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Donovan v. Property I.D. Corp.

August 5, 2008

SHAUN DONOVAN, SECRETARY OF THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, PLAINTIFF,
v.
PROPERTY I.D. CORP.; REALOGY CORP. F/K/A CENDANT CORP.; NRT/COLDWELL BANKER RESIDENTIAL BROKERAGE CORP.; MASON-MCDUFFIE REAL ESTATE D/B/A PRUDENTIAL CALIFORNIA REALTY F/K/A DUTRA REALTY ENTERPRISES INC.; PICKFORD REALTY LTD. D/B/A PRUDENTIAL CALIFORNIA REALTY; PICKFORD GOLDEN STATE MEMBER LLC; PROPERTY I.D. OF EAST BAY, LLC; PROPERTY I.D. ASSOCIATES, LLC; AND PROPERTY I.D. GOLDEN STATE, LLC, DEFENDANTS.



CONSENT DECREE

This Consent Decree is entered into between Plaintiff THE SECRETARY OF THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (hereinafter "the Secretary" or "HUD"), and Defendants PICKFORD REALTY, LTD. doing business as PRUDENTIAL CALIFORNIA REALTY, and PICKFORD GOLDEN STATE MEMBER, LLC, along with their respective shareholders, owners, members, partners, directors, officers, employees, affiliates, and subsidiaries (hereinafter "Pickford" unless otherwise noted), through their respective undersigned counsel. The term "Parties" refers to the Secretary and Pickford. This Consent Decree is entered for the purpose of fully resolving all issues raised between the Secretary and Pickford by the above-captioned case.

BACKGROUND

1. This case involves the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C. § 2607, and its implementing regulations at 24 C.F.R. Pt. 3500. Section 2607(a) of RESPA prohibits the giving or accepting of any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. Section 2607(b) prohibits the giving or accepting of any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service involving a federally related mortgage loan other than for services actually performed.

2. In May 2005, the Secretary, pursuant to his authority to investigate possible violations of RESPA § 2607, opened an investigation of, among others, Property I.D., Pickford, and Property I.D. Golden State, LLC ("Golden State"), a joint venture involving Pickford Golden State Member, LLC and Property I.D., for potential violations of RESPA's "anti-kickback" and "anti-unearned fee" provisions related to the sale of "Natural Hazard Disclosure Statements" ("NHDS" or "NHDS reports") (the "Investigation"), reports often used to satisfy real estate settlement disclosure requirements under California law and which HUD considers to be real estate settlement services subject to RESPA.

3. The Secretary's Investigation proceeded and in May 2007, the Secretary brought the above-captioned lawsuit against, among others, Pickford (the "HUD matter"). The HUD matter alleges that Pickford profited from these violations. As relief, the Secretary sought a permanent injunction enjoining the alleged RESPA violations, an accounting, and the disgorgement of profits related to these alleged violations.

4. In a case captioned Berger v. Property I.D., et al., No. 05-5373, individual consumers brought a putative class action lawsuit against Pickford, among others, for similar alleged violations of RESPA §§ 2607(a), (b). On April 28, 2008, the Berger Court certified a class of consumers who had purchased NHDS reports from Golden State.

5. Pickford expressly denies that its conduct violated RESPA and expressly denies any wrongdoing or liability, as alleged in the Investigation, the HUD matter, the Berger action or otherwise, and does not admit or concede any actual or potential fault, wrongdoing or liability in connection with any facts or claims that have been or could have been alleged by the Secretary in connection with its Investigation or the HUD matter or as alleged in the Berger action.

6. To avoid disruption of the management and operation of Pickford's business and to avoid the expense and burdens associated with continued litigation, Pickford determined to settle the HUD matter and the Berger action.

7. On August 4, 2008, while expressly denying any wrongdoing or liability, Pickford agreed to pay up to $4,343,000, the majority of which will be made available to NHDS report customers who submit qualifying claims via a class action settlement in Berger (hereinafter the "Class Settlement"). A copy of the Class Settlement is attached as Exhibit A to this Settlement Agreement.

8. Pickford represented to the Secretary that the $4,343,000 it has agreed to make available under the Class Settlement exceeds the distributions made to it by Golden State from the inception of Golden State in 2000 until its termination.

9. Pickford represented to the Secretary that the operation of, and its participation in, Property I.D. Golden State LLC has terminated.

10. Pickford disputes that NHDS reports are settlement services subject to RESPA, however, for purposes of settlement of the HUD matter, Pickford represented to the Secretary that it is willing to consider and treat NHDS reports as settlement services for purposes of RESPA § 2602(3) in the future.

11. In an Order dated January 28, 2009, and entered on February 2, 2009, the Court approved the Class Settlement in Berger.

12. The Secretary has concluded that the amount that Pickford has agreed to make available under the Class Settlement and this Consent Decree satisfies the Secretary's request in his Complaint for an accounting and disgorgement.

13. The Secretary also represents that the Class Settlement and this Consent Decree serve the consumer protection purposes of RESPA and are beneficial to NHDS consumers.

CONSENT DECREE

IT IS THEREFORE NOW ORDERED, ADJUDGED and DECREED as follows:

1. Pickford is enjoined from engaging in any activities that are alleged in the Complaint in the HUD matter to violate RESPA and will comply with RESPA and its implementing regulations in the future with respect to NHDS reports.

2. Pickford is enjoined from resuming operations of, or its participation in, Golden State.

3. Pickford will, in the future, consider and treat NHDS reports such as those at issue in the Complaint in the HUD matter as real estate settlement services within the meaning of 12 U.S.C. § 2602(3).

4. Should Pickford enter into a joint venture or other business arrangement concerning NHDS reports, it will conduct it in accordance with RESPA, its implementing regulations, and HUD's policy statements related to RESPA.

5. As soon as available but no later than ten days after receipt of a Final Accounting and any Remaining Funds under the Class Settlement, as described in paragraph 20 of the Class Settlement submitted to the Court on August 5, 2008, Pickford shall provide to the Secretary documentation demonstrating that it has paid at least $1,000,000 under the Class Settlement. If this final amount exceeds $1,000,000, Pickford will not be required to make any payments to the Secretary. If this final amount does not exceed $1,000,000, Pickford shall pay to the Secretary the difference between $1,000,000 and the payments made under the Class Settlement. Payment shall be made by certified check to the U.S. Treasury and shall be delivered to undersigned counsel for Plaintiff along with the documentation demonstrating the final payment amount under the Class Settlement.

6. Pickford will cooperate with HUD and the Court in this action by responding to reasonable requests for information, documents, and testimony.

7. Failure by any party to enforce any provision of this Consent Decree shall not be construed as a waiver by such party of any provision nor in any way affect the validity of this Consent Decree or any part thereof.

8. Each of the Parties to this Consent Decree shall bear their own attorney's fees and costs.

Dated: FebrualT 2009

EXHIBIT 1

EXECUTION COPY SETTLEMENT AGREEMENT

Parties

1. This Settlement Agreement ("Agreement"), dated August 4, 2008, is made by, between, and among Plaintiffs Joseph Chenier, Jr., Gil Lee, Jeanne Bakale Aldrich, Michael Attar, Ulysses J. Harvey, and Mark and Rachelle Berger, in their individual and representative capacities ("Class Representatives") on behalf of Settlement Classes, and Defendants (a) Property I.D. Corporation; Property I.D. of California, Inc.; Property I.D. California, LLC; Property I.D. Affiliates 1, LLC d/b/a Property I.D. USA; Property I.D. Associates, LLC; Disclosure Services, LLC; Property I.D. Golden State, LLC (collectively the "Property I.D. Defendants"); (b) HomeServices of California, Inc.; Pickford Realty, Ltd.; and Pickford Golden State Member, LLC (collectively, the "Pickford Defendants"); (c) ROCH Enterprises, Inc., a California Corporation, formerly known as RE/MAX of California & Hawaii, Inc. and RAS Financial Services, Inc. (collectively, the "RE/MAX Defendants"); and (d) Cendant Corporation, now known as Avis Budget Group, Inc., Coldwell Banker Residential Brokerage Company, Century 21 Real Estate Corporation, Coldwell Banker Residential Brokerage Corporation, Coldwell Banker Real Estate Corporation, Realogy Corporation, Realogy Services Group LLC, ERA Franchise Systems, Inc., NRT Incorporated, Cendant Real Estate Services Group, LLC and Cendant Operations, Inc. (collectively, the "Realogy Defendants"). The Pickford Defendants, the RE/MAX Defendants, the Realogy Defendants, and the Property I.D. Defendants are collectively referred to as the "Defendants." The Class Representatives, the Settlement Classes, through Barry R. Himmelstein of Lieff, Cabraser, Heimann & Bernstein, LLP ("Class Counsel") and Defendants are collectively referred to as the "Settling Parties."

Recitals

2. The Class Representatives initiated a class action lawsuit against Defendants for violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA"), breach of fiduciary duty and violation of the California Business and Professions Code, Section 17200 et seq. (the "UCL"), presently pending as Mark and Rachelle Berger et al. v. Property I.D. Corp., et al., Case No. CV-5373-GHK (CWx) (the "Class Action Lawsuit") in the United States District Court for the Central District of California, Western Division (the "Court").

3. On April 28, 2008, the Court certified this case as a class action against the Pickford Defendants, the RE/MAX Defendants, and the Realogy Defendants pursuant to Rule 23 of the Federal Rules of Civil Procedure pursuant to the following three classes:

All persons who purchased Property I.D. Natural Hazard Disclosure Reports, in a transaction involving a federally related mortgage loan, and not primarily for business, commercial, or agricultural purposes, ordered by an agent or broker of any Pickford Defendant(s) [defined as HomeServices of California, Inc., Pickford Realty, Ltd., and Property I.D. Golden State, LLC] or their subsidiaries or affiliates, including their owned and operated brokerages, affiliates, or franchisees, during the period when Property I.D. Golden State, LLC was in operation. Excluded from the class are: 1) all Defendants, any entity in which they have a controlling interest, and their legal representatives, officers, directors, assigns and successors; and b) the judge to whom this case is assigned and members of the judge's immediate family.

All persons who purchased Property I.D. Natural Hazard Disclosure Reports, in a transaction involving a federally related mortgage loan, and not primarily for business, commercial, or agricultural purposes, ordered by an agent or broker of any RE/MAX Defendant(s) [defined as RE/MAX of California and Hawaii, Inc., RAS Financial Services, Inc., and Disclosure Services, LLC] or their subsidiaries or affiliates, including their owned and operated brokerages, affiliates, or franchisees, during the period when Disclosure Services, LLC was in operation. Excluded from the class are: 1) all Defendants, any entity in which they have a controlling interest, and their legal representatives, officers, directors, assigns and successors; and b) the judge to whom this case is assigned and members of the judge's immediate family.

All persons who purchased Property I.D. Natural Hazard Disclosure Reports, in a transaction involving a federally related mortgage loan, and not primarily for business, commercial, or agricultural purposes, ordered by an agent or broker of any Realogy Defendant(s) [defined as Cendant Corporation, Coldwell Banker Residential Brokerage Co., Century 21 Real Estate Corporation, Coldwell Banker Residential Brokerage Corp., Coldwell Banker Real Estate Corp., Realogy Corp., Realogy Services Group, LLC, ERA Franchise Systems, Inc., NRT Inc., Cendant Real Estate Services Group, LLC and Cendant Operations, Inc.] or their subsidiaries or affiliates, including their owned and operated brokerages, affiliates, or franchisees, during the period when either Affiliates [defined as Property I.D. Affiliates I, LLC] or Associates [defined as Property I.D. Associates, LLC] was in operation. Excluded from the class are: 1) all Defendants, any entity in which they have a controlling interest, and their legal representatives, officers, directors, assigns and successors; and b) the judge to whom this case is assigned and members of the judge's immediate family.

4. The Court appointed Jeanne Bakale Aldrich as the class representative for the certified class against the Pickford Defendants, Michael Attar as the class representative for the certified class against the RE/MAX Defendants, Mark and Rachelle Berger as class representatives against the Realogy Defendants, and Lieff, Cabraser, Heimann & Bernstein, LLP as class counsel.

5. The Class Representatives contend in the Class Action Lawsuit that Defendants formed affiliated business arrangements ("ABAs") as permitted under RESPA, but that the ABAs constituted "shams" under RESPA and HUD's Policy Statement 1996-2 Guidelines. The Class Representatives also contend in the Class Action Lawsuit that Defendants violated RESPA and state law by giving and receiving payments in exchange for referrals to the ABAs of orders of Natural Hazard Disclosure reports ("Property I.D. NHD Reports"), and by failing to disclose the alleged "sham" nature of the ABAs to persons who ordered or purchased Property I.D. NHD Reports as a result of the referral.

6. The Class Representatives and the Settlement Classes, through Class Counsel, have engaged in substantial investigation, examination and discovery to evaluate the merits of the Class Representatives' and Settlement Classes' claims and the Defendants' defenses. Class Counsel has obtained substantial information and has thoroughly analyzed the factual and legal issues surrounding the claims and defenses in the Class Action Lawsuit.

7. Defendants expressly deny any wrongdoing, as alleged in the Class Action Lawsuit or otherwise, and do not admit or concede any actual or potential fault, wrongdoing or liability in connection with any facts or claims that have been or could have been alleged in the Class Action Lawsuit. Nonetheless, Defendants consider it desirable for the Class Action Lawsuit to be settled on the terms set forth in this Agreement because (a) it will avoid further disruption of the management and operation of Defendants' business due to the pendency and defense of the Class Action Lawsuit, and (b) it will avoid the substantial expense, burdens, and uncertainties associated with continued litigation of the Class Action Lawsuit.

8. Class Counsel and counsel for Defendants have conducted lengthy and detailed settlement negotiations under the auspices of an independent mediator. As a result of these negotiations, the Class Representatives and the Settlement Classes, through Class Counsel, have agreed to settle the Class Action Lawsuit against Defendants pursuant to the provisions of this Agreement after considering such factors as (a) the substantial benefits to the Settlement Classes under the terms of this Agreement, (b) the attendant costs, risks, and uncertainty of litigation and (c) the desirability of consummating this Agreement promptly, in order to provide relief to the Settlement Classes.

9. The Settling Parties did not discuss the Attorneys' Fees Award that may be applied for by Class Counsel until after reaching an agreement in principle with respect to the total settlement consideration made available to the Settlement Classes.

10. The Class Representatives and Class Counsel believe that the terms of this Agreement are fair, reasonable, and adequate, that this Agreement provides substantial benefits to the Settlement Classes, and that settlement of the Class Action Lawsuit against Defendants on the terms set forth in this Agreement is in the best interests of the Settlement Classes.

11. The Class Representatives, the Settlement Classes, through Class Counsel, and Defendants believe that it is in their respective best interests to settle and compromise all issues and claims that have been brought, or that could have been brought, in the Class Action Lawsuit by or on behalf of members of the Settlement Classes (who do not exclude themselves from the Settlement Classes pursuant to the terms of this Agreement) against the Defendants arising out of the conduct alleged, and have agreed to settle the Class Action Lawsuit on the terms set forth in this Agreement. Accordingly, the purpose of this Agreement, once approved by the Court, is to make a full, complete, and final resolution of all claims that were asserted or that could have been asserted against Defendants by the Class Representatives or the Settlement Classes in the Lawsuit arising out of the conduct alleged.

12. The Settling Parties intend to seek Court approval of the settlement of the Class Action Lawsuit as set forth in this Agreement, and upon Court approval, to seek a final order and judgment from the Court dismissing with prejudice the claims of the ...


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