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 al., )

Plaintiffs, )

)

V. ) ORDER

)

CROSSCOUNTRY MORTGAGE, LLC; _ )

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

Realty, LLC), )

Defendants. )

This cause comes before the Court on motions to dismiss the amended complaint filed by

both defendants. The appropriate responses and replies have been filed, or the time for doing so

has expired, and in this posture both motions are ripe for ruling. For the reasons that follow, the

motions to dismiss are denied.

BACKGROUND

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

I]. Their complaint alleged 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. The Court incorporates by reference as if fully set forth herein the background provided

in its order granting defendants’ motions to dismiss but permitting plaintiffs leave to amend their

complaint. [DE 40].

The Court granted defendants’ motions to dismiss for lack of subject matter jurisdiction

after determining that plaintiffs had failed to allege an injury in fact sufficient to establish standing

under RESPA. Now, in their amended complaint, plaintiffs have alleged the following as injuries

sustained due to the alleged kickback scheme. In January 2021, plaintiffs were pre-approved for

two loans from another lender: a conventional loan at a 3.125% interest rate with a loan to value

ratio of 95% and a USDA loan with a 2.25% interest rate and a loan to value ratio of 95%. [DE

41] Amd. Compl. § 57. Plaintiffs allege that despite these pre-approvals, Raleigh Realty agents

instructed plaintiffs that CrossCountry was their “best and only option for their mortgage and was

highly recommended by Raleigh Realty’s owner, Mr. Fitzgerald.” /d. 4 58. Plaintiffs “complied”

and ultimately obtained a mortgage from CrossCountry. /d. { 61. Plaintiffs’ mortgage for their

Johnston County property is a 30-year, fixed rate FHA mortgage with a 3.625% interest rate. Id.

61-62. Plaintiffs allege that their CrossCountry mortgage is at a “significantly higher rate and

with less favorable terms than their pre-approvals.” /d. § 62. Plaintiffs further allege that mortgage

interest rates did not materially change between their pre-approval offers and their closing in

August 2021 and that there were no other material changes to plaintiffs’ finances during that

period. /d. 64, 70. Plaintiffs allege that they will pay an estimated $107,196 in interest over the life

of their loan, which is substantially higher than what they would have paid at their pre-approved

interest rates. Jd. {J 64-65. Plaintiffs further allege that CrossCountry charged them an additional

$3,758.87 in costs that they “did not shop for” and would not have paid to other lenders. Jd. § 67.

In sum, plaintiffs contend that due to the illegal kickback scheme between the defendants they

closed on their home with higher interest rates, higher closing costs, and higher costs over the life

of the loan. Id. {§ 70- 72.

In their amended complaint, plaintiffs have also alleged claims against defendants for

unfair and deceptive trade practices and civil conspiracy, both under North Carolina law.

Defendants have each moved to dismiss plaintiffs’ claims for lack of Article III standing. They

have also each moved to dismiss plaintiffs* state law claims for failure to state a claim upon which

relief can be granted. Defendants make identical or substantially similar arguments and the Court

considers their motions together.

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 |2(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.” Jqgbal, 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,”

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

suffice. Jd.

A. Standing

Under Article III 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.’” /d. (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 is insufficient to confer standing;

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

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

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

In Baehr v. Creig Northrop Team, P.C., 953 F.3d 244, 254 (4 Cir. 2020), the court of

appeals held, among other things, “that the deprivation of impartial and fair competition between

'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).

settlement services providers—untethered from any evidence that the deprivation thereof

increased settlement costs—is not a concrete injury under RESPA.” Rather, a plaintiff must allege

that the statutory violation resulted in the type of harm that Congress passed the statute to prevent.

Id. at 253. “Congress specified in RESPA that by prohibiting kickbacks, the harm it sought to

prevent is the increased costs that ‘tend’ to result from kickbacks’ interference with the market for

settlement services.” Jd. at 254. Settlement services include “‘any service provided in connection

with a real estate settlement”. 12 U.S.C. § 2602(3).

Plaintiffs have alleged a concrete injury under RESPA sufficient to confer standing.

Plaintiffs allege generally that a lack of competition tends to increase settlement costs related to

mortgage loan products. Further, they allege specifically their own CrossCountry mortgage, in

fact, resulted in increased settlement costs, including higher interest rates, closing costs, and higher

ongoing payments over the life of the loan.

As to their interest rate, in their amended complaint plaintiffs now allege that there was no

material change in mortgage interest rates during the period between their pre-approval and closing

with CrossCountry and further that there was no material change to their financial status during

that time, supporting an inference that, despite the time lapse, they would still have qualified for a

lower rate with another lender. Defendants rely on the fact that only Mr. Morris was prequalified

with another lender and that those prequalifications were for different types of loans than what was

ultimately secured. However, absent discovery, there is no way to know whether, for example,

Mrs. Morris’ absence from the original prequalification or presence on the CrossCountry loan had

any material impact.

Plaintiffs also newly allege an injury based on closing costs. Though defendants may

ultimately be correct that these closing costs are “standard” and thus would have applied in the

same or similar amounts on any mortgage, the Court must take plaintiffs’ allegations that they

would not have paid these amounts with other lenders as true at this stage of the proceeding.

TransUnion, 141 S. Ct. at 2208 (“A plaintiff must demonstrate standing ‘with the manner and

degree of evidence required at the successive stages of the litigation.*”) (citation omitted).

Accordingly, the Court determines that the amended complaint alleges concrete injuries

sufficient to demonstrate standing to proceed on plaintiffs’ RESPA claim. Defendants’ arguments

that plaintiffs’ unfair and deceptive trade practices claim and civil conspiracy claim should be

dismissed for lack of standing based upon their purported failure to demonstrate RESPA standing

thus also fails.

B. Failure to state a claim

Defendants also contend that plaintiffs have failed to state an unfair and deceptive trade

practices claim. To establish a violation of North Carolina’s Unfair and Deceptive Trade Practices

Act, a plaintiff must show “(1) an unfair or deceptive act or practice, (2) in or affecting commerce,

and (3) which proximately caused injury to plaintiffs.” Gray v. N.C. Underwriting Ass’n, 352 N.C.

61, 68 (2000). “[W]hether an act or practice is an unfair or deceptive practice . . . is a question of

law for the court.” /d. “A practice is unfair when it offends established public policy as well as

when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to

consumers” and “a practice is deceptive if it has the capacity or tendency to deceive; proof of

actual deception is not required.” Marshall vy. Miller, 302 N.C. 539, 548 (1981).

Under North Carolina law, violation of a consumer protection statute may amount to a per

se unfair and deceptive trade practice, while violation of a regulatory statute may also in certain

circumstances constitute an unfair and deceptive trade practice. In re Fifth Third Bank, Nat. Ass’n-

Vill. of Penland Litig., 217 N.C. App. 199, 207 (2011). Plaintiffs here have alleged both that

defendants violated RESPA and the SAFE Act, consumer protection statutes, and that they have

violated the North Carolina Administrative Code for the Real Estate Commission as well as the

Secure and Fair Enforcement Mortgage Lending Act. Amd Compl. 36-41. This is sufficient to

nudge plaintiffs’ unfair and deceptive trade practices claim across the line from conceivable to

plausible. The Court will not dismiss the claim at this stage.

Finally, defendants seek to dismiss plaintiffs’ civil conspiracy claim. In order to prove civil

conspiracy in North Carolina, the plaintiff must show that there was “(1) an agreement between

two or more individuals; (2) to do an unlawful act or to do a lawful act in an unlawful way; (3)

resulting in injury to plaintiff inflicted by one or more of the conspirators; and (4) pursuant to a

common scheme.” Piraino Bros., LLC v. Atl. Fin. Grp., Inc., 211 N.C. App. 343, 350 (2011)

(quoting Privette v. University of North Carolina, 96 N.C.App. 124, 139 (1989)). Plaintiffs agree

that this is a “dependent claim” which can be successful “[o]nly where there is an underlying claim

for unlawful conduct...” BDM Invs. v. Lenhil, Inc., 264 N.C. App. 282, 300 (2019).

Plaintiffs have sufficiently alleged underlying claims for unlawful conduct. They have

further sufficiently alleged an overt act committed in furtherance of the alleged conspiracy,

specifically that Raleigh Realty required its agents to exclusively recommend CrossCountry to all

buyers in order to continue receiving kickback “referral fees” (which plaintiffs’ allege violated

RESPA and other laws) and that that conduct resulted in approximately $20,000 per month in

payments from CrossCountry to Raleigh Real Estate in unlawful kickback and referral fees. Amd.

Compl. 20-35; see also BDM Invs. 264 N.C. App. At 301 (noting failure to allege overt act

defeats civil conspiracy claim). The Court determines that this dependent claim has been

sufficiently pleaded and will permit it to go forward.

In sum, plaintiffs’ amended complaint has alleged facts sufficient to confer Article II]

standing for their RESPA and other claims. Plaintiffs have further plausibly pleaded claims for

unfair and deceptive trade practices and civil conspiracy. The motions to dismiss are therefore

denied.

CONCLUSION

Accordingly, for the foregoing reasons, the motions to dismiss plaintiffs’ amended

complaint [DE 43 & 45] are DENIED.

SO ORDERED, this xd day of October 2023.

TERRENCE W. BOYLE ( ¢

UNITED STATES DISTRICT JUDGE