Antitrust Law Daily Pricing fixing claim ‘barely’ survives in suit alleging bank and title company conspired to fix closing costs
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Thursday, September 3, 2020

Pricing fixing claim ‘barely’ survives in suit alleging bank and title company conspired to fix closing costs

By Robert B. Barnett Jr., J.D.

A price fixing claim under the Sherman Act that had been dismissed in similar proceedings survived because the complaint adequately alleged that the bank and the title company were competitors.

In a suit by residential mortgage borrowers alleging a scheme between a mortgage lender and a title company to overcharge borrowers for real estate title and settlement services fees, the borrowers’ claim for price fixing under the Sherman Act survived a motion to dismiss but the claim for refusal to deal under the Sherman Act was dismissed because the complaint was devoid of allegations of any group boycott, the federal district court in Greenbelt, Maryland has ruled. Although courts in other districts looking at these same facts alleging this same conspiracy have dismissed the Sherman Act claim for price fixing because the co-conspirators were not competitors, this court allowed the claim to survive ("barely") because the pleadings contained an allegation that the bank had an in-house title company, which technically made the bank a competitor of the title company. The court also allowed the borrowers to pursue their claim for illegal kickbacks in violation of the Real Estate Settlement Procedures Act, but it dismissed the claim for violations of the Racketeer Influenced & Corrupt Organizations Act in the absence of allegations that the various banks were working with one another in furtherance of a scheme (Kadow v. First Federal Bank, September 2, 2020, Grimm, P.).

Background. Residential real estate mortgage borrowers sued First Federal Bank (as a successor in interest to CBC National Bank), alleging that the bank engaged in an illegal kickback, price fixing, and refusal to deal scheme that caused the borrowers to be overcharged on real estate title and settlement services fees. They brought claims under §1 of the Sherman Act, the Real Estate Settlement Procedures Act (RESPA), and the Racketeer Influenced & Corrupt Organizations Act. The bank filed a motion to dismiss all claims.

The gist of the claim was that All Star Title, Inc., agreed with various residential mortgage lenders to refer loan closings to All Star in return for a kickback. The two parties allegedly agreed to set closing costs at an amount above what the borrower would otherwise be required to pay. This suit is one of many similar or identical cases that the borrowers’ law firm has filed against other lenders, alleging the same conspiracy. Rulings in those other cases would provide a framework for the court’s decisions in this case.

Price fixing. The court noted that the allegations in this case really sound more like a tying arrangement than price fixing. Nevertheless, the borrowers have alleged price fixing. In a related case, the judge threw out the price fixing claim because the title company and the lender were not horizontal competitors, which meant that the Sherman Act claim failed under either the per se or quick look analysis. Under the allegations in this case, however, the Sherman Act price fixing claim survived "though just barely" and "at least for now" because of one crucial difference. This particular bank was alleged to have had an in-house title company. The complaint also alleged that the bank and the title company were sharing information and agreeing on the prices for title and settlement services. Whether the bank and the title company really were competitors will be sorted out in discovery. For purposes of the motion to dismiss, however, where the borrower’s allegations are taken as true, the fact that the two parties may be characterized as competitors allowed the Sherman Act price fixing claim to survive the motion to dismiss.

Refusal to deal. The court characterized a refusal to deal claim as one involving agreements at a given level of a market not to work with other companies at another level of the market. It is really just a group boycott. In a related case, the judge threw out the Sherman Act refusal to deal claim because the title company and the bank were not competitors and insufficient evidence of any refusal to deal existed. Although, for reasons already explained, the bank and the title company may have been competitors here, the claim still suffered from the same shortcomings as in the other case, namely, that the complaint was "devoid of allegations" that the two companies had any agreement to boycott others. As a result, these allegations did not support a claim of a per se unlawful refusal to deal agreement, and the court dismissed the claim.

RESPA. The complaint asserted that the illegal kickbacks that the title company paid to the bank violated RESPA. The bank sought dismissal for three reasons: (1) the borrowers failed to plead that the bank did not qualify for RESPA’s safe harbor, (2) the claims were time-barred, and (3) the borrowers lacked standing in the absence of any actual injury.

RESPA safe harbor. Earlier rulings on the safe harbor issue in related cases have come down on both sides. This court concluded that the allegations in this case were more similar to the case where the judge found that the complaint adequately stated facts that precluded the safe harbor, which protects certain quid pro quo settlement services. In this complaint, the borrowers alleged that the payments made by the title company to the bank were kickbacks covered by sham invoices for marketing services. This allegation, at this early date in the litigation, was sufficient to establish that the RESPA safe harbor did not apply. Discovery will reveal whether the payments were legitimate or were sham coverups for kickbacks.

Time-barred. RESPA has a one-year statute of limitations. Given that the complaint was filed at least four years after the alleged RESPA violations occurred, the complaint violated the statute of limitations. As other courts have in similar litigation, however, this court ruled that the complaint contained sufficient allegations that the title company and the bank actively concealed the kickbacks, which constituted fraudulent concealment that tolled the running of the statute of limitations. Furthermore, the court could not conclude at this early date that the borrowers failed as a matter of law to exercise due diligence to uncover the concealed claims.

Standing. The bank argued that the borrowers suffered no injury because lender’s credits that they received at closing more than covered the overcharges. As a result, they had no standing. The borrowers argued that the credits that they received at closing were in return for accepting a higher interest rate on the loan and, thus, did not offset the overcharges. In a similar case, the judge concluded that he could not as a matter of law determine that the borrowers did not suffer an injury. This court agreed with that analysis, and it ruled that the borrowers had at this point properly alleged an injury. Thus, the RESPA claim was allowed to proceed.

RICO. In similar cases, the courts have both denied and granted motions for summary judgment on the RICO claim. The court that allowed the claim to proceed did so because the allegations contained evidence of a fraudulent scheme involving at least six bank branches over five years affecting more than 2,000 borrowers in multiple states. In another case, the RICO claim was dismissed because the REPSA claim was dismissed. In yet another case, the court dismissed the RICO claim because the allegations failed to establish that, in a spoke-and-hub arrangement, the spokes (the banks) were connected to one another. The allegations, therefore, failed to show that the banks were working together in furtherance of the scheme. This court agreed with that analysis. To get around the argument, the borrowers argued that the arrangement was a bilateral agreement rather than a spoke-and-hub arrangement. But the court rejected that analysis too, noting that s bilateral agreement as alleged was an ordinary fraud dispute rather than a RICO violation.

Personal jurisdiction. The bank also moved to dismiss the complaint because the court lacked personal jurisdiction over the bank to hear the claims. The court ruled that it had personal jurisdiction under the Sherman Act, because the price fixing claim survived. The court also had personal jurisdiction under RESPA. The motion was denied.

The court, therefore, granted the motion to dismiss in part and denied it in part. The RESPA claim and the Sherman Act price fixing claim will proceed. The Sherman Act refusal to deal claim and the RICO claim were dismissed.

This case is No. 1:19-cv-00566-PWG.

Attorneys: Melissa Lynn English (Smith Gildea & Schmidt LLC) for Benjamin Kadow and Mary Jones. Andrew Justin Narod (Bradley Arant Boult Cummings LLP) for First Federal Bank.

Companies: First Federal Bank

MainStory: TopStory Antitrust MarylandNews GCNNews RICO

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