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Posting for
Wednesday, August 12, 1998
by: Bert Rush
brush@firstam.com
TRUST
ACCOUNTS/CLASS ACTIONS/ESCROW AND CLOSING
On the
heels of postings last month about agents' trust accounts (7/8) and a class
action filed against Chicago Title over delivery fees (7/23), we've learned
that Old Republic has been named in a qui tam lawsuit on behalf of the City and
County of San Francisco, and in a follow‑up class action involving many
of the same allegations as the qui tam action.
Both
actions are filed in the San Francisco Superior Court. The qui tam lawsuit was filed in March, but
kept under seal until July 10. The
class action was filed July 24.
The qui
tam action seeks recovery of civil damages for the city and county, based on
allegations that Old Republic's California operation and certain of its key
executives engaged in three illegal practices in connection with providing
escrow services over periods of many years.
First,
it's alleged the defendants failed to escheat to the State of California millions
of dollars of unclaimed funds held in escrow, instead "sweeping"
these funds into company income or, in more recent years, imposing fees and
charges on unclaimed funds with the result that they were retained by Old
Republic or its executives. This is an
alleged violation of CA's Unclaimed
Property Law (Code of Civil Procedure sections 1500, et seq.).
Second,
it is alleged defendants routinely charged homebuyers a reconveyance fee of $65
to $95‑‑without obtaining reconveyances and/or without intending to
obtain reconveyances, instead converting these fees to company income.
Third,
it is alleged the defendants conspired to collect interest on escrow account
deposits in violation of federal and state laws prohibiting payment of interest
by banks on demand deposits. This
prohibition applies to banks that are members of the Federal Reserve System
(pursuant to 12 C.F.R. section 217.3) and to FDIC‑insured non‑member
banks (pursuant to 12 C.F.R section 329.2).
California law prohibits payment of interest on demand deposits to the
same extent as federal law (pursuant to California Financial Code section 854).
Plaintiffs seek treble damages for these alleged violations under
California's False Claims Act (Government Code section 12651), claiming that
defendants prepared false statements and records to conceal their actions.
The qui
tam action is also based on alleged violation of California's Unfair
Competition statutes (Business and Professions Code sections 17200, et seq.)
and Unfair Business Practices statutes (Business and Professions Code sections
17500, et seq.).
The
class action was filed several months after the qui tam lawsuit. It repeats the
allegations of charging for services (reconvyance fees) which were not provided
and not intended to be provided, and "illegally pocketing millions of
dollars of interest accrued on escrow accounts." The class action does not name any individuals as defendants,
although it names "John Doe" defendants which leaves open the
possibility that individuals may be made defendants later.
Comment: We don't know what the
merits of these actions may be‑‑although attached to the qui tam
action are numerous exhibits offered as evidence of wrongdoing. From our perspective this is yet another
example to show how careful title companies and their agents must be in
establishing fees and charges, complying with federal and state laws, and
avoiding sources of income which may be considered unlawful or unfair to the
consumer. `Nuff said.
**********
Following
up on our posting for Wednesday, 8/12/98, about the San Francisco District
Attorney and City Attorney's qui tam (whistleblower) lawsuit against Old
Republic, the Wall Street Journal reported last week
(5/31/00)
that the lawsuit has been amended to add outside auditors
PricewaterhouseCoopers as a defendant.
To view the WSJ report, click on the URL below.
http://ul.firstam.com/landsakes/Price.pdf
