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Other features of this story were addressed in an article published on Monday of this week on Insurance Claims and Issues Blog.
Wells Fargo admittedly placed "collateral protection insurance" on its auto-loan borrowers and forced the premiums onto the borrowers' auto loans. Wells only disputes how many of its customers it did this to.
Wells Fargo also admits that it sometimes force-placed the insurance even when the borrowers already had auto insurance.
Wells Fargo further admits that the force-placed insurance premiums sometimes forced the borrowers into having their cars repossessed because they could not make the payments Wells added to their auto loans.
Forensic investigation of original documents in electronic court files makes use of the electronic resources that are now available, and also makes use of traditional research techniques that were the only practical ways to conduct legal research in earlier times. It's what an automobile lender client of mine once called "hand's on inventory," meaning that he wanted to be able to put his hands on (or have someone he paid to do it put their hands on) the hood of every car they financed on a dealer's lot. After that was done, then he knew whether or not the collateral for his loans to the dealer was accounted for, and not just what the dealer told him.
It is important to keep in mind that forensic investigation of original documents in actual court files is an aid in doing the research, not the only thing to do. Nonetheless, it brings documents to life in ways that words alone sometimes fail to capture. You can see things in a court file that you cannot "see" in the reports of decided cases.
Sometimes you see bad faith blatantly making an appearance.
For example, while researching my book on Lender Force-Placed Insurance Practices (American Bar Association 2015), I came across many depositions with a lot of testimony blacked out. Using forensic investigation of original documents in actual court files allowed me and can allow you to learn things that neither of us could know in any other way.
As an example, in one case I came across two filed deposition transcripts of a corporate representative of two of the defendants in the case, a defendant bank and its putative insurance "agency." In the first-filed version of the corporate representative's testimony, some 125 pages had been blacked out or "redacted" out of 172 pages of deposition transcript. Illustration 1 provides a sample of redacted pages compared with the same pages after a judge lifted the blackout. In this Illustration, the corporate representative's testimony is revealed that the alleged insurance agency defendant did nothing typical of an insurance agent but it collected some 8 to 10 million dollars in one year for "commissions" it received as "an insurance agent" placing insurance on borrowers by force. Download Illustration #1 DEPO CORP REP CHASE HOME FINANCE AND J P MORGAN CHASE BANK 01 11 11 Hofstetter v Chase (N D Cal No CV 1313 WHA). For those who would like to see the 125 blacked-out pages in the entire transcript, I am making the entire transcript available here.[1]
Less than one month later, the same testimony was filed open to the public by Court Order. In other words, the same deposition transcript was ordered to be filed without any testimony being blacked out. Take a look at Illustration 2. Download Illustration #2 DEPO CORP REP CHASE HOME FINANCE AND J P MORGAN CHASE BANK 01 11 11 Hofstetter v Chase (N D Cal No CV 1313 WHA). The first of the two pages in this Illustration shows four pages of condensed deposition transcript, each one totally blacked out. The second page shows this time the testimony that became open to public view. The entire unredacted deposition transcript is now available here.[2]
An officially unpublished opinion issued by the Northern District of California offers a case study in how judges judge. And so the opinion offers a case study in how successful practitioners practice.
According to Westlaw and Keycite, the decision is not cited by any other court in any other case. Officially unreported and uncited. A perfect example for our case study of a decision which nobody but the parties and their lawyers were watching. We may be the only other people to review this decision. The lessons it offers to practitioners are potentially priceless.
The District Judge in Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584 (N.D. Cal. March 30, 2016) clearly followed established law in this opinion. The judge's decision addressed Southwest Business Corporation's (SWBC's ) motion to stay a "putative class action" presenting lender force-placed insurance (LFPI) practices claims under a Second Amended Complaint. Parenthetically, the court does not mention it in this opinion, but LFPI claims typically include alleged breaches of contract, breaches of fiduciary duties, and alleged "bad faith" claims usually including alleged breaches of the implied covenant of good faith and fair dealing. So, SWBC's motion to stay the entire case may fairly be taken as a motion to stay these claims against all the defendants involved in the alleged practices involving insurance that was force-placed by a lender on a homeowner in this case.
SWBC filed motions to dismiss the original complaint and the First Amended Complaint before the Second Amended Complaint was filed. Both previous times, the court granted SWBC's motion to dismiss. Instead of filing a motion to dismiss the Second Amended Complaint, however, this time SWBC departed from its winning track record to file instead a motion to stay the entire case.
The judge approached SWBC's motion to stay with settled principles of law. A motion to stay a case is discretionary with the trial judge. As the court in this case summarized the law of stays, she or he is supposed to weigh the equities in the balance, evaluating the hardships on the party opposing the stay and on the party requesting the stay, and whether a stay would "simplify or complicate" the probable "issues, proof, and questions of law" that would result from a stay. Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *1 (N.D. Cal. March 30, 2016). This last factor seems to mean, in reality, whether the court as well as the parties would be prejudiced.
So, there's the background of deciding a motion to stay a case. Here is how the district judge decided the motion in this particular case. Unreported, uncited, yet available to the public. But now, perhaps, more available to the public than ever before.
By examining the four factors of discretion which this District Judge wrote about in deciding a motion to stay a case, I do not mean to suggest in any way that the judge's conclusions were wrong. As for the particular decision in this case, right or wrong the judge's conclusions govern the outcome of course. I mean rather to take a look at the different factors involved from a distance, so to speak. It may be that in other cases, perhaps in the same jurisdiction or perhaps even on the docket of the same judge, other answers may be suggested.
"First, it is unclear to the Court how Plaintiff will be prejudiced by a stay." It is true that weighing a court's discretion whether to grant a motion to stay an action involves considering hardship to the party opposing the motion if the case was stayed. That certainly appears to be the governing law in the Circuit where this case was decided. The District Judge was following that law in this case.
However, is that the right question? Shouldn't the question be instead whether the party requesting a stay has shown good cause for getting one?
In some sense, every case can be stayed because a plaintiff will hardly ever be in a position to prove that it would "not be prejudiced" if its claims were stayed. Except of course that the claims would never see a courtroom if this reasoning were carried to that extreme.
"Second, continuing this action against SWBC solely because Plaintiff wishes to obtain discovery from SWBC regarding another defendant would prejudice SWBC by requiring SWBC to devote resources to respond to plaintiff's discovery requests, which resources SWBC would otherwise not be required to devote."
The plaintiff opposed SWBC's motion to stay her entire LFPI practices case because the claims she alleged included claims she presented in that case against one Litton Loan Servicing, LP. She pointed out that Litton "'is not a party'" to either one of two settlement agreements, one in New York and one in Florida, which SWBC urged as reasons for a stay of this case in California. The effect of granting SWBC's motion to stay the case in California on the basis of two cases in other jurisdictions which did not involve Litton, would mean that the plaintiff's claims against Litton would not be subject to discovery. Instead, they would be deferred in the California case. Even though Litton was not a party to either one of the settlements pending in New York and in Florida at the time.
Note that it was SWBC, not Litton, that filed a motion to stay the Second Amended Complaint in California.
With all respect, "devotion of resources" to respond to discovery requests seems like a lame justification, on the face of it, to stay an entire case. Candidly, every civil case involves the prospect of "devoting resources" to discovery, yet that is not a good reason to dismantle any case. It ought not to be a reason to support a stay of any case, either.
Finally, why do you suppose that SWBC changed its winning ways from successfully filing motions to dismiss the LFPI claims against it in this case, to filing instead a motion to stay? The difference of course is that if SWBC prevailed on yet another motion to dismiss the LFPI claims alleged against it, then in that event SWBC would be dismissed (perhaps, this time, with prejudice) but Litton Servicing would remain in the case.
On the other hand, after SWBC's motion to stay the case including against Litton was granted, the claims against Litton theoretically were still in place but they were going nowhere. One wonders why the result of a motion for stay was "better" forSWBC than being dismissed from the California case yet again, perhaps this time with prejudice.
"Third, as Plaintiff herself admits, 'it would be inefficient to continue this litigation against [SWBC] pending the resolution of settlement proceedings'" in the cases in New York and Florida.
Perhaps this statement was taken out of context a little. Or perhaps I misunderstand it. If I understand it correctly, what the Plaintiff was saying is that it would be inefficient to grant the stay motion, effectively granting a continuance in the case, and not that it would be inefficient to deny the stay motion.
The court quoted another statement of the Plaintiff in a footnote: "While 'Plaintiff does not concede that SWBC is released under the [Florida] settlement[,] ... for the purposes of this motion, Plaintiff does not oppose staying this case as to SWBC (with the exception of discovery relevant to Litton)....'" Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *2 n.1 (N.D. Cal. March 30, 2016).
This further statement may present a cautionary tale to practitioners. The Plaintiff's attorneys were clearly attempting to offer a compromise in making this statement, yet this attempt may have been viewed instead as an "admission."
"Finally, as SWBC notes in its motion, 'if a legitimate need for discovery arises in the future ... [the Plaintiff] is free to present good cause to the Court for relief from the stay.'"
It is legitimate to ask, it seems, why should the party opposing a stay in the first place, be required as a matter of law to "present good cause" to lift the stay in the future? Why should not the burden of proof, if proof is indeed involved, not be placed on the party that sought the stay in the first place, to keep it in place, as a matter of law?
The fact is, of course, that in this case as in many cases, practitioners will note how judges may judge, and therefore how practitioners may successfully practice.
This article continues an article begun on Insurance Claims and Issues Blog on Monday, December 5, 2016, accessible here and at http://insuranceclaimsissues.typepad.com/insurance_claims_and_issu/2016/12/kickbacks-allowed-in-insurance-rates.html.
In lender force-placed insurance cases, force-placed insurance premiums are paid by lenders, but the lenders do not complain that the premiums are too high in contrast to the situation of consumers who claim in utilities rates lawsuits that a utility's rates are too high. Lenders hide the added expense of LFPI premiums in the borrower's monthly loan payment, but the borrower does not pay the force-placed insurance premiums as such. When these issues are presented by defendants' motions to dismiss, such issues are usually resolved in federal district courts where most of these cases and the vast majority of these motions to dismiss are filed.
Further, insurance companies which provide lenders with force-placed insurance policies regularly "redact" or "seal" whole swaths of their rate filings. See, e.g., the Florida Office of Insurance Regulation administrative docket for the rate filing titled, In the Matter of: American Security Insurance Company, Case No. 141841-13, Rate File Log #13-04125. As if to drive this point home, the carrier in that case successfully contended in a different context, without opposition, that the terms of its contracts including with mortgage lenders are trade secrets and should not be revealed. See ASIC v. State, Office of Ins. Reg., No. 2013-CA-001701, 2015 WL 10384359, at *4 (Fla. Cir. Ct., 2d Cir., Leon County, Aug. 13, 2015).
Another significant problem with transferring the filed rate doctrine from utilities regulation to use in defense of insurance cases generally, applies also to LFPI cases in particular. There is no known reporting system of administrative agency decisions concerning filed insurance rates.
In Florida, however, the Insurance Commissioner has consistently rejected kickbacks in filed insurance rates -- and just as consistently has required force-placed insurance carriers to agree not to include kickbacks if they want approval of their insurance rates in Florida. E.g., In re: American Modern Insurance Group, Inc., No. 174210-15-CO, Consent Order (Fla. O.I.R. Sept. 16, 2015), accessible online with its Exhibit "A," July 6, 2015 Florida Office of Insurance Regulation "Target Conduct Final Examination Rep't of American Modern Home Ins. Co.," et al., at http://www.floir.com/siteDocuments/American_Modern_Insurance_Group_Inc%20_Consent_Order_174210-15-CO.pdf (last accessed on Monday, December 5, 2016); In re: American Security Insurance Company, No. 14-141841-13, Consent Order (Florida O.I.R. October 7, 2013), accessible online at http://www.floir.com/siteDocuments/AmericanSecurity141841-13-CO.pdf (last accessed on Monday, December 5, 2016); In re: Praetorian Insurance Company, No. 141851-13-CO, Consent Order (Fla. OIR April 12, 2014), at http://www.floir.com/siteDocuments/Praetorian141851-13-CO.pdf (last accessed on Monday, December 5, 2016).
The Federal Judge in New York had a tough job in the case of Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621 (S.D.N.Y. December 21, 2015). He was faced in particular with two hard questions about the plaintiffs' breach of contract claims, and he had to apply Florida law to answer them.
Both questions arose as a result of Green Tree Servicing's motion to dismiss. The first question was whether Green Tree's mortgage servicing was "reasonable and appropriate" under the mortgage when Green Tree charged the plaintiffs for backdated insurance.
Now, here is what the plaintiffs alleged when they claimed that Green Tree was not authorized to force them to pay premiums for backdated insurance. The plaintiffs argued that the mortgage loan servicer did not have this power because of the nature of insurance.
In other words, even if the plaintiffs breached the mortgage by not keeping collateral protection insurance in effect at all times, still the servicer could not force-place backdated insurance because there is no such thing as "insurance" which is "backdated":
Plaintiffs' assertion that there was “no risk of loss” during the lapse in coverage (FAC ¶ 31) and, therefore, no need to backdate the force-placed insurance because “the purpose of insurance is to protect against future risks” (Opp'n at 9), misconstrues the nature of hazard insurance and the risks that accompany lapses in insurance coverage.
Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621, at *7 (S.D.N.Y. December 21, 2015) (emphasis added).
We may never know what the Federal Judge in New York meant by this, because he did not explain how or why anybody but him misconstrued the nature of insurance. He turned instead to cases decided under Illinois, Minnesota, and New York law on an issue common to all of those cases as well as to this case: The issue of whether it is plausible for a plaintiff to allege that no loss occurred during the period when the collateral protection insurance purchased by the plaintiffs lapsed.
That was not the issue the judge said he was addressing. The issue which he did address has nothing to do with the purpose of insurance which is to protect against future risks, and the cases he cited have nothing to say about the purpose of insurance.
At any rate, the judge in this case ruled that under Florida law, Green Tree Servicing acted reasonably and appropriately in charging the plaintiffs-homeowners for backdated insurance. Unfortunately, that ruling is missing any support from Florida case law, or otherwise.
The second issue on the plaintiffs' alleged claim for breach of contract concerned their allegations that Green Tree breached the mortgage by taking back "commissions" through its insurance subsidiary, and including them in the force-placed insurance premiums that Green Tree charged the homeowners. The "commissions" were allegedly payments that Green Tree took back from the insurance carrier after it placed the policy through that carrier.
Finding several cases decided in Florida in addition to citing cases decided in California and distinguishing a case decided in Minnesota offered by Green Tree, the New York Federal Judge denied Green Tree's motion to dismiss the plaintiffs' breach of contract claim with respect to Green Tree's taking "commissions" for the insurance it force-placed on the plaintiffs. Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621, at *7-*8 (S.D.N.Y. December 21, 2015).
INTERESTED IN READING A FREE COPY OF THE ONLY BOOK WRITTEN ABOUT LENDER FORCE-PLACED INSURANCE PRACTICES?
This is the second special article of its kind since last Thursday, September 1, 2016. This article repeats my offer for a free copy of my book, Lender Force-Placed Insurance Practices published by the American Bar Association. I am reminding readers of my offer simultaneously on Insurance Claims and Issues Blog and on Insurance Bad Faith Claims Law Blog.
Before I get to the particulars, one thing must be clearly understood or nothing wonderful can come of our story, to paraphrase Dickens. I do not expect and I have no desire to be retained in any capacity to represent as counsel or to provide expert witness services to any party in any case in which I have not already been retained before making this offer.
Here is how to get a free copy of "Lender Force-Placed Insurance Practices": If you are or were a party or an attorney of record in a lender force-placed insurance ("LFPI") case in a Federal Court case anywhere in the United States, send me the name of your case, the case number, and the Court in which the case is located, so that I can look your case up on PACER and verify that you are or were a party or a counsel of record in one of the LFPI cases. LFPI cases are eligible so long as they have been closed within the past five (5) years or are pending right now, in any United States District Court or United States Circuit Court of Appeals.
If you are or were a party or if your law firm is counsel of record in one of these LFPI cases, be one of the first 3 people to respond to this offer with your mailing address and I will send you or your firm a free copy of Lender Force-Placed Insurance Practices (American Bar Association 2016). (Limit: One free Book per person or per law firm.)
The timeframe to respond to this offer is between September 1, 2016 and September 15, 2016. This offer ends as of September 15, 2016. On that date, I will determine who the first 3 responders are and mail them each their free Books.
INTERESTED IN READING A FREE COPY OF THE ONLY BOOK WRITTEN ABOUT LENDER FORCE-PLACED INSURANCE PRACTICES?
This is a special article for a couple of reasons. For one, it is being posted both on Insurance Claims and Issues Blog and on Insurance Bad Faith Claims Law Blog, and it will also be posted on Facebook.
Another reason that this is a special article is because it is addressed to a specialized audience. I am offering a free copy of my Book, Lender Force-Placed Insurance Practices published by the American Bar Association in 2015, to the following people only.
Before I get to the particulars of this offer, one thing must be clearly understood or nothing wonderful can come of our story, to paraphrase Dickens. I do not expect and I have no desire to be retained in any capacity to represent as counsel or to provide expert witness services to any party in any case in which I have not already been retained before making this offer.
If you are an attorney of record in a lender force-placed insurance ("LFPI") case in a Federal Court case anywhere in the United States, and if you are interested in reading a free copy of the only book ever written about LFPI practices, send me the name of your case, the case number, and the Court in which the case is located, so that I can look your case up on PACER and confirm that you and your law firm are counsel of record for one of the parties. LFPI cases are eligible so long as they have been closed within the past five (5) years or are pending right now, in any United States District Court or United States Circuit Court of Appeals.
If your firm is counsel of record for any party in one of these LFPI cases and if you are one of the first 3 lawyers to respond to this offer with your firm's mailing address, I will send your firm a free copy of Lender Force-Placed Insurance Practices (American Bar Association 2015). (Limit: One free Book per law firm.)
The timeframe to respond to this offer is between September 1, 2016 and September 15, 2016. This offer ends as of September 15, 2016. On that date, I will determine who the first 3 responders are and mail them each their free Books.
To respond to this offer, send us an EMail either from the Contact page of www.lenderforceplacedinsurance.com or from the Contact page of www.dennisjwall.com with all the information we have laid out here for you to put in your Reply if you would like to accept this offer.
In Sekula II (or Sekula Two), the District Judge was confronted with a defense of res judicata in a case filed against a mortgage servicer and the carrier which provided a policy which the servicer allegedly force-placed on the plaintiffs: Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2014-Orl-31KRS, 2016 WL 4272203 (M.D. Fla. August 15, 2016). This case and an earlier ruling in the same case were described in a post published here on Tuesday, August 23, 2016.
The Sekula Two defendants argued that the claims alleged against them should have been raised in a previous foreclosure lawsuit in Florida State Court. To be exact, the defendants contended that the claims at bar -- breach of contract and breach of the covenant of good faith and fair dealing alleged against the mortgage servicer, and tortious interference alleged against both the mortgage servicer and against the insurance company which provided the force-placed policy -- "should have been raised as compulsory counterclaims in the foreclosure suit." Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2014-Orl-31KRS, 2016 WL 4272203, at *2 (M.D. Fla. August 15, 2016).
The defendants seemingly overlooked the Florida law of res judicata when they raised their affirmative defense in a Federal Court sitting in Florida. "[U]nder Florida law, res judicata is an affirmative defense, which cannot be raised in a motion to dismiss unless the allegations of a prior pleading in the case demonstrate its existence." Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2014-Orl-31KRS, 2016 WL 4272203, at *2 (M.D. Fla. August 15, 2016) (emphasis added). The pleadings in the case did not demonstrate its existence and the parties did not stipulate otherwise. "Accordingly, the issue of res judicata must be pleaded and proven as an affirmative defense." Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2014-Orl-31KRS, 2016 WL 4272203, at *2 (M.D. Fla. August 15, 2016). The motion to dismiss was denied to the extent that it was based on a claim of res judicata.
The Court went on to grant the defendants' motions to dismiss in part and deny the motions to dismiss in part including as to the asserted ground of res judicata. The tortious interference claim was dismissed against both defendants, without prejudice, while the claim for bad faith against the servicer was again upheld -- as it was when the Court ruled on the defendants' first motion to dismiss.
FIRST DECISION OF ITS KIND. FIRST OF TWO "ORLANDO RULINGS."
The dispositive ruling in Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142 (M.D. Fla. April 18, 2016), is a ground-breaking decision that calls for wide circulation. The Sekula Court held that a mortgage servicer faces the risk of liability when the mortgage servicer adds unauthorized charges to a homeowner's monthly mortgage premium for the kickbacks which the servicer and the lender receive from a force-placed insurance company.
This is one of relatively few rulings on the subject in the nation and it is believed to be the first decision on the subject in Orlando. (A mortgage servicer is the lender's agent. A mortgage servicer receives and deposits the monthly payment on a mortgage, hires people to track whether the property and insurance are kept up, or tracks these things itself, and forces insurance premiums on the homeowner when it, the servicer, decides that force-placed insurance is in order.)
The Court in this case was of the view that the mortgage servicer acted within the terms of the mortgage both by force-placing an insurance policy with limits much higher than the value of the home insured, and by force-placing an insurance premium in an amount that was 13 times greater than what the homeowners found for themselves.
The essential alleged fact was instead that the mortgage servicer allegedly "exceeded the authority provided in [the mortgage agreement] to force-place insurance" by inflating the premium that the homeowners had to pay by including the amount of kickbacks allegedly paid by the insurance carrier to the mortgage servicer. Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142, at *3 (M.D. Fla. April 18, 2016).
That is the single most important fact in lender force-placed insurance practices cases filed across the United States: The lender or its agent the mortgage servicer imposed unauthorized charges and hid them in the force-placed insurance premium, not that the lender or servicer charged a lot of money. That essential fact has successfully supported a multitude of claims against lenders' and servicers' motions to dismiss. In this case, that fact allegation successfully supported the homeowners' claim for breach of contract.
Similarly, "an undisclosed kickback would be a violation of that implied duty [of good faith]." Sekula v. Residential Credit Solutions, Inc., No. 6:15-cv-2104-Orl-31KRS, 2016 WL 1559142, at *4 (M.D. Fla. April 18, 2016). For this reason, the homeowners' alleged claim of a breach of the implied covenant of good faith also successfully withstood the servicer's motion to dismiss in the Sekula case.
The same Court later issued further noteworthy rulings in the Sekula case. The Court's rulings on the affirmative defense of res judicata, and again on the sufficiency of the plaintiffs' bad-faith claims, were rendered on August 15, 2016. Sekula v. Residential Credit Solutions, Inc., No: 6:15-cv-2104-Orl-31KRS, 2016 WL 4272203 (M.D. Fla. August 15, 2016).
These rulings are themselves worth a national look, at length and in context. They will be the subject of a future article in this space.
This article concerns the tale of a pro se plaintiff named John O'Reilly. There were other issues and a deceased co-plaintiff in an alleged class action in Mr. O'Reilly's case, but the only issues to be addressed here concern a couple of claims alleged by Mr. O'Reilly in the Connecticut Federal Court case of Navin v. WELLS FARGO BANK, N.A., WELLS FARGO INSURANCE, INC., ASSURANT INC., AMERICAN SECURITY INSURANCE COMPANY, AMERICA'S SERVICING COMPANY and HSBC BANK USA, ___ F. Supp. 3d ___, No. 3:15-cv-671 (MPS), 2016 WL 4184010 (D. Conn. August 8, 2016).
O'Reilly was allegedly the "manager" of property owned by co-plaintiff Navin. The gist of their lawsuit was the forced placement of insurance involving all of the defendants to one degree or another. Mr. O'Reilly alleged that the conduct of the defendants violated the Connecticut Unfair Trade Practices Act ("CUTPA") or the Connecticut Unfair Insurance Practices Act ("CUIPA"), as may be applicable to the respective defendants. However, Mr. O'Reilly alleged personal injuries resulting from mold that grew up separately and apart from any lender force-placed insurance practices:
O'Reilly alleges that “[w]hen a claim was put in for serious water damage, Defendant Assurant, after agreeing to compensate the claim, took the total proceeds and kicked them back” to HSBC and the Wells-Fargo Defendants. (FAC ¶ 91.) As a result, he alleges, he, his wife, and his son were exposed to hazardous mold for nearly six months, and the kitchen ceiling collapsed on him.
Whether the lender force-placed insurance practices that O'Reilly alleged might have violated either CUTPA or CUIPA in this case was beside the point here. O'Reilly's alleged injuries could not have been proximately caused by the statutory violations he alleged in this case:
The only injuries O'Reilly alleges he suffered are personal injuries caused by water damage to the Property. O'Reilly alleges that “[w]hen a claim was put in for serious water damage, Defendant Assurant, after agreeing to compensate the claim, took the total proceeds and kicked them back to HSBC-Wells Fargo Defendants through America's Servicing Company,” leaving O'Reilly and Navin without repairs or money to repair the water damage. O'Reilly seems to allege that Defendants' failure to pay for repairs exposed him to mold and caused the Property's ceiling to collapse on top of him. He seeks monetary and other relief for his injuries. Even if such personal injuries are covered under CUTPA, and even if Defendants' “deceptive acts or practices” were prohibited by CUTPA, O'Reilly has not plausibly alleged that Defendants' conduct proximately caused his injuries. O'Reilly is a stranger to all of the Defendants' acts specifically identified as violations of CUTPA and CUIPA—failing to maintain borrower's existing insurance, using “discretion to choose a forced-placed insurance provider and policy in bad faith,” selecting FPI providers “according to pre-arranged secret deals,” “[a]ssessing excessive ... premiums,” “backdating” FPI policies, and the like. (FAC ¶ 148.)Again, O'Reilly was neither a borrower nor an insured, and paid no mortgage payments or insurance premiums. To the extent the Defendants engaged in these acts, they did not proximately cause O'Reilly any harm.
Navin v. Wells Fargo Bank, N.A., ___ F. Supp. 3d ___, No. 3:15-cv-671 (MPS), 2016 WL 4184010, at *8 (D. Conn. August 8, 2016) (emphasis added).
The Federal District Judge accordingly granted the defendants' motions to dismiss Mr. O'Reilly's CUTPA and CUIPA claims along with all of the other claims alleged in this Federal case in Connecticut.
In a Federal case in Louisiana, a Court opposed a clear trend to uphold Racketeer Influenced Corrupt Organizations Act or "RICO" claims in lender force-placed insurance cases. The plaintiff in that case filed a putative class action on the basis of the lender's conduct acting through its servant, its mortgage monitor.
The lender's mortgage monitor selected insurance carriers from its approved list whenever the lender got ready to force-place insurance on a homeowner. Allegedly in order to get on the approved list, insurance carriers had to pay a "kickback" to the monitor. In other words, in order to be selected as the insurance company to provide the force-placed insurance policy and receive the premium money, a carrier had to collusively agree to pay the monitor part of the premium money. Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *1 (E.D. La. June 7, 2016).
The Court in this case in Louisiana held that this alleged scheme did not reveal sufficient "divided loyalties" on the lender's part, therefore the money that the lender (and its monitor) received from the force-placed insurance company was not a kickback, and so the alleged scheme did not violate RICO. Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *8 (E.D. La. June 7, 2016). What this analysis has to do with RICO is a mystery, but in following it, the Court in this case acknowledged that it was ruling against the position taken by other Courts in other Circuits which, this Court pointed out, it was not bound to follow. Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *7 (E.D. La. June 7, 2016).
The Court in this case may truly be said to have been against decisions in other Circuits before it was in favor of them. In holding that kickbacks mean divided loyalties (for some reason), this Court followed a definition provided by a panel of the Seventh Circuit, which of course it was not bound to follow.
This is a ruling that it is fitting to report here on Insurance Claims Bad Faith Law Blog. Alice of Insurance Land (a fictional character) could tell this real-life tale if she were so inclined.
In Griffith-Fenton v. JPMorgan Chase/Chase Home Finance, No. 15 CV 4108 (VB), 2015 WL 10850340 (S.D.N.Y. Nov. 12, 2015) borrowers-homeowners complained that Chase, among other things, backdated and force-placed insurance on their home "'thus requiring borrowers to pay for retroactive coverage despite the fact that no loss occurred during the lapsed period.'"
We know that the federal judge knew this because the federal judge quoted from page 24 of the complaint in his opinion where this allegation apparently appears.
Reality did not intrude on the ruling however. The federal judge ruled anyway in accord with courts that have rejected similar claims "because banks would have no protection against loss immediately following a lapse." Griffith-Fenton v. JPMorgan Chase/Chase Home Finance, No. 15 CV 4108 (VB), 2015 WL 10850340, at *7 (S.D.N.Y. Nov. 12, 2015).
To say again, the homeowners alleged and therefore had to prove the simple fact that "no loss occurred during the lapsed period." The federal judge nonetheless said that the banks' need to be protected by insurance premiums paid by the homeowners during the lapsed period was "persuasive" -- even when no loss occurred and so no insurance was necessary during the lapse period.
Alice, are you listening?
As I have written and said before, there is no such thing as "backdated insurance." It is not insurance at all. It is a penalty.
… WITH FORCE-PLACED FLOOD INSURANCE PREMIUM DOES NOT INCREASE MORTGAGE LOAN EVEN THOUGH IT IS ADDED TO THE MORTGAGE LOAN PAYMENT.
The American Bankers Association sent a letter on April 22, 2016 to three bank regulators "Re: The Force-Placement of Flood Insurance as a MIRE Event." In that letter, the ABA argued that the increased insurance premium of force-placed insurance, which is always added to a homeowner's monthly mortgage payment, did not actually "increase" the mortgage loan. (The Flood Disaster Protection Act regulates national banks with regard to "making increasing, renewing or extending (MIRE event) a designated loan," to quote from the ABA's letter.) The ABA argues in its letter that the banking regulators-addressees cannot interpret the FDPA to cover the act of increasing a mortgage loan payment, when a bank increases that monthly mortgage payment by adding the monthly premium amount of collateral protection insurance placed by the bank.
It is the ABA's stated position that if the increased premium of the force-placed insurance did increase the mortgage loan, then the bank force-placing the flood insurance would be "prohibited" by the Flood Disaster Protection Act from adding the amount of the premium for the collateral protection insurance purchased by the bank to protect itself, to the borrower's monthly mortgage payment.
The ABA does not say so in its letter, but that is a reasonable interpretation that many knowledgeable, experienced practitioners would make.
Time will tell how the three banking regulators respond to ABA's letter. Parenthetically, the Consumer Financial Protection Bureau apparently found out about the letter from reading the newspapers. The ABA did not even "cc" the CFPB on the letter.
There are several other very interesting points in the ABA April 22, 2016 letter. They are worth exploration in further articles to be posted here.
The old notion that somehow "implausible" complaints survived in Federal Courts has been replaced with the present reality that implausible judgments are often -- "regularly" may be nearer the truth of the matter -- given to the other side of the litigation.
When current judges think that claims are "implausible," the claims are dismissed with prejudice. Experienced practitioners know that judges generally allow a plaintiff to amend at least once even after the defendant files its answer, but this is not always followed in cases applying the "implausibility" standard of jurisprudence.
Courts enter a final judgment and direct the clerk to close a case each time they dismiss a complaint with prejudice. This means of course that the plaintiffs have no opportunity thereafter to amend to even try to allege a claim which the given judge sees as more "plausible."
This procedure is illustrated by the constantly increasing results in an equally increasing number of insurance cases in Federal Courts. In these cases, defendants raise the filed rate doctrine in motions to dismiss the complaints as "implausible."
The FRD originated in utilities regulation. There, it is an affirmative defense. As an affirmative defense, the FRD has required defendants who raise it, to meet their burdens of proof on several elements.
One element which must be proven in utilities cases is that the rate in question was approved by a regulatory agency which was given the statutory power to approve the rate. The power to approve a rate request involves the power to require a lesser rate. It also involves the power to require certain documentation and other evidence, among other things.
Another element which must be proven in utilities cases is that the utility filing the rate request is required to address certain issues and submit listed documentation, all of which are identified in applicable statutes and regulations. In Florida, for example, insurance rate filings are governed both by Statute and by Regulation. This required element of proof was more fully addressed in previous articles here,here, and here.
In contrast to the law applied in utilities regulation matters, courts faced with insurance and other cases often fail to require any proof that the filed rate doctrine applies at all. Perhaps the judges simply do not know how to apply the FRD in an insurance case, the doctrine having been imported from utilities regulation. In any event, this lack of proof does not prevent judges from entering judgments based on the FRD in insurance cases.
The decided cases will be examined here in a forensic investigation never before conducted, so far as is known. More than that, the results of that forensic examination will be put on display for you to see for yourself.
Courthouse and Lake Eola, Orlando, Florida. Image courtesy of New York Public Library Collection.
Continued from a previous article.
Moreover, ASIC and the Florida O.I.R. entered into a Consent Order in which ASIC agreed among other things to no longer include hidden charges such as hidden "commissions" and reinsurance premiums in the premiums it charged for lender force-placed insurance.
The evidence on these matters is detailed across parts or all of four pages in Chapter 6, n. 35, of Dennis J. Wall, Lender Force-Placed Insurance Practices published by the American Bar Association in 2015. I filed comments in the rate proceeding in question.
In Florida, at least, it seems like it would be hard for a defendant to prove that the filed rate doctrine is a good defense or a bar to subject-matter jurisdiction in a case filed over lender force-placed insurance practices. In any insurance case, whether filed in Florida or elsewhere, the lesson is clear of how the filed rate doctrine is meant to be applied:
The filed rate doctrine depends upon unrebutted evidence.
Courthouse and Lake Eola, Florida. Image Courtesy of New York Public Library Collection.
The filed rate doctrine began life in utilities regulation. It was made by judges to prevent ratepayers from filing lawsuits for lower regulated rates than what they could get from the regulators.
Now it has surfaced in the past several years in insurance cases. Lawyers and judges who are not at all familiar with the filed rate doctrine are now raising it, arguing it, and applying it, they think, in places and cases where it was never meant to go.
Courthouse in Newburgh, New York. Image courtesy of the New York Public Library Collection.
Most courts hold that the filed rate doctrine is an affirmative defense. Other courts hold a minority view that the filed rate doctrine is inherent in subject-matter jurisdiction. The confusion is understandable. Judges in cases subject to the doctrine must decline to exercise jurisdiction in deference to regulators empowered to review and decide rate filings.
Either way, whether viewed as an affirmative defense or as an attack on subject-matter jurisdiction, the judges all agree that the party raising the filed rate doctrine has the burden of proving it.
This means evidence of course. In Florida, for example, in cases involving one of the larger force-placed insurance carriers, American Security Insurance Company ("ASIC"), the Florida Office of Insurance Regulation, i.e., Insurance Commissioner's Office, actually denied ASIC's rate request in a rate filing ASIC filed in support in 2013. I filed comments in the rate filing proceeding in which which the O.I.R. denied ASIC's request for another rate increase.
Once again the rush to judgment that is Rothstein v. Balboa Insurance Co., 794 F.3d 256 (2d Cir. 2015), has infected cases pending far from New York City where Rothstein was decided.
This time the Rothstein decision was understandably held binding on the trial court in Lyons v. Litton Loan Servicing LP, No. 1:13-cv-513 (ALC) (GWG), 2016 WL 415165 (S.D.N.Y. February 2, 2016), also decided in New York City. However, the fingerprints on Rothstein reflect that it was planned in advance, while Lyons reads like it was decided in you should pardon the expression 'a New York minute.'
Speaking of a New York minute, within 24 hours after Lyons was decided, it was submitted to a trial judge in Florida as authority for the misunderstood filed rate doctrine in Lowe v. Loancare, Doc. No. 34-1, Exhibit A to Defendant American Security Insurance Company's Notice of Supplemental Authority filed February 3, 2016 (S.D. Fla. Case No. 1:15-cv-23700-KMM).
That does not give a judge enough time to read the decisions let alone make the decision.
Recent statistics about Florida and Lender Force-Placed Insurance show that total U.S. premiums for LFPI were $3.5 Billion when total Florida premiums for LFPI were over 1/3 of that amount at $1.2 Billion.
Further, 35% of all LFPI policies were written in Florida.
There is every reason to think that Florida's role in the LFPI market has not changed much.
Speaking of recovery of damages allegedly the result of lender force-placed insurance, a Magistrate Judge ordered his Final Approval of Class Action Settlement in a South Florida case followed here and on Insurance Claims and Issues blog, Lee v. Ocwen Loan Servicing, LLC, No. 14-CV-60649, 2015 WL 5449813 (S.D. Fla. September 14, 2015) (Goodman, USMJ). The publicly accessible order is here: Download Lee v Ocwen Loan Servicing.Order Final Approval Class Action Settlement.091415 (SD Fla No. 14.60649).. A person objecting to the settlement appealed after the Magistrate Judge overruled her objections and granted Final Approval to the Class Action Settlement. That appeal is pending under the case style Margo Perryman v. Ocwen Loan Servicing, appeal docketed, No. 15-14630 (11th Cir. October 14, 2015).
I am continuing with my experiment taking Kevin O'Keefe's suggestion that short posts attract more conversation, and that people who read blogs are not looking to read articles. In particular, I want to see if this is good advice for popular posts on insurance coverage and bad faith issues here and on Insurance Claims and Issues blog.
The District Court in Maryland recently denied a motion to dismiss a breach of contract count where the plaintiff alleged in essence that he had already exhausted his administrative remedies. His homeowner's carrier cancelled his policy after he made a fire loss claim, then reinstated it after the mortgagee force-placed insurance on the homeowner and the homeowner filed a complaint about the homeowner's cancellation with the Maryland Insurance Administration (MIA). The homeowner's carrier then denied the claim after the policy was reinstated. "Although Nguti's insurance policy was reinstated after the MIA investigation, Nguti is seeking damages for the costs of the force-placed insurance coverage." Nguti v. Safeco Ins. Co., No. IDC-15-0742, 2016 WL 183521, at *4 (D. Md. opinion filed January 14, 2016).
Recent decisions in insurance cases have permitted the introduction of an affirmative defense as a reason for dismissal of a complaint. The decisions have come principally if not exclusively in lender force-placed insurance ("LFPI") cases. The arguments in these cases spotlight many of the reasons that the filed rate doctrine does not belong in insurance cases of any kind.
A recent illustration was previously commented on November 12, 2015: Trevathan v. Select Portfolio Servicing, Inc., No. 15-61175-CIV-DIMITROULEAS/SNOW, 2015 WL 6913144 (S.D. Fla. November 6, 2015). A few more comments are in order here.
It will be recalled that as posted here on November 12, the holding in this recent LFPI case was that since the premium "rate" charged by the insurance company defendant in that case for lender force-placed insurance was previously "filed" and approved by the Florida Office of Insurance Regulation ("OIR," the equivalent of a Florida Insurance Commissioner), then the filed rate doctrine applied and barred all of the plaintiff's claims involving "inflated premiums," i.e., premiums charged as part of a kickback scheme.
That might be a valid holding on a motion for summary judgment after a fully developed record of fact. That is not this case. The November 6th holding was on motions to dismiss. The District Judge apparently did not like any of the plaintiff's claims; the Court dismissed all of them. The plaintiff's "inflated premium" claims were dismissed with prejudice. (After a review of the dismissed complaint on PACER, "Public Access to [Federal] Court Electronic Records," I have to admit that I am at a loss as to which of the alleged claims is an "inflated premium" claim since I did not find any claims that were alleged as such.)
The Court's decision to dismiss with prejudice under the filed rate doctrine was based on an Eleventh Circuit decision in a utilities regulation case. The Eleventh Circuit said in that case:
As it applies in the telecommunications industry, the filed rate doctrine dictates that the rates a carrier charges its customers, once filed with and approved by the FCC, become “the law” and exclusively govern the rights and liabilities of the carrier to the customer:
Not only is a carrier forbidden from charging rates other than as set out in its filed tariff, but customers are also charged with notice of the terms and rates set out in that filed tariff and may not bring an action against a carrier that would invalidate, alter or add to the terms of the filed tariff.
Therefore, causes of action in which the plaintiff attempts to challenge the terms of a filed tariff are barred by the filed rate doctrine.
Hill v. Bellsouth Telecommunications, Inc., 364 F.3d 1308, 1315 (11th Cir. 2004). [Emphasis added.] It is clear under the cited authorities that the filed rate doctrine can only bar claims when the plaintiff making those claims is also the regulated utility's customer. This is not the case with LFPI claims. Even if some providers of insurance policies to lenders for forced placement may sometimes call homeowners their "customers," that is clearly not plausible. Lenders are the customers of insurance companies offering policies for forced placement by lenders, not homeowners.
Immediately after the observation cited by the District Court in this recent LFPI case that the filed rate doctrine operates to prevent discrimination among customers, the Eleventh Circuit made clear that this reference was to the protection afforded by the filed rate doctrine to prevent "carriers from negotiating a lower rate with some customers and then charging others the rate filed with the FCC." Hill v. Bellsouth Telecommunications, Inc., 364 F.3d 1308, 1316 (11th Cir. 2004). [Emphasis added.] No case is known in which any insurance carrier providing insurance for forced placement by lenders ever attempted to negotiate a lower rate with a homeowner for the premium placed on the homeowner by force.
Further, the District Judge in this recent LFPI case relied on "documents" attached to ASIC's motion to dismiss. In fact, the District Judge took judicial notice of them. The documents were a declaration with three exhibits. See them for yourself via PACER: Trevathan v. Select Portfolio Servicing, Inc., Docket No. 18-1, filed July 2, 2015 (S.D. Fla. Case No. 15-cv-61175). They total 17 pages inclusive of 4 pages of cover sheets with nothing but exhibit stickers on them. If this was the proof of ASIC's "filed rate doctrine" defense, it does not appear in the least to be legally sufficient.
Parenthetically, ASIC also filed a second declaration with exhibits on July 2, 2015. The District Judge in this recent LFPI case did not mention that one in his opinion. However, we will mention it in a future article most likely. You can access PACER in the meantime if you want to see this second declaration with exhibits filed on July 2, 2015 at Trevathan v. Select Portfolio Servicing, Inc., Docket No. 18-2, filed July 2, 2015 (S.D. Fla. Case No. 15-cv-61175).
To ASIC's and the declarant's credit, they did not attempt to say that 10 pages of exhibits in Docket No. 18-1 with text on them constituted ASIC's rate filing. But that is the point in a way. In Florida, a lot more goes into a rate filing with the Florida Office of Insurance Regulation than the 10 pages in the Electronic Court File here. Among many other things, each homeowner's insurance rate filing and each "dwelling insurance" rate filing shall include "expense factors" such as "[c]ommissions and brokerage," for starters under the Florida Administrative Code. See Rule 69O-170.014, F.A.C. concerning ratemaking and rate filing procedures for homeowners insurance; Rule 69O-170.141, F.A.C. concerns the same things as to dwelling insurance. Both of them in turn depend on compliance also with Rule 69O-170.013(3), F.A.C., as do many of the Florida's insurance ratemaking and rate filing procedures. That Rule is not brief, as you can see for yourself here:
(3) Filing Submittal Requirements.
(a) Complete rate, rule, underwriting guidelines for both new and renewal business, and form filings shall be submitted with the following information:
Form OIR-B1-582, “Universal Standardized Data Letter,” as adopted in Rule 69O-170.015, F.A.C.
Cover letter that shall include, at a minimum:
The purpose of the filing;
For rate and rule filings, an identification as to whether the filing is made under “file and use” or “use and file”, including the proposed effective date of the rates or the date the rates were implemented;
If this is a resubmission of a previous file, a brief explanation of the prior filing, including reference to the corresponding Florida filing log number shall be provided;
For a rate filing for which a form is also being filed, identification of the corresponding filing log number for the form or when the form will be submitted;
Explanatory memorandum which shall:
Explain the organization of the components of the filing;
Identify and highlight the changes from the current situation;
Manual pages formatted in compliance with Rule 69O-170.006(2), F.A.C. Subsequent to the initial filing, the insurer may defer submitting final amended manual pages until the Office concludes its analysis. Final approval will not occur until final manual pages have been submitted.
(b) All filings shall:
Be separated into either rate/rule only or form only filings; and
(c) Group Filings. Insurers may submit a filing on behalf of any combination of insurers within the insurers' group, provided the effective dates are identical for every insurer and the program is identified in the filing.
But the documents filed with the Court in this recent LFPI case were brief. They did not constitute ASIC's rate filing by any stretch of the imagination. There was no rate filing for homeowner's insurance in the record of this case when the Court ruled that the "filed rate doctrine" applied in this recent LFPI case and there is no rate filing in the Electronic Court Record now either.
Unless the current "plausibility" standard to state a claim upon which relief can be granted in Federal Courts has somehow abolished the following rule, it had been the rule that in order to justify dismissal of a complaint based on an affirmative defense that application of the affirmative defense must appear from the face of the complaint. Assuming that that rule somehow survives, including in the U.S. District Court for the Southern District of Florida, it is difficult at best to see how the filed rate doctrine defense was made to appear from the face of the complaint in the Electronic Court File of this recent LFPI case.
Much more could be said. But the time has come to be content with one final observation here: Parties and Courts accepting the filed rate doctrine as a bar to any insurance-related claim are really saying that the Florida Office of Insurance Regulation approves premium rates that include the kickbacks alleged in LFPI cases including this one. The Florida OIR would certainly be surprised by that assertion.
That the filed rate argument is even raised and accepted in such cases says more perhaps about LFPI litigation than about the filed rate doctrine.
This holding first appeared in July, 2015 in Nevada. A Federal Judge in a Nevada case held that Green Tree Servicing had the contract right under a homeowner's mortgage to place insurance premiums by force on a homeowner for periods of time when there was no insurance. Even though no recognizable insurance coverage could possibly be stretched backwards to cover those elapsed periods of time, yet Green Tree as the mortgage servicer could still force the homeowner to pay the premiums for those periods. It was so held in Morris v. Green Tree Servicing, LLC, No. 2:14-cv-01998-GMN-CWH, 2015 WL 4113212 (D. Nev. July 8, 2015).
Now with a second opportunity to dismiss the plaintiff's claims, this time the Federal Judge dismissed 6 more of the plaintiff's claims with prejudice, in a more recent appearance of this case in Morris v. Green Tree Servicing, LLC, No. 2:14-cv-01998-GMN-CWH, 2015 WL 7573193, at *6 (D. Nev. November 25, 2015). The plaintiff's complaint is left with two (2) alleged claims for breach of contract and one (1) claim apiece for alleged "breach of the implied covenant of good faith and fair dealing" and "intentional misrepresentation."
It is not entirely clear after the latest iteration of Morris v. Green Tree Servicing whether the "backdated insurance" allegations are left to assist in stating one of the remaining claims, or whether these allegations are instead part of the dismissals with prejudice here. This time around the District Judge seemed to speak of them as surviving dismissal, but maybe not. SeeMorris v. Green Tree Servicing, LLC, No. 2:14-cv-01998-GMN-CWH, 2015 WL 7573193, at *3 (D. Nev. November 25, 2015).
The effect of the holding by a U.S. District Judge in South Florida is that regulators approved kickbacks as part of an insurance rate, and so homeowners must pay for the force-placed kickbacks as part of their insurance premiums.
The ruling came in the case of Trevathan v. Select Portfolio Servicing, Inc., No. 15-61175-CIV-DIMITROULEAS/SNOW, ___ F. Supp. 3d ___, 2015 WL 6913144 (S.D. Fla. November 6, 2015). In that case, the District Judge apparently did not find any claim he liked that was alleged in the plaintiff-homeowner's complaint because the District Judge granted all the defendants' motions to dismiss all the claims alleged.
The homeowner's claim based on the alleged kickbacks was dismissed with prejudice. The District Judge's ruling was based on the filed rate doctrine. In effect, the District Judge accepted the defendants' argument that since the insurance company among them filed for regulatory approval of a rate which all of the defendants say included kickbacks, that all the defendants thereby became immune from suit over the kickbacks and the homeowner in this case must pay for force-placed kickbacks because the Florida Office of Insurance Regulation approved the kickbacks, the Judge ruled. Trevathan v. Select Portfolio Servicing, Inc., No. 15-61175-CIV-DIMITROULEAS/SNOW, ___ F. Supp. 3d ___, 2015 WL 6913144, at *2 - *3 (S.D. Fla. November 6, 2015).
Another court in the Eleventh Circuit has "distinguished" an Eleventh Circuit panel's Feaz decision which rested on unique Alabama fiduciary law. In actuality, the District Court rightly distinguished Feaz completely out of relevance to lender force-placed insurance practices except, perhaps, those practices permitted under Alabama law, in Edwards v. Green Tree Servicing, LLC, No. 5:15cv148-MW/GRJ, 2015 WL 6777463, at pp. *7, *9 (N.D. Fla. October 22, 2015):
Moreover, Feaz [v. Wells Fargo Bank, N.A., 745 F.3d 1098 (11th Cir. 2014)] does not, as Green Tree Servicing argues, preclude the claim. Feaz did not address a claim similar to the Edwards', as Feaz's implied-duty claims against Wells Fargo concerned the amount of insurance that was force-placed, rather than the choice of a policy that included “kickbacks” in the price. Feaz, 745 F.3d at 1110. Moreover, Feaz was decided under Alabama law. Under Alabama law, unlike Florida law, “‘sole discretion’ means an absolute reservation of a right[;][i]t is not mitigated by an implied covenant of good faith and fair dealing in contracts.”
* * *
Green Tree's reliance on Feaz is, again, unpersuasive. Feaz dealt with a claim of breach under fiduciary duty under Alabama law which, unlike Florida law, does not contain an exception for “special circumstances” that create a fiduciary relationship that would not otherwise exist.
A lender force-placed insurance ("LFPI") case went to trial. And the evidence introduced at trial has just been reported, a lot of it. There have been many LFPI cases, but until recently most have ended in secret settlements and none has been found which ended in a trial.
Based on the evidence in this "wrongful foreclosure" action that did go to trial, a State Court Trial Judge entered judgment for the mortgagor's estate and assessed punitive damages. On appeal, the State Court of Appeals affirmed in part and reversed in part. When it affirmed, the appellate court affirmed multiple grounds for the trial court's holdings of liability and assessment of punitive damages. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 2015-NMCA-096 (N.M. Ct. App. 2015).
Lender force-placed insurance practices are ordinarily challenged in Federal Court actions. Not one of those challenges has ended with a trial. The Dollens case may very well present a viable way not only to publicly air out practices which affect the public, but also to provide incentive for attorneys to litigate cases in which the prospect of success does not always mean settlement. Instead, the prospects of success in LFPI cases now can mean awards of general damages and assessments of punitive damages in favor of homeowners-mortgagors who have proven lender misconduct and resulting damages.
In Dollens, the parties stipulated that general damages amounted to $4,221.73. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 535 n.2, 2015-NMCA-096 (N.M. Ct. App. 2015). This amount apparently reflects the amount due on the decedent's mortgage which the evidence shows was misapplied by the defendant mortgage servicer. In basic terms, the evidence also displayed that the actions of the mortgage servicer dealing with the money were the predicate cause of the decedent's mortgage loan going into default. Upon default, the mortgage servicer foreclosed on the decedent's property. Here is what the evidence shows according to the appellate court in Dollens.
The evidence shows that the mortgage servicer had two (2) opportunities to bring the mortgage due, and that it declined the opportunity on both occasions because it paid itself before it applied the payments according to the priorities set forth in the mortgage. The first occasion was when Minnesota Life Insurance Company paid the mortgage servicer the proceeds of a mortgage accidental death (or "MADD") insurance policy in the amount of $133,559.15. The mortgage servicer acted as the insurance company's "agent" to sell the MADD policy to the decedent. The servicer pocketed the "agent fees" paid by the insurance company. Parenthetically, in the parlance of LFPI cases, "fees" of this kind are alleged "kickbacks."
Further, in Dollens, instead of applying the insurance proceeds to reduce the principal balance as the mortgage required it to do, the mortgage servicer paid itself late fees, inspection charges, and bills for charges supposedly incurred for preservation of the property.
Parenthetically, the evidence clearly shows that before Minnesota Life paid the MADD proceeds to the mortgage servicer, Minnesota Life -- in a communication from the principal to its agent -- begged the mortgage servicer not to foreclose.
The evidence also clearly shows that the servicer filed for foreclosure six days after Minnesota Life asked it to hold off on filing foreclosure proceedings.
Inexplicably, in the eyes of the appellate court, the evidence does not reflect any other response by the agent to its principal, i.e., by the mortgage servicer to the insurance company.
The second time was just like the first, which came about when the decedent's estate brought the loan current four-and-one-half months later. Again, the mortgage servicer paid itself late fees and property inspection fees, and left more due on the loan than would have been the case if the payment had been applied following the priorities established in the mortgage for the mortgage servicer to follow, and which, the evidence showed, for a second time it did not follow. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 535, 2015-NMCA-096 (N.M. Ct. App. 2015).
The appellate court affirmed the trial court's assessment of punitive damages on at least two grounds, in part here pertinent. The first ground related to the evidence admitted at trial concerning what the appellate court called "unreasonable property inspection and preservation fees":
The Estate presented evidence at trial that Wells Fargo made excessive “drive-by” visits to the property, charging the mortgage account for each visit, and also charging for dubious preservation work orders, including orders for “winterization” in July, and multiple orders for “grass cuts” where photographic evidence presented at trial demonstrated that there was no grass.
Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 543 ¶ 32, 2015-NMCA-096 (N.M. Ct. App. 2015). [Emphasis added.]
The appellate court also affirmed the trial court's assessment of punitive damages on account of what the appellate court termed, "misapplication of funds." Affirmance on this claim (or group of claims) was reached "[f]or several reasons," the appellate court's conclusion in part being that "there was substantial evidence that Wells Fargo misapplied the insurance proceeds in bad faith." Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 544 ¶ 37, 2015-NMCA-096 (N.M. Ct. App. 2015). [Emphasis added.]
There was more evidence to come, however:
Against this backdrop, the district court heard testimony from a Wells Fargo employee that the account was handled in a “customary” manner. Thus, it was reasonable to conclude that these were not isolated errors but that Wells Fargo consistently and systematically acted in order “to increase its profits without regard for ... Decedent or his family.”
Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 545 ¶ 40, 2015-NMCA-096 (N.M. Ct. App. 2015).
There is more to the Dollens opinion on appeal, and readers will profit from reading it in its entirety. What has been shown here is enough to show the benefits of evidence and a record in lender force-placed insurance cases.
The case of Jackson v. Wells Fargo Bank, N.A., No. 2:12v1262, 2015 WL 5732090 (W.D. Pa. September 30, 2015) was filed as a class action. The named plaintiffs alleged claims arising out of lender force-placed insurance practices ("LFPI"), in this case, arising out of lender force-placed flood insurance practices. The plaintiffs alleged several claims, including alleged bad faith, as is typical in such cases. See Jackson v. Wells Fargo Bank, N.A., No. 2:12v1262, 2015 WL 5732090, *4 (W.D. Pa. September 30, 2015).
The parties' discovery was "significant," their lawyers said, and also they relied on "over 200,000 pages of documents produced" in another LFPI case. Jackson v. Wells Fargo Bank, N.A., No. 2:12v1262, 2015 WL 5732090, *4 (W.D. Pa. September 30, 2015).
After this activity, the case settled. The plaintiffs' lawyers and the defendants' lawyers stipulated that a class should be certified for settlement and the case settled accordingly. After citing to many factors for approval of the stipulation, the District Judge approved the settlement. Jackson v. Wells Fargo Bank, N.A., No. 2:12v1262, 2015 WL 5732090 (W.D. Pa. September 30, 2015).
This makes 100% of the lender force-placed insurance practice cases which have not gone to trial. To say the same thing in other words, no lender force-placed insurance practices case has been located which has ever gone to trial.
Perhaps for that reason, objections to the settlement were not, the District Judge pointed out, supported by "any controlling authority." Jackson v. Wells Fargo Bank, N.A., No. 2:12v1262, 2015 WL 5732090, *16 (W.D. Pa. September 30, 2015).
Harney's answer in the end: "[T]he statistical evidence suggests that, on average, it is increasingly people with higher scores, not lower, who are making the final cut." Id.
The trend toward mortgage lenders putting their emphasis on high credit scores is perplexing in view of the business model of making conventional mortgage loans. Did you know that the conventional mortgage loans business model involves making loans to relatively low-creditworthy applicants, making your profit, and then making more profit by selling the loan to Fannie Mae, Freddie Mac, or the FHA? Well, it is. See id. Which, to say again, makes the increasing emphasis on ever-higher credit scores a perplexing thing. There must be something behind the available evidence that we cannot see, yet.
