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COURT COMPELS PRODUCTION OF CFPB INVESTIGATION DOCUMENTS IN DISPUTE OVER ALLEGED REINSURANCE KICKBACKS

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A putative class of plaintiffs brought an action against PHH Corporation, alleging violations of the Real Estate Settlement Procedures Act, arising from a purported scheme of alleged “kickbacks” to the defendant mortgage insurer from its captive reinsurer to which transfers no actual underlying risk was transferred. The plaintiffs sought documents relating to any government investigation of PHH. After PHH came under investigation by the Consumer Financial Protection Bureau, PHH provided certain discovery in the course of the investigation to the CFPB. The plaintiffs thereafter renewed their requests, seeking all documents produced to the CFPB. After defendant refused, the court granted plaintiffs’ motion to compel the following categories of documents produced to the CFPB:

“(1) corporate information and organization charts showing the PHH entities involved with PHH’s captive reinsurance arrangements’ position and the PHH corporate hierarchy; (2) documents relating to the genesis of PHH’s captive reinsurance arrangements; (3) documents describing or relating to PHH’s captive reinsurance arrangements and how they operated; (4) financial statements; (5) contracts and agreements with private mortgage insurers; (6) actuarial, accounting reports, summaries, audits and statements; (7) invoices, bills, receipts, dividends and records of payments from the captive reinsurance trusts or in any way related to PHH’s captive reinsurance arrangements; and (8) disclosures, communications to borrowers regarding mortgage insurance and captive reinsurance.”

Munoz v. PHH Corp., No. 1:08-cv-0759-AWI-BAM (USDC E.D. Cal. Feb. 22, 2013).

This post written by John Pitblado.

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COURT DENIES BANK, INSURER’S, AND REINSURER’S MOTION TO DISMISS RESPA COMPLAINT

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Two borrowers filed a putative class action complaint in Pennsylvania federal court alleging that mortgage lender, First Horizon Home Loan Corporation, private mortgage insurers First Horizon had selected, and FT Reinsurance Company had engaged in a “captive reinsurance scheme” whereby illegal referral payments in the form of reinsurance premiums had been paid by the private mortgage insurers to FT Reinsurance, a wholly-owned subsidiary of First Horizon. Plaintiffs alleged that the reinsurance premiums violated the anti-kickback provisions of the Real Estate Settlement Procedures Act and that little or no risk was actually transferred from the mortgage insurers to FT Reinsurance. The court granted motions to dismiss filed by mortgage insurers Genworth Mortgage Insurance Corporation, Republic Mortgage Insurance Company, and Radian Guaranty, Inc., finding that plaintiffs did not have standing to sue because these insurers had not issued them policies. The court denied motions to dismiss filed by the other defendants, however, holding that plaintiffs had sufficiently alleged that the statute of limitations on their claims was equitably tolled and, moreover, that plaintiffs could proceed on their unjust enrichment theory because it was not clear whether plaintiffs’ mortgage contracts cover the same subject as their lawsuit. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. Feb. 27, 2013).

This post written by Ben Seessel.

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BRITISH COURT AFFIRMS REINSURANCE ARBITRATION AWARD ON NUMBER OF OCCURENCES IN 9/11 ATTACKS

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Plaintiff cedent and defendant reinsurers were parties to certain reinsurance treaties providing cover for aviation-related risks, with threshold triggers of $200 million and $500 million, respectively. A coverage dispute arose regarding whether the terrorist attacks in New York City on September 11, 2011 constituted one, or two separate occurrences, as the term was defined in the underlying policies. Defendants contended there were two occurrences, and thus twice as much of the $1.2 billion in underlying settlements should be borne by the cedent. The parties submitted the dispute to arbitration, and a three-judge panel held that there were two occurrences, based on particular factual details unique to the September 11 attacks. Citing the applicable standards for overturning arbitration awards, the UK’s High Court of Justice affirmed the award, concluding that the tribunal “accurately identified the applicable law pursuant to which they undertook an exercise of judgement. The decision they came to was one which was open to them to reach and in making it they: (i) correctly applied the law; (ii) had regard to all materially relevant matters; and (iii) did not take into account impermissible considerations.” Aioi Nissay Dowa Insurance Co. Ltd v. Heraldglen Ltd, [2013] EWHC 154 (Comm) (High Court of Justice, Queen’s Bench, Comm. Div. Feb. 8, 2013).

This post written by John Pitblado.

See our disclaimer.

INSURER JUDICIALLY ESTOPPED FROM COMPELLING ARBITRATION OF LONGSTANDING DISPUTE WITH REINSURER

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The Texas Court of Appeals affirmed a trial court order denying New Hampshire Insurance Company’s motion to compel arbitration of Magellan Reinsurance Company’s nine common law and statutory claims. New Hampshire and Magellan entered into a reinsurance agreement whereby Magellan agreed to accept 100% of New Hampshire’s obligations under automobile dealer insurance policies. Pursuant to the agreement, Magellan established a trust account from which New Hampshire was authorized to withdraw funds to pay claims. A dispute arose after New Hampshire had emptied the trust account and demanded that Magellan make an additional $1.4 million deposit to replenish it. Magellan in turn questioned New Hampshire’s claims handling and accounting practices. New Hampshire responded by filing a petition in Turks and Caicos Island (TCI) courts seeking to wind up Magellan’s business, citing to the purportedly unpaid $1.4 million obligation and a TCI ordinance relating to a company’s inability to pay debt.

Several years of litigation in TCI, Texas, and New York courts ensued during which time, among other developments, New Hampshire successfully defeated Magellan’s attempt to stay the TCI litigation for arbitration. The TCI litigation, however, was ultimately concluded in Magellan’s favor in 2009 with a finding that New Hampshire was not a “creditor” of Magellan and thus could not wind up Magellan’s business. New Hampshire then sought to compel arbitration of Magellan’s action pending in Texas state court. The trial court denied the motion to compel. The Texas Court of Appeals affirmed holding that, because New Hampshire had convinced the TCI court to deny Magellan’s request to stay litigation for arbitration, New Hampshire was judicially estopped from seeking to arbitrate Magellan’s claims. New Hampshire Insurance Co. v. Magellan Reinsurance Co., No. 02-12-00196-CV (Tex. Ct. App. Feb. 14, 2013).

This post written by Ben Seessel.

See our disclaimer.

COURT COMPELS ARBITRATION NOTWITHSTANDING STATE “COST-PROHIBITIVENESS” DEFENSE, APPLYING CONCEPCION

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Current and former students filed a putative class action against an institution alleging that the institution misrepresented the quality of its education and the prospects for post-graduation employment. When the institution moved to compel arbitration, the students sought to challenge the enforceability of the arbitration clause in court, notwithstanding a delegation provision that provided for arbitrability to be decided by the arbitrators. The court initially refused to enforce the delegation clause, holding that the students presented a valid defense that arbitration would be cost-prohibitive for them. On reconsideration, however, the court compelled arbitration even on the issue of arbitrability, relying on Concepcion. The court explained, after reviewing the origins of the cost-prohibitiveness defense in state precedent, that the defense is a doctrine created in the specific context of arbitration agreements, and is therefore preempted by the FAA. Dean v. Draughons Junior College, Inc., Case No. 3:12-cv-0157 (USDC M.D. Tenn. Jan. 16, 2013).

This post written by Michael Wolgin.

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