6 F. Supp. 3d 1300
S.D. Fla.2014Background
- Plaintiffs (Hamilton and Wieder) allege SunTrust and affiliated QBE entities conspired to force-place mortgage hazard insurance at grossly inflated premiums and split the excess as undisclosed kickbacks.
- SunTrust allegedly granted QBE an exclusive right to force-place insurance; QBE First would notify borrowers and purchase policies from QBE Specialty at inflated rates, billing borrowers or debiting escrow accounts.
- Hamilton’s mortgage allowed the lender to obtain insurance at borrower’s expense and to add those amounts to the mortgage debt; her account was charged for a force-placed policy backdated to 2010.
- Wieder was charged a force-placed premium (~$16,610) later debited from escrow while he subsequently obtained much cheaper coverage (~$1,076/year).
- Plaintiffs assert three Florida-law claims: (1) breach of the implied covenant of good faith and fair dealing (against SunTrust), (2) unjust enrichment (against QBE Defendants), and (3) tortious interference (against QBE Defendants). SunTrust moved to dismiss Count I and alternatively urged Colorado River abstention and lack of standing for Hamilton.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Court should abstain under Colorado River | Hamilton: federal court should hear her federal suit; state foreclosure overlap not dispositive | SunTrust: parallel state foreclosure counterclaim with similar force-placed allegations warrants abstention | Denied — court found Colorado River factors weigh against abstention (only choice-of-law favored abstention) |
| Whether Hamilton has Article III standing | Hamilton: charged for force-placed premiums which are added to her debt, so she has injury, causation, redressability | SunTrust: she never paid premiums (force-place occurred after she stopped paying mortgage), so no injury yet | Granted standing — court finds her account was charged and potential debt reduction provides injury and redressability |
| Whether prior borrower breaches (lapse/default) bar a bad-faith contract claim | Plaintiffs: prior lapses aren’t necessarily material; even if, lender’s continuation of the contract waives the borrower-excuse and obliges lender to act in good faith | SunTrust: borrowers’ prior breaches excuse lender’s duties; breaches preclude contract claims | Rejected — the lender’s decision to continue performance (force-place) obliges it to act in good faith; prior breaches do not bar the claim at pleading stage |
| Whether plaintiffs plausibly alleged breach of the implied covenant under Florida law given lender discretion | Plaintiffs: mortgage gives SunTrust discretion to force-place but not unfettered power to act capriciously; alleging exclusive kickbacks and exorbitant pricing states a claim | SunTrust: Florida law (like other circuits) permits sole-discretion clauses to preclude implied-duty claims; cites Cohen and Feaz | Denied — under Florida law the implied covenant can limit discretionary rights; plaintiffs sufficiently alleged bad-faith exercise (exclusive deals, undisclosed kickbacks, extreme markups) to survive 12(b)(6); Cohen and Feaz distinguished on law/facts |
Key Cases Cited
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) (federal abstention doctrine permitting rare dismissal where parallel state case and strong judicial-administration reasons exist)
- Ambrosia Coal & Constr. Co. v. Pages Morales, 368 F.3d 1320 (11th Cir. 2004) (defines "parallel" actions and lists Colorado River factors for abstention)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (applies and explains Twombly plausibility and dismissal standards)
- Feaz v. Wells Fargo Bank, N.A., 745 F.3d 1098 (11th Cir. 2014) (interpreting "sole discretion" clauses under Alabama law to preclude implied-duty claims)
- Cohen v. American Sec. Ins. Co., 735 F.3d 601 (7th Cir. 2013) (affirming dismissal of implied-duty claim where contract disclosures under Illinois law undermined bad-faith inference)
- Centurion Air Cargo, Inc. v. United Parcel Serv. Co., 420 F.3d 1146 (11th Cir. 2005) (recognizing implied covenant of good faith and fair dealing in contracts under Florida law)