Maryland Court Holds that Federal Real Estate Settlement Procedures Act (RESPA) Claims were not Tolled by Filing of Class Action Complaint Where Defendants were not Named and had No Notice of RESPA Claims Until After Limitations Period Expired
In October 2003 plaintiff filed a putative class action in Maryland federal court against four entitles for violations of RESPA (Real Estate Settlement Procedures Act) and various state laws, arising out of her May 2003 purchase of a home, alleging sham business arrangements and the charging of fees in violation of RESPA. Robinson v. Fountainhead Title Group Corp., 447 F.Supp.2d 478, 481 (D. Md. 2006). In January 2006, plaintiff filed a Third Amended Complaint naming three new defendants which were served on January 20. 2006; prior to being served, none of these defendants had notice of any of the prior class action complaints. Id., at 482. Defense attorneys moved to dismiss the action; the federal court agreed with defense arguments that RESPA’s one year statute of limitations period had run and granted the motion.
Plaintiff purchased a home in May 2003 and financed the purchase. Robinson, at 482. The district court explained that “RESPA claims brought under [12 U.S.C.] § 2607 must be brought within ‘1 year . . . from the date of the occurrence of the violation.'” Id., at 483 (quoting 12 U.S.C. § 2614). The defense argued that the limitations period began to run on the date that escrow closed on the home purchase, and that the new defendants had not been added as party-defendants until after the one-year period expired. Id. Plaintiff’s lawyer, relying on American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), countered that the filing of the original complaint tolled the statute of limitations period on the RESPA claims. Id. The district court disagreed, concluding that American Pipe did not support plaintiff’s theory.
The court went through a detailed analysis of the tolling issue, and cited with approval a recent Fourth Circuit opinion that explained that “the American Pipe equitable tolling rule ‘is a limited exception to the universal rule that statute of limitations are impervious to equitable exceptions'” and that American Pipe “recognized the importance of notice in determinations involving tolling.” Robinson, at 484 (quoting Bridges v. Dept. of Md. State Police, 441 F.3d 197, 211 (4th Cir. 2006)). The federal court explained that American Pipe “allowed for the tolling of the statute of limitations in certain instances with respect to plaintiff class actions,” but it “does not broadly toll the statute of limitations in defendant class action suits.” Id. The federal court concluded that tolling would be inappropriate in this case because the new defendants had not been named “until more than a year after the alleged RESPA violation occurred” and had not received notice of the lawsuit “until they were served over three years after the alleged violation date.” Id.
The district court then addressed the merits of the RESPA Section 8(b) fee-splitting claim and Section 8(a) business referral/kickback claim against Fountainhead. With respect to RESPA’s prohibition against splitting charges, the court explained that Fourth Circuit case law holds RESPA “does not apply to every overcharge but ‘only prohibits overcharges when a portion or percentage of the overcharge is kicked back to or split with a third party.'” Robinson, at 486 (quoting Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir. 2002)). The court dismissed the Section 8(b) claim because the class action complaint did not allege that Fountainhead had given or received any of the fees paid by plaintiff to the title company; rather, the complaint alleged that the title company received an “unearned fee” and “channeled” it to other defendants (not Fountainhead). Id.
However, the federal court did not dismiss the Section 8(a) claim. The court agreed with plaintiff that her claim was not based on whether she was charged an excessive fee – a claim that would have been barred by the “filed rate doctrine” because the fees the title company charged plaintiff were consistent with the fees permitted by the Department of Insurance – but rather that the premium exceeded the amount that Fountainhead would have charged had it insured title. Robinson, at 486-87. In concluding that the class action complaint adequately alleged an overcharge, the court explained at page 488
Plaintiff is not challenging [the title company’s] fee in and of itself, but in comparison to Fountainhead’s fee. The question is not whether [the title company’s] fee is reasonable, but whether Plaintiff should have instead paid the filed rate of Fountainhead.
Moreover, the allegation that the binder fee was excessive survives the motion to dismiss because “allegations concerning the binder fee are undoubtedly not covered by the filed rate doctrine and constitute an overcharge claim.” Robinson at 485.
NOTE: In holding that the Section 8(a) claim survives the motion to dismiss, the district court followed Fourth Circuit authority holding that “[Section] 8(a) prohibits the payment of formal kickbacks or fees for the referral of business and does not require an overcharge to the consumer.” Robinson, at 488 (quoting Boulware, at 266) (italics added by court).