Ellsworth v. U.S. Bank, N.A.
908 F. Supp. 2d 1063
N.D. Cal.2012Background
- Ellsworth alleges a putative class action against U.S. Bank and ASIC for force-placed flood insurance with backdating and kickbacks.
- Mortgage documents authorize force-placing insurance and grant lender discretion; paragraph 9 requires reasonableness and appropriateness in protecting the lender’s interest.
- Notice in 2010 informed Ellsworth that SFHA coverage was required and ASIC backdated a policy (effective 2009–2010) with a $2,250 premium to be added to escrow.
- Ellsworth purchased a non-backdated State Farm flood policy in 2010 at a much lower cost than the force-placed policy.
- ASIC allegedly pays kickbacks to lenders for force-placing insurance and discloses such commissions in regulatory filings.
- Defendants moved to dismiss the FAC on preemption, filed rate/voluntary payment, and sufficiency grounds; the magistrate denied the motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| NBA preemption of Ellsworth's claims | Claims not preempted as they target conduct, not fee setting. | NBA preempts broad claims challenging fee setting and real estate lending powers. | NBA preemption does not bar Ellsworth's claims |
| Kickback allegations and preemption | Kickbacks and related practices are not about fee setting; they implicate contractual duties. | Kickbacks interfere with fee-setting and lending powers. | Not preempted; claims survive |
| Backdating allegations and preemption | Backdating violates NFIA and contractual duties; not within preempted scope. | Backdating aligns with NFIA and risk management powers. | Not preempted; claims survive |
| California Insurance Code exemption | Claims focus on conduct (kickbacks/backdating), not rate challenges. | Rates approved by the Commissioner immunize ASIC from non-rate claims. | Code immunity does not bar these claims; conduct-based claims allowed |
| Voluntary payment doctrine | Payment of $2,250 is not a voluntary payment bar to relief. | Payment bars relief under the doctrine. | Doctrine not apparent on the face of the complaint; not a basis to dismiss |
Key Cases Cited
- Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549 (9th Cir. 2010) (preemption of certain fee-related claims under NBA and 7.4002; focus on core predicate of claims)
- McNeary-Calloway v. JP Morgan Chase Bank, N.A., 863 F. Supp. 2d 928 (N.D. Cal. 2012) (unfair force-placed insurance claims and covenant of good faith persuasive on pleading stage)
- Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1161 (9th Cir. 2012) (tethering/balancing tests for UCL; distinguishable from Best Buy ruling)
- Larin v. Bank of Am., N.A., 475 F. App’x 121 (9th Cir. 2012) (non-precedential but discusses incidental effects on real estate lending and preemption)