Court Opinion

ID: 64437
Source: CourtListenerOpinion
Date Created: 2010-04-26 05:14:20+00
Date Added: 2024-06-11T11:50:27.000877
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                        December 23, 2008

                                    No. 08-40616                      Charles R. Fulbruge III
                                  Summary Calendar                            Clerk

ROCHELLE KNIGHTON; BILLIE R NORMAN

                                                  Plaintiffs - Appellants
v.

MERSCORP INC; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS,
INC

                                                  Defendants - Appellees

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 2:07-CV-0029

Before SMITH, STEWART, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
       This appeal is from the district court’s dismissal of a multi-district
litigation case for failing to state a claim on which relief could be granted. The
Plaintiffs alleged that a small fee charged by mortgage lenders, which was then
paid to the Defendants, violated provisions in the Real Estate Settlement
Procedures Act (“RESPA”). See 12 U.S.C. § 2607. We AFFIRM.

       *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                   No. 08-40616

      Rochelle Knighton and Billie R. Norman filed suit against Merscorp, Inc.
and Mortgage Electronic Registration Systems, Inc. (collectively, “MERS”).
MERS served as the mortgagee of record in public land records. MERS members
pay a one-time and nominal fee for each registered mortgage. With MERS as
the permanent record mortgagee, rights to the mortgage loan can be bought and
sold without any changes to the public land records.
      The Plaintiffs alleged that MERS violated two subsections of RESPA that
prohibit the payment of kickbacks or the division of unearned fees. See 12
U.S.C. § 2607(a)-(b). After filing suit, the Plaintiffs filed a motion for class
certification. MERS opposed the motion. The district court, sua sponte, ordered
that one section of MERS’s motion in opposition to class certification be treated
as a Rule 12(b)(6) motion to dismiss. No objection was made below or raised
here to the district court’s initiating the procedure. The court permitted all
plaintiffs in six separate suits with these claims to file motions in opposition to
the Rule 12(b)(6) motion. All suits were later dismissed for failure to state a
claim. The only suit from which an appeal was taken is the one before us today.
      We review a district court’s determination of a Rule 12(b)(6) motion de
novo. In re S. Scrap Material Co., 541 F.3d 584, 587 (5th Cir. 2008). When
reviewing a motion to dismiss, we must accept all well-pled facts as true and
view them in the light most favorable to the non-moving party. Id. In order to
survive a motion to dismiss, a complaint must have “enough facts to state a
claim of relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 127 S. Ct.
1955, 1974 (2007); see Cuvillier v. Taylor, 503 F.3d 397, 401 n.4 (5th Cir. 2007)
(Twombly retired the prior standard for reviewing adequacy of a complaint).
      Initially, the Plaintiffs argue that the district court erred by failing to
convert the Rule 12(b)(6) motion into a motion for summary judgment, an
argument based on the alleged presence of evidence in the motion not contained
in the pleadings. A motion to dismiss should be converted to a motion for

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                                   No. 08-40616

summary judgment when the court relies on matters outside of the pleadings.
Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 283 (5th Cir. 1993). Here,
the district judge only referenced information outside of the pleadings in the
section of her opinion providing background on MERS and its role in mortgage
lending. This does not show legal reliance on the information. See Hayden v.
County of Nassau, 180 F.3d 42, 54 (2d Cir. 1999) (holding that a district court’s
adoption of a portion of a report not contained in the motion to dismiss as part
of the recitation of facts section was a mere reference to information outside of
the pleadings and not reliance on that information).
      The Plaintiffs also argue that the district court erred by dismissing their
claim that MERS received illegal kickbacks. A portion of RESPA prohibits
giving or receiving “any fee, kickback, or thing of value pursuant to any
agreement or understanding . . . 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). Therefore, for a kickback or
transfer of a thing of value to be prohibited, it needs to be given in exchange for
the referral of business. See Krupa v. Landsafe, Inc., 514 F.3d 1153, 1156 (11th
Cir. 2008) (“RESPA’s § 2607(a) is quite specific in describing the kickback that
it prohibits. It prohibits a kickback for referral of business.”). The Plaintiffs did
not allege a violation of this provision in their final amended complaint. They
argued that the nominal fee paid by mortgage lenders to MERS constituted the
kickback or thing of value and that MERS received the referral of business from
the mortgage lenders. Therefore, the allegation is that MERS received both the
kickback and the business referral, not that MERS received a referral of
business in exchange for a kickback. Quite simply, the Plaintiffs failed to state
a claim under Section 2607(a).
      The Plaintiffs also contend that the district court erred by dismissing their
claim under 12 U.S.C. § 2607(b). That section prohibits the giving or receiving

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                                  No. 08-40616

of “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.” The Plaintiffs argue that the MERS registration fee violates Section
2607(b) because the services the company performs in exchange for the fee do not
benefit the borrower.
      Under this Section 2607(b) claim, there are three potential questions: (1)
was the MERS fee a settlement service; (2) does Section 2607(b) apply to
undivided fees; and (3) were services actually performed? We examine each.
      The Plaintiffs explicitly argue that the MERS registration fee was not for
a settlement service. As their appellate brief states, the “registration of a
mortgage in a private, nongovernmental registration system, in order to avoid
payment of government recording fees each time a note and mortgage are sold
in a global securities market, is not a settlement service.” As we understand the
argument, Section 2607(b) allegedly prohibits charging fees that are not for
settlement services even when those services are actually performed. The more
straightforward reading of the statute, and the one we adopt, is that what it
prohibits is charging a fee for a settlement service that is not performed.
      Next, the Plaintiffs argue that Section 2607(b) applies to undivided fees.
The statutory language refers to a split fee or the payment of a percentage of a
fee; it does not mention undivided fees. It is true that one Circuit has found that
Section 2607(b) applies to undivided fees. See Cohen v. JP Morgan Chase & Co.,
498 F.3d 111 (2d Cir. 2007). We do not analyze the issue of whether a split in
the fee is required because that answer does not control the outcome.
      Finally, the Plaintiffs argue that for a service actually to be performed
under Section 2607(b), the service must result in a benefit to the borrower. The
Plaintiffs provide no legal support for this assertion. The statute clearly states
that charges cannot be paid other than for services actually performed, but

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                                 No. 08-40616

nothing in it implies that the services must benefit the borrower. Additionally,
it could be argued that the service provided by MERS actually did provide a
benefit to the borrower: as loans became easier to securitize and sell, larger
numbers of people were able to obtain mortgage loans.
      Even if there are public costs of uncontrolled securitization, analyzing
those costs is not part of our consideration of whether the potential borrower
received a benefit. What is important for the analysis relevant now is that
MERS received a small fee from member mortgage lenders. In exchange for the
fee, MERS performed the service of being the permanent record mortgagee in
the public land records, regardless of how many times the beneficial and
servicing rights to the mortgage loans were bought and sold. Because the fee
was paid in exchange for a service that was actually performed, the Plaintiffs
failed to state a claim under Section 2607(b).
      The district court’s dismissal of the complaint is AFFIRMED.

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