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Lucas E. Mccarn, Individually and On Behalf of v. Hsbc Usa

May 25, 2012

LUCAS E. MCCARN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
HSBC USA, INC., ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Lawrence J. O'Neill United States District Judge

ORDER GRANTING MORTGAGE GUARANTY INSURANCE CORP., PMI MORTGAGE INSURANCE CO., RADIAN GUARANTY INC., AND REPUBLIC MORTGAGE INSURANCE CO.'S MOTION TO DISMISS (DOC. 54).

I.INTRODUCTION

On March 12, 2012, Plaintiff filed a putative class-action complaint asserting, among other things, that defendants HSBC USA, Inc.; HSBC Bank USA, N.A.; HSBC Mortgage Corp.; HSBC Reinsurance (USA), Inc. ("HSBC RE") (collectively, "HSBC Defendants"); United Guaranty Residential Insurance Co. ("United Guaranty"), PMI Mortgage Insurance Co., ("PMI"), Genworth Mortgage Insurance Corp. ("Genworth"); Republic Mortgage Insurance Co. ("Republic"); Mortgage Guaranty Insurance Corp. ("MGIC"); and Radian Guaranty, Inc. ("Radian") violated the Real Estate Settlement Procedures Act of 1974 ("RESPA").

On May 12, 2012, a partial stay of this action was entered pending the outcome of the United States Supreme Court's decision in First American Financial Corporation, et al. v. Edwards.*fn1 The Court granted MGIC, PMI, Republic, and Radian's request for a limited exception to the stay permitting them to pursue a previously-filed motion to dismiss all claims against them for lack of standing. Doc. 68. The motion was originally set for hearing on May 9, 2012, but the hearing was vacated and the matter was submitted on the papers. Doc. 68. In addition to the motion, opposition, and reply, Docs. 54, 64 & 67, the Court has considered notices of supplemental authority filed by Plaintiff on May 7 and 8, 2012, Docs. 69 & 70, as well as Moving Defendants' response thereto, Doc. 71.

II.BACKGROUND

Plaintiff Lucas E. McCarn obtained a mortgage loan from HSBC Mortgage Corp. on or about November 21, 2006. Doc. 1, Compl., at ¶ 19. In connection with the loan, Plaintiff was required to and did pay for private mortgage insurance ("PMI") in the amount of $154.40 per month. Id. It is alleged that borrowers do not generally have any opportunity to comparison-shop for mortgage insurance, which is arranged by the lender. Id. at ¶ 41. United Guaranty was selected by HSBC to provide PMI to Plaintiff. Id. at 19.

United Guaranty was a PMI provider with whom HSBC had a "captive reinsurance arrangement," whereby HSBC required the provider, as a condition of doing business with HSBC, to purchase reinsurance from HSBC RE, an HSBC subsidiary. See id. at ¶ 1. It is alleged that this type of arrangement was widespread throughout the mortgage lending marketplace and that it amounted to, in essence, the lender "coercing [PMI] insurers into cutting [the lender] in on . [lucrative] insurance premiums in exchange for assuming little or no risk." Id. at ¶ 3.

These captive reinsurance arrangements were the subject of some regulatory attention in light of anti-kickback provisions contained within RESPA. Id. at ¶ 80-84. According to a 1997 letter issued by the United States Department of Housing and Urban Development ("HUD"), the agency charged with enforcing RESPA during most of the class period, see id. at ¶ 43, captive PMI reinsurance arrangements were permissible under RESPA only if "the payments to the affiliated reinsurer: (1) are for reinsurance services 'actually furnished or for services performed' and (2) are bona fide compensation that does not exceed the value of such services," id. at ¶ 81 (citing id., Exh. M at 3). The HUD letter warned: "The reinsurance transaction cannot be a sham under which premium payments . are given to the reinsurer even though there is no reasonable expectation that the reinsurer will ever have to pay claims." Id. The complaint alleges that the type of reinsurance agreement utilized by HSBC with its PMI providers violated RESPA. See id. at 80-84.

The crux of the present motion concerns the undisputed fact that HSBC had the same or substantially similar captive reinsurance arrangements not only with United Guaranty, the provider of PMI to Plaintiff, but also with the other PMI Defendants, including Moving Defendants, MGIC, PMI, Republic, and Radian. Even though Plaintiff admittedly was not in privity with any of the Moving Defendants, he alleges all Defendants "acted in concert" to "effectuate a captive reinsurance scheme." Id. at ¶ 1. Plaintiff alleges that Defendants' "coordinated actions resulted in a reduction of competition in the mortgage insurance market and resulted in increased premiums for Plaintiff and the [putative] class." Id. at ¶ 15. On the one hand, the complaint generally alleges that "[i]n return for guaranteeing a steady stream of business, the private mortgage insurer ceded to the reinsurer a portion of the premiums it received from borrowers with respect to the loans involved," id. at ¶ 54, and that the "private mortgage insurer stimulates/guarantees its business by providing a lucrative stream of revenue for the lender via the lender's captive reinsurer." Id. at ¶ 77.

Upon information and belief, the Private Mortgage Insurers participated in the scheme simply because the lenders produced business for them and they would not have access to the significant lenders if they did not agree to participate in the reinsurance arrangements. Notably, upon information and belief, each of the Private Mortgage Insurers participated without demur and not one attempted to put an end to the lenders' activities by reporting the conduct to the authorities. Defendants' coordinated actions resulted in a reduction of competition in the mortgage insurance market and resulted in increased premiums for Plaintiffs and the Class. See generally, 12 U.S.C. § 2601(b).

Id. at ¶ 97. At the same time, it is also alleged that United Guaranty and the Moving Defendants "effectively had no choice but to enter into virtually identical reinsurance contracts with HSBC RE or risk losing doing business." Id. at ¶ 14.

III.STANDARD OF DECISION

The present motion challenges Plaintiff's standing to sue any of the Moving Defendants pursuant to Fed. R. Civ. Pro 12(b)(1), which provides for dismissal of an action for "lack of subject-matter jurisdiction." Faced with a Rule 12(b)(1) motion, a plaintiff bears the burden of proving the existence of the court's subject matter jurisdiction. Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996). A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears. Gen. Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 968--69 (9th Cir. 1981).

A challenge to subject matter jurisdiction may be facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). As explained in Safe Air for Everyone v. ...


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