Credit Union Faces Antitrust Claims

A rare antitrust lawsuit alleged an Ohio credit union participated in an illegal and price-fixing scheme with a Baltimore, Md., title company that yielded hundreds of thousands of dollars that were laundered through third-party marketing companies to conceal the fraud from borrowers, auditors and regulators.

But Michael Y. Kieval, a Washington, D.C.-based attorney representing the $151 million Emery Federal Credit Union in Cincinnati, countered the 134-page lawsuit is nothing more than a shake down, and that the civil complaint is replete with sham allegations, mischaracterizations and deliberately provocative language clearly designed to convey a conspiracy that did not exist.

Kieval filed a motion to dismiss the case in U.S. District Court in Cincinnati in July, in part because the Sherman Act antitrust claims alleged in the lawsuit have a four-year statute of limitations that have already expired.

What’s more, the former Emery president/CEO denied he knew anything about the credit union’s business relationship with All Star Title Inc., which allegedly started the national scheme in 2008.

Antitrust litigation against credit unions is rare. Since 2004, there have been only about a dozen antitrust legal actions filed against credit union organizations, according to Justia, a Mountain View, Calif.-based firm that lists all lawsuits filed in federal courts around the nation.

The civil suit names five persons as the plaintiffs who live in Maryland and Delaware. They are Edwin and Shanna Solis of Lexington Park, Md., James Gilbert of Felton, Del., Jeffrey Markle of Perry Hall, Md., and Marta Chaney of Columbia, Md.

They claimed Emery violated the Sherman Act’s antitrust laws because it allegedly conspired with All Star Title to fix the price of title and settlement services charged to borrowers on refinances, reverse mortgages and other mortgage loans. The plaintiffs also claimed they were charged and paid supracompetitive prices for title and settlement services, and that they suffered damages that ranged from $50 to $1,600, which allegedly represented the kickback overcharges from the price fixing and minimum fee agreements, and affected more than 1,700 loans over two and a half years.

However, Kieval argued in court documents that the antitrust laws primarily apply to competitors who agree to fix prices, pointing out that Emery and All Star are not competitors.

The credit union’s business relationship with All Star began in August 2011. At that time, the credit union was operating a national mortgage division under the leadership of then Emery President/CEO Joe Lind.

The national mortgage division included a large network of mortgage brokers. Operating throughout the nation, these brokers ran their own offices and worked independently to sell real estate loans. They established their own relationships with title companies typically in their local markets. All Star Title was one of roughly 30 to 40 companies that these brokers and consumers could choose to use for title services across the country.

The alleged price fixing and minimum fee agreements were enforced by a “refusal to deal” agreement in which Emery brokers refused to deal with any other title and settlement services company on those loans generated by the kickbacks. The price fixing and minimum fee agreements were allegedly supracompetitive and higher than the prices that borrowers would have been otherwise charged for title and settlement services in a competitive market, according to the lawsuit. The funds generated from the supracompetitive pricing were then used to fund the alleged illegal kickbacks that Emery used to solicit more borrowers to generate more loans. In exchange, the credit union allegedly referred its loans exclusively to All Star for its title and settlement services.

The lawsuit claims that in order to conceal the kickback scheme from borrowers, auditors and regulators, All Star and Emery had various marketing firms issue sham invoices that falsely stated the invoices were for co-marketing services. The marketing firms would then send checks to the credit union as a way to conceal the All Star kickbacks to the credit union. In exchange, the credit union referred its loans to All Star.

However, Kieval pointed out one of the plaintiffs’ exhibits shows the marketing materials contain advertising for All Stars’ services.

“Since the complaint shows that All Star received co-marking services in exchange for its payments to the third-party marketers, plaintiffs cannot plausibly allege the opposite,” he wrote in court documents.

Lind, who was appointed Emery’s president/CEO in 2005, left the credit union sometime between the third and fourth quarters of 2013, according to the credit union’s profile documents it filed with the NCUA.

When reached via phone by CU Times, Lind said he knew nothing about the credit union’s business relationship with All Star. He currently works as CEO of Dinergy Wealth Management in Cincinnati.

“I have been gone from the credit union now for a while so I know nothing of this,” he said. “It totally takes me by surprise and sets me aback.”

However, when he was told the Emery/All Star relationship started and continued during his tenure, he responded: “All I can say is we did our due diligence and the credit union was never involved in anything like that. I would talk to Todd Cain, the current gentleman because he ran the mortgage division while I was the CEO.”

According to Todd Cain’s LinkedIn page, he was vice president of mortgage lending at Emery from 2013 to 2014. He was listed as the credit union’s president/CEO sometime during the fourth quarter of 2013, according to Emery’s quarterly profile documents it filed with the NCUA. However, Kieval said Cain was not appointed CEO until January 2014.

“In February, 2014, newly appointed CEO Todd Cain and the Emery board determined that this national model and structure of autonomous brokers across the country did not ultimately serve the best interests of the credit union or its members – nor was, quite frankly, consistent with our fundamental credit union philosophy and commitment to serving our local communities,” Kieval said on behalf of the Ohio credit union. “Emery made the decision to return its focus to core credit union products, services and members in the greater Cincinnati area. Thus, the credit union closed down the national mortgage division entirely, including terminating these loan officers and all relationships with their service providers, including All Star Title.”

The lawsuit’s plaintiffs are not suing Lind or Cain, and their names are not even referenced in the lawsuit. Moreover, even though All Star allegedly designed and began executing this scheme more than 10 years ago, the title company was not named as a defendant in the lawsuit.

According to the Maryland Insurance Administration, All Star’s license to do business in the state expired on April 15, 2019. The title company’s phone numbers are no longer in service.

Jason Horwitz, who is listed as the owner of All Star on his LinkedIn page, is now working as a division president for Bay National Title Co., headquartered Clearwater, Fla. When contacted by phone by CU Times seeking comment, Horwitz hung up. He also did not respond to emails seeking comment.

Cincinnati-based attorney Melissa Schaub Matthews, the lead lawyer representing the plaintiffs, did not return a phone call from CU Times, and did not respond to or answer a list of questions emailed by CU Times regarding the lawsuit’s allegations.

The civil suit also alleges that Emery violated the Real Estate Settlement Procedures Act and the Racketeer Influence and Corrupt Organizations Act, otherwise known as the RICO act.

In addition to having no legitimate claims regarding the alleged RESPA and RICO violations, Kieval noted, the statute of limitations to file violation claims has already expired.

“This complaint is a misguided and transparent attempt to shake down the credit union,” Kieval said. “The complaint targets a mortgage business line created under prior leadership that has been closed for more than five years, and makes allegations concerning employees who have not been employed by the credit union since that time. Given the nature of the credit union’s former national mortgage operation, the autonomy of the individual loan production offices and their relationships with their local service providers, Emery was unaware of any improper conduct associated with All Star Title, as alleged in the complaint. We are outraged that we need to use resources that should be dedicated to members and our local communities to defend the credit union against this complaint. Given that this case has no legal merit, the credit union will aggressively defend itself.”