950 F. Supp. 2d 1093
N.D. Cal.2013Background
- Plaintiffs Arley and Valerie Leghorn (borrowers) allege Wells Fargo (WFB/WFI) and QBE (QBEC/QBEF) force-placed backdated flood insurance and charged/retained premiums and commissions despite borrowers having maintained coverage; plaintiffs seek class relief for breach of contract, breach of implied covenant, UCL violations, and restitution/unjust enrichment.
- Plaintiffs say Wells Fargo (successor to Wachovia) sent notices in 2012 showing force-placed policies dated retroactively to 2009–2011; one premium was refunded after plaintiffs produced proof of coverage, another was not and plaintiffs paid to avoid credit/foreclosure harm.
- Alleged scheme: QBEC issued policies, QBEF split premiums and paid ~11% commissions to WFI, which passed funds to WFB (“kickbacks”); plaintiffs allege backdating and kickbacks provided no benefit to borrowers and violated NFIA and contractual limits.
- Defendants moved to dismiss and/or strike: Wells Fargo argued federal preemption (HOLA/NBA), the filed-rate doctrine/California Insurance Code bars challenge to filed rates/commissions, and that backdating is permitted to ensure continuous coverage; QBE raised filed-rate and UCL insufficiency defenses; both asked to strike punitive damages.
- Court took judicial notice of QBEC’s DOI rate filing (public record) and denied both motions, holding plaintiffs’ backdating and kickback theories sufficiently pleaded and not preempted by the NBA, and that the filed-rate doctrine/Insurance Code did not bar the claims at the pleading stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Preemption (NBA/HOLA) — do plaintiffs’ state-law claims interfere with national-bank powers? | Claims challenge how Wells Fargo exercised force-placement (backdating/kickbacks), not the bank’s authority to obtain insurance; NBA does not preempt contract/tort claims of general applicability. | Wells Fargo argued HOLA or NBA preempt claims because they implicate lending, fee-setting, and servicing powers; HOLA should apply because loan originated with a federal thrift. | NBA governs (acts occurred after merger). Court: NBA does not preempt these claims — allegations challenge conduct distinct from core fee-setting/real-estate-lending powers. |
| Filed-rate doctrine / CA Insurance Code — may plaintiffs attack premiums/commissions? | Plaintiffs argue they challenge manipulation of force-placement and kickbacks, not QBE’s filed rates; alleged harm stems from insurer selection and secret commissions, not the lawfulness of filed rates. | Defendants say rates/commissions were filed/approved with DOI so collateral attack is barred and statutes protect filed rates. | Court: Judicial notice of QBEC filing; filed-rate/Insurance Code defenses do not bar kickback/backdating claims as pled because plaintiffs attack conduct (selection/kickbacks/backdating), not an insurer’s filed rate. |
| Contract & implied covenant — did DOT authorize backdating or receiving kickbacks? | DOT language is ambiguous; plaintiffs plausibly allege WFB exceeded discretion by arranging kickbacks and backdating policies, breaching contract and covenant. | Wells Fargo contends DOT authorizes force-placement to ensure continuous coverage and permits charging costs; backdating and commissions are reasonably related to that authority. | Court: Denied dismissal — contractual provisions ambiguous; similar district courts recognized such claims; factual questions preclude resolution at pleading stage. |
| UCL / restitution / punitive damages — standing and remedy sufficiency? | Plaintiffs allege economic injury (paid inflated/backdated premiums) and seek restitution, injunctive relief, and exemplary damages tied to unjust enrichment. | Defendants argued lack of standing, no cognizable injury under UCL (filed-rate), UCL unfairness not alleged, and punitive damages inadequately pleaded. | Court: Plaintiffs pleaded injury-in-fact and plausible UCL unfairness theories; restitution claims allowed; motion to strike punitive damages denied as premature under Rule 12(f). |
Key Cases Cited
- Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir. 2012) (NBA preemption may bar state-law challenges to bank pricing/fee decisions but not all conduct; distinguishes pricing from other tort/contract claims)
- Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549 (9th Cir. 2010) (OCC regulations and NBA preempt certain state-law challenges to bank fees; fee-setting is a bank business decision)
- Barnett Bank of Marion County v. Nelson, 517 U.S. 25 (1996) (state laws may not significantly interfere with national banks’ exercise of federally authorized powers)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: complaint must state a claim plausible on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to presumption of truth in Rule 12(b)(6) analysis)
- MacKay v. Superior Court, 188 Cal.App.4th 1427 (Cal. Ct. App. 2010) (California statutes and filed-rate doctrine can bar collateral attack on approved insurance rates)