Ekstrom v. Cong. Bank

TIMOTHY EKSTROM, et al., Plaintiffs, v. CONGRESSIONAL BANK, SUCCESSOR-BY-MERGER TO AMERICAN BANK Defendant.

Civil Action No. ELH-20-1501

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

November 6, 2020

MEMORANDUM OPINION

This class action case concerns an alleged kickback scheme between American Bank ("American" or "American Bank") and All Star Title, Inc. ("All Star"), a Maryland based title and settlement services company. Plaintiffs Timothy Ekstrom and Davida Carnahan, who are mortgagors, have sued Congressional Bank ("Congressional"), American Bank's successor-by-merger. ECF 1 (the "Complaint"). The Complaint, which is 56 pages in length, is supported by 24 exhibits. ECF 1-2 to ECF 1-25.

Plaintiffs allege that American made referrals of their loans and the loans of others to All Star for title and settlement services. In exchange, All Star, which is not a defendant, allegedly laundered payments to American, largely through third party marketing companies. As a result of the scheme, plaintiffs allegedly paid inflated settlement fees. In particular, plaintiffs allege that the kickback scheme violated the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 (Count I) and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (Count II). Id. at 46-56.

Congressional has moved to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). ECF 14. The motion is supported by a memorandum of law (ECF 14-1) (collectively, the "Motion") and one exhibit. ECF 14-2. Plaintiffs oppose the Motion. ECF 17. And, defendant has replied. ECF 18.

As noted, All Star is not a party to this case. But, All Star's conduct is at issue here and in other suits in this District. And, plaintiffs' lawyers in this case are also counsel to plaintiffs in other cases in this District involving All Star. See Somerville v. West Town Bank & Trust, PJM-19-0490; Remsnyder v. MBA Mortg. Servs., Inc., CCB-19-492; Kadow v. First Federal Bank, PWG-19-0566; Walls v. Sierra Pacific Mortgage Co., Inc., GLR-19-595; and Donaldson v. Primary Residential Mortgage, Inc., ELH-19-1175.

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I shall deny the Motion.

I. Factual Background¹

A. The Scheme

According to plaintiffs, American, through its agents and employees, "received and accepted illegal kickbacks [from All Star] in exchange for the assignment and referral of residential mortgage loans, refinances and reverse mortgages to All Star for title and settlement services. . . ." ECF 1, ¶ 3. Plaintiffs contend that American "laundered the kickbacks through third party marketing companies" to conceal the scheme, id. ¶ 3, and "continuously and regularlyused the U.S. Mail and wires," in furtherance of the scheme, "over a period of at [least] three years. . . ." Id. ¶ 6.

Plaintiffs allege that since at least 2008, All Star "design[ed] and execut[ed] a scheme...to pay kickbacks to various mortgage lenders and their brokers, loan officers and other employees (collectively, 'Participating Lenders') in exchange for the Participating Lender's assignment and referral of residential mortgage loans, refinances and reverse mortgages to All Star for title and settlement services." Id. ¶ 17. In exchange for "assignment and referral of residential mortgage loans, refinances and reverse mortgages to All Star for title and settlement services," All Star allegedly paid "kickbacks" to mortgage lenders through third party marketing companies. Id. ¶¶ 17-20.

According to plaintiffs, All Star and the mortgage lenders agreed "to launder the kickbacks through a third party marketing company," which was an "integral part" of the scheme. Id. ¶ 18. Mortgage lenders "and/or their branch managers, mortgage brokers, loan officers, or other employees frequently use[d] third party marketing companies...to provide marketing services aimed at soliciting borrowers to obtain residential mortgage loans, refinances and reverse mortgages." Id. ¶ 19. Under the kickback agreement, the participating mortgage lender receiving the kickback from All Star "identifie[d] a third party marketing company that" the lender was already using for its marketing services. Id. ¶ 20. Thereafter, All Star made "the kickback payment to the third party marketing company" and the participating lender "receive[d] and accept[ed] the kickback payment when the third party marketing company applie[d] All Star's payment for the benefit of the" lender. Id.

Plaintiffs contend that "All Star's payment laundered through the third party marketing company" constituted "an express payment" for the participating mortgage lender "for theassignment and referral of loans" because "All Star receive[d] no marketing services from the third party marketing company." Id. ¶ 21. Pursuant to the alleged scheme, All Star "charge[d] borrowers amounts not associated with any legitimate title or settlement services and charged solely for the purpose of paying for the illegal kickbacks and other aspects of the illegal referring agreement." Id. ¶ 22.

In addition, plaintiffs assert that All Star and participating lenders "regularly use[d] the interstate wires and mails in furtherance" of the scheme. Id. ¶ 23. In particular, they "regularly" decided "to transmit, receive and accept the illegal kickbacks over interstate wires." Id. ¶ 24. And, they "use[d] the interstate mails and wires to lure borrowers into the All Star Scheme and to defraud borrowers into paying the Kickback Overcharges, and other overcharges." Id. ¶ 25.

The participating lenders "cause[d] to be printed direct mail pieces...that encourage[d] borrowers to contact the [mortgage lenders] and apply for a residential mortgage loan, refinance or reverse mortgage." Id. ¶ 26. These mailers included "false representations" that, according to plaintiffs, served to "prevent a borrower from fighting a referral to All Star;" "conceal[ed] the Kickback Overcharges resulting from the All Star Scheme;" and, "create[d] the false representation that the prices charged the borrower for title and settlement services would be lower than the prices charged by All Star competitors." Id. ¶ 27.

Further, plaintiffs aver that the participating mortgage lenders also "solicit[ed] borrowers over the telephone." Id. ¶ 29. And, plaintiffs contend that "[t]hese borrower solicitation techniques, coupled with the Participating Lender's assignment and referral of loans to All Star under the Kickback Agreement, lured thousands of borrowers into the All Star Scheme." Id. ¶ 30.

According to plaintiffs, All Star and the participating lenders "use[d] a variety of tactics to conceal the kickbacks," overcharges, and "coordinated relationship[s]" under the scheme. Id. ¶ 31. "Laundering the kickbacks through third party marketing companies...allow[ed] All Star and the Participating Lender to conceal the fact and amount of kickbacks" and "the fact that anything of value was exchanged between" All Star and the lender. Id. ¶ 32. As a result, All Star and the lender "create[d] the false impression that All Star [was] making payments for legitimate marketing services" even though they never "receive[d] any legitimate marketing services." Id. ¶ 33.

Plaintiffs allege that All Star and the participating lenders "further conceal[ed]" the kickbacks by causing "the third party marketing company to create sham invoices to create the false impression" that All Star was paying for "legitimate marketing services from the third party marketing company." Id. ¶ 34. To conceal the overcharges from borrowers, All Star and the participating lenders allegedly made "false and fraudulent representations and omissions in borrowers loan documents, including the Truth in Lending Act ("TILA") Disclosure, the Good Faith Estimate and the HUD-1 Settlement Statement." Id. ¶¶ 35, 36.

Moreover, "to add another layer of concealment," plaintiffs maintain that All Star and participating lenders "construct[ed] an elaborate sham to create the false impression that All Star and the Participating Lender [were] 'co-marketing.'" Id. ¶ 37. In order to do so, the lenders "agree[d] to nominally include All Star on direct mail solicitations, such as direct mail sent to borrowers." Id. ¶ 38. However, the "solicitations [were] a sham," according to plaintiffs, because the mailers were designed to "prevent borrowers from contacting All Star" by omitting any contact information for All Star "to ensure the borrower w[ould] only contact" the participating lender. Id. ¶¶ 38, 39.

In 2009, All Star contracted with a postcard company, PostcardMania, to develop a "prototype" for this alleged sham. Id. ¶ 40; ECF 1-2 (Emails between All Star and PostcardMania). In developing the prototype, on September 28, 2009, the postcard company advised, ECF 1-2:

We played around with the design a bit and what we're running into is that if we use 25-50% of the card with All Star Title's info, it makes it confusing for the person receiving the card as they can't tell who the advertisement is from. We came up with a mockup with a smaller All Star Title logo so that it doesn't totally distract from the mortgage company's information. We also removed your phone number because we don't want people to call you instead of the mortgage company.

More than four months later, Jason Horwitz, the President and Owner of All Star, responded to PostcardMania: "We actually started a similar program with other direct mail companies and its [sic] going really really well. I think now would be a really great time to really get this going." Id.

Thus, plaintiffs contend that, "by design," All Star did not receive any actual marketing benefit from the solicitations. ECF 1, ¶ 41. Rather, "the entire marketing benefit flow[ed] to the" participating lender. Id. And, "[i]n exchange," the lender "agree[d] and [was] required to exclusively assign and refer all loans generated by the mailer to All Star for title and settlement...