The opinion of the court was delivered by: Richard W. Roberts United States District Judge
This Document Relates To: All Actions
MEMORANDUM OPINION AND ORDER
Plaintiffs, putative representatives of a nationwide class, have sued defendants Federal National Mortgage Home Loan Association ("Fannie Mae") and Federal National Home Loan Mortgage Corporation ("Freddie Mac"), alleging federal antitrust violations and violations of selected state antitrust and consumer protection laws. Defendants have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss all claims asserted in plaintiffs' consolidated class action complaint for failure to state a claim upon which relief may be granted. Plaintiffs have opposed the motion. Because plaintiffs have failed to state a claim upon which relief may be granted except as to federal treble damage claims and certain groups of plaintiffs arising under certain state laws, the motion to dismiss will be granted in part and denied in part. Specifically, the motion will be denied as to plaintiffs' damages claims arising under (1) § 4 of the Clayton Act, 15 U.S.C. § 15, because plaintiffs have pled sufficient facts to establish antitrust standing; (2) Arizona's Antitrust Act, Ariz. Rev. Stat. §§ 44-1401 et seq., because plaintiffs have pled sufficient facts to establish a cognizable antitrust claim; (3) Minnesota's Antitrust Act, Minn. Stat. §§ 325D.52 et seq., because plaintiffs have pled sufficient facts to establish a cognizable antitrust claim; (4) Florida's Deceptive and Unfair Trade Practices Act, Fla. Stat. Ann. §§ 501.201 et seq., because plaintiffs have sufficiently alleged that they suffered a loss as a result of a violation of the statute; (5) West Virginia's antitrust statutes, §§ 47-18-1 et seq., because plaintiffs have sufficiently alleged that they suffered an antitrust injury under the private damages provision of the statute; (6) Wisconsin's antitrust statute, Wis. Stat. Ann. §§ 122.01 et seq., because plaintiffs have sufficiently alleged an antitrust injury under Wisconsin law; and (7) the common law of Arizona, Colorado, Connecticut, Florida, Idaho, Minnesota, New Jersey, New York, Pennsylvania, West Virginia, Wisconsin and Texas, because plaintiffs have alleged facts sufficient to support an inference of unjust enrichment under the common law of those jurisdictions. Defendants' motion to dismiss will be granted as to all other claims because plaintiffs have failed to allege a future injury justifying injunctive relief under federal or state laws, plaintiffs have not alleged an antitrust injury cognizable under the New Jersey or New York antitrust statutes, plaintiffs have not alleged an injury cognizable under the consumer protection statutes of the District of Columbia, New York, or Virginia, and plaintiffs have failed to establish standing to bring suit under the laws of states where no plaintiff is alleged to have purchased a mortgage.
Defendants Fannie Mae and Freddie Mac are federally chartered corporations with shares that are traded publicly on the New York Stock Exchange. Fannie Mae was established by Congress to "provide stability in" and "ongoing assistance to the secondary market for residential mortgages . . . by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing[.]" 12 U.S.C. § 1716(3). It was authorized to "manage and liquidate federally owned mortgage portfolios," 12 U.S.C. § 1716, and to "purchase, service, sell" certain residential mortgages. 12 U.S.C. § 1717(b). For similar reasons, Freddie Mac was "authorized to purchase . . . residential mortgages" within statutorily prescribed limits. 12 U.S.C. § 1454.
According to plaintiffs, Fannie Mae and Freddie Mac operate exclusively in the secondary mortgage market and are expressly prohibited by their charters from lending directly to consumers. ("Consolidated Class Action Compl. ("Compl.") ¶ 28.) Fannie Mae and Freddie Mac purchase portfolios of residential mortgages originated by commercial lenders in the primary mortgage market and package the portfolios to create mortgage-backed securities as liquid instruments that trade in capital markets. (Id. ¶¶ 23, 29, 30.) The payment stream from the pooled mortgages underlying a mortgage-backed security flows through to the certificate holder of the security and constitutes its core value. (Id. ¶¶ 29, 30.) When Fannie Mae and Freddie Mac package mortgages as securities, they guarantee to the certificate holders the timely payment of the mortgages' principal and interest. (Id. ¶¶ 30, 45.)
Fannie Mae and Freddie Mac insure this guarantee against the possibility of defaults in the underlying portfolio by collecting a guarantee fee ("G-fee"). (Id. ¶ 30.) Any lender hoping to sell its residential mortgages to Fannie Mae or Freddie Mac must negotiate to become an approved seller/servicer, and then must originate mortgages that conform to Fannie Mae's or Freddie Mac's specifications, which include the G-fee. (Id. ¶¶ 38-42.) The amount of the G-fee is generally paid by the mortgage holder on a monthly basis from a portion of the interest payment received on the underlying mortgage loans. (Id. ¶ 47.) Plaintiffs allege that lenders pass on to the borrowers all of the G-fee cost. (Id. ¶ 42.) In most cases, the borrower is unaware of the G-fee, which is incorporated into the pricing of the mortgage loan (id. ¶ 46) and paid by the borrower "in the form of higher monthly payments (i.e., higher interest rates)." (Id. ¶ 39; see also id. ¶ 47.)
To the extent that the borrowers in the underlying mortgage portfolios do not default, the G-fees become profit for the defendants. (Id. ¶ 32.) Alternatively, to the extent that borrowers default, the collected G-fees must be tapped to make good on the guarantees to the certificate holders. (Id.) On average, G-fees amount to nearly two-tenths of one percent, or 0.0019, of the loan (id. ¶¶ 2, 44), but may vary across originating lenders. The exact amount collected by each lender is negotiated in secret between that lender and Fannie Mae or Freddie Mac and is, at Fannie Mae's or Freddie Mac's insistence, maintained in secret. (Id. ¶ 46.)
Plaintiffs are individuals or entities, residents and presumed citizens of Arizona, Colorado, Connecticut, Florida, Idaho, Minnesota, New Jersey, New York, Pennsylvania, Texas, West Virginia, and Wisconsin, who have obtained, after January 1, 2001, from a commercial lender operating in the primary mortgage market in the United States a conforming mortgage loan that contains a G-fee set by one of the defendants.*fn1 (Id. ¶¶ 1, 10, 15, 28.) Plaintiffs allege that Fannie Mae and Freddie Mac conspired with each other to fix the price of the G-fee when instead they should have been competing with each other in G-fee pricing. As a result, plaintiffs say, they have suffered damages to the extent that the alleged conspiracy produced higher G-fees than competitive pricing would have produced. (Id. ¶¶ 47-48, 52-58, 63, 65-66, 73-75, 76.) Specifically, plaintiffs allege that defendants have violated the federal antitrust law, 15 U.S.C. § 1, by engaging in a horizontal contract, combination or conspiracy in unreasonable restraint of trade, and seek both treble damages and declaratory and injunctive relief for defendants' alleged federal violations. Plaintiffs also seek damages and injunctive relief for alleged violations of the antitrust laws of twenty-two states and the District of Columbia, for alleged violations of Florida's Deceptive Trade Practices Act, for Fannie Mae's alleged violation of the District of Columbia's consumer protection law, and for Freddie Mac's alleged violation of Virginia's consumer protection statute. Finally, plaintiffs seek the equitable remedies of restitution, disgorgement or a constructive trust for the alleged unjust enrichment resulting from the conspiracy in restraint of trade. Defendants argue that each of plaintiffs' claims should be dismissed for failure to state a claim upon which relief may be granted.
Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). A court considering a Rule 12(b)(6) motion to dismiss assumes all factual allegations in the complaint to be true, even if they are doubtful. Bell Atl. Corp. v. Twombly, 127 S.Ct. 1995, 1964 (2007); Kowal v. MCI Communc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (noting that a court must construe the complaint "liberally in the plaintiffs' favor" and "grant plaintiffs the benefit of all inferences that can be derived from the facts alleged"). A court need not, however, "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Nor must [a] court accept legal conclusions cast in the form of factual allegations." Kowal, 16 F.3d at 1276. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions[.]" Twombly, 127 S.Ct. at 1964-65 (internal citations and quotations omitted) (alteration in original). "Factual allegations must be enough to raise a right to relief above the speculative level, . . . on the assumption that all the allegations in the complaint are true . . . ." Id. at 1965 (citations and footnote omitted).
I. FEDERAL ANTITRUST CLAIMS
In Count I of the complaint, plaintiffs allege injury under § 4 of the Clayton Act, codified at 15 U.S.C. § 15, which provides in relevant part that
[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States . . . and shall recover threefold the damages by him sustained . . . .
15 U.S.C. § 15. The Supreme Court has acknowledged that "[a] literal reading of the statute is broad enough to encompass every harm that can be attributed directly or indirectly to the consequences of an antitrust violation[,]" Associated Gen. Contractors v. California State Council of Carpenters, 459 U.S. 519, 529 (1983) ("AGC"), and that "[a]n antitrust violation may be expected to cause ripples of harm to flow through the Nation's economy." Blue Shield of Va. v. McCready, 457 U.S. 465, 476-77 (1982). Nonetheless, the Court has concluded that "[i]t is reasonable to assume that Congress did not intend to allow every person tangentially affected by an antitrust violation to maintain an action to recover threefold damages for the injury to his business or property." Id. at 477. Therefore, despite the fact that "neither the statutory language nor the legislative history of § 4 offers any focused guidance on the question of which injuries are too remote from the violation and the purposes of the antitrust laws to form the predicate for a suit under § 4[,]" id., the Court has identified certain limits upon what constitutes a § 4 injury. One of these limits excludes from § 4 a "pass-on" injury suffered by plaintiffs who absorbed the cost of a price-fixed product passed on through intermediate purchasers. Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 (1977). In Illinois Brick, the Supreme Court affirmed the dismissal of a suit by plaintiffs who purchased buildings containing price-fixed bricks, which had been sold first to masonry contractors for use in building masonry structures and sold second to general contractors for incorporating the structures into buildings and sold only third to plaintiffs. Id. at 726-27. Often referred to as the "direct purchaser" rule, the decision in Illinois Brick is widely understood to mean that in such a situation, "[t]he right to sue for damages rests with the direct purchasers, who participate in the antecedent transaction with the monopolist." Campos v. Ticketmaster Corp., 140 F.3d 1166, 1170 (8th Cir. 1998).
Defendants argue that Count I should be dismissed under Rule 12(b)(6) because plaintiffs were not direct purchasers of defendants' products, and therefore do not state an antitrust injury. Here, the complaint establishes that plaintiffs are not direct purchasers. Rather, it is the lenders, not the plaintiffs, who participate in the antecedent transaction with the alleged monopolist, and who then allegedly pass on the G-fee in the form of higher interest rates to plaintiffs. It is the lenders, not the plaintiffs, who desire and negotiate for the product that incurs the G-fee ---- the conforming mortgage that can be pooled and sold as a mortgage-backed security on the secondary market. It is the lenders who can sell their mortgages and recoup their capital, and the investors who enjoy the guarantee on their investments ---- but not the plaintiffs --- who are affected directly and immediately from the product that generates the need for the G-fees. Because plaintiffs are injured "only by virtue of an antecedent transaction between the [alleged] monopolist and another, independent purchaser[,]" Campos, 140 F.3d at 1169, the rule of Illinois Brick bars plaintiffs' claim for damages under the federal antitrust laws, unless plaintiffs qualify for an exception to the rule.
Indeed, plaintiffs argue that their action falls within the "control" exception to Illinois Brick's direct purchaser rule. See 431 U.S. at 736 n.16 (noting that one situation "in which market forces have been superseded and the pass-on defense might be permitted is where the direct purchaser is owned or controlled by its customer"). The control exception applies where there exists a "functional economic or other unity between the direct purchaser and either the defendant or the indirect purchaser [such that] there effectively has been only one sale." Jewish Hosp. Ass'n of Louisville, Ky., Inc. v. Stewart Mech. Enters., 628 F.2d 971, 975 (6th Cir. 1980). The control exception is construed narrowly, and functional economic unity requires a showing of ownership or control through interlocking directorates, minority stock ownership, agreements ceding operating control, a contractual agency relationship, or other modes of control separate from ownership of a majority of the intermediary's common stock. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 605-06 (7th Cir. 1997); In re Mercedes-Benz Antitrust Litig., 157 F. Supp. 2d 355, 366 (D.N.J. 2001).
Plaintiffs assert that lenders serve as agents for defendants with respect to the G-fees (Compl. ¶ 14), act as "mere conduits" between borrowers and defendants for purposes of collecting G-fees (id. ¶ 43), and that "there is functional economic unity between the lenders and Fannie Mae or Freddie Mac." (Compl. ¶ 41; see also id. ¶¶ 42, 43.) In support of their legal conclusion, plaintiffs allege that in 2003, the two defendants "held seventy percent (70%) of the . . . business of pooling and selling mortgages as mortgage-backed securities, [and] . . . are the source of liquidity for more than 75% of the conforming home mortgages originated in the United States" (id. ¶ 27); that "[a] lender must negotiate with Fannie Mae and Freddie Mac in order to become an approved seller/servicer" (id. ¶ 39); that defendants use "contractual agreements with approved [lenders] . . . to assure that lenders originate and sell" to the two defendants only those mortgages that conform to the defendants' specifications (id. ¶ 40); that for a fee, defendants provide to approved lenders software known as the automated underwriting system (AUS) to qualify mortgages according to defendants' specifications (id. ¶ 41); that defendants "exercise detailed and broad control over the activities of the lenders" in dictating the specific terms of a conforming mortgage (id.); and that defendants each "have secretly met with lenders (approved seller/servicers) to discuss the terms, conditions, and costs under which they will buy the lender's loans [and] . . . require [that] lenders . . . keep the terms confidential and they are forbidden to reveal the negotiated G-Fee rates." (Id. ¶ 46.)
While the defendants argue that the facts plaintiffs allege fall short of offering a reasonable basis for an inference that there is functional economic unity between either of the defendants and the numerous banks and other commercial lenders nationwide identified or implied in the complaint, plaintiffs allege sufficient facts to justify an inference of control. Plaintiffs allege that defendants are able to control the intermediary banks by being the source of 75% of the intermediary banks' liquidity that was necessary for conforming home mortgages, and plaintiffs allege the methods of control by alleging the existence of agreements between defendants and lenders setting forth defendants' requirements for lenders to pass G-fees on to plaintiffs and to prevent the intermediary banks from divulging the cost of the G-fees. In the context of a motion to dismiss, these asserted facts could give rise to the inference that, with respect to G-Fees, the defendants controlled the intermediary banks such that there was effectively only one transaction. See In re Mushroom Direct Purchaser Litig., No. 06-cv-0620, 2008 WL 583906, at *3 (E.D. Pa. Mar. 3, 2008) (denying defendants' motion to dismiss on standing grounds because "plaintiffs' amended complaint sufficiently alleges that [the intermediary] acted as Giant Eagle's agent in purchasing mushrooms from defendants and that there existed economic unity among [the intermediary] and its 'owner-members'"); City of Moundridge v. Exxon Mobil Corp., 471 F. Supp. 2d 20, 32 (D.D.C. 2007) ("At this stage of the lawsuit, the [plaintiffs] have sufficiently pled control even though they have failed to specify the nature of the alleged control."); In re Mercedes-Benz Anti-trust Litig., 157 F. Supp. 2d at 365-67 (declining to grant defendants motion to dismiss where it was unclear what role the intermediary played in the transactions). Therefore, defendants' motion to dismiss plaintiffs' claims under §4 of the Clayton Act for failure to amply plead antitrust standing will be denied.
B. Claim for injunctive relief
In Count II, plaintiffs seek injunctive relief under § 16 of the Clayton Act, codified at 15 U.S.C. § 26, which provides that "[a]ny person . . . shall be entitled to sue for and have injunctive relief . . . against threatened loss or damage by a violation of the antitrust laws . . . ." Defendants argue that plaintiffs may not seek injunctive relief since they fail to allege any conduct posing a risk of future harm to them. "[I]f a plaintiff feels the adverse impact of an antitrust conspiracy on a particular date, a cause of action immediately accrues to him to recover all damages incurred by that date and all provable damages that will flow in the future from the acts of the conspirators on that date." Zenith Radio Corp. v. Hazeltine Research Inc., 401 U.S. 321, 339 (1971). "In the context of injunctive relief, however, lingering monetary injury, without any ongoing threat of recurrent violations [to the plaintiffs], is not sufficient to confer standing to seek an injunction." In re Nifedipine Antitrust Litig., 335 F. Supp. 2d 6, 19 (D.D.C. 2004).
The complaint identifies as plaintiffs only those who have "obtained residential real estate loans from commercial lenders and make monthly mortgages that include G-Fees at artificially inflated levels set by the Defendants." (Compl. ¶ 10.) The complaint does not allege that any of the plaintiffs are prospective mortgagees of conforming mortgages that have not already been originated. Plaintiffs allege that the cost of the G-fee each borrower pays as part of his or her monthly interest rate on the mortgage "throughout the life of the loan is 'baked into' the loan transaction at the outset, and continues throughout the life of the loan on an unchanged basis" and that the "G-Fees set at the time of the loans by approved seller/servicers and at all times thereafter throughout the life of the mortgage loans effectively constitute only one G-Fee transaction." (Id. ¶43; see also id. ¶¶ 39, 47.) According to the allegations, the G-fee associated with a conforming mortgage is set when the mortgage loan is made, is apportioned over the life of the loan, remains unchanged after the loan is originated, and is collected through monthly interest payments. The fact that they will "continue to pay" (id. ¶ 5) the G-fees that are incorporated into the cost of the loan at its origination is what plaintiffs identify as threatened future harm. Stated otherwise, the allegations establish not that plaintiffs expect to incur future injury, but that plaintiffs will continue to absorb the effects of past injuries into the future, courtesy of the installment plan.
Plaintiffs have conflated damages from a past injury that will be realized in the future, sometimes referred to as future damages, with the threat of a future injury. Plaintiffs seek injunctive relief to prevent defendants from "colluding with regard to G-Fees and requiring of lenders that G-Fees be kept secret and confidential." (Compl. §§ 37, 88.) However, even if this alleged collusion were to be enjoined, plaintiffs would not feel relief because none claims to be a future mortgagee, and as current mortgagees, the G-Fees are already "baked in" to their mortgages as current mortgagees. An order enjoining defendants from specific future conduct would have no remedial effect whatsoever on the continuing future damages plaintiffs expect to experience due to the past injury they allege was inflicted at the time when their loans were originated. Plaintiffs' allegations do not identify any future conduct by defendants that threatens to injure plaintiffs' business or property. Any injury that occurred to the plaintiffs occurred when they obtained their mortgages, and plaintiffs' predicament is one of future damages, not future injury.
Because plaintiffs have pled that they are threatened with future damages, but not with future injury, their federal claim for injunctive relief (Count II) will be dismissed for failure ...