Court Finds Prior RICO/RESPA Class Action Insufficient Notice for Dismissal of Facially Time-Barred Claims, Due to Fraudulent Concealment Allegations

Earlier this month the U.S. District Court for the District of Maryland denied a motion to dismiss a case brought against the president and sole shareholder of a mortgage company by a putative class of borrowers, alleging that he violated RICO and RESPA’s anti-kickback statute by fraudulently charging them fees for title and settlement services.

Borrowers alleged that the defendant and employees of the company received kickbacks in exchange for selecting and referring residential mortgages for title searches and other settlement services at a particular title company, in violation of RESPA’s anti-kickback provision.  The borrowers also alleged that the defendant fraudulently concealed the kickbacks so they could not learn of the alleged scheme until years later, when they were contacted by counsel investigating defendant’s company.  Defendant moved to dismiss the case, arguing that the borrowers’ claims were time-barred because they had constructive notice of the issues underlying their claims, and that tolling for fraudulent concealment is not available based on plaintiffs’ membership in a prior, identical class action that had been filed against the mortgage company.

The court denied defendant’s motion to dismiss, finding that the existence of the earlier class action did not give plaintiffs constructive notice of their claims.  In so doing, the court rejected defendant’s reliance on the Supreme Court’s holding in American Pipe & Construction Co. v. Utah, which held that commencement of a class action suspends the applicable statute of limitations for all asserted class members.  The court held that American Pipe is inapplicable because, here, plaintiffs alleged fraudulent concealment, which prior circuit precedent found requires a lack of actual or inquiry notice.  Because plaintiffs’ allegations did not demonstrate actual or inquiry notice, the court found it inappropriate at the pleadings stage to bar tolling as a matter of law. 

The court also held that, although American Pipe and its progeny bar plaintiffs outside the statute of limitations from piggybacking their class claims on an earlier, timely class action, it was inapplicable here because plaintiffs asserted fraudulent concealment tolling for the entire class.  The court declined to resolve these issues at the pleadings stage while acknowledging whether plaintiffs had actual notice “should be resolved as a threshold issue.”