United States District Court, D. Maryland, Northern Division
WILLIAM D. QUARLES, Jr., District Judge.
Patrick Baehr and Christian Baehr ("the Named Plaintiffs"), on behalf of themselves and others similarly situated (collectively, "the Plaintiffs"), sued Long & Foster Real Estate, Inc. ("Long & Foster"), The Creig Northrop Team, P.C. ("The Northrop Team"), Creighton E. Northrop, III ("Creig Northrop"), Carla Northrop, Lakeview Title Company, Inc. ("Lakeview"), and Lindell C. Eagan, (collectively "the Defendants"),  for violating the Real Estate Settlement Procedures Act ("RESPA"). Pending are several motions. The Long & Foster Defendants' motion to dismiss will be granted in part and denied in part as moot. The Lakeview Defendants' motion to dismiss will be denied as moot. The Plaintiffs' motion for leave to file an amended complaint will be granted in part and denied in part. The Plaintiffs' motion to certify a class will be granted as amended by the Court. The Long & Foster Defendants' motion to strike, or in the alternative, motion for leave to file surreply will be denied.
A. Factual Background
This case arises out of an alleged scheme for real estate agents to receive over half a million dollars in illegal kickbacks from a title insurance service for referrals over 13 years. Am. Comp. ¶ 1. Specifically, "the Northrop Defendants referred the Plaintiffs and members of the Class exclusively to Lakeview for real estate settlement services as a quid pro quo for the compensation by the Lakeview Defendants." Id. ¶ 15. The Defendants used a "sham employment arrangement and a sham Marketing Agreement" to "generate unearned fees and kickbacks." Id.
1. The Named Plaintiffs' Home Purchase
In June 2008, the Named Plaintiffs hired Long & Foster, Creig Northrop, and the Northrop Team to represent them in buying a new home. See Am. Compl. ¶ 29. They referred the Named Plaintiffs to Lakeview for title and settlement services. Id. ¶ 30. Based on this recommendation, the Named Plaintiffs used Lakeview in the purchase of their home. Id. On July 25, 2008, the Named Plaintiffs closed on their home. Id.
2. Alleged Kickback Scheme
"[T]o conceal" their illegal referral fee agreement, the Defendants "devised two separate sham arrangements." Am. Compl. ¶ 16. From 2000 through 2007, the Defendants created a "sham employment arrangement" between Lakeview and Carla Northrop, "to disguise payments of illegal referral fees." Id. ¶ 17. From 2000, Carla Northrop was a full-time employee of the Northrop Team. Id. ¶ 18. She "was also secretly receiving payments from Lakeview" under an employment agreement, even though she "did not perform any actual work or services for Lakeview." Id. Carla Northrop did not appear for work at Lakeview, and she did not conduct any closings or process any files for Lakeview. Id. Lakeview did not provide her with an office, telephone number, or email address. Id. The Defendants "concealed" Carla Northrop's "supposed employment at Lakeview from the public." Her employment with Lakeview was never disclosed to the Named Plaintiffs or others similarly situated. See Am. Compl. ¶ 19.
In 2008, Lakeview stopped paying Carla Northrop. See Am. Compl. ¶ 20. Instead, Lakeview "began funneling the illegal kickbacks for referrals through a sham Marketing Agreement'" with Creig Northrop and The Northrop Team. Id. Creig Northrop and Eagan negotiated and signed the Marketing Agreement on behalf of the Northrop Team and Lakeview. Id. The Marketing Agreement provided that Creig Northrop and the Northrop Team would designate Lakeview as their exclusive settlement and title company and would "provide mostly unspecified marketing services.'" Id. ¶ 21. The Marketing Agreement also provided that Creig Northrop and the Northrop Team would not endorse any other settlement and title insurance companies, and they would "use their reasonable effort to cause its affiliates and their respective partners, stockholders, and senior officials" not to endorse any other company. Id. ¶ 22.
Under the Marketing Agreement, Lakeview agreed to pay Creig Northrop and the Northrop Team $6, 000.00 per month for marketing services. See Am. Compl. ¶ 23. Lakeview actually paid as much as $12, 000 per month. Id. Eagan "authorized the overpayments under the guise of the sham Marketing Agreement." Id. In total, Creig Northrop and the Northrop Team received over $500, 000 under the Marketing Agreement. Id. There is no record of "any real joint marketing services reasonably related to actual amounts paid by Lakeview." Id. ¶ 24.
The relationship between Lakeview and the Northrop Defendants "was never disclosed to, and actively concealed from" Northrop's clients. See Am. Compl. ¶ 25. At every settlement Lakeview presented Affiliated Business Arrangement ("ABA") Disclosures prepared by Long & Foster. Id. The ABA Disclosure form stated:
This is to give you notice that Long & Foster Real Estate, Inc. ("Long & Foster") has business relationship (e.g., direct or indirect ownership interest, joint ventures and/or contractual relationships including marketing agreements and/or office leases) with the following mortgage, title, closing, and insurance service providers... As a result of these relationships referrals to any of the above-listed entities may provide Long & Foster (and/or any of its subsidiaries or affiliates) with a financial or other benefit.
Id. The ABA Disclosure included several title companies, but it did not include Lakeview. Id. Class members "reasonably relied" that the disclosure "included the title companies that Long & Foster, or its affiliates (including the Northrop Team) had a financial relationship with." Id.
B. Procedural History
On March 27, 2013, the Named Plaintiffs, on behalf of themselves and others similarly situated, sued the Defendants for violating RESPA. ECF No. 1. On May 13, 2013, the Defendants moved to dismiss. ECF Nos. 23, 26. On July 3, 2013, the Plaintiffs opposed the motion, and moved for leave to file an amended complaint. ECF Nos. 35, 36. On July 22, 2013, the Defendants opposed the motion to amend the complaint. ECF Nos. 37, 39. On July 22, 2013, the Lakeview Defendants replied to the Plaintiffs' opposition. ECF No. 40. On July 23, 2013, the Long & Foster Defendants also replied. ECF No. 42. On August 8, 2013, the Plaintiffs replied in support of their motion to amend. ECF No. 43.
On August 14, 2013, the Plaintiffs moved to certify the class. ECF No. 44. On September 27, 2013, the Long & Foster Defendants opposed the motion. ECF No. 47. On September 30, 2013, the Lakeview Defendants also opposed the motion to certify. ECF No. 50. On October 29, 2013, the Plaintiffs replied. ECF No. 53. On November 19, 2013, the Long & Foster Defendants moved to strike the Plaintiffs' reply, or in the alternative, moved for leave to file surreply. ECF No. 54. On December 6, 2013, the Plaintiffs opposed the motion to strike. ECF No. 55. On December 6, 2013, the Plaintiffs also filed a supplement to their reply. ECF No. 56.
A. Legal Standard
1. Rule 12(b)(6)
Under Fed.R.Civ.P. 12(b)(6), an action may be dismissed for failure to state a claim upon which relief can be granted. Rule 12(b)(6) tests the legal sufficiency of a complaint, but does not "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
The Court bears in mind that Rule 8(a)(2) requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Migdal v. Rowe Price-Fleming Int'l Inc., 248 F.3d 321, 325-26 (4th Cir. 2001). Although Rule 8's notice-pleading requirements are "not onerous, " the plaintiff must allege facts that support each element of the claim advanced. Bass v. E.I. Dupont de Nemours & Co., 324 F.3d 761, 764-65 (4th Cir. 2003). These facts must be sufficient to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
This requires that the plaintiff do more than "plead facts that are merely consistent with a defendant's liability'"; the facts pled must "allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ( quoting Twombly, 550 U.S. at 557). The complaint must not only allege but also "show" that the plaintiff is entitled to relief. Id. at 679 (internal quotation marks omitted). "Whe[n] the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown-that the pleader is entitled to relief." Id. (internal quotation marks and alteration omitted).
2. Rule 9(b)
Rule 9(b) requires that "the circumstances constituting fraud be stated with particularity." Fed.R.Civ.P. 9(b). The rule "does not require the elucidation of every detail of the alleged fraud, but does require more than a bare assertion that such a cause of action exists." Kerby v. Mortg. Funding Corp., 992 F.Supp. 787, 799 (D. Md. 1998). To satisfy the rule, a plaintiff must "identify with some precision the date, place, and time of active misrepresentations or the circumstances of active concealments, specifying which Defendant... is supposedly responsible for those statements or omissions." Johnson v. Wheeler, 492 F.Supp.2d 492, 509 (D. Md. 2007). The requirements of Rule 9(b) apply to allegations of fraudulent concealment.
3. Leave to Amend Complaint
Under Fed.R.Civ.P. 15(a)(2), a party may amend its complaint with its opponent's written consent or with leave of court. The Court "should freely give leave [to amend the complaint] when justice so requires." Fed.R.Civ.P. 15(a)(2). Thus, "leave to amend should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or amendment would be futile." Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 193 (4th Cir. 2009) (internal citation and quotation marks ...