Morris v. CrossCountry Mortgage, LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

No. 5:22-C V-336-BO-BM

AMANDA MORRIS, et ai., )

Plaintiffs, )

)

Vv. ) ORDER

)

CROSSCOUNTRY MORTGAGE, LLC; _ )

RALEIGH REALTY, INC. (f/k/a Raleigh )

Realty, LLC). )

Defendants. )

This cause comes before the Court on motions to dismiss filed by both defendants. The

appropriate responses and replies have been filed, or the time for doing so has expired, and a

hearing on the motions was held before the undersigned on April 4, 2023, at Raleigh, North

Carolina. In this posture, both motion are ripe for ruling. For the reasons that follow, the motions

are granted but plaintiffs are permitted fourteen (14) days from the date of entry of this order to

amend their complaint.

BACKGROUND

Plaintiffs, Amanda and Joshua Morris, commenced this action on August 25, 2022. [DE

1]. Their complaint alleges that defendants violated the Real Estate Settlement Procedures Act

(RESPA), 12 U.S.C. § 2607, by engaging in a “kickback” or “unearned fee” scheme prohibited by

RESPA. Specifically, plaintiffs allege that they were clients of Raleigh Realty in 2021 looking to

buy a home. [DE 1] Compl. § 12. Early in their search, plaintiffs prequalified with another lender

at a 2.25% interest rate with a 100% loan to value ratio. Jd. § 15. In May 2021, plaintiffs entered

into a residential purchase agreement to purchase a home. /d. § 48. Plaintiffs allege that they were

steered by the Raleigh Realty agent to obtain a loan from CrossCountry Mortgage, which offered

an interest rate of 3.625% and charged a $995.00 loan origination fee. Jd. §§ 17, 21, 50. Plaintiffs

did in fact obtain a mortgage from CrossCountry Mortgage for the purchase of their primary

residence in Clayton, North Carolina under the foregoing terms, and their Deed of Trust on the

property was recorded on August 31, 2021. /d. § 20.

Plaintiffs allege that the words and actions of Raleigh Realty, through its owners and/or

agents, had the effect of influencing their selection of CrossCountry Mortgage as a mortgage

lender. Jd. § 18. Plaintiffs further allege that one or more North Carolina branches of CrossCountry

Mortgage have been paying thousands of dollars a month to Raleigh Realty and/or its owner Ryan

Fitzgerald in exchange for Raleigh Realty referring. steering, and otherwise directing all of their

home buyers to CrossCountry for mortgage lending services. /d. 23, 24. Plaintiffs allege that if

Mr. Fitzgerald discovered that any Raleigh Realty agents were not referring home buyers to

CrossCountry Mortgage he would threaten to deprive those agents of future leads. /d. {| 25.

“RESPA is a broad statute, directed against many things that increase the cost of real estate

transactions[.]” Boulware v. Crossland Mortg. Corp., 291 F.3d 261, 267 (4th Cir. 2002) (quoting

Mercado vy. Calumet Fed. Sav. & Loan Ass’n, 763 F.2d 269, 271 (7th Cir. 1985)). As is relevant

here, RESPA prohibits kickbacks and unearned fees, providing that “No person shall give and no

person shall accept any fee, kickback, or thing of value pursuant to any agreement or

understanding, oral or otherwise, that business incident to or a part of a real estate settlement

service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. §

2607(a). RESPA further provides that “No person shall give and no person shall accept any

portion, split, or percentage of any charge made or received for the rendering of a real estate

settlement service in connection with a transaction involving a federally related mortgage loan

other than for services actually performed.” 12 U.S.C. § 2607(b). Plaintiffs allege that defendants

Raleigh Realty and CrossCountry acted pursuant to acommon scheme to violate RESPA. Plaintiffs

have further filed this complaint as a putative class action.

Both defendants have moved to dismiss pursuant to Rule 12(b)(1) for lack of subject matter

jurisdiction. CrossCountry Mortgage! has also moved to dismiss pursuant to Rule 12(b)(6) for

failure to state a claim upon which relief can be granted.

DISCUSSION

Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a claim for lack of subject

matter jurisdiction. “Subject-matter jurisdiction cannot be forfeited or waived and should be

considered when fairly in doubt.” Ashcroft v. Iqbal, 556 U.S. 662, 671 (2009) (citation omitted).

When subject-matter jurisdiction is challenged, the plaintiff has the burden of proving jurisdiction

to survive the motion. Evans v. B.F. Perkins Co., 166 F.3d 642, 647-50 (4th Cir. 1999). When a

facial challenge to subject-matter jurisdiction is raised. the facts alleged by the plaintiff in the

complaint are taken as true, “and the motion must be denied if the complaint alleges sufficient

facts to invoke subject-matter jurisdiction.” Kerns v. United States, 585 F.3d 187, 192 (4th Cir.

2009). The Court can consider evidence outside the pleadings without converting the motion into

one for summary judgment. See, e.g., Evans, 166 F.3d at 647.

A Rule 12(b)(6) motion tests the legal sufficiency of the complaint. Papasan v. Allain, 478

U.S. 265, 283 (1986). A complaint must allege enough facts to state a claim for relief that is facially

plausible. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “The plausibility standard is

not akin to a ‘probability requirement,” but it asks for more than a sheer possibility that a defendant

has acted unlawfully.” /gbal/, 556 U.S. at 678. Facial plausibility means that the facts pled “allow[]

the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,”

' Hereinafter “CrossCountry Mortgage” or “CrossCountry.”

and mere recitals of the elements of a cause of action supported by conclusory statements do not

suffice. Jd.

Both CrossCountry and Raleigh Realty have moved to dismiss plaintiffs’ complaint under

Ruel 12(b)(1) for lack of standing.

Under Article HI of the U.S. Constitution, federal courts may consider only cases or

controversies, and “the doctrine of standing has always been an essential component” of the case

or controversy requirement. Marshall v. Meadows, 105 F.3d 904, 906 (4th Cir. 1997) (citing Lujan

v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). For an action to constitute a case or controversy

under Article III, a “plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to

the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial

decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). At the pleading stage, a plaintiff must

“clearly allege facts demonstrating each element of [standing].”” Spokeo, 578 U.S. at 338 (2016)

(internal quotation, alteration, and citation omitted); see also Overbey v. Mayor of Baltimore, 930

F.3d 215, 227 (4th Cir. 2019) (plaintiff must plausibly allege facts which, taken as true, establish

standing).?

CrossCountry Mortgage and Raleigh Realty both contend that plaintiffs have not plausibly

alleged that they suffered an injury in fact. “To establish injury in fact, a plaintiff must show that

he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized*

and ‘actual or imminent, not conjectural or hypothetical.’ Jd. (quoting Lujan, 504 U.S. at 560).

The provision of RESPA on which plaintiffs rely provides for a private right of action. 12 U.S.C.

§ 2607(d). However, an allegation of mere violation of a statute in insufficient to confer standing:

rather, plaintiffs must still sufficiently show they have been “concretely harmed by a defendant's

In a class action, standing is analyzed “based on the allegations of personal injury made by the

named plaintiffs.” Beck v. McDonald, 848 F.3d 262, 269 (4th Cir. 2017).

statutory violation”. TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2205 (2021) (noting further

that injury in law is not an injury in fact.”).

The Fourth Circuit has recently addressed the issue of injury in fact in the context of

RESPA violations. In Baehr v. Creig Northrop Team, P.C., the plaintiffs brought suit for violation

of RESPA based on an alleged kickback scheme and identified as their injury in fact “the

deprivation of impartial and fair competition between settlement providers.” 953 F.3d 244, 253

(4" Cir. 2020). The court of appeals held, among other things, “that the deprivation of impartial

and fair competition between settlement services providers—untethered from any evidence that

the deprivation thereof increased settlement costs-—-is not a concrete injury under RESPA.” Jd. at

254.

Plaintiffs allegations of injury here are not much different. Plaintiffs contend they were

injured when “as a result of Defendants’ illegal agreement and acts to carry it out, Plaintiffs and

others similarly situated were unfairly and deceptively steered toward obtaining federally related

mortgage loans from CrossCountry Mortgage and have been injured by the payment of unlawful

closing fees and/or the payment of origination fees or interest rates in excess of what

CrossCountry’s competitors in the market would have charged.” Compl. 5. Plaintiffs’ specific

allegations identify (1) an origination fee of $995 paid to CrossCountry and (2) a mortgage with

an interest rate almost 1.5 points higher than what they had prequalified for with another lender.

First, unlawful closing fees are, under Baer, procedural violations unless the plaintiff has

alleged that they resulted in increased settlement costs. Plaintiffs offer a bare allegation that they

were charged an origination fee by CrossCountry, but provide no allegations which would

plausibly support a showing that an origination fee would not have been charged by another lender

or that CrossCountry’s origination fee was unreasonably higher than other lenders.

Second, plaintiffs have not plausibly alleged that using CrossCountry Mortgage resulted in

an increased interest rate. The complaint alleges only that the plaintiffs prequalified in February

at an interest rate of 2.25%. Six months later, plaintiffs closed on their mortgage with CrossCountry

with a 3.625% interest rate. There are no allegations which would support a showing that plaintiff's

prequalification rate would have been applied in August had they proceeded with financing with

the other lender or that CrossCountry’s rate was higher than plaintiffs would have qualified for

elsewhere during the relevant period, August 2021. See, e.g., S. Ferry LP #2 v. Killinger, 687 F.

Supp. 2d 1248, 1251 (W.D. Wash. 2009) (discussing market fluctuation in mortgage interest rates

and noting that a “borrower typically ‘locks in’ an interest rate on her home mortgage several

weeks before she actually closes a mortgage deal.”). In other words, the fact that plaintiffs

prequalified in February at a particular interest rate has little relevance to the interest rate they

closed with six months later.

Plaintiffs contend in their opposition to the motions to dismiss that they also suffered an

informational injury because Raleigh Realty and CrossCountry did not disclose that they had a

relationship. In their complaint, plaintiffs allege a single RESPA violation for engaging in a

kickback or referral scheme in violation of § 2607, and courts have found there to be no private

right of action under RESPA’s disclosure requirement found in 12 U.S.C. § 2603. See Altman vy.

PNC Mortg., 850 F. Supp. 2d 1057, 1074 (E.D. Cal. 2012): see also Taylor v. Onewest Bank, FSB,

CIV. PJM 10-2247, 2011 WL 768962, at *4 (D. Md. Feb. 28, 2011) (listing cases holding same).

Moreover, for an informational injury to confer Article II] standing, it must nonetheless result in a

*“real’ harm with an adverse effect.” Dreher v. Experian Info. Sols., Inc., 856 F.3d 337, 345 (4th

Cir. 2017). For the same reasons discussed above, plaintiffs have failed to plausibly allege that

they have suffered an injury in fact, or real harm.

At the hearing before the undersigned, plaintiffs requested leave to amend their complaint

to address the pleading deficiencies. Where a request to amend seeks to “remedy technically

inadequate jurisdictional allegations” rather than “substitute new causes of action over which there

would be jurisdiction” a court may grant leave to amend. Boelens v. Redman Homes, Inc., 759

F.2d 504, 512 (Sth Cir. 1985) (citing 28 U.S.C. § 1653). The Court. in its discretion, will permit

plaintiffs leave to amend their complaint to attempt to remedy their inadequate jurisdictional

allegations.?

Because the Court has determined that it lacks subject matter jurisdiction over the

complaint as filed, it declines to consider defendant CrossCountry Mortgage’s Rule 12(b)(6)

argument. The motion to dismiss on this ground is therefore denied without prejudice.

CONCLUSION

Accordingly, for the foregoing reasons, CrossCountry’s motion to dismiss is GRANTED

IN PART and DENIED WITHOUT PREJUDICE IN PART. [DE 11]. Raleigh Realty’s motion to

dismiss [DE 26] is GRANTED. Plaintiffs’ complaint is DISMISSED WITHOUT PREJUDICE

pursuant to Fed. R. Civ. P. 12(b)(1). However, plaintiffs’ request for leave to amend their

complaint is GRANTED. Plaintiffs shall file an amended complaint not more than fourteen (14)

days from the date of entry of this order.

SO ORDERED, this [ Teay of April 2023.

aaunes MV Gente

TERRENCE W. BOYLE

UNITED STATES DISTRICT JUD

Defendants remain free to re-raise their jurisdictional challenges to the allegations in plaintiffs’

amended complaint. Further, should plaintiffs elect not to file an amended complaint, they must

affirmatively waive their right to amend and request that this Court enter final judgment. Britt v.

DeJoy, 45 F.4th 790, 796 (4th Cir. 2022).