Opinion
Civil Action No. 98-D-355-N.
January 12, 2001
W. Lewis Garrison, Jr., GARRISON SCOTT GAMBLE ROSENTHAL, Birmingham, AL., K. Stephen Jackson, JACKSON, FRALEY SHUTTLESWORTH, Birmingham, AL., For Plaintiff[s].
Carrie S. Ellis, Robert E. Sasser, Tamara A. Stidham, SIROTE PERMUTT, Birmingham, AL., For Defendant[s].
MEMORANDUM OPINION AND ORDER
Plaintiff Carolyn M. Marbury ("Plaintiff") filed this action on behalf of a putative class, alleging violations of the anti-kickback provision of § 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607(a). Pending before the court are Defendant Colonial Mortgage Co.'s ("Defendant" or "Colonial") Motion For Summary Judgment (Doc. No. 9), filed October 30, 1998. and Plaintiff's Motion For Class Certification (Doc. No. 17), filed November 17, 1998.
The Parties have filed numerous briefs, supplemental briefs and evidentiary submissions in support of their respective Motions. The court has carefully considered the arguments of counsel, the relevant law, and the record as a whole. The court finds that Defendant's Motion is due to be granted in part, denied in part, and stayed in part, and that Plaintiff's Motion is due to be stayed.
For brevity, when citing to pleadings in the record, the court will refer to the docket numbers assigned to those pleadings ("Doc. No.").
I. BACKGROUND
In March 1997, Plaintiff hired La Rue Residential Lenders, Inc. ("La Rue"), a mortgage broker, to assist her in securing financing for the purchase of a house in Jefferson County, Alabama. (Compl. ¶ 15.) Through La Rue's efforts and referral, Plaintiff obtained a federally insured residential mortgage loan with Defendant. Defendant is a mortgage lender which agreed to fund Plaintiff's loan. (Compl. ¶ 16; Allen Aff. ¶ 3, Ex. 1.) As part of its business, Defendant finances mortgages with the assistance of mortgage brokers. Mortgage brokers, such as La Rue, are independent contractors who originate mortgages for lenders and serve as intermediaries between the consumer and the mortgage lender. (Allen Aff., Ex. 1, at 1.)
Adelene Allen ("Allen") is an executive vice president with Colonial. (Allen Aff. ¶ 1.)
Defendant and La Rue have a standard form mortgage broker agreement called a Loan Correspondent Agreement. Pursuant to this agreement, La Rue refers loans to Defendant, and the loans are closed using Defendant's funds rather than those of La Rue. This type of financing arrangement between La Rue and Defendant is referred to as table funding. (Doc. No. 10, at 3, ¶ 5; Wynn Dep. at 61; Allen Aff., Ex. 1, ¶ 5.) Table funding means that La Rue processes the loan, but at closing Defendant funds the loan and simultaneously receives assignment of the note and the mortgage. (Allen Aff., Ex. 1, ¶ 5; Doc. No. 10, Ex. E (assignment of mortgage from La Rue to Colonial).) Thus, with a table-funded mortgage, Defendant, not La Rue, owns the mortgage from the outset, and La Rue is merely a nominal creditor.
Ronnie Joe Wynn ("Wynn") is the President of Colonial. (Wynn Dep. at 6.)
The Loan Correspondent Agreement also provides for the payment to La Rue of a yield differential, also known as a yield spread premium. The paragraph in the Loan Correspondent Agreement pertaining to the payment of a yield differential provides as follows:
When the Loan Correspondent Agreement was executed, Defendant referred to yield spread premiums as "yield differentials." (Wynn Dep. at 25-26.) Defendant now refers to such payments as "yield spread premiums" (Id.), and the court shall do the same.
[La Rue] agrees to release to [Colonial] all interest in the servicing rights for loans funded under this AGREEMENT. [La Rue] further acknowledges that any value attributed to such servicing rights shall be incorporated in the interest rate and discount points ([Colonial]'s net yield) quoted to [La Rue]. It is further agreed that for any loan(s) that closes in the name of [La Rue] which produces a net yield greater than [Colonial]'s required net yield, the yield differential (secondary marketing/service release fee) shall accrue to [La Rue] as discount on the HUD-1 and shall be disbursed to [La Rue] at loan closing. In the event the yield differential is greater than discount collected at closing the additional amount due [La Rue] shall be shown on the HUD-1 as a yield differential paid outside of closing (POC). [Colonial] shall remit to [La Rue] any amount due as POC within five (5) working days of receipt of mortgage documents in [Coloniall's designated office.
[Colonial] agrees that for any loan(s) which [Colonial] does not receive a discount at closing in an amount necessary to produce its required net yield the amount due [Colonial] shall be shown on the HUD as a yield differential fee paid outside of closing (POC). [La Rue] shall remit the amount due [Colonial] with the loan closing documents.
(Allen Aff., Ex. 1, ¶ 9.)
Defendant releases daily rate sheets to La Rue and other brokers. (Allen Aff. ¶ 7.) The rate sheets reflect that a yield spread premium is paid for loans with an interest rate above Colonial's par rate and that the premium increases as the loan rate increases above par. (Doc. No. 17, at 13-14.) The rate sheets list types of loans and interest rates, along with corresponding broker premiums. (Id.) The par rate is the lowest interest rate at which Colonial will make loans without charging the borrower discount points or without paying a yield spread premium to La Rue. (Id.)
In Taylor v. Flagstar Bank, the court defined "yield spread premium" and "above par" as follows:
"Yield spread premiums" are payments made by a mortgage lender to a mortgage broker on an "above par" loan brought to the lender by the broker. To be "above par" is to be above the current going rate, to be above the lowest rate that a lender will offer without charging "discount points." In crude terms, therefore, the yield spread premium is (allegedly) simply a payment made by the lender to the broker in return for the broker having brought the lender a high interest loan.181 F.R.D. 509, 511 (M.D. Ala. 1998) (Albritton, Chief J.).
Defendant typically sells the residential mortgages it finances on the secondary market. Defendant retains only the servicing rights for the mortgages and, thereafter, receives compensation for servicing the loans. (Allen Aff. ¶ ¶ 13-14; Wynn Dep. at 38; Doc. No. 17, Ex. D, ¶ 3.)
In this case, Plaintiff's loan was for $89,337.00. The interest rate on the mortgage was 8.5%, a rate above the "par rate" at which Defendant would have been willing to fund the mortgage. (Allen Aff. ¶ 11; Arthur Aff. ¶ 9.)
Kathleen Arthur ("Arthur") is the president of La Rue. (Arthur Aff. ¶ 1.)
At the closing on March 31, 1997, Plaintiff received a Housing and Urban Development Settlement Statement ("HUD-1 Statement"), which detailed the settlement charges (i.e., the fees and costs) associated with the purchase of the property. The HUD-1 Statement discloses that La Rue received a "yield spread premium" from Defendant in the amount of $2,010.09. (Compl. ¶ 19, Ex. A.) Prior to the closing, Plaintiff did not know, and it was not disclosed to her, that Colonial would pay this yield spread premium to La Rue.
Defendant's payment of the yield spread premium to La Rue is the subject matter of this lawsuit. This payment is in addition to the loan origination fee of $873.72 (.9780% of the mortgage principle) paid directly from Colonial to La Rue. (Arthur Aff. ¶ 9.)
On March 25, 1998, Plaintiff filed this action in the United States District Court for the Middle District of Alabama pursuant to the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C. § 2601, et seq. ("RESPA"). plaintiff contends that the yield spread premium was paid solely as a referral fee and, thus, is tantamount to the payment of a prohibited "kickback," in violation of 12 U.S.C. § 2607(a). (Compl. ¶ ¶ 20, 27.) Further, plaintiff avers that Defendant violated RESPA by failing to disclose the existence or amount of the yield spread premium prior to the closing on the mortgage loan. (Id. ¶ 27.) Pursuant to 12 U.S.C. § 2607(d)(2), Plaintiff asks for judgment against Defendant in "an amount equal to three times the amount of any and all charges" paid for settlement services, as well as for attorney's fees and costs. (Id. at 9.)
The court notes that Plaintiff originally brought this action with Plaintiffs Erlon L. Patton and Norma J. Patton ("Patton Plaintiffs"). However, in an Order entered February 23, 1999, and pursuant to the unopposed Recommendation of the Magistrate Judge, the court dismissed the Patton plaintiffs as potential class representatives. (Doc. No. 43.) The court, however, gave the Patton Plaintiffs leave to file claims as class members in the event of class certification. (Id.) Accordingly, at this time, the claims of the Patton plaintiffs are not before the court.
Pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, Plaintiff seeks certification of a class consisting of:
all persons residing in the United States who from one year from the date of the filing of this action through and including the present: (1) obtained a federally related home loan; (2) where the loan was registered or referred to the lender, Defendant by a broker; (3) where the broker and lender were in an ongoing relationship to refer settlement business; (4) where a yield spread premium, service release premium, premium pricing, par plus premium, yield differential, lender paid broker fee, or the like however denominated, was paid to the class members' mortgage broker by Defendant; (6) [sic] where the lender, Defendant, owned the loan, including the servicing rights at closing by funding or table funding the loan.
(Doc. No. 16, at 2.)
II. DISCUSSION
This RESPA case involves the legality of yield spread premiums Colonial paid to brokers in connection with the closings on the putative class members' loans, and, in particular, the legality of the yield spread premium Colonial paid to La Rue on Plaintiff's loan. Congress enacted RESPA to protect home buyers "from unnecessarily high settlement charges caused by certain abusive practices." 12 U.S.C. § 2601(a). Specifically, one of the purposes of RESPA is to eliminate "kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services." Id. § 2601(b)(2) Toward that end, RESPA prohibits providers of settlement services from paying referral fees and kickbacks, as follows:
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.Id. § 2607(a). Paragraph (c)(2), however, exempts from those prohibitions the payment of compensation for goods or services which are actually provided:
Nothing in this section shall be construed as prohibiting . . . the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed . . .Id. § 2607(c)(2).
A. The Contentions Raised by the Parties in their Respective Motions
In moving for summary judgment on Plaintiff's § 2607(a) claim, Defendant contends that the undisputed evidence reveals that the yield spread premium falls within RESPA's goods or services exemption. (Doc. No. 10, at 16-28); 12 U.S.C. § 2607(a) (c)(2). Defendant asserts that the yield spread premium was part of La Rue's payment for goods and services rendered in connection with Plaintiff's loan and that, as a matter of law, the payment is reasonable in light of the goods and services that La Rue provided in brokering Plaintiff's loan. (Doc. No. 10, at 16-28.)
Plaintiff opposes Defendant's Motion For Summary Judgment. Plaintiff asserts that the sole purpose of the yield spread premium was to reward La Rue for brokering a loan at an interest rate above the "par" interest rate. (Doc. No. 17, at 7-8, 10, 13-14.) plaintiff contends that she paid La Rue for its services in the form of an origination fee and points out that the Loan Correspondent Agreement between La Rue and Defendant is void of any provision that indicates that the yield spread premium was a payment for a § 2607(c)(2) good or service. (Id. at 7-8, 15, 16 n. 4.) Under these circumstances, Plaintiff asserts that the yield spread premium constitutes an illegal kickback in violation of § 2607(a) of RESPA. (Id.)
Plaintiff also moves for class certification. Plaintiff argues that a class should be certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure. Namely, Plaintiff argues that Defendant's evidence demonstrates that the claims of the putative class can be resolved on a class-wide basis using Defendant's Loan Correspondent Agreement. (Doc. No. 23, ¶ ¶ 3, 6; Doc. No. 17, at 25-29; Doc. No. 25, at 3.) Plaintiff states: "In its submissions, documents and testimony, Defendant confirmed that the sole consideration for payment of the disputed yield spread premiums [is] set forth in and governed by Colonial's standard broker . . . `Loan Correspondent Agreement.'" (Id. ¶ 3, citing Allen Aff. ¶ 4 ("The relationships between Colonial and the mortgage brokers are governed by individual contracts between Colonial and each broker.").)
Whether to certify a class under Rule 23 of the Federal Rules of Civil Procedure rests within the broad discretion of the court. See Washington v. Brown Williamson Tobacco Corp., 959 F.2d 1566, 1569 (11th Cir. 1992). The party seeking to certify the class bears the burden of demonstrating to the court all of Rule 23's prerequisites to the court's satisfaction. See Gilchrist v. Bolger, 733 F.2d 1551, 1556 (11th Cir. 1984) Analysis under Rule 23 has two components. First, the plaintiff must establish the four elements of Rule 23(a), i.e., numerosity, commonality, typicality, and adequacy of representation. Second, the action must satisfy at least one of the "alternative requirements" of Rule 23(b). Jackson v. Motel 6 Multipurpose, Inc,, 130 F.3d 999, 1005 (11th Cir. 1997); see also FED. R. CIV. P. 23(b). To maintain a class under Rule 23(b)(3), the court must "find that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." FED. R. CIV. P. 23(b)(3).
Although Plaintiff's Complaint requests that the court certify a class under Rule 23(b)(2), as well (see Compl. ¶ 14), she provides no argument in her Motion in support of this class. Thus, the court will only consider the viability of a Rule 23(b)(3) class.
Defendant opposes Plaintiff's Motion. Defendant argues that "specific services were provided in each transaction, both to [Colonial] and to each Plaintiff." (Doc. No. 21, at 12.) According to Defendant, "[t]he fact that the personal services provided will differ in each potential plaintiff's transaction, regardless of the reasonableness of such fees, defeats class certification under a predominance inquiry." (Doc. No. 21, at 12.) Defendant continues:
Although Plaintiff claim[s] that certain aspects of evidence may be uniform throughout the class, this alone does not mandate a conclusion that class issues predominate over individual issues. This is because of the numerous, individualized services which the brokers performed for each Plaintiff, which the Court will have to examine and balance to determine whether the prohibition of Section 8 applies in each transaction. These services are not constant or uniform across the class; they vary based on the needs of each individual Plaintiff.
(Id. at 12.)
B. The State of the Law in RESPA Yield Spread Premium Cases: Liability and Class Certification Issues
A threshold matter the court must resolve before delving into the Parties' arguments regarding the legality of the yield spread premiums at issue is the appropriate legal standard to apply. As explained below, there has been much debate and differing opinions among the courts as to the proper legal test to apply to yield spread premium claims brought under RESPA. Based on the courts' divergent views and because pending before the Eleventh Circuit are appeals containing issues similar to those in this case, the court shall stay, in part, Defendant's Motion and shall stay, in full, Plaintiff's Motion.
HUD, the federal agency charged with administering and interpreting RESPA (see 12 U.S.C. § 2618(a)), has adopted Regulation X, the rule interpreting RESPA. See 24 C.F.R. § 3500.1, et seq. This regulation defines terms such as "mortgage broker," "lender" and "servicer," and sets out the required disclosure of direct and indirect payments made to mortgage brokers. Regulation X does not, however, explicitly state whether yield spread premiums are per se illegal. See 24 C.F.R. § 3500.2, 3500.7, 3500.14.
Congress has authorized HUD to prescribe rules and regulations to interpret RESPA as may be necessary to achieve the statute's purpose.See 12 U.S.C. § 2617(a); 12 U.S.C. § 2602(6). Pursuant to the Supreme Court's directive, an agency's interpretation of the statute it is charged with administering shall be given "controlling weight" unless said interpretation is "arbitrary, capricious, or manifestly contrary" to the statute. Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837, 844 (1984).
Subsequent to the implementation of Regulation X, the Eleventh Circuit held that yield spread premiums are not per se illegal. See Culpepper v. Inland Mortgage Corp., 132 F.3d 692, 696-97 (11th Cir.) ("Culpepper I"), as modified, 144 F.3d 717 (1998) ("Culpepper II"). The issue in Culpepper was "whether [the lender's] payment of a yield spread premium to [the broker] for the referral of an above par loan [was] an illegal fee under RESPA or a valid payment for goods or services." Id. at 695. To resolve this issue, the Court set forth a two-prong standard. Under the first step, the fact finder must determine whether the payment of a yield spread premium was made in exchange for, or was tied to, goods or services rendered. Id. at 696-97. If not, the payment violates RESPA and the inquiry ends. If so, however, then the fact finder proceeds to the second inquiry.
Under the second step, the fact finder must ascertain "whether a payment for a good or service is so excessive that part of the payment actually may constitute a prohibited referral fee." Id. at 697. To make this determination, HUD's regulations provide that, "[i]f the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided." 24 C.F.R. § 3500.14(g)(2); see also Culpepper, 132 F.3d at 697 n. 6.
Under the first prong of the Culpepper I analysis, the Eleventh Circuit concluded that there was no evidence in the record that the defendant-lender had paid the yield spread premium in exchange for either a good or service. First, the Court disagreed with the district court's finding that the yield spread premium constituted a payment for the loan and that the loan constituted a good under 12 U.S.C. § 2607(c). See id. at 696. The Court explained that, where a loan is table funded, as was the plaintiffs' loan, the broker never owns the loan. There can be "no legitimate transfer of ownership of the loan to [the lender] from [the broker], and the yield spread premium cannot be characterized as a payment for the sale of the loan under RESPA." Id. The Eleventh Circuit also rejected the contention that the broker's right to direct the business represented an ownership interest that qualified as a "good" under § 2607(c). See id.
Second, the Court held that the yield spread premium was not a payment for services provided by the broker to either the lender or the plaintiffs. There was no evidence indicating that the loan origination fee "was not intended by both [the broker] and the [plaintiffs] to compensate [the broker] fully for the work it did for the [plaintiffs]." Id. at 696. "It is undisputed that the payment of the yield spread premium was not tied to the quantity or quality of the services that (the broker] provided. Rather, the sole determinant of whether a yield spread premium would be paid was the interest rate on the loan." Id. at 697. In holding that the lender failed to satisfy the first inquiry of the two-step test, the Court found it unnecessary to proceed to the second step.
In Culpepper II, the Eleventh Circuit denied the plaintiffs' petition for rehearing and suggestion of rehearing en banc but, at the same time, clarified that its ruling in Culpepper I did not bar yield spread premiums per se. 144 F.3d at 718. "The only issue decided by the court [inCulpepper I] was whether as a matter of law [the lender] had proven in the instant record that this yield spread premium for this table-funded loan was a payment for goods or services and therefore not a prohibited referral fee." 144 F.3d at 718. The Eleventh Circuit emphasized that its holding in Culpepper I "was highly dependent upon the facts in the current record . . ." Id.
After the Eleventh Circuit issued its decisions in Culpepper I and II, HUD entered RESPA Policy Statement 1999-1 ("Policy Statement"). In its Policy Statement, issued on March 1, 1999, HUD addressed its "position on the legality of lender payments to mortgage brokers in connection with federally related mortgage loans under the [RESPA] and HUD's implementing regulations." See 64 Fed.Reg. 10080, 10084. The Policy Statement makes clear that HUD does not consider payments of yield spread premiums by lenders to mortgage brokers to be illegal per se. Id. at 10084.
The Policy Statement also sets forth a two-pronged analysis for determining whether yield spread premium payments from lenders to mortgage brokers are exempt from § 2607(a)'s prohibitions against kickbacks and referral fees. First, the court must determine "whether goods or facilities were actually furnished or services were actually performed for the compensation paid." Id. The Policy Statement lists fourteen services, which represent a non-exhaustive guide of the types of services associated with the mortgage origination process that HUD deems compensable. Id. at 10085.
Second, the court must determine "whether the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed." Id. at 10084. In determining whether the relationship between the payment and the value of the goods, facilities or services, "HUD believes that payments must be commensurate with that amount normally charged for similar services, goods or facilities." Id. at 10086. "This analysis requires careful consideration of fees paid in relation to price structures and practices in similar transactions and in similar markets." Id. Under this two-prong test, HUD emphasizes that:
[T]otal compensation should be scrutinized to assure that it is reasonably related to goods, facilities, or services furnished or performed to determine whether total compensation is legal under RESPA. Total compensation to a broker includes direct origination. and other fees paid by the borrower, indirect fees, including those that are derived from the interest rate paid by the borrower, or a combination of some or all. . . . [HUD] considers that higher interest rates alone cannot justify higher total fees to mortgage brokers. All fees will be scrutinized as part of total compensation to determine that total compensation is reasonably related to the goods or facilities actually furnished or services actually performed.Id.
Since HUD entered its Policy Statement, the courts have been divided over whether the tests set out in Culpepper I and the HUD Policy Statement conflict and, if so, which one controls. While no Circuit Court has addressed the interplay between the Culpepper and HUD tests, district courts have grappled with this issue and have reached different conclusions.
Several courts have concluded that the HUD test is less stringent than the one enunciated in Culpepper. See Levine v. North Am. Mortgage, 188 F.R.D. 320, 328-29 (D. Minn. 1999); Schmitz v. Aegis Mortgage Corp., 48 F. Supp.2d 877, 881-82 (D. Minn. 1999); Potchin v. Prudential Home Mortgage Co., Inc., 1999 WL 1814612 (E.D.N.Y. 1999); Golon v. Ohio Savings Bank, 1999 WL 965593, at *4 (N.D.Ill. Oct. 15, 1999). These courts have found that, under the first step, Culpepper requires some showing that the compensation paid to a broker is tied to the good or service provided. However, according to these courts, HUD's first inquiry requires only that the broker provide a good or service, regardless of the whether the good or service is connected to the payment of the yield spread premium.
For example, in Levine, the court explained that, "[w]hile not a model of clarity, the first step in the [HUD Policy] Statement's analysis addresses simply whether any goods or services were actually furnished or performed, rather than, as under [the] analysis suggested in Culpepper, whether the goods or services the broker provided can be tied directly to the payment." 188 F.R.D. at 326. Under the Culpepper analysis, "the first step poses a significant hurdle for defendant lenders and brokers who paid or received yield spread premiums; demonstrating that such a payment was tied to or made in exchange for services actually performed is difficult since the premium depends solely on the interest rate of the loan, not the quality or quantity of services performed." Id.; see also Schmitz, 48 F. Supp.2d at 881 (stating that "Culpepper appears to place a substantial evidentiary burden on the RESPA defendant who has utilized a yield spread premium in connection with a mortgage transaction: the defendant must affirmatively show that the premium was compensation for a particular good or service before it can argue that the broker's compensation for the mortgage transaction was reasonable.").
These courts have concluded that HUD's interpretation of RESPA is not arbitrary, capricious, or manifestly contrary to the purposes of RESPA and have rejected the Culpepper test. See Levine, 188 F.R.D. at 328, 329 (finding that, while the Policy Statement's approach was "less rigorous than that suggested in Culpepper," it was still "consistent with the purpose and language of RESPA"; adopting the HUD test and rejecting the "more rigorous Culpepper approach"); Schmitz, 48 F. Supp.2d at 881-82 (The court rejected the Culpepper test, stating that "a functional reasonableness analysis," as described in HUD's Policy Statement, "rather than the rigid approach suggested in Culpepper, is the "determinative test under RESPA."); Potchin, 1999 WL 1814612, at *8 ("The Court agrees with the well-reasoned opinion in Levine which held that HUD's interpretation of RESPA is not arbitrary or contrary to the statute.");Golon, 1999 WL 965593, at *4 (finding that the Culpepper test "has been superseded by the test articulated in HUD's Policy Statement.").
On the other hand, other district courts, including this court, have taken the position that the Culpepper two-pronged analysis controls and that, therefore, the first step sets forth a quid pro quo requirement that the yield spread premium be paid in exchange for goods or services actually provided. See Heimmermann v. First Union Mortgage Corp., 188 F.R.D. 403, 406 (N.D. Ala. 1999) (Applying the Culpepper test and finding that a requirement that a broker need only demonstrate that it provided a good or service, regardless of the good or service's connection to the payment of the yield spread premium, is "logically inconsistent with RESPA itself."); see also Briggs v. Countrywide Funding Corp., 188 F.R.D. 645, 649 n. 5 (M.D. Ala. 1999) (stating that there is "no qualitative difference between the language of the Policy Statement and that of theCulpepper decision."); Culpepper v. Inland Mortgage Corp., 1999 WL 1135127, at *1 (N.D. Ala. July 20, 1999) (stating that, "this Court maintains that the Culpepper decisions by the Court of Appeals of this Circuit," not the test articulated in the HUD Policy Statement, "still control the analysis of when or whether a yield spread premium paid by a lender will constitute a RESPA violative kickback"); Glover v. Standard Federal Bank, Civ. No. 97-2068 (D. Minn. March 22, 2000).
Glover, an unpublished opinion, is cited by Plaintiff and attached as Exhibit A to Document Number 55.
For instance, the Heimmermann court refused to accept the lenders' arguments that, under HUD's reasonable compensation test, a lender could pay a prohibited referral fee as long as the lender could later provide a laundry list of services, goods, or facilities to support the claim that the fee was actually compensation for those services, goods, or facilities. 188 F.R.D. at 406. "The ultimate result of this system would render the referral fee prohibition moot. Courts could no longer consider the nature of the fee, only the totality of the `compensation.' This clearly is at odds with the statutory language of 12 U.S.C. § 2607(a)."Id. at 406. In other words, the Heimmermann court reasoned that the defendants' interpretation of the HUD Policy Statement adopted a test that ignored the motivation or intent of the lender who pays the yield spread premium to the broker. In short, the HUD Policy Statement has not resolved the struggle by the courts to determine the proper legal standard to apply in RESPA yield spread premium cases.
Moreover, courts' analyses for determining whether class certification is appropriate under Rule 23(b)(3) differs depending upon whether the courts apply the HUD Policy Statement or the Culpepper test. Application of the HUD Policy Statement appears to render class certification more difficult. As stated, the Policy Statement does not impose a burden on the lender or broker to show that the yield spread premium was a specific fee for a specific service. The lender or broker only must show that the broker provided a service, which inevitably is almost always the case. The primary issue under the Policy Statement test is, thus, whether the totality of the services performed was reasonable in relationship to the total compensation. Once a lender or broker demonstrates that a service was performed, determinations of liability, more often than not, cannot be made on the basis of generalized evidence applicable to all class members. Instead the services performed in each loan transaction must be measured against the compensation paid in each loan transaction. Thus, almost unanimously, courts adopting the HUD Policy Statement have found class certification inappropriate. Levine, 188 F.R.D. at 331 (In denying class certification, the court stated: "Plaintiff has not shown that the issue of whether a broker (who received a yield spread premium . . .) failed to provide services is subject to generalized proof. Similarly, the inquiry into the reasonableness of the total compensation for services depends on the particular facts of each loan transaction.");Potchin, 1999 WL 1814612, at *9 (Under the Policy Statement, "a detailed examination of the facts of each transaction cannot be avoided. For this reason, plaintiffs have not met their burden of showing that common questions will predominate over individual ones."); Golon, 1999 WL 965593, at *7-8 (denying class certification and noting "that the first step in the new [Policy Statement] inquiry effectively disallows plaintiffs from ever challenging broker premium payments under Section 8 as a class. Whether or not an individual mortgage broker provided services to an individual borrower in any given loan transaction necessitates a transaction-by-transaction inquiry."); Brancheau v. Residential Mortgage, 187 F.R.D. 591, 592-94 (D. Minn. 1999) (vacating its earlier order, wherein the court applied Culpepper and granted class certification; adopting the HUD Policy Statement test and finding that the Policy Statement makes certification inappropriate due to the predominance requirement).
On the other hand, while not guaranteed, a plaintiff appears to have a better shot at succeeding on a class certification motion under theCulpepper analysis. See Heimmermann, 188 F.R.D. at 407-08 ("[T]he court finds that the loans and transactions which constitute the basis for the potential class action will not require individual evaluation and inspection. The question of whether the `yield spread premiums' are referral fees is a common one that will apply to all of the potential class members."); Dujanovic v. MortgageAmerica, Inc., 185 F.R.D. 660, 665-66, 669-70 (N.D. Ala. 1999) (The plaintiff's evidence "indicates that it is at least possible that plaintiff can prove that the defendant violated RESPA in all the transactions involving class members without necessitating any examination of the services rendered by each broker in each instance"; such evidence rendered the case viable for class certification.); Culpepper v. Inland Mortgage Corp., 189 F.R.D. 668, 673-74 (N.D. Ala. 1999) (certifying class); but see Taylor, 181 F.R.D. at 524 (denying motion for class certification under Culpepper test because whether goods or services were furnished and their value had to be examined in each individual case); Briggs, 188 F.R.D. at 649-51 (same).
C. Appeals Pending in Similar Cases
With all that said, the Eleventh Circuit has granted Rule 23(f) petitions in several cases where the issue involves class certification in RESPA yield spread premiums. These cases are set for oral argument on January 23, 2001. See Richardson v. BankAmerica Corp., Appeal No. 99-11554. and associated cases, Appeal Nos. 99-11554, 99-12110, 99-13725, and 99-14066; see also Hirsch v. BankAmerica Corp., Civil Action No. 1:98-CV-1032-ODE (N.D. Ga. April 20, 1999) (Eleventh Circuit review granted on June 9, 1999, in Appeal No. 99-90010-D); see also Briggs v. Countrywide Funding Corp., No. 99-90021-H (11th Cir. 1999) (staying the plaintiffs' petition to appeal this court's denial of class certification in Briggs v. Countrywide Funding Corp., 188 F.R.D. 645 (M.D. Ala. 1999), until resolution of the Court's opinions in theRichardson, supra, and associated cases); see Culpepper, 1999 WL 1135127, at *1 ("All proceedings in the instant action are hereby STAYED pending resolution of Defendant's discretionary appeal and/or a ruling of the Eleventh Circuit Court of Appeals in Hirsch v. BankAmerica Corporation, No. 99-90010-D, and in McBride v. Reliastar Mortgage Company, 99-90011-A.").
(See Doc. No. 28, Exs. 23 24.)
The court finds that the just and appropriate course of action is to stay this case pending resolution of the appeals in the above-styled cases. The Eleventh Circuit's decisions should provide guidance as to the legal test to apply in RESPA yield spread premium cases and as to the appropriate treatment of class motions in RESPA yield spread premiums cases. The Parties are to notify the court within 21 days of the decisions in the above-styled cases.
D. Defendant's Motion For Summary Judgment
The court, however, need not delay in deciding two matters raised by Defendant in its Motion For Summary Judgment. In other words, the court finds that resolution of the afore-mentioned appeals is unlikely to affect the court's analysis of these two matters.
First, the court finds that summary judgment is due to be entered in Defendant's favor on Plaintiff's failure to disclose claim. As stated previously, in addition to bringing a claim that the yield spread premium payment violates RESPA's ban on referral fees, Plaintiff asserts that Defendant violated RESPA by failing to disclose the existence or amount of the yield spread premium prior to the closing on the mortgage loan ("failure to disclose claim"). (Compl. ¶ 27.) Defendant contends that summary judgment should be entered in its favor as to this claim. The court agrees.
Defendant points out that Plaintiff has not referenced in her Complaint any RESPA statutory provision which Defendant allegedly violated. (Doc. No. 10, at 29-31.) Defendant, however, states that Plaintiff's claim appears to be based on 12 U.S.C. § 2604(c). (Id.) Section 2604(c) "requires each lender to provide the borrower with a `good faith estimate' of the amount or range of charges for specific settlement services the borrower is likely to incur." Collins v. FMHA-USDA, 105 F.3d 1366, 1367 (11th Cir. 1997)
Defendant asserts that summary judgment is appropriate based onCollins. (Doc. No. 10, at 29-31.) In Collins, the Eleventh Circuit held that "there is no private civil action for a violation of 12 U.S.C. § 2604(c), or any regulations relating to it." 105 F.3d at 1368. In response, Plaintiff does not challenge, or even address, Defendant's arguments. Thus, the court finds that Plaintiff does not dispute that her claim is brought under § 2604(c) and that, based on the holding in Collins, Plaintiff is precluded from pursuing a claim under § 2604(c). Alternatively, the court finds that Plaintiff has abandoned this claim. See Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995) (abandoned claims). Accordingly, the court finds that Defendant's Motion For Summary Judgment is due to be granted on Plaintiff's RESPA failure to disclose claim.
Second, the court rejects, as a matter of law, Defendant's contention that summary judgment is appropriate on Plaintiff's § 2607(a) claim because the yield spread premium constitutes payment for a good. As outlined above, § 2607(c)(2) exempts fees for goods, as well as services. See 12 U.S.C. § 2607(c)(2). Specifically, Defendant contends that the yield spread premium constitutes payment for La Rue's release of mortgage loan servicing rights on Plaintiff's loan. (Doc. No. 10, at 16; Wynn Dep. at 60-61, 69-70, 88, 89, 90.) According to Colonial, "[s]ervicing rights are a valuable good and form the foundation of a mortgage lenders servicing operation. As such, the servicing rights are a valuable intangible good." (Doc. No. 10, at 16.)
Plaintiff, on the other hand, argues that servicing rights are similar to loans, which both HUD and Culpepper explicitly declare is not a loan.See Culpepper I, 132 F.3d at 696; see also Policy Statement ("[W]hile a broker may be compensated for goods or facilities actually furnished or services actually performed, the loan itself, which is arranged by the mortgage broker, cannot be regarded as a `good' that the broker may sell to the lender and that the lender may pay for based upon the loan's yield's relation to market value, reasonable or otherwise."). As argued by Plaintiff, "until the loan is funded and created by Colonial, no servicing rights exist or can be owned by the broker to sell." (Doc. No. 17, at 7 n. 4.) Plaintiff states:
Just as the broker never owned the loan prior to it being funded by Colonial per Culpepper, likewise, the broker never owned any `servicing rights' to sell. The servicing rights did not exist until the loan was consummated and funded by Colonial. Colonial was the initial owner of the `servicing rights.' All the broker had to offer were prospective servicing rights on a loan application.
(Id.) The court agrees with Plaintiff.
The court finds that, based on the facts in this case, the servicing rights, like the loan, do not constitute a good. The servicing rights to which Defendant refers are rights which are necessarily dependent on the existence of a loan. These servicing rights include collecting payments on the loan, contacting consumers who are in arrears and securing delinquent payments, and in the case of escrowed loans, recovering payment of property taxes and hazard insurance. (Wynn Dep. at 36-37.) Prior to the inception of the loan, which under Culpepper does not occur until Colonial funds the loan, the court finds that these rights do not exist. In other words, the court finds that each of the servicing rights are contingent upon there first being a loan in effect.
The court notes that Defendant is correct that Culpepper does not address whether servicing rights are a marketable good which a broker owns and, thus, may sell to a lender. In its clarification (Culpepper II), though, the Eleventh Circuit references the lender's argument that the yield spread premium was paid, in part, for the right of the lender to service the plaintiffs' loan. 144 F.3d at 718 n. 1. The Court, however, never specifically states whether it deems servicing rights to be a good under § 2607(c)(2). Nonetheless, the Court's reference demonstrates that the Court was aware of the lender's assertion that the servicing rights constituted a good. Despite the Court's awareness, the Court held, as a matter of law, that the yield spread premium was not a payment for a good. Thus, the, logical inference is that servicing rights are not goods under § 2607(c)(2). Accordingly, the court finds that Defendant's Motion For Summary Judgment on the basis that the servicing rights associated with Plaintiff's loan constitute a good is due to be denied.
III. ORDER
Based on the foregoing, it is CONSIDERED and ORDERED that Defendant's Motion For Summary Judgment (Doc. No. 9), filed October 30, 1998, be and the same is hereby DENIED in part, GRANTED in part, and STAYED in part as follows:
(1) Defendant's Motion be and the same is hereby DENIED on Defendant's contention that the yield spread premium constitutes a payment for goods;
(2) Defendant's Motion be and the same is hereby GRANTED on Plaintiff's RESPA claim brought under 12 U.S.C. § 2604(c);
(3) In all other respects, the court STAYS its decision on Defendant's Motion pending resolution by the Court of Appeals for the Eleventh Circuit of Richardson v. Bank America Corp., Appeal No. 99-11554, and associated cases, Appeal Nos. 99-11554, 99-12110, 99-13725, and 99-14066.
It is further CONSIDERED and ORDERED that Plaintiff's Motion For Class Certification be and the same is hereby STAYED pending resolution by the Court of Appeals for the Eleventh Circuit of Richardson v. Bank America Corp., Appeal No. 99-11554, and associated cases, Appeal Nos. 99-11554, 99-12110, 99-13725, and 99-14066.
The Parties are DIRECTED to notify the court when the Eleventh Circuit has issued decisions in the aforementioned cases.
It is further CONSIDERED and ORDERED as follows:
(1) That the Clerk of the Court REMOVE this action from the court's active docket and PLACE said action on the court's administrative docket. Upon notification of the Parties that the Eleventh Circuit has ruled in the above-mentioned appeals, the court will reinstate same on the active docket of the court; and
(2) That such reinstatement will cause the filing date of the action to relate back to the original filing date of this action.