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Plaintiffs Attempting to Plead Equitable Tolling Need to do More than Simple “Box Checking”

On July 26, 2013 by Schnader in Finance

By Christopher Reese

On July 19, 2013, the United States District Court for the Western District of Pennsylvania rejected plaintiffs’ attempts to utilize equitable tolling to save their untimely claims from dismissal because their allegations of due diligence amounted to little more than “perfunctory box checking.”

The plaintiffs in Menichino v. Citibank, N.A. and Manners v. Fifth Third Bank filed class action lawsuits against mortgage lenders, reinsurance entities affiliated with the mortgage lenders, and private mortgage insurers, alleging that reinsurance transactions between the parties violated Section 8 of the Real Estate Settlement Procedures Act (RESPA).  Plaintiffs alleged that the reinsurance agreements violated RESPA because the premiums ceded by the private mortgage insurers to the lender subsidiary reinsurers allegedly were not commensurate with the amount of reinsurance received in return.

The court granted the motions to dismiss filed by all defendants, finding that RESPA’s one-year statute of limitations had expired and that the plaintiffs had not adequately pled a basis for equitable tolling or fraudulent concealment.  The court began by rejecting the argument that issues regarding equitable tolling of the statute of limitations cannot be resolved on a Rule 12(b)(6) motion to dismiss, finding that it is not sufficient for plaintiffs to “invoke the [equitable tolling] doctrine with conclusory allegations.”  They must instead plausibly plead the basis for equitable tolling in a manner consistent with Twombly and Iqbal.  Stated differently, the court held that “it is reasonable to require the Plaintiffs to plead with specificity what they knew, when and how they knew it, and what they did about it, especially because they were in possession of those facts when they filed their Complaint.”  “Where . . . the factual predicate for pleading equitable tolling resides entirely with the Plaintiffs, they are obligated to set forth a plausible factual basis for its invocation.”  The court noted that specific pleading “is the only way the Court can determine whether fact discovery will show that [Plaintiffs] were not on inquiry notice during the limitations period.”  Alleging “in only generalized and conclusory terms that [Plaintiffs] could not have discovered the possible existence of their claims during the limitations period” is not sufficient.  The court ultimately held that “[w]ithout sufficient facts to determine what led the Plaintiffs to discover their claims and when,” their “claimed entitlement to equitable tolling [is not] plausible on its face.”

The court also held that “[w]ithout knowing the factual circumstances that ultimately gave rise to the Plaintiffs’ discovery of their injuries, [it] is similarly unable to determine” whether the due diligence they say they exercised, which consisted of reviewing loan documents and participating in closing and then contacting their lenders and/or the mortgage insurers for information years later, “was reasonable under the circumstances.”  The court found that plaintiffs’ allegations of due diligence “give rise to doubts rather than confidence that discovery will show that equitable tolling should apply.”  Plaintiffs’ allegations of due diligence were insufficient to invoke equitable tolling because they amounted to nothing more than “perfunctory ‘box checking.’”

Finally, the court rejected plaintiffs’ argument that their claims were timely under the continuing violations doctrine, holding that “it would be inappropriate as a matter of law to apply the continuing violations theory to RESPA’s statute of limitations.”

As the decisions in Menichino and Manners make clear, defendants in these types of RESPA actions and other related cases may be well-served by bringing early challenges to the sufficiency of allegations purporting to invoke the equitable tolling and/or fraudulent concealment doctrines.