The United States District Court for the Eastern District of California dismissed a putative class action brought against a mortgage lender, its affiliates and private mortgage insurance providers for alleged violations of the Real Estate Settlement Procedures Act and common law unjust enrichment. Plaintiff's claims arose out of captive reinsurance arrangements pursuant to which private mortgage insurance providers, with whom he did not contract, were required, as a condition of doing business with the mortgage lender, to enter into reinsurance contracts with an affiliate of the mortgage lender. Citing HUD’s characterization of captive PMI arrangements as a "sham" when "premium payments... are given to the reinsurer even though there is no reasonable expectation that the reinsurer will ever have to pay,” plaintiff alleged that defendant’s reinsurance arrangement with its PMI providers violated RESPA. Plaintiff also alleged unjust enrichment based on the amounts ceded to its PMI affiliates and the steady stream of business the PMIs received in return for ceding premiums. Defendants sought to dismiss the class action.
The Court dismissed the RESPA and common law claims against the mortgage lender and its affiliates for failure to timely file suit. The Court rejected plaintiff's equitable tolling and discovery rule claims on the ground that plaintiff did not exercise due diligence in perceiving and reserving his legal rights. The Court was also not swayed by plaintiff’s fraudulent concealment arguments, holding that the Ninth Circuit has repeatedly rejected claims of fraudulent concealment where it serves as the basis of plaintiff's claim reasserting the principle that such arguments are untenable because they ‘merge the substantive wrong with the tolling doctrine’ and ‘would eliminate the statute of limitations.’”
Most notably, the Court dismissed, with prejudice, plaintiff's claim against the PMI defendants for lack of standing. The Court reasserted its previous finding that plaintiff failed to allege that any injury he suffered was “fairly traceable to the non-contracting defendants.” Specifically, the Court found that plaintiff failed to allege facts establishing a connection between the PMI defendants, such that a court could find plaintiff's allegations— that the PMI defendants acted in concert” to “effectuate a captive reinsurance scheme”—plausible.