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

November 9, 2012


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

ORDER ON MOTIONS TO DISMISS (Doc. 94, 106, 111, 117)


On July 30, 2012, Plaintiff Lucas E. McCarn ("Plaintiff") filed his first amended putative class-action complaint ("FAC") asserting violations of the Real Estate Settlement Procedures Act of 1974 ("RESPA") and common law unjust enrichment claims against 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"), Genworth Mortgage Insurance Corp. ("Genworth"); Republic Mortgage Insurance Co. ("Republic"); Mortgage Guaranty Insurance Corp. ("MGIC"); and Radian Guaranty, Inc. ("Radian") (collectively, "PMI Defendants"). Defendants filed motions to dismiss both causes of action in the FAC between August and October 2012. For the reasons discussed below, this Court GRANTS Defendants' motions to dismiss.



Plaintiff Lucas E. McCarn obtained a mortgage loan from HSBC Mortgage Corp. on or about November 21, 2006. Doc. 88, ¶ 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. 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. Plaintiff alleges that this type of arrangement was widespread throughout the mortgage lending marketplace and that it essentially amounted to 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. 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. Plaintiff 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.

These captive reinsurance arrangements were the subject of regulatory attention in light of anti-kickback provisions contained within RESPA. Id. at ¶ 84-88. 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, 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 ¶ 85. The HUD letter stated: "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. Plaintiff alleges that the type of reinsurance agreement utilized by HSBC with its PMI providers violated RESPA. See id. at 84-88. Plaintiff further alleges that HSBC Defendants received unjust enrichment from the amounts ceded to HSBC RE as reinsurance premiums and that PMI Defendants received unjust enrichment from the steady stream of business they received in return for ceding those portions of the borrowers' premiums to HSBC Defendants. Id. at ¶¶178-183.

B.Procedural History

Plaintiff Lucas E. McCarn filed a putative class action complaint on March 12, 2012. On May 29, 2012, this Court granted Defendants MGIC, PMI, Radian, and Republic's motion to dismiss with leave to amend the complaint.*fn1 This Court lifted a partial stay of the action pending the outcome of the United States Supreme Court's decision in First American Financial Corporation, et al. v. Edwards, 132 S. Ct. 2536 (2012) on July 9, 2012, and Plaintiff filed the FAC on July 30, 2012. The instant motions to dismiss the FAC were filed by Defendants MGIC, Radian, and Republic on August 16, 2012, by Defendant United Guaranty on August 30, 2012, by Defendant Genworth on August 30, 2012, and by HSBC Defendants on October 5, 2012. Plaintiff filed oppositions to the motions to dismiss on October 26, 2012 and Defendants filed replies on November 5, 2012.

DISCUSSION Motion to Dismiss

A.Dismissal under Fed. R. Civ. P. 12(b)(1)

HSBC Defendants, MGIC, Republic, Radian, and Genworth challenge Plaintiff's standing to sue the non-contracting Defendants, MGIC, Republic, Radian, and Genworth, pursuant to Fed. R. Civ. Pro 12(b)(1), which provides for dismissal of an action for "lack of subject-matter jurisdiction."*fn2

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. Meyer, 373 F.3d 1035, 1038 (9th Cir. 2004):

In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.

In resolving a factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. Savage v. Glendale Union High School, 343 F.3d 1036, 1039 n. 2 (9th Cir. 2003); McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988).

HSBC Defendants, MGIC, Republic, Radian, and Genworth make a facial attack on the sufficiency of the allegations in the FAC. The standards used to resolve motions to dismiss under Rule 12(b)(6) are relevant to disposition of a facial attack under 12(b)(1). See Cassirer v. Kingdom of Spain, 580 F.3d 1048, 1052 n.2 (9th Cir. 2009) (applying Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) to a motion to dismiss for lack of subject matter jurisdiction). As discussed further below, to sufficiently state a claim to relief and survive a 12(b)(6) motion, the pleading "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the ...

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