RESPA Plaintiffs Who Had Not Exercised Reasonable Diligence Not Entitled to Toll the Statute of Limitations, Says Third Circuit Court of Appeals

The U.S. Court of Appeals for the Third Circuit has held that plaintiffs who do not exercise reasonable diligence cannot avoid the one-year statute of limitations for claims under Section 8 of RESPA.  The decision came in a case concerning captive mortgage reinsurance, one of a number of similar cases against various lenders and private mortgage insurers, some of which have been stayed pending this decision.

On February 19, 2016, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision in Cunningham v. M&T Bank Corp., granting summary judgment to M&T Bank, its captive private mortgage reinsurer, and two private mortgage insurers (“pmi companies”), on the basis that the Plaintiffs’ claims are barred by the one-year statute of limitations for claims under Section 8 of the Real Estate Settlement Procedures Act (“RESPA”).

The suit was brought by borrowers who had obtained mortgage loans from M&T Bank to finance the purchase of their homes, and who purchased private mortgage insurance from one of two pmi companies.  The borrowers alleged that M&T referred them to the pmi companies for private mortgage insurance, in return for M&T being given the opportunity to provide reinsurance for the private mortgage insurance on the loans through an affiliate.  The borrower further alleged that the reinsurance agreements required M&T’s affiliate to take on little or no actual risk, and that the arrangement violated RESPA’s anti-kickback and anti-fee-splitting provisions.

Although RESPA contains a one-year statute of limitations for Section 8 claims, the borrowers did not bring suit until much later.  The district court permitted limited discovery on the issue of timeliness and then granted summary judgment to the Defendants, on the grounds that they did not exercise any diligence during the one-year limitations period.  The borrowers had received a disclosure concerning captive reinsurance, as well as an opportunity to opt out of having their loans reinsured.  Yet, the Court of Appeals noted, “Plaintiffs took no steps to investigate whether M&T Bank’s captive reinsurance program might violate state or federal law.  They did not, for example, ask their mortgage insurer if their particular insurance policy had been reinsured and, if so, with whom.  They did not seek the advice of an attorney, research captive reinsurance, request documents related to their mortgage insurance, or take any steps to discover if they had a claim under RESPA.”  Rather, “Plaintiffs claim simply that it was not until late 2011 or early 2012, when counsel asked them to join a lawsuit, that they became aware of the basis for a possible claim under RESPA.”  The Court of Appeals held that “inaction” during an “approximately four-year period . . . was not reasonable diligence.”

This decision follows closely on the heels of the Supreme Court’s recent decision in Menominee Tribe of Wisconsin v. United States, in which the Supreme Court reiterated the requirement that a plaintiff exercise diligence during the limitations period in order to toll the statute of limitations.  It also joins a large number of federal courts who have held that waiting to be contacted by an attorney does not constitute diligence.

The WBK Firm regularly represents companies throughout the United States in litigation, including class actions, under RESPA and other federal statutes.