of the violation pursuant to Rule 6(a) of the Federal Rules of Civil Procedure. See Jones v. Transohio Savings Ass'n, 747 F.2d 1037 (6th Cir. 1984) (recognizing that Hardin misplaced reliance on Rust).
Second, as a general rule, the doctrine of equitable tolling is read into every federal statute of limitations. See Moll, 700 F. Supp. at 1287 (citing Holmberg v. Armbrecht, 327 U.S. 392 (1946)). This rule is applicable unless Congress expressly provides to the contrary in clear and unambiguous language. See Atlantic City Elec. Co. v. General Elec. Co., 312 F.2d 236, 241 (2d Cir. 1962), cert. denied, 373 U.S. 909 (1963). Section 2614 of the RESPA does not announce any congressional intent to deviate from the general rule.
Third, if a statute is remedial in nature, its terms should be construed liberally in order to give effect to its purpose. See Moll, 700 F. Supp. at 1288 (citing N.C. Freed Co., Inc. v. Bd. of Governors of Fed. Res. Sys., 473 F.2d 1210, 1214 (2d Cir. 1973),cert. denied, 414 U.S. 827 (1973)).
The Court finds persuasive the cases holding that the RESPA's statute of limitations is subject to equitable tolling. Applying principles of equitable tolling to actions brought under § 8 of the RESPA is consistent with the Act's purpose of protecting unsuspecting homebuyers from unscrupulous practices in the real estate industry.
However, notwithstanding the applicability of the equitable tolling doctrine to RESPA actions, Plaintiffs' suit remains time barred. The Ninth Circuit has articulated a three-part test for equitable tolling:
To establish that equitable tolling applies, a plaintiff must prove the following elements: [1] fraudulent conduct by the defendant resulting in concealment of the operative facts, [2] failure of the plaintiff to discover the operative facts that are the basis of its cause of action within the limitations period, and [3] due diligence by the plaintiff until discovery of those facts.Fed. Election Comm'n v. Williams, 104 F.3d 237 (9th Cir. 1996),cert. denied, 118 S. Ct. 600 (1997). Plaintiffs have not satisfied the elements of this test.
The first element requires proof of fraudulent concealment. Fraudulent concealment must be plead with particularity in compliance with Rule 9(b) of the Federal Rules of Civil Procedure. See Butala, 916 F. Supp. at 319. In addition, Plaintiff must allege fraudulent concealment in either of two ways: (1) that the defendant affirmatively took action to prevent the plaintiff from discovering his claim of injury; or (2) that the plaintiff's wrong in itself was of a self-concealing nature.See Moll, 700 F. Supp. at 1289-90. Fraudulent concealment of the first variety arises where the concealment "is separate from the illegal act and intended only to cover up the act." Id. at 1290 (internal quotation marks omitted) (quotingHobson v. Wilson, 737 F.2d 1, 33 n. 102 (D.C. Cir. 1984)). Proof of acts of concealment in addition to the wrong itself is needed to establish fraudulent concealment in these instances. See id. In contrast, a self-concealing wrong occurs when "deception, misrepresentation, trick or contrivance is a necessary step in carrying out the illegal act. . . ." Id. (quoting Hobson, 737 F.2d at 33 n. 102). However, even in the case of a self-concealing wrong, "[c]oncealment by mere silence is not enough. There must be some trick or contrivance intended to exclude suspicion and prevent inquiry." Id. at 1291 (quoting Wood v. Carpenter, 101 U.S. (11 Otto) 135, 143 (1879)). "Plaintiffs must show `some misleading, deceptive or otherwise contrived action or scheme, in the course of committing the wrong, that is designed to mask the existence of a cause of action.'" Id. (quoting Wood, 11 U.S. (11 Otto) at 143).
Rule 9(b) provides:
Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
Fed.R.Civ.P. 9(b).
In the instant case, Plaintiffs have not proven that the facts underlying their action were fraudulently concealed. Both the Johnsons' and the Kapelielas' complaint contain conclusory allegations that Defendants fraudulently concealed the alleged kickback scheme. However, their allegations do not identify particularized instances of such fraudulent conduct.
Such deficiencies in the complaint not only fall shore if the heightened pleading standard of Rule 9, but they also fail to establish the existence of affirmative concealment or a self-concealing wrong. A closer look at Plaintiffs' allegations confirms that no fraudulent concealment has occurred in this case. Plaintiffs allege that: (1) Defendants misrepresented material facts; and (2) Defendants failed to disclose the compensation the lender paid the broker in the form of service release fees and/or yield spread premiums.
The first allegation is based on a statement on Line 812 of the HUD-1 form disclosing payment of a "Service Release Premium 1.0%from" the broker. In fact, the service release premium was paidto the broker. This is not the type of statement that constitutes affirmative concealment. In the first instance, Home Financial and Associated made the required disclosure of the service release premium and/or yield spread premium pursuant to regulations promulgated by the Department of Housing and Urban Development ("HUD"). Second, any inaccuracy in that statement was not material since Line 812 did not indicate that the borrower paid for the fees. Thus, whether the fees were paid to or from the broker is of little concern to Plaintiffs, the borrowers.
Illustration 12 in Appendix B of the RESPA regulations provide that a "servicing release premium or yield spread premium is to be noted on the Good Faith Estimate and listed in the 800 series of the HUD-1 Settlement Statement." 24 C.F.R. Pt. 3500, App. B., Illustration 12.
Plaintiffs contend that the HUD-1 disclosure statements were misleading precisely because they did not disclose that the borrower was paying for the fees listed on Line 812, albeit in an indirect way. HUD regulations require disclosure of the fees paid by the borrower, not the ultimate disposition of such fees. Failure to inform the borrower where his or her payments eventually wind up does not support a finding of fraudulent concealment. As the court in Moll noted:
Indeed, were this Court to hold that entries on HUD-1 forms, standing alone, constituted evidence of fraudulent concealment, the RESPA statute of limitations would have little meaning. Section 4 of RESPA, 12 U.S.C. § 2603, requires that HUD-1 forms be used in all transactions in the United States involving federally related mortgage loans. If fraudulent concealment were established whenever a title insurance company failed to disclose the ultimate disposition of premiums on an HUD-1 form, equitable tolling would be inapplicable for virtually all RESPA claims. Had Congress intended this result, it is unlikely that it would have enacted a general rule requiring that RESPA claims be brought within a year of the occurrence of this violation.Moll, 700 F. Supp. at 1293 n. 6.
Plaintiffs' second claim of fraudulent concealment, that Defendants failed to disclose the compensation arrangement between themselves, is also unconvincing. Mere silence does not toll the limitations period. See id. at 1291. In Moll, a title insurance company did not disclose to the insured that a portion of its premiums would be paid to his attorneys. The court held that the lack of disclosure was "mere silence" insufficient to establish fraudulent concealment. See id. at 1291.
Likewise, HMC's failure to disclose the payment of service release fees and/or yield spread premiums does not constitute fraudulent concealment. "Passive concealment of information is not enough to toll the statute of limitations, unless the defendant had a fiduciary duty to disclose information to the plaintiff." Conmar Corp. v. Mitsui Co (U.S.A.), Inc., 858 F.2d 499, 505 (9th Cir. 1988), cert. denied sub nom., VSL Corp., Inc. v. Conmar Corp., 488 U.S. 1010 (1989) (citations omitted) (quoting Rutledge v. Boston Woven Hose Rubber Co., 576 F.2d 248, 249-50 (9th Cir. 1978)); see also Cal. Architectural Building Prods., Inc., v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir. 1987), cert. denied, 484 U.S. 1006 (1998);United States v. Dowling, 739 F.2d 1445, 1449 (9th Cir. 1984),rev'd on other grounds, 473 U.S. 207 (1985). HMC did not stand in a fiduciary relation to Plaintiffs. Therefore, HMC owed no duty of disclosure to the Plaintiffs.
Section 8 of the RESPA does not create a duty to disclose payments of service release fees and yield spread premiums. That provision of the RESPA could be violated even where no misrepresentations have been made. See Moll, 700 F. Supp. at 1289. Therefore, nondisclosure could be a basis for finding fraudulent concealment only if Defendants had an independent duty to disclose.
There is insufficient evidence to determine if a fiduciary relationship existed between Plaintiffs and their respective mortgage brokers. Whether a fiduciary relationship exists between a borrower and his or her mortgage broker depends on the conduct between the parties. See Armstrong v. Republic Realty Mortgage Corp., 631 F.2d 1344, 1348 (8th Cir. 1980) (holding that the conduct of the parties was "decisive" in determining whether a mortgage broker was in a fiduciary relationship with the borrower under Missouri law). The question of whether a fiduciary relationship exists is generally a question of fact. See Fleet Nat'l Bank v. H D Entertainment, Inc., 926 F. Supp. 226, 242 (D. Mass. 1996). If Associated and Home Financial did owe fiduciary duties to Plaintiffs, their failure to disclose their compensation arrangement with HMC could establish fraudulent concealment. However, the existence of this factual issue does not preclude summary judgment because Plaintiffs fail to meet other elements of the test for equitable tolling.
The second element of the test for equitable tolling inquires into whether Plaintiffs failed to discover the operative facts forming the basis of their cause of action. Since Plaintiffs were given disclosure forms informing them of the payment of service release fees and/or yield spread premiums in connection with their loan transactions, they had knowledge of the facts underlying their RESPA claims. For that reason as well, equitable tolling is inapplicable.
The final element of equitable tolling requires that Plaintiffs exercise due diligence until the discovery of the facts supporting their claims. "A party seeking to avoid the bar of the statute [of limitations] on account of fraud must aver and show that he used due diligence to detect it, and if he had the means of discovery in his power, he will be held to have known it." Moll, 700 F. Supp. at 1293 (quoting Wood, 101 U.S. at 140.) Plaintiffs had the opportunity to discover the alleged wrongful practices. They could have asked the brokers for a full explanation of the items on the settlement statements, including how the money they paid would be distributed. If, after reviewing the disclosures, they were unsure of what the service release fees and/or yield spread premiums were for, they could have insisted on an explanation. Plaintiffs also could have inquired into the relationship between their mortgage brokers and the lender, HMC. Plaintiffs made none of these inquiries. They merely allege that Defendants' nondisclosure "lulled" them into non-action. Surely, due diligence requires more.
The record is barren of facts that support the application of equitable tolling in this case. Accordingly, Plaintiffs' claims are time-barred, and the Defendant's Motion for Summary Judgment as to the RESPA claims is GRANTED.
B. The State Law Claims
Having granted summary judgment on the only claim in this case involving a federal question, the Court declines to exercise supplemental jurisdiction over the remaining claims in this suit that arise under state law. See 28 U.S.C. § 1367(c)(3). Therefore, all of Plaintiffs' remaining claims are hereby DISMISSED without prejudice.
II. MOTION FOR CLASS CERTIFICATION
In light of the Court's holding as to Plaintiffs' causes of action, Plaintiffs' Motion for Class Certification is DENIED as moot.
CONCLUSION
For the foregoing reasons, the Court CONSOLIDATES Civ. Nos. 98-000412SPK and 98-00565SPK; GRANTS summary judgment on all of Defendants' Motions for Summary Judgment as to the RESPA claims; DISMISSES without prejudice the remaining state law claims; and DENIES Plaintiffs' Motion for Class Certification.
IT IS SO ORDERED.