Summary
holding that a private party wishing to bring suit under RESPA must first suffer actual injury in the form of inflated settlement charges
Summary of this case from Rubenstein v. Dovenmuehle Mortgage, Inc.Opinion
Civil Action No. 04-2304.
September 29, 2004
MEMORANDUM AND ORDER
Via the motion now pending before this Court, Defendant SearchTec Abstract, Inc. moves to dismiss Counts I, III, VIII, X, and XI of the Plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons outlined below, the motion shall be GRANTED.
Factual Background
Plaintiffs, owners of units in CityView Condominiums, bring suit against a variety of Defendants affiliated with the conversion, development, and sale of the CityView Condominiums for violations of the Racketeer Influenced Corrupt Organizations (RICO) regulations (Count I) and the Real Estate Settlement Procedures Act (RESPA) (Counts II and III), common law fraud (Count IV), negligent misrepresentation (Count V), negligenceper se (Count VI), negligence (Count VII), breach of contract (Count VIII), breach of implied warranty (Count IX), breach of fiduciary duty (Count X), and unjust enrichment (Count XI).
Defendant Crescent Heights and others allegedly required that buyers of CityView units obtain title insurance through Defendant SearchTec Abstract, Inc., a title insurance agent, and that closings on the units be conducted at SearchTec's offices. Plaintiffs ultimately purchased title insurance from Steward Title Guaranty Company through SearchTec. SearchTec also acted as the closing agent at Plaintiffs' closings. Plaintiffs' main allegations with respect to Defendant SearchTec are that SearchTec failed to identify the condominium's true zoning status and represented that parking was deeded when it in fact was not; Plaintiffs further allege that they suffered damages as a result of these misrepresentations and omissions.
Discussion
In considering a motion to dismiss filed pursuant to Fed.R.Civ.P. 12(b)(6), a court must consider only those facts alleged in the complaint and accept all of the allegations as true. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3rd Cir. 1994). A motion to dismiss may only be granted where the allegations fail to state any claim upon which relief could be granted. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Count I: RICO, 18 U.S.C. § 1962(d)
In order to state a claim against Defendant SearchTec for RICO conspiracy under 18 U.S.C. § 1962(d), Plaintiffs must show that Defendant intended "to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense." Salinas v. U.S., 522 U.S. 52, 65 (1997). A defendant need not himself be charged with a substantive RICO violation to face § 1962(d) liability, as long as the plaintiff has adequately pled substantive claims against the defendant's co-conspirators.Salinas, 522 U.S. at 65-66. Plaintiffs have agreed to dismissal of the § 1962(c) claim against Defendant SearchTec. Given this fact, this Court must examine the sufficiency of Plaintiffs' § 1962(c) pleadings as to the other Defendants in order to rule on Defendant SearchTec's motion regarding the § 1962(d) claim against it.
To successfully plead a violation of § 1962(c), a plaintiff must show that some defendants performed at least two "predicate acts," as defined by § 1961(1). Banks v. Wolk, 918 F.2d 418, 421 (3rd Cir. 1990). This Court has held that general allegations of a pattern of racketeering are insufficient to survive a motion to dismiss where the plaintiff does not identify specific predicate acts engaged in by defendants. Slater v. Jokelson, No. 96-672, 1997 WL 164236, 6 (E.D. Pa. 1997). Where, as here, Plaintiffs rely on alleged acts of mail and wire fraud to satisfy RICO's "predicate acts" requirement, the allegations must be pled with particularity. See Ethanol Partners Accredited v. Wiener, Zuckerbrot, Weiss Brecher, 635 F.Supp. 18, 21-22 (E.D. Pa. 1985) (holding that a "shotgun approach" that fails to state the "time, place and manner" of each of the defendants' fraudulent statements is insufficient to meet the pleading requirements of Fed.R.Civ.P. 9(b)). While a plaintiff's inability to delineate which defendants were responsible for which acts will not necessarily be fatal to the claim, the acts of fraud themselves must be clearly identified. See, e.g., In re Meridian Sec. Litig. 772 F.Supp. 223, 230 (E.D. Pa. 1991) (denying motion to dismiss where plaintiffs identified the source, location, dates, and manner of false or misleading statements, but were unable to identify which defendants were responsible); Killian v. McCulloch, 850 F.Supp. 1239, 1254 (E.D. Pa. 1994) (denying motion to dismiss where plaintiffs alleged details of eleven specific misrepresentations, but did not indicate which defendant made each).
In their Amended Complaint, Plaintiffs have not pled with particularity any specific "predicate acts" of wire or mail fraud relating to the § 1962(d) claim against Defendant SearchTec, and have been unable to identify which Defendants engaged in such specific acts. Plaintiffs attempt, in their Response to Defendant's Motion to Dismiss, to remedy this problem by identifying two instances of specific misrepresentations by one Defendant, CityView. Indeed, throughout their Response, Plaintiffs attempt to bolster their claims by providing additional information not contained in the Amended Complaint. This Court emphasizes that, in deciding this motion, it is obligated to consider only those facts alleged in the complaint, and not facts presented outside the context of the initial pleading. ALA, Inc., 29 F.3d at 859.
Even accepting all the facts within the complaint as true, Plaintiffs have failed to identify with particularity the predicate acts engaged in by Defendants. Because Plaintiffs have not adequately pled substantive RICO claims against Defendant SearchTec's co-conspirators, we must grant this Defendant's motion to dismiss the § 1962(d) claim against it.
Count III: RESPA, 12 § U.S.C. 2607(a)
Plaintiffs claim that Defendant SearchTec failed to identify the condominium's true zoning status and misrepresented that parking was deeded, which in turn allowed Cityview to proceed to closing without having to address these issues. Plaintiffs further allege that these misrepresentations constituted "things of value" provided to CityView in exchange for CityView's referral of business to SearchTec, in violation of 12 U.S.C. § 2607(a). At issue is the question of whether Plaintiffs can state a valid claim under § 2607(a) without showing that the alleged referral arrangement resulted in excessive settlement fees.
The relevant RESPA damages provision specifies that any person who violates the § 2607 prohibitions on kickbacks, fee-splitting, or improper referrals "shall be jointly and severally liable to the person or persons charged for the settlement service involved in the violation in an amount equal to three times the amount of any charge paid for such settlement service." 12 USC § 2607(d)(2). Accordingly, Plaintiffs seek to recover three times the amount of their settlement charges. Defendant, however, argues that Plaintiffs have no standing to challenge the alleged § 2607(a) violation because Plaintiffs have not shown that they were damaged by inflated settlement charges. At least three courts have held that a plaintiff's recovery under RESPA is limited to only the excessive or "kicked-back" portion of the settlement charge, and that a plaintiff alleging no charge inflation has no standing to bring suit. See Moore v. Radian Group, 233 F. Supp. 2d 819, 824 (E.D. Tex. 2002); Durr v. Intercounty Title Co. Of Illinois, 14 F.3d 1183, 1187 (7th Cir. 1994); Morales v. Attorneys' Title Ins. Fund, Inc., 983 F. Supp. 1418, 1427-1528 (S.D. Fla. 1997).
Plaintiffs refer the Court to an example provided by Department of Housing and Urban Development regarding a party who provides settlement services at abnormally low cost to a builder in connection with the sale of lots in a planned subdivision. Where the rendering of low-cost services is done in return for referrals of settlement business by the builder, HUD has held that both parties are in violation of RESPA. Illustrations of Requirements of RESPA, 24 C.F.R. Pt. 3500, App. B. This position falls in line with the HUD regulations pertaining to the RESPA prohibition on improper referrals, which emphasize, "The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited." 24 C.F.R. § 3500.14(g)(2). While these regulations establish a standard for determining whether an act violates RESPA (which imposes both criminal and civil penalties), they provide no guidance as to whether a plaintiff bringing a civil suit grounded in RESPA has standing to do so.
The cases cited by Defendant, on the other hand, specifically address the language of § 2607(d) as applied to civil RESPA claims by private plaintiffs. In Moore, the court admitted that HUD has the authority under 24 C.F.R. § 3500.14(g)(2) to "investigate violations of RESPA even if such arrangements cause no actual injury to consumers," but concluded that a private plaintiff wishing to bring suit under RESPA must first suffer actual injury in the form of inflated settlement charges.Moore, 233 F. Supp. 2d at 824. This view comports with the exclusion of payments for services actually performed from the reach of RESPA liability, and with the Congressional goal that RESPA protect consumers from "unnecessarily high settlement charges caused by certain abusive practices." Moore, 233 F. Supp. 2d. At 825 (citing 12 U.S.C. § 2601(a)). Applying the above standard to the case before this Court, Plaintiffs' claim for relief under § 2607(a) can proceed only if Plaintiffs establish that a portion of their settlement charge was excessive and caused by the alleged referral arrangement.
Whether a settlement charge is excessive or inflated should be determined by whether services were actually performed and whether the payments were reasonably related to the value of these services. See In re Apgar, 291 B.R. 665, 678 (Bankr. E.D. Pa. 2003) (applying "reasonable relationship" standard to examine the permissibility of payments from a lender to a mortgage broker); In re Lewis, 290 B.R. 541, 550-51 (Bankr. E.D. Pa. 2003) (same). Here, it is undisputed that the rate Plaintiffs were charged for title insurance was set by the Pennsylvania Insurance Commission. Plaintiffs' Complaint does not allege that the settlement fee they paid was inflated or in any way higher than reasonable considering the nature of the services provided by Defendant SearchTec.
We conclude that, because Plaintiffs have not shown that their settlement charges were not reasonably related to the value of the services they received, they have no standing to bring a RESPA claim for damages under § 2607(a). Defendant's motion to dismiss Count III is granted.
Count VIII: Breach of Contract
To survive Defendant's motion to dismiss Count VIII, Plaintiffs must properly plead the elements of a cause of action for breach of contract: (1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract; and (3) resultant damages. McAllister v. Royal Caribbean Cruises, Ltd., No. 02-2393, 2003 WL 23192102, 4 (E.D. Pa. 2003). Plaintiffs allege that they purchased title insurance from Steward Title Guaranty Company through SearchTec, and that SearchTec acted as a closing agent at Plaintiffs' closings. Plaintiffs' breach of contract claim is grounded in allegations that Defendant SearchTec "breached its obligation to provide proper title information" by making misrepresentations regarding zoning and deeded parking.
Considering the facts in the light most favorable to Plaintiffs, even under the liberal pleading requirements of Fed.R.Civ.P. 8(a), Plaintiffs have failed to state a cause of action for breach of contract. Even accepting Plaintiffs' claim that Defendant SearchTec acted as a closing agent and arranged for the purchase of insurance pursuant to a contractual relationship, it does not follow that Defendant was consequently under any duty to provide Plaintiffs with title information. Indeed, Plaintiffs have made no such showing in their Amended Complaint. Nor have Plaintiffs alleged that SearchTec failed to hold their closings, or failed in arranging the purchase of title insurance. In light of the above, Defendants' Motion to Dismiss for failure to state a claim for breach of contract is granted.
Count X: Breach of Fiduciary Duty
Plaintiffs claim that Defendant SearchTec, in making and furthering misrepresentations with respect to zoning and deeded parking, breached its fiduciary duty to Plaintiffs. A fiduciary relationship arises under Pennsylvania law where one party has "reposed a special confidence in another to the extent that the parties do not deal with each other on equal terms, either because of an overmastering dominance on one side, or weakness, dependence or justifiable trust, on the other." Becker v. Chicago Title Ins. Co., No. 03-2292, 2004 WL 228672, 8 (E.D. Pa. 2004) (internal quotations omitted).
Plaintiffs' claim fails because Pennsylvania does not, absent special or unusual facts, recognize a fiduciary relationship between a title insurance agent and a purchaser of real estate.In re Johnson, 292 B.R. 821, 828-829 (Bankr. E.D. Pa. 2003) (rejecting as insufficient a fiduciary duty claim grounded in plaintiff's allegations that "being in the title insurance business, [Defendants] have been involved in many loan closings, whereas [Plaintiff] has not"); Becker, 2004 WL 228672, 8 (finding that the theory of fiduciary duty is not implicated where a title agent at settlement overcharges the notary service).
Plaintiffs make no allegations that they and Defendant SearchTec were on unequal terms, and present no special or unusual facts that would lead this Court to consider theirs a special relationship of trust giving rise to a fiduciary duty. Defendant's motion to dismiss Plaintiffs' fiduciary duty claim is granted.
Count XI: Unjust Enrichment
In pleading an unjust enrichment claim, a plaintiff must show: (1) a benefit conferred upon one party by another, (2) appreciation of such benefit by the recipient, and (3) that retention of the benefit would be unjust. Hewlett-Packard Co. V. Arch. Assocs. Corp., 908 F. Supp. 265, 275 (E.D. Pa. 1995). Plaintiffs here allege that they conferred a benefit on Defendant SearchTec when they purchased title insurance purporting to insure marketable title, but which excluded defective zoning from the definition of "marketable."
Plaintiffs do not allege that any payments were made to Defendant in connection with Plaintiffs' purchase of title insurance from Steward Title Guaranty Company, and provide no information elaborating on how this transaction in fact benefitted Defendant. Furthermore, Plaintiffs provide no grounds for their claim that it would be inequitable to allow Defendant to retain this alleged benefit without paying Plaintiffs for its value. Plaintiffs have not alleged that the title insurance they purchased was supposed to cover zoning defects, nor do they suggest that SearchTec, the title agent, made any warranties or representations as to the insurance provided by Steward. Accepting all Plaintiffs' allegations as true, even under the liberal pleading requirements of Fed.R.Civ.P. 8(a), Plaintiffs have not stated a cause of action for unjust enrichment.
Conclusion
An appropriate order follows.
ORDER
AND NOW, this day of September, 2004, upon consideration of Defendant SearchTec Abstract, Inc.'s Motion to Dismiss (Doc. No. 19) and Plaintiffs' response thereto (Doc. No. 27), it is hereby ORDERED that the Motion is GRANTED, as follows:(1) Counts I, III, VIII, X, and XI against Defendant SearchTec are DISMISSED;
(2) Counts IV and V, alleging fraud and negligent misrepresentation, are DISMISSED as to Plaintiff Margaret Molloy.
IT IS FURTHER ORDERED that Plaintiffs are given final leave to file an Amended Pleading within thirty (30) days from the entry of this Order.