1 UNITED STATES DISTRICT COURT 2 FOR THE EASTERN DISTRICT OF CALIFORNIA 3 EFRAIN MUNOZ, individually and on 4 behalf of all others similarly situated, 5 et al., No. 1:08-cv-00759-MMB-BAM 6 7 Plaintiffs, ORDER RESPECTING 8 PLAINTIFFS’ MOTION 9 v. IN LIMINE #1 10 11 PHH MORTGAGE CORPORATION, 12 et al., 13 14 Defendants. 15 Plaintiffs’ first motion in limine (ECF 466) requests an order under Fed- 16 eral Rules of Evidence 402 and 403 “to exclude from trial any argument, evi- 17 dence, or testimony, including expert or opinion testimony, questioning or con- 18 tradicting findings made by the Court in its summary judgment decision.” ECF 19 466, at 1. Specifically, Plaintiffs contend that the court has made the following 20 “summary judgment determinations” and seek to preclude Defendants from 21 expressing disagreement with either: 22 (1) the evaluation of whether there was a real transfer of risk un- 23 der the captive reinsurance agreements at issue for purposes of the 24 Real Estate Settlement Procedures Act requires consideration of 25 all relevant aspects of the CRAs and therefore cannot be done on a 26 book year basis alone; and 27 (2) Atrium’s liability under the CRAs at issue with Genworth Mort- 28 gage Insurance Company, Radian Guaranty Inc., and CMG Mort- 29 gage Insurance Company was limited to the amounts in the trust 30 accounts held for each such mortgage insurer in connection with 31 those CRAs from which claims could be satisfied. 1 Id. at 1–2 (“defined terms” omitted). Plaintiffs ask the court to order Defend- 2 ants’ counsel to direct their witnesses not to say anything about the foregoing
3 topics “until specifically questioned thereon after a prior ruling by the Court” 4 because they contend that “[p]ermitting interrogation of witnesses, comments 5 to jurors or prospective jurors, or offers of evidence concerning the precluded 6 matters would impermissibly prejudice and confuse the jury.” Id. at 2.
7 In support of their argument, Plaintiffs contend that the court’s sum- 8 mary judgment ruling included a “holding that risk transfer must be consid- 9 ered across multiple book years,” and they quote the court’s statement that 10 “[e]valuating whether there was an actual transfer of risk requires the court
11 to look at multiple factors, such as the structure and contractual terms of a 12 CRA, the rationale for and effects of cross-collateralization, and the way de- 13 fendants’ own actuaries analyzed the CRAs.” Id. at 4 (quoting Munoz v. PHH 14 Mortg. Corp., 478 F. Supp. 3d 945, 978 (E.D. Cal. 2020) (ECF 417)). They also
15 contend that the court “rejected” Defendants’ “book year methodology” and con- 16 clude that “[t]his holding controls the risk transfer analysis here and justifies 17 the entry of an order precluding Defendants from arguing or presenting evi- 18 dence to the contrary.” Id. at 4–5.
19 Plaintiffs further assert the court held that “Atrium’s liability under the 20 Genworth, Radian, and CMG CRAs was limited strictly to the funds contained 21 within each of the associated trust accounts, meaning that Atrium’s obligations 1 did not extend to its own assets,” id. at 5 (quoting Munoz, 478 F. Supp. 3d at 2 979), and that “there is no dispute that Atrium’s liability did not extend to its
3 own funds, but was limited strictly to the monies held in the trust accounts 4 that were formed in connection with each of these CRAs,” id. (all emphasis in 5 original). 6 Defendants respond that Plaintiffs mischaracterize the court’s summary
7 judgment ruling and assert that “there were no Court ‘determinations’ or ‘hold- 8 ings’ on these points,” ECF 478, at 1 (emphasis in original), that “[t]hese are 9 not matters that ‘have already been adjudicated by this Court,’ as Plaintiffs 10 claim,” id. (emphasis in original) (quoting ECF 466, at 7), and that none of
11 these matters could have been decided because “they relate to facts that were 12 disputed at summary judgment and remain disputed today” and the court so 13 found, id. (citing Munoz, 478 F. Supp. 3d at 980). Defendants emphasize that 14 the issues and quoted language Plaintiffs discuss all appear in a section of the
15 summary judgment opinion in which the court reached no conclusion or hold- 16 ing other than to deny summary judgment to both parties. Id. at 2–3 (citing 17 Munoz, 478 F. Supp. 3d at 980). 18 Plaintiffs, in reply, essentially reiterate the quotations from the sum-
19 mary judgment ruling set forth in their motion in limine. 20 Therefore, resolution of this motion depends on examining the court’s 21 summary judgment ruling to determine what the court did and did not decide. 1 As an initial matter, Defendants are correct that all the language Plaintiffs 2 quote comes from a section of that opinion titled “Applying § 8(c)’s Safe Har-
3 bor,”1 in which the court applied the two-part test prescribed in the 1997 HUD 4 Letter. The court examined two issues: (1) whether payments to Atrium were 5 for reinsurance services “actually furnished or for services performed” and, if 6 so, (2) whether the payments were “bona fide compensation that does not ex-
7 ceed the value of such services.” Munoz, 478 F. Supp. 3d at 977 (cleaned up). 8 The court explained that as to the first issue (actual provision of reinsur- 9 ance), the HUD Letter prescribes a three-part test, but the parties disputed 10 only the third prong of that test, whether the captive reinsurance agreements
11 here resulted in a real transfer of risk. Id. The court quoted the HUD Letter’s 12 guidance as to how the court should assess that issue, but then noted that “the 13 parties in this case dispute what the scope of the court’s inquiry should be.” Id. 14 at 978. The court explained Defendants’ position as being that “the court
15 should conduct a risk transfer analysis by looking only at individual ‘snapshots’ 16 of Atrium’s cash flow from the 2007–09 book years, which fall within the certi- 17 fied class period,” because “Atrium’s reinsurance obligations were based on the 18 loans in an individual book.” Id. (emphasis removed). The court then explained
19 that Plaintiffs argued that Defendants’ approach was misleading and instead
1 Whether the “safe harbor” applies is an element of Plaintiffs’ § 8(a) claim on which they have the burden of proof. Munoz, 478 F. Supp. 3d at 976. 1 urged “that the court should analyze the CRAs comprehensively and over the 2 lifetimes of those agreements.” Id.
3 The court concluded that “plaintiffs’ approach to this issue is the more 4 compelling one”: 5 Evaluating whether there was an actual transfer of risk requires 6 the court to look at multiple factors, such as the structure and con- 7 tractual terms of a CRA, the rationale for and effects of cross-col- 8 lateralization, and the way defendants’ own actuaries analyzed the 9 CRAs. But under the methodology advocated by defendants, the 10 court would be limited to examining an individual book year in a 11 vacuum. Indeed, it is somewhat perplexing that defendants con- 12 tinue to insist that the court adopt their somewhat myopic book 13 year approach when it is undisputed that defendants themselves 14 analyze and distribute risk across book years. 15 Id. 16 The court then turned to the evidence the parties presented and deter- 17 mined that it could not resolve the issue at the summary judgment stage. The 18 court’s reasoning is significant for present purposes: 19 Though it is clear that Atrium earned a net profit over the lifetime 20 of the CRAs, it is equally clear that Atrium suffered losses in the 21 2007–09 book years.
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1 UNITED STATES DISTRICT COURT 2 FOR THE EASTERN DISTRICT OF CALIFORNIA 3 EFRAIN MUNOZ, individually and on 4 behalf of all others similarly situated, 5 et al., No. 1:08-cv-00759-MMB-BAM 6 7 Plaintiffs, ORDER RESPECTING 8 PLAINTIFFS’ MOTION 9 v. IN LIMINE #1 10 11 PHH MORTGAGE CORPORATION, 12 et al., 13 14 Defendants. 15 Plaintiffs’ first motion in limine (ECF 466) requests an order under Fed- 16 eral Rules of Evidence 402 and 403 “to exclude from trial any argument, evi- 17 dence, or testimony, including expert or opinion testimony, questioning or con- 18 tradicting findings made by the Court in its summary judgment decision.” ECF 19 466, at 1. Specifically, Plaintiffs contend that the court has made the following 20 “summary judgment determinations” and seek to preclude Defendants from 21 expressing disagreement with either: 22 (1) the evaluation of whether there was a real transfer of risk un- 23 der the captive reinsurance agreements at issue for purposes of the 24 Real Estate Settlement Procedures Act requires consideration of 25 all relevant aspects of the CRAs and therefore cannot be done on a 26 book year basis alone; and 27 (2) Atrium’s liability under the CRAs at issue with Genworth Mort- 28 gage Insurance Company, Radian Guaranty Inc., and CMG Mort- 29 gage Insurance Company was limited to the amounts in the trust 30 accounts held for each such mortgage insurer in connection with 31 those CRAs from which claims could be satisfied. 1 Id. at 1–2 (“defined terms” omitted). Plaintiffs ask the court to order Defend- 2 ants’ counsel to direct their witnesses not to say anything about the foregoing
3 topics “until specifically questioned thereon after a prior ruling by the Court” 4 because they contend that “[p]ermitting interrogation of witnesses, comments 5 to jurors or prospective jurors, or offers of evidence concerning the precluded 6 matters would impermissibly prejudice and confuse the jury.” Id. at 2.
7 In support of their argument, Plaintiffs contend that the court’s sum- 8 mary judgment ruling included a “holding that risk transfer must be consid- 9 ered across multiple book years,” and they quote the court’s statement that 10 “[e]valuating whether there was an actual transfer of risk requires the court
11 to look at multiple factors, such as the structure and contractual terms of a 12 CRA, the rationale for and effects of cross-collateralization, and the way de- 13 fendants’ own actuaries analyzed the CRAs.” Id. at 4 (quoting Munoz v. PHH 14 Mortg. Corp., 478 F. Supp. 3d 945, 978 (E.D. Cal. 2020) (ECF 417)). They also
15 contend that the court “rejected” Defendants’ “book year methodology” and con- 16 clude that “[t]his holding controls the risk transfer analysis here and justifies 17 the entry of an order precluding Defendants from arguing or presenting evi- 18 dence to the contrary.” Id. at 4–5.
19 Plaintiffs further assert the court held that “Atrium’s liability under the 20 Genworth, Radian, and CMG CRAs was limited strictly to the funds contained 21 within each of the associated trust accounts, meaning that Atrium’s obligations 1 did not extend to its own assets,” id. at 5 (quoting Munoz, 478 F. Supp. 3d at 2 979), and that “there is no dispute that Atrium’s liability did not extend to its
3 own funds, but was limited strictly to the monies held in the trust accounts 4 that were formed in connection with each of these CRAs,” id. (all emphasis in 5 original). 6 Defendants respond that Plaintiffs mischaracterize the court’s summary
7 judgment ruling and assert that “there were no Court ‘determinations’ or ‘hold- 8 ings’ on these points,” ECF 478, at 1 (emphasis in original), that “[t]hese are 9 not matters that ‘have already been adjudicated by this Court,’ as Plaintiffs 10 claim,” id. (emphasis in original) (quoting ECF 466, at 7), and that none of
11 these matters could have been decided because “they relate to facts that were 12 disputed at summary judgment and remain disputed today” and the court so 13 found, id. (citing Munoz, 478 F. Supp. 3d at 980). Defendants emphasize that 14 the issues and quoted language Plaintiffs discuss all appear in a section of the
15 summary judgment opinion in which the court reached no conclusion or hold- 16 ing other than to deny summary judgment to both parties. Id. at 2–3 (citing 17 Munoz, 478 F. Supp. 3d at 980). 18 Plaintiffs, in reply, essentially reiterate the quotations from the sum-
19 mary judgment ruling set forth in their motion in limine. 20 Therefore, resolution of this motion depends on examining the court’s 21 summary judgment ruling to determine what the court did and did not decide. 1 As an initial matter, Defendants are correct that all the language Plaintiffs 2 quote comes from a section of that opinion titled “Applying § 8(c)’s Safe Har-
3 bor,”1 in which the court applied the two-part test prescribed in the 1997 HUD 4 Letter. The court examined two issues: (1) whether payments to Atrium were 5 for reinsurance services “actually furnished or for services performed” and, if 6 so, (2) whether the payments were “bona fide compensation that does not ex-
7 ceed the value of such services.” Munoz, 478 F. Supp. 3d at 977 (cleaned up). 8 The court explained that as to the first issue (actual provision of reinsur- 9 ance), the HUD Letter prescribes a three-part test, but the parties disputed 10 only the third prong of that test, whether the captive reinsurance agreements
11 here resulted in a real transfer of risk. Id. The court quoted the HUD Letter’s 12 guidance as to how the court should assess that issue, but then noted that “the 13 parties in this case dispute what the scope of the court’s inquiry should be.” Id. 14 at 978. The court explained Defendants’ position as being that “the court
15 should conduct a risk transfer analysis by looking only at individual ‘snapshots’ 16 of Atrium’s cash flow from the 2007–09 book years, which fall within the certi- 17 fied class period,” because “Atrium’s reinsurance obligations were based on the 18 loans in an individual book.” Id. (emphasis removed). The court then explained
19 that Plaintiffs argued that Defendants’ approach was misleading and instead
1 Whether the “safe harbor” applies is an element of Plaintiffs’ § 8(a) claim on which they have the burden of proof. Munoz, 478 F. Supp. 3d at 976. 1 urged “that the court should analyze the CRAs comprehensively and over the 2 lifetimes of those agreements.” Id.
3 The court concluded that “plaintiffs’ approach to this issue is the more 4 compelling one”: 5 Evaluating whether there was an actual transfer of risk requires 6 the court to look at multiple factors, such as the structure and con- 7 tractual terms of a CRA, the rationale for and effects of cross-col- 8 lateralization, and the way defendants’ own actuaries analyzed the 9 CRAs. But under the methodology advocated by defendants, the 10 court would be limited to examining an individual book year in a 11 vacuum. Indeed, it is somewhat perplexing that defendants con- 12 tinue to insist that the court adopt their somewhat myopic book 13 year approach when it is undisputed that defendants themselves 14 analyze and distribute risk across book years. 15 Id. 16 The court then turned to the evidence the parties presented and deter- 17 mined that it could not resolve the issue at the summary judgment stage. The 18 court’s reasoning is significant for present purposes: 19 Though it is clear that Atrium earned a net profit over the lifetime 20 of the CRAs, it is equally clear that Atrium suffered losses in the 21 2007–09 book years. Is that loss representative of a real transfer 22 of risk, or is it “such a small financial loss” given the magnitude of 23 the 2007–09 housing market collapse and financial crisis that 24 there could not have been a real transfer of risk? Likewise, were 25 the provisions of the CRAs so favorable to Atrium that those CRAs 26 were effectively “shams,” or were they supported by “reasonable 27 business justifications”? Based on the evidence before the court at 28 this time, there is a sufficiently genuine dispute over the answers 29 to these questions that the court cannot resolve on summary judg- 30 ment whether Atrium provided actual reinsurance services to the 31 captive MIs. This ends the court’s inquiry under the two-step HUD 32 test. 1 Id. at 980. The language quoted above resolves the first issue raised by Plain- 2 tiffs’ motion in limine because it plainly leaves the door open for the jury to use
3 the “book year” approach. The court clearly did not resolve the question of 4 whether the data from the 2007–09 book years, standing alone, represented a 5 real transfer of risk, or whether instead it was necessary to consider other 6 years as well. Thus, Plaintiffs are incorrect in arguing that the court “held” or
7 “determined” that the “real transfer of risk” evaluation “cannot be done on a 8 book year basis alone.” ECF 466, at 1–2. 9 Plaintiffs also contend that the court “concluded at summary judgment” 10 that Atrium’s liability was strictly limited to the amounts in its trust accounts.
11 Id. at 5. Again, the reference to which Plaintiffs refer appears in the same “safe 12 harbor” discussion. The court first characterized Plaintiffs’ position: 13 Plaintiffs’ case here essentially focuses on: (1) provisions in the 14 CRAs that limited Atrium’s obligation to pay out claims while al- 15 lowing it an unlimited upside as to profits, and (2) the lopsided 16 balance of payments between the captive MIs and Atrium, wherein 17 Atrium received much more in payments than it paid out in claims. 18 According to plaintiffs, this meant that no real risk was trans- 19 ferred, and thus, Atrium did not provide actual reinsurance ser- 20 vices. 21 Munoz, 478 F. Supp. 3d at 979 (cleaned up). The court’s next paragraph then 22 began the analysis with the prefatory comment that “[t]here is substantial 1 evidence that supports this theory,” id.,2 and then stated, “For example, 2 Atrium’s liability under the Genworth, Radian, and CMG CRAs was limited
3 strictly to the funds contained within each of the associated trust accounts, 4 meaning that Atrium’s obligations did not extend to its own assets,” id. The 5 court reviewed Plaintiffs’ evidence and then discussed Defendants’ response. 6 Id. at 979–80.
7 It is apparent from the context that the sentence Plaintiffs emphasize 8 about Atrium’s liability under the captive reinsurance agreements was not a 9 “holding” or a “finding” or a “determination.” The court made that comment in 10 the context of discussing and analyzing Plaintiffs’ evidence on the issue of
11 whether Atrium provided actual reinsurance services, and the court deter- 12 mined (or “held,” as it were) that it could not decide that issue on the record 13 before it. Furthermore, the court hedged any conclusions it did draw, noting 14 that the provisions “appear to have yielded significant profits,” and further
15 noting that the fact of profits is not determinative as to the provision of real 16 reinsurance services. Id. at 979. Thus, the case law Plaintiffs cite about evi- 17 dence being inadmissible when it relates to issues the court has “conclusively 18 decided” or “ruled upon” or the like is simply inapposite here.
2 The words “this theory,” taken in context, clearly refer to the final quoted sentence about no risk being transferred such that Atrium provided no real reinsurance ser- vices. 1 In short, Plaintiffs here obtained, at most, the possibility of later obtain- 2 ing a verdict in their favor on whether Atrium provided actual reinsurance.
3 The court did not decide the issue, and the summary judgment decision cannot 4 be used to exclude the evidence Plaintiffs challenge. Furthermore, because 5 Plaintiffs’ theory that this evidence is irrelevant and has no probative value is 6 based entirely on their contention that the court already decided the issues
7 described above, there is no basis for finding it to be either irrelevant or with- 8 out probative value. 9 Plaintiffs also briefly argue that the evidence should be excluded under 10 Rule 403 “since it would, among other things, only serve to confuse the issues,
11 mislead the jury, waste time, and require the presentation of unnecessary and 12 duplicative evidence.” ECF 466, at 7. However, once again Plaintiffs premise 13 their Rule 403 argument on their reference to “questioning or contradicting the 14 Court’s prior findings.” Id. Because there were no such “prior findings,” the
15 evidence in question neither “questions” nor “contradicts” them, and the Rule 16 403 argument is therefore unfounded. 17 Accordingly, it is hereby ORDERED that Plaintiffs’ motion in limine #1 18 is DENIED.
19 Dated: January 18, 2022 /s/ M. Miller Baker 20 M. Miller Baker, Judge3
3 Judge of the United States Court of International Trade, sitting by designation.