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March 26, 2002


The opinion of the court was delivered by: Honorable John A. Nordberg, S.U.S.D.J.


Plaintiffs Berlin Lamar Watson, Latara Watson, James Willard and Mary Willard ("Plaintiffs") have brought this action against CBSK Financial Group, Inc. (which does business as American Home Loans) ("AHL") and Citimortgage, Inc. ("Citi"). Before the court is Citi's motion to dismiss and AHL's motion for judgment on the pleadings.*fn1


Plaintiffs all acquired home mortgages from Citi through mortgage broker AHL. Both loans provided for the payment of a "yield spread premium" from Citi to AHL. The yield spread premium is a payment from the lender to the broker for delivering a loan with an interest rate above a preset "par" rate. The amount of the premium is determined from a rate sheet provided by the lender; the higher the interest rate is above the par (or market rate), the higher the yield spread premium that the broker receives. The Plaintiffs maintain that the payment of a yield spread premium ("YSP") jacks up the interest rate that the borrower pays, results in significantly greater costs to the borrower, and provides excessive compensation to the broker that is unrelated to the value of the services that the broker provides. As to the latter, Plaintiff maintain the payments amount to illegal referral fees under Section 2607 of the Real Estate Settlement Procedure Act, 12 U.S.C. § 2601, et seq. ("RESPA").

The Plaintiffs filed an eighth count complaint which raises both individual*fn2 and class claims:

1. Count I is against both Defendants, and claims that Defendants violated RESPA by paying/receiving a YSP for the referral of business, which resulted in an overcharge to the borrowers and excess compensation to the broker;

2. Count II is against both Defendants, and claims that Defendants violated the Illinois Consumer Fraud Act ("IFCA") (815 ILCS § 505/2) by paying a YSP in violation of RESPA, failing to provide meaningful disclosure, and unnecessarily increasing mortgage costs to borrowers;

3. Count III is against AHL, alleging a breach of fiduciary duty based upon AHL's acceptance of a YSP, failure to obtain the best interest i-ate, failure to treat borrowers fairly, and failure to make necessary disclosures;

4. Count IV is against Citi, and claims that Citi induced a breach of fiduciary duty on the part of AHL by paying AHL excess compensation in the form of a YSP;

5. Count V is a class RESPA claim against both Defendants, alleging that borrowers are entitled to close mortgage transactions without unreasonable fees, and that Defendants structured the transaction so that fees in excess of the 1% FHA*fn3 maximum were paid;

6. Count VI is a class consumer fraud claim against both Defendants alleging that Citi paid and AHL received fees (YSP's) in excess of the 1% maximum and that Defendants failed to disclose the evasion of the 1% maximum;

7. Count VII is a restitution claim against AHL seeking the return of fees received in excess of the 1% maximum;

8. Count VIII is a breach of contract claim against Citi, alleging that Citi violated the mortgage contract by paying fees in excess of the 1% maximum.


Motion to Dismiss

Evaluating the legal sufficiency of a plaintiff's factual allegations requires the courts to adhere to a strict standard. A court may grant a motion to dismiss only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Cushing v. City of Chicago, 3 F.3d 1156, 1159 (7th Cir. 1993)(quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). When considering a Rule 12(b)(6) motion, the court must accept as true all well-pleaded factual allegations in the complaint and view them, along with the reasonable inferences to be drawn from them, in the light most favorable to the plaintiff Cornfield v. Consolidated High School District No. 230, 991 F.2d 1316, 1324 (7th Cir. 1993). However, the court need not accept as true conclusory legal allegations. Baxter v. Vigo County School Corp., 26 F.3d 728, 730 (7th Cir. 1994). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely, but that is not the test." Pickrel v. City of Springfield, 45 F.3d 1115, 1118 (7th Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). All that F.R.C.P. Rule 8 requires to state a claim in federal court "is a short statement, in plain (that is, ordinary, nonlegalistic) English, of the legal claim." Kirksey v. R.J. Reynolds Tobacco Company, 168 F.3d 1039, 1041 (7th Cir. 1999) "Complaints need not plead law or match facts to every element of a legal theory . . . ." Bennett v. Schmidt, 153 F.3d 516, 518 (7th Cir. 1998). Moreover, more can be less under the Federal Rules of Civil Procedure; a litigant that includes details in his complaint well-beyond the limited requirements of Rule 8 may plead himself out of court. Holman v. State of Indiana,

211 F.3d 399, 406 (7th Cir. 2000), cert. denied, 121 S.Ct. 191 (2000).

Disputed Substantive Provisions


ยง 2607. Prohibition against kickbacks and ...

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