Andrew Soven, Dan Booker and Molly Campbell secured a precedential Third Circuit victory of a putative class action asserted against firm client M&T Bank Corp. and its subsidiaries claiming that, under the Real Estate Settlement Procedures Act (“RESPA”) and unjust enrichment, M&T operated an illegal captive reinsurance scheme. Originally filed in the U.S. District Court for the Middle District of Pennsylvania, plaintiffs alleged that M&T Bank and its reinsurer colluded with private mortgage insurers, referring customers to those insurers and receiving in return reinsurance agreements that required M&T Mortgage Reinsurance to take on little or no actual risk. Plaintiffs also alleged that M&T fraudulently concealed the reinsurance scheme such that plaintiffs were unable to bring their claims within the limitations period. After allowing discovery related to the timeliness of plaintiffs’ claims, the District Court granted summary judgment for M&T finding plaintiffs’ claims were untimely and not subject to equitable tolling.
The Third Circuit agreed, ruling that plaintiffs had not exercised reasonable diligence in investigating any potential claims such that the limitations period could be tolled. Specifically, the limitations period runs from the date of the occurrence of the violation, which in this case, began at the closing of plaintiffs’ mortgage loans. Because M&T specifically provided plaintiffs opt out forms concerning the captive reinsurance, thereby evidencing plaintiffs’ knowledge about the reinsurance arrangement, the court held that equitable tolling could not rescue the otherwise barred claims. Cunningham v. M & T Bank Corp., No. 15-1412, ___ F.3d___, 2016 WL 683372, at *3 (3d Cir. Feb. 19, 2016). The court also rejected plaintiffs’ argument that their inaction should be excused until they were put on notice by attorneys investigating the captive reinsurance claims in late 2011. The Third Circuit’s decision also may end actions pending against other banks represented Reed Smith in similar cases. Law360 covered this case, and that account can be found here. https://www.law360.com/articles/761476
The court’s enforcement of RESPA’s statute of limitations stands in contrast to the decision issued by the Consumer Financial Protection Bureau (“CFPB”) in In the Matter of PHH Corp., File No. 2014-CFPB-02, Decision of the Director, Doc. 226 at 10 (2015). In PHH, which is based on similar purported RESPA violations, the CFPB ruled that that the Consumer Financial Protection Act’s (“CFPA”) statute of limitations did not apply to administrative RESPA proceedings brought by the CFPB because “the CFPA gives the bureau a choice: it may enforce laws administratively or in court.” PHH has appealed the decision to the D.C. Circuit, and oral argument is scheduled for April 12, 2016. If the decision is affirmed in the D.C. Circuit, it is possible that financial institutions still might face potential liability through CFPB proceedings even though courts such as the Third Circuit have concluded that private plaintiffs’ claims are time-barred.