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June 21, 2013

PNC, Insurers Beat Suit Alleging Captive Reinsurance Scheme

This article originally ran in Law360 on June 21, 2013.

 

A Pennsylvania federal judge on Thursday tossed a proposed class action alleging PNC Financial Services Group Inc. and several insurers created a captive reinsurance scheme where the lender received kickbacks for referring mortgage customers to the insurers, saying the suit's claims were filed late.

PNC and the insurers said the lawsuit — which was filed under the Real Estate Settlement Procedures Act of 1974 — missed a one-year filing window, but the homeowners who brought the suit said it should survive because the companies fraudulently concealed their alleged scheme, making it difficult to uncover. U.S. District Judge Lawrence F. Stengel said the plaintiffs failed to meet a three-part test that proves fraudulent concealment and dismissed their amended complaint without prejudice, giving them 14 days to file a new version.

The initial complaint, filed in December 2011, contends that the insurers gave PNC predecessor National City Corp. and its affiliated reinsurer National City Mortgage Insurance Co. Inc. payments in the form of purported reinsurance premiums and gave National City an unlawful split of private mortgage insurance premiums paid by customers that had been referred to the insurers by National City entities, in violation of RESPA.

The private mortgage insurers allegedly involved in the scheme include Mortgage Guaranty Insurance Corp., Genworth Mortgage Insurance Corp., Republic Mortgage Insurance Corp. and Radian Guaranty Inc., according to court documents.

RESPA says lawsuits filed under a kickback section of the statute must be filed within one year of the date a violation occurred, which is the date the loan closed, according to the opinion.

The loans at issue in this case closed in December 2008 at the latest, roughly three years before the homeowners filed their complaint. The plaintiffs said RESPA's statute of limitations should be tolled because the companies actively misled them, but Judge Stengel said they didn't adequately make their argument.

Fraudulent concealment claims require a showing that a defendant actively misled a plaintiff, the deception prevented the plaintiff from realizing he had a valid claim before the statue of limitations period expired, and the plaintiff engaged in due diligence to uncover facts.

The plaintiffs said documents they received from National City during their closings were misleading, but Judge Stengel said the plaintiffs failed to show that the insurers prepared them or provided them. 

“While actively colluding with National City to misrepresent plaintiffs’ mortgage documents may constitute an affirmative act of concealment, plaintiffs make no such claim,” Judge Stengel said. “The amended complaint contains only general allegations of a 'scheme' or 'agreement' between the insuring defendants and National City.”

Judge Stengel applied the last two fraudulent concealment prongs to PNC alone, and said they failed to concretely show when or under what circumstances they discovered the alleged scheme, and failed to show that they engaged in reasonable due diligence.

Attorneys for the plaintiffs, PNC and the insurers did not immediately respond to requests for comment Friday.

The plaintiffs are represented by Edward W. Ciolko, Terence S. Ziegler, Donna Siegel Moffa, Amanda R. Trask and Joshua E. D'Ancona of Kessler Topaz Meltzer & Check LLP, Alan R. Plutzik of Bramson Plutzik Mahler & Birkhaeuser LLP and Andrew L. Berke of Berke Berke & Berke.

PNC is represented by Andrew J. Soven, Marc A. Goldich and Daniel I. Booker of Reed Smith LLP. Radian is represented by Stephen A. Fogdall, David Smith and Theresa E. Loscalzo of Schnader Harrison Segal & Lewis LLP.

Republic is represented by Steven M. Coren of Kaufman Coren & Ress PC and William L. Kirkman of Bourland & Kirkman LLP.

Mortgage Guaranty is represented by Bruce E. Rende, Mark A. Martini and Erin J. Dolfi of Robb Leonard Mulvihill LLP and Max B. Chester of Foley & Lardner LLP. 

Genworth is represented by Nicholas M. Centrella and Aya M. Salem of Conrad O'Brien PC and Reid L. Ashinoff and Benito Delfin Jr. of Dentons.

The case is Nelson White Jr. et al. v. The PNC Financial Services Group Inc. et al., case number 11-7928, in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Allison Grande. Editing by Lindsay Naylor.

 

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