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Efrain Munoz, Et. Al v. Phh Corp. Et. Al

February 22, 2013

EFRAIN MUNOZ, ET. AL,
PLAINTIFFS,
v.
PHH CORP. ET. AL,
DEFENDANTS.



The opinion of the court was delivered by: Barbara A. McAuliffe United States Magistrate Judge

ORDER GRANTING PLAINTIFFS' MOTION TO COMPEL

INTRODUCTION

Currently before the Court is Plaintiff Efrain Munoz's, et. al*fn1 , Motion to Compel documents responsive to Plaintiffs' Requests for Production. Plaintiffs are seeking the production of all documents that Defendants have produced to the Consumer Financial Protection Bureau ("CFPB") in connection with its investigation of Defendants PHH Corporation ("PHH") and Atrium Reinsurance Company ("Atrium").*fn2 The Court deemed the matter suitable for decision without oral argument pursuant to Local Rule 230(g), and vacated the hearing scheduled for February 22, 2013. Having considered the joint statements of the parties, as well as the Court's file, Plaintiffs' Motion to Compel is GRANTED.

BACKGROUND

A. Factual Background

Plaintiffs' filed a complaint in the underlying action on June 2, 2008, alleging that Defendants had acted together to violate the Real Estate Settlement Procedures Act ("RESPA") Sections 8(a) and (b) by entering into captive reinsurance arrangements for the purpose of receiving kickbacks, referral payments and unearned fee splits (disguised as ceded reinsurance premiums) from private mortgage insurers to whom PHH referred business. (FAC ¶¶ 1-2, 61-63, 69-709; Doc. 2). Pursuant to this arrangement, PHH required borrowers making a down payment of less than 20% of the purchase price of their residences to purchase, either directly or indirectly, private mortgage insurance for their respective mortgage loans. FAC ¶¶ 3, 11. Plaintiffs allege that PHH then allocated its referral of borrowers to the mortgage insurance providers participating in the arrangement. FAC ¶¶ 4, 29. In exchange for this referral of business, mortgage insurance providers agreed to kick back (or "cede") a portion of PHH borrowers' mortgage insurance premiums to Defendant Atrium for reinsurance coverage, which was placed in "reinsurance trusts." ¶¶ 5-6, 60-65.

Plaintiffs allege that, by design of the arrangement between Defendants, Atrium assumed no real or commensurate risk-because the reinsurance trusts were funded almost exclusively by ceded premiums, not Atrium's own capital. Absent the requisite transfer of risk, the reinsurance arrangements were illusory and Defendants' agreement or understanding to provide and accept referral fees and kickbacks in connection with Plaintiffs' and potential class members' settlement services violated RESPA. Accordingly, Plaintiffs seek recovery for all borrowers who were subjected to Defendants' settlement services.

B. Background of Parties' Discovery Dispute

In early 2009, Plaintiffs served Defendants with its first set of Requests for Production. Doc. 200, Ex. A. Plaintiffs' Request Nos. 10*fn3 and 11*fn4 of the First RFP, request any documents that Defendants produced to any governmental agency or committee in connection with any investigation into PHH concerning allegations that PHH violated RESPA, as well as any documents concerning any such investigation. On March 4, 2009, Defendants objected to Request Nos. 10 and 11, on the grounds that the requests were "overly broad, unduly burdensome, and oppressive," among other objections. Doc. 200, Ex. B.

In May 2012, the CFPB, a federal regulatory entity authorized to enforce RESPA, launched an investigation into the conduct of mortgage lenders and private mortgage insurance providers in connection with their reinsurance arrangements. Pursuant to its investigation, the CFPB issued a May 22, 2012 Civil Investigatory Demand ("CID") to PHH, which included twenty-one (21) interrogatories and thirty-three (33) requests for production of documents for investigation into PHH's captive reinsurance arrangements with private mortgage insurers. More specifically, the CFPB's document requests seek information relating to, among other things: (1) corporate information and organization charts showing the PHH entities involved with PHH's captive reinsurance arrangements' position the PHH corporate hierarchy; (2) documents relating to the genesis of PHH's captive reinsurance arrangements; (3) documents describing or relating to PHH's captive reinsurance arrangements and how they operated; (4) financial statements; (5) contracts and agreements with private mortgage insurers; (6) actuarial, accounting reports, summaries, audits and statements; (7) invoices, bills, receipts, dividends and records of payments from the captive reinsurance trusts or in any way related to PHH's captive reinsurance arrangements; and (8) disclosures, communications to borrowers regarding mortgage insurance and captive reinsurance and any scripts or templates for any such communications or disclosures. See Doc. 200, Ex. H at 10-20.

PHH objected to the CFPB's document requests on June 12, 2012, stating that the requests were overbroad, imposed an undue burden and were tantamount to "fishing expedition into PHH's business." Doc. 200, Ex I. The CFPB rejected PHH's arguments, and, on September 20, 2012, issued a "Decision and Order" denying PHH's objections and ordering PHH to produce all responsive documents to the CFPB within twenty-one (21) days of the Order. Id. at 9. Defendants do not dispute that documents have subsequently been produced in compliance with the CFPB's investigation.

Upon learning of the CFPB's investigation, Plaintiffs requested that Defendants comply with their ongoing duty to produce documents responsive to Plaintiffs' First RFP. Plaintiffs requested production of the CFPB Documents, which Plaintiffs identified as responsive to Request Nos. 10 and 11 of the First RFP and relevant to the issues in this litigation. See Doc. 200, Ex. J at 2-3. In their December 13, 2012 letter responding to Plaintiffs' request for the CFPB Documents, Defendants refused immediate production, but stated that "now that the CFPB's investigation is proceeding forward, PHH will reevaluate its position with respect to its original discovery responses and supplement its production where necessary." See Doc. 200, Ex. C.

On January 9, 2013, Defendants produced an additional 8,851 pages of documents. See Doc. 200, Ex. D. However, Defendants reiterated their refusal to produce the CFPB documents on relevance grounds. In a final attempt at resolving the parties' differences concerning the CFPB documents, Plaintiffs narrowed their document requests, while reserving all rights to seek a complete production of CFPB Documents at a later stage of the proceedings. Specifically, Plaintiffs requested production of only those documents that Defendants produced in response to thirteen (13) of the CFPB's thirty-three (33) Document Requests; namely CFPB Document Request Nos. 5-7, 9-10, 12, 15, 17- 20, 26, and 30.

Defendants objected to this narrowed request for CFPB documents on relevance and burden/feasibility grounds. See Doc. 200, Ex. E. In this regard, Defendants renewed their relevance objection and further stated, "even setting aside our objections, there is no practical way to fulfill your request . . . suffice it to say that our production efforts do not track the document requests in the CID." Id. Plaintiffs replied by letter dated January ...


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