Arnett v. Bank of America
2012 U.S. Dist. LEXIS 95848
D. Or.2012Background
- NFIA governs lender flood-insurance requirements in federally designated flood zones.
- Arnetts obtained a mortgage from KeyBank; servicing later transferred to Countrywide, then BOA.
- Arnetts were in a special flood hazard area; NSFH and FIR set flood-insurance obligations and amounts.
- Trust deed allowed lender to require insurance and to obtain coverage at borrower’s expense; NSFH fixed flood-insurance amount and life-of-loan maintenance.
- BOA issued force-placed insurance actions and premiums; multiple policies were purchased and later refunded in part.
- Plaintiffs allege BOA exceeded NFIA, profited via force-placed insurance, and breached multiple duties and statutes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether contract is ambiguous on flood-insurance amounts | NSFH fixes amount; contract ambiguous granting discretion. | Contract grants discretion to set amounts; NSFH clarifies minimums only. | Ambiguity exists; not dismissed at pleadings stage. |
| Breach of express contract vs implied covenant governing flood insurance | BOA breached by enforcing excess insurance beyond contract terms. | Contract allows BOA to set flood-insurance amounts. | Breach claim survives only if contract ambiguous; otherwise dismissed; ambiguity prevents dismissal. |
| Unjust enrichment when contract covers flood insurance | BOA unjustly profited from excess premiums. | Contract governs the services; unjust enrichment unavailable. | Provisionally dismissed; may be reinstated if BOA not party to contract. |
| Conversion claim based on escrow funds and force-placed policies | Defendants unlawfully converted identifiable escrow funds. | Conversion not established because contract governs the insurance. | Conversion claim survives pending contract analysis; but depends on contract basis for damages. |
| TILA/RESPA/UDCPA claims viability | Defendants violated TILA by misdisclosures and post-origination terms; RESPA and UDCPA claims alleged. | No disclosures required post-origination; costs fall under insurance exception; UDCPA not about existence of debt. | TILA and RESPA and UDCPA claims are dismissed; only narrowly remaining contract-based theories proceed. |
Key Cases Cited
- Best v. U.S. Nat. Bank of Oregon, 303 Or. 557, 739 P.2d 554 (Ore. 1987) (discretion in open terms bounded by reasonable expectations)
- Tolbert v. First Nat. Bank of Oregon, 312 Or. 485, 823 P.2d 965 (Or. 1991) (focus on objectively reasonable expectations in discretion cases)
- Paci. First Bank v. New Morgan Park Corp., 319 Or. 342, 876 P.2d 761 (Or. 1994) (limits on good-faith duties when contract provides unilateral discretion)
- Uptown Heights Assoc. Ltd. P’ship v. Seafirst Corp., 320 Or. 638, 891 P.2d 639 (Or. 1995) (duty of good faith may apply when discretion lacks a method of exercise)
- McKay’s Mkt. of Coos Bay, Inc. v. Pickett, 212 Or.App. 7, 157 P.3d 291 (Or. App. 2007) (three-factor test for whether multiple documents form a single contract)
- Westlands Water Dist. v. United States Dep’t of Interior, 850 F.Supp.1388 (E.D. Cal. 1994) (ambiguous-contract dismissal bar)