                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-4-2005

Santiago v. GMAC Mtg Grp
Precedential or Non-Precedential: Precedential

Docket No. 03-4273




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"Santiago v. GMAC Mtg Grp" (2005). 2005 Decisions. Paper 625.
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                                 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
     FOR THE THIRD CIRCUIT


               No. 03-4273


         FRANCIS SANTIAGO,
          on behalf of himself
             and all others
           similarly situated,

                     Appellant

                       v.

  GMAC MORTGAGE GROUP, INC.;
GMAC RESIDENTIAL HOLDING CORP.;
 GMAC MORTGAGE CORPORATION


Appeal from the United States District Court
  for the Eastern District of Pennsylvania
   (D.C. Civil Action No. 02-cv-04048)
District Judge: Honorable James K. Gardner


        Argued on October 1, 2004
    Before: ROTH and CHERTOFF* Circuit Judges, and
             IRENAS,* * Senior District Judge.

                (Opinion Filed August 4, 2005)

Michael C. Spencer, Esquire (Argued)
Milberg, Weiss, Bershad & Schulman
One Pennsylvania Plaza, 48th Floor
New York, NY 10119

               Counsel for Appellant

Christine N. Kohl, Esquire (Argued)
Michael J. Singer, Esquire
United States Department of Justice
Civil Division, Room 7511
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530

               Counsel for Amicus - USA

Charles L. Becker, Esquire (Argued)
Robert A. Nicholas, Esquire
Kevin M. Toth, Esquire



        *Judge Chertoff heard oral argument in this case but
resigned prior to the time the opinion was filed. The opinion is
filed by a quorum of the panel. 28 U.S.C. §46(d).
        ** Honorable Joseph E. Irenas, Senior United States
District Judge for the District of New Jersey, sitting by designation.

                                  2
Reed Smith
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103

James C. Martin, Esquire
Reed Smith
435 Sixth Avenue
Pittsburgh, PA 15219

              Counsel for Appellees



                           OPINION


ROTH, Circuit Judge:
       This case presents the question whether the Real Estate
Settlement Procedures Act (RESPA), codified at 12 U.S.C.
§2607(b) (2004), includes a cause of action for overcharges
and markups imposed on a borrower by a lender or mortgage
broker for settlement services rendered in connection with a
mortgage loan subject to RESPA. For the reasons that follow,
we find that RESPA does not provide a cause of action for
overcharges but does provide a cause of action for markups.
 I.    Background
       In June 2002, Francis Santiago filed this lawsuit, on
behalf of himself and all other similarly situated, claiming that
GMAC Mortgage Group, Inc., GMAC Residential Holding
Corporation and GMAC Mortgage Corporation (collectively

                               3
GMAC) violated Section 8(b) of RESPA and raising
corresponding state law claims. Section 8(b) of RESPA
states:
               No person shall give and no
               person shall accept 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.
12 U.S.C. § 2607(b)(2004).
        Santiago’s Complaint alleged that, in January 2002, he
obtained a loan for his home from GMAC. In connection
with this loan, GMAC charged and collected fees from
Santiago for settlement services, including an $85.00 tax
service fee, a $20.00 flood certification fee, and a $250.00
funding fee. GMAC fully disclosed these charges to
Santiago. Santiago alleged that GMAC retained third party
vendors to perform the tax and flood certification services,
and charged Santiago more for these services than the amount
paid by GMAC to the vendors or “marked up” the service. In
addition, Santiago alleged that the reasonable value of the
funding service was $20.00, and GMAC charged Santiago
more than that amount for providing the service or
“overcharged” for the service.
        On September 30, 2003, the District Court dismissed
the RESPA claim under Federal Rule of Civil Procedure
12(b)(6), finding that Section 8(b) was intended to prohibit
kickbacks and referral fees and does not include a cause of

                              4
action for the conduct alleged by Santiago. The District Court
then declined to exercise supplemental jurisdiction over
Santiago’s state law claims. Santiago timely appealed.
II.     Jurisdiction and Standard of Review
        Our review of the grant of a motion to dismiss is
plenary. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20
F.3d 1250 (3d Cir. 1994). When considering an appeal from a
dismissal of a complaint pursuant to Rule 12(b)(6), we accept
as true all well-pled factual allegations. Morse v. Lower
Merion School District, 132 F.3d 902, 906 (3d Cir. 1997).
We review the District Court’s decision declining to exercise
jurisdiction over Santiago’s supplemental state law claims for
abuse of discretion. Stehney v. Perry, 101 F.3d 925, 938 (3d
Cir. 1996).
        The District Court had federal question jurisdiction
under RESPA, 12 U.S.C. § 2614. We have jurisdiction
pursuant to 28 U.S.C. § 1291.
III. Discussion
        The analysis whether RESPA provides for a cause of
action for either overcharges or markups must begin with the
text of the statute. The threshold question is whether the
statute clearly and unambiguously allows Santiago’s claims.
“If the intent of Congress is clear, that is the end of the
matter; for the court, as well as the agency, must give effect to
the unambiguously expressed intent of Congress.” Chevron,
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837, 842-43, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984).
If the statutory language is unclear, however, then we must
decide whether to defer to the interpretation of the
administrative agency, in this case the Department of Housing
and Urban Development (HUD), as reflected in the Real

                               5
Estate Settlement Procedures Act Statement of Policy 2001-1,
66 Fed. Reg. 53,052 (2001) (Statement of Policy 2001-1),
issued by HUD.
        A.     Overcharges
        Santiago’s first contention is that there is a cause of
action under RESPA Section 8(b) for overcharges because the
statutory text so provides and because the HUD Statement of
Policy 2001-1 so concludes, and should receive deference.2
GMAC argues that the statutory text prohibits such a cause of
action and that deference is not warranted here. The United
States, as Amicus Curiae, urges us to defer to HUD’s
interpretation, i.e., that, although overcharging is not per se a
violation of Section 8(b), it is contrary to the requirement that
the cost of a service bear a reasonable relationship to its
market value and thus “may be used as evidence of a violation
of Section 8 and may serve as a basis for a RESPA
investigation.” 24 C.F.R. § 3500.14(g)(2). We conclude,
however, that the analysis of the statutory text demonstrates
that Section 8 does not provide a cause of action for
overcharges. Thus, we need not reach the question of
deference.
        Santiago’s argument is based on his contention that


       2
         The District Court did not address the overcharge and
markup causes of actions separately but instead referred to them
collectively. However, because Santiago has alleged two
distinct causes of action and because there is both a factual
difference in the allegations and a logical difference in the
analysis of each cause of action under Section 8(b), it is
appropriate to address them separately here.

                                6
Section 8(b) provides that an overcharge occurs when the
settlement service provider charges the consumer a fee, of
which only one portion is a fee for the reasonable value of
“services rendered.” The other portion of the fee, the amount
in excess of the reasonable value, is essentially a fee for “no
services rendered” that is added to the fee for “services
rendered.” Thus, according to Santiago’s reading, Section 8
applies to overcharges because it prohibits the acceptance of
“any portion, split, or percentage of any charge” for the
rendering of services “other than for services actually
performed.”
        This parsing of the statute is one that is intelligible
only if the parts of Section 8(b) are read separately; if the
section is read as a whole, such a meaning becomes absurd.
As a whole, Section 8(b) states that no person can accept a
fraction of a charge for services provided, unless they have
actually provided services. To accept Santiago’s reading
would require dividing charges for services provided into
“reasonable” and “unreasonable” portions – that is, the
portion for “services rendered” and the portion for “no
services rendered.” Not only does Section 8(b) not make this
distinction, but there is no other language in the body of the
statute that instructs how to define the reasonable and
unreasonable portions of a charge. Further, Section 8(d)(2)
provides for treble damages for violations of Section 8(b). It
would be unusual for Congress to provide for treble damages
for “unreasonable” charges without any definition of
“unreasonable.”
        Thus, because the plain language of Section 8(b) does
not provide for a cause of action for overcharges, it is not
necessary for us to reach the question whether HUD’s

                               7
interpretation warrants deference.3 It is worth noting,
however, that the position advanced by the United States as
Amicus Curiae is not the same as that advanced by Santiago.
Rather, the United States urges only the interpretation set
forth by HUD that overcharging may be evidence of a RESPA
violation. Whether that interpretation is correct is not at issue
in this case, as Santiago is looking to establish that Section 8


       3
            It is not clear whether it is appropriate for us to
consider legislative history to determine whether a statute is
unambiguous at this point in Chevron analysis. Compare FDA
v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133, 137,
120 S. Ct. 1291, 146 L. Ed. 2d 121 (2000) (considering
legislative history at step one of Chevron analysis), with K Mart
Corp. v. Cartier, Inc., 486 U.S. 281, 293 n. 4, 108 S. Ct. 1811,
100 L. Ed. 2d 313 (1988)(stating that “any reference to
legislative history . . . is in the first instance irrelevant” in step
one of Chevron analysis) and Nat'l R.R. Passenger Corp. v.
Boston & Me. Corp., 503 U.S. 407, 417, 112 S. Ct. 1394, 118 L.
Ed. 2d 52 (1992) (finding only statutory text is relevant for step
one of Chevron analysis). However, it is worth noting that the
legislative history of RESPA supports the conclusion, above. In
1973, the year before RESPA was enacted, Congress rejected a
bill setting maximum amounts on settlement charges, suggesting
that the passage of RESPA the following year did not intend that
the statute serve as a price control mechanism. See Haug v.
Bank of America, 317 F.3d 832, 836 (8th Cir. 2003) (discussing
rejection of 1973 bill), Kruse et al. v. Wells Fargo Home
Mortgage, Inc., et al., 2004 WL 2008943, *4 (2d Cir. Sept. 10,
2004) (same).

                                  8
incorporates an actual violation for overcharges. A rejection
of Santiago’s reading of RESPA does not necessarily mean
that HUD’s interpretation is incorrect. Accordingly, we
affirm the District Court’s holding that Section 8(b) does not
include a cause of action for overcharges.
        B.     Markups
        The second issue we consider is whether Section 8(b)
allows a cause of action for markups. The textual
interpretation urged by Santiago is that the phrase “No person
shall give and no person shall accept . . . ” in Section 8(b)
operates to create two separate prohibitions: (1) giving a
portion of charges and (2) accepting a portion of charges.
Thus, according to this reading, a settlement service provider
who marks up the cost of a service provided by a third party
vendor and keeps the marked up portion of the charge is
violating the second prohibition by accepting a portion of the
charge for services the settlement service provider did not
perform. This interpretation was accepted in Sosa v. Chase
Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir.
2003) (“The ‘and’ in subsection 8(b) therefore operates to
create two separate prohibitions . . .. ”). This interpretation is
also supported by HUD.
        GMAC urges an alternate reading of Section 8(b).
This interpretation reads the phrase “No person shall give and
no person shall accept” as prohibiting one activity, in which
one party gives and one party accepts a fee. The situation
described by this interpretation is essentially a “kickback”
where, for example, a settlement service provider arranges for
a consumer to use the services of a third party vendor and that
vendor then shares a portion of the amount charged to the
consumer with the settlement service provider. This is the

                                9
interpretation accepted in Haug v. Bank of America, 317 F.3d
832, 836 (8th Cir. 2003) ("Section 8(b) is an anti-kickback
provision that unambiguously requires at least two parties to
share a settlement fee in order to violate the statute.”),
Boulware v. Crossland Mortgage Corporation, 291 F.3d 261,
266 (4th Cir. 2002) (“The use of the conjuctive ‘and’
indicates that Congress was clearly aiming at an exchange or
transaction, not a unilateral act.”), and Krzalic v. Republic
Title Co., 314 F.3d 875, 879 (7th Cir. 2002) (“The statutory
language describes a situation in which A charges B (the
borrower) a fee of some sort, collects it, and then either splits
it with C or gives C a portion or percentage . . . of it.”).
        Both the textual interpretation supported by Santiago
and HUD and the one supported by GMAC are plausible
readings of the statutory language. This conclusion is
supported by the fact that under either reading of the statute,
the parties would be in the same economic position. In a
kickback arrangement, the consumer would give the
settlement service provider $100 for a service, the mortgage
service provider would give the third party vendor $100 for
that service, and the third party vendor would return $20 to
the settlement service provider as a kickback for the referral
of service. In a markup arrangement, the consumer still gives
the settlement service provider $100 for a service, but the
settlement service provider keeps $20 and gives the third
party vendor $80 for the service. In both scenarios, the
borrower has been charged $100, the settlement service
provider has earned $20 for a service it did not provide, and
the third party vendor has earned $80 for a service it did
provide.
        The context in which Section 8(b) is found further

                               10
supports the conclusion that markups are included in the
statute. The title of Section 8 of RESPA is “Prohibition
against kickbacks and unearned fees,” and Section 8(a) is
titled “Business referrals,” and prohibits the acceptance of
“any fee, kickback or thing of value” while Section 8(b) is
titled “Splitting charges,” and prohibits the acceptance of
“any portion, split, or percentage of any charge.” Thus,
GMAC’s interpretation that Section 8(b) applies only to
kickbacks is belied by the use of the term “kickback” in
Section 8(a) and not in Section 8(b). This use of language
suggests that Section 8(b) is meant to provide for a situation
other than kickbacks. Further, a reading of Section 8(b) that
allows a cause of action for markups is consistent with the
title of Section 8 that prohibits both kickbacks and unearned
fees.
         Our conclusion that Section 8(b) allows a cause of
action for unearned markups does not fully resolve the issue
of whether the markups imposed by GMAC violated the law.
GMAC may argue that it provided services ancillary to those
provided by the third party vendor and that these services
justify the additional charge. This argument might raise the
issues of whether such ancillary services were nominal,
whether the amount of any markup had to be reasonable in
light of the additional services provided, or whether these
extra services were already included in some other settlement
service charge paid by the borrower. Regulation X at 24 CFR
§ 3500.14(c) specifically bars charges for “nominal services”
and states that “duplicative fees” are unearned fees which
violate the law. The parties have not fully briefed these
issues, and the state of the record is inadequate for us to
resolve them. These issues will have to be decided by the

                              11
District Court on remand.
       In sum, we conclude that the District erred in holding
that Section 8 does not provide a cause of action for markups.
We will remand this claim to the District Court.4


       4
         Although we have determined that the statutory text of
RESPA clearly allows a cause of action for markups, but see
Kruse et al. v. Wells Fargo Home Mortgage, Inc., et al., 383
F.3d 49 (2d Cir. 2004) (holding that the text of Section 8(b) was
ambiguous as to markups because the interpretations urged by
both sides were reasonable but that Chevron deference was
warranted because Statement of Policy 2001-1 was promulgated
in accordance with the legislative delegation of authority), it is
worth noting that, even if we had found the text ambiguous,
deference to HUD’s interpretation would be appropriate.
Deference to an agency’s interpretation can be either mandatory,
under Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694
(1984), or persuasive, under Skidmore v. Swift & Co., 323 U.S.
134, 65 S. Ct. 161, 89 L. Ed. 124 (1944). In this case, because
we would find HUD’s interpretation to be persuasive under
Skidmore, we would not need to reach whether Chevron
deference is warranted. See Bonneville International Corp. v.
Peters, 347 F.3d 485, 490 (3d Cir. 2001) (“Because we find that
the [agency’s] interpretation is persuasive even under the less
demanding standard of Skidmore deference, we need not go on
to parse out whether Chevron deference should, in fact, be
accorded the [agency’s] regulation here.”)
       “An agency interpretation may merit some deference
whatever its form, given the specialized experience and broader

                               12
        IV.    Conclusion
        For the reasons discussed above, we conclude that the
text of Section 8(b) of RESPA does not support a cause of
action for overcharges by settlement service providers. Thus,
we will affirm the District Court’s decision to dismiss
Santiago’s claim for overcharges. However, the text of
Section 8(b) clearly allows for a cause of action for markups.
Thus, the District Court’s dismissal of Santiago’s cause of
action for markups is reversed and remanded for further
proceedings. Moreover, because the District Court erred in
dismissing the federal cause of action for markups, its
decision to decline to exercise supplemental jurisdiction over
Santiago’s state law causes of action is vacated.




investigations and information available to the agency and given
the value of uniformity in its administrative and judicial
understandings of what a national law requires.” United States
v. Mead Corp., 533 U.S. 218, 234 (2001) (internal citations
omitted). The HUD interpretation in this case is both helpful
and persuasive, particularly in light of the agency’s ongoing
consideration of this matter and expertise in the area of
federally-related home mortgages.          Thus, because that
interpretation reflects both agency expertise and consideration
and is neither contrary to the language of the statute nor an
unreasonable interpretation, we conclude that the HUD
interpretation is persuasive authority.
