978 F. Supp. 2d 1243
M.D. Fla.2013Background
- Plaintiff Albert J. Degutis (reverse-mortgage borrower) alleges Financial Freedom force-placed expensive, duplicative flood insurance despite existing condominium master policy and charged backdated premiums and undisclosed commissions/kickbacks.
- Plaintiff sued as a putative class in Florida state court; defendants removed under CAFA and moved to dismiss under Fed. R. Civ. P. 12(b)(6).
- Claims: breach of implied covenant of good faith and fair dealing (Count I); breach of contract (Count II); violation of Florida Deceptive and Unfair Trade Practices Act (FDUTPA) (Count III); unjust enrichment (Count IV).
- Defendants argued federal preemption (HOLA/OTS regulations and the National Flood Insurance Act) and alternatively that the mortgage expressly authorized their conduct so Counts I, II, and IV fail as a matter of law.
- Court considered the mortgage (uniform HUD/FHA covenants), applied HOLA/OTS preemption framework and NFIA rules, and evaluated whether the contract and common-law claims survived dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HOLA/OTS preempts state-law claims | Degutis: claims are contract/tort/consumer-protection actions incidentally affecting lending and fall within §560.2(c) exceptions | Defendants: HOLA/OTS field preempts state law affecting lending and nonbank subsidiaries; preemption bars Counts | Court: Counts I, II, IV are not preempted on that basis (claims based on contract/tort preserved under §560.2(c)); FDUTPA likewise not preempted under §560.2(c) (consumer protection traditionally state domain) |
| Whether NFIA preempts state-law challenges to force-placing practices | Degutis: NFIA regulates required coverage but does not displace claims about administrative misconduct (kickbacks, backdating) | Defendants: NFIA occupies field and federal flood-insurance scheme precludes state interference | Court: NFIA does not preempt Plaintiff’s allegations about servicing misconduct (no obstacle to NFIA objectives) |
| Whether mortgage contract authorizes the challenged conduct (breach of contract) | Degutis: lender exceeded ‘‘necessary’’ coverage and charged unauthorized costs beyond protecting lender’s interest | Defendants: mortgage’s HUD/FHA uniform covenants permit lender discretion to require/obtain flood insurance in amount it deems necessary; thus no breach | Court: Breach of contract dismissed — uniform HUD covenant and related provisions permit lender to require insurer-chosen coverage (Kolbe guidance) |
| Whether implied covenant, unjust enrichment, and FDUTPA survive | Degutis: alleges bad-faith exercise of discretion (implied covenant), alternative unjust enrichment, and deceptive practices under FDUTPA | Defendants: implied-covenant claim cannot vary express contract; unjust enrichment barred by existence of express contract; FDUTPA barred by federal preemption/exemption | Court: Implied covenant and unjust enrichment dismissed with prejudice (dependent on contract). FDUTPA claim survives (plausible allegations of deceptive/unfair practices beyond mere contract interpretation); defendants to answer Count III |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must allege facts raising entitlement to relief above speculative level)
- Kolbe v. BAC Home Loans Servicing, LP, 738 F.3d 432 (11th Cir. 2013) (uniform HUD mortgage covenant allows lender discretion to require flood insurance beyond NFIP minimum)
- In re Ocwen Loan Servicing, LLC Mortg. Servicing Litig., 491 F.3d 638 (7th Cir. 2007) (OTS regulations preempt many state laws but preserve basic state common-law remedies)
- PNR, Inc. v. Beacon Property Mgmt., Inc., 842 So.2d 773 (Fla. 2003) (FDUTPA encompasses unfair/deceptive practices arising from business relationships)
- James River Ins. Co. v. Ground Down Eng’g, Inc., 540 F.3d 1270 (11th Cir. 2008) (Twombly/Iqbal plausibility applied in Eleventh Circuit)