Longest v. Green Tree Servicing LLC
2015 U.S. Dist. LEXIS 16173
C.D. Cal.2015Background
- Plaintiffs (Longest, Junxiu Cai, Lifen Cai) are borrowers whose mortgages permit the servicer to force-place hazard insurance if borrowers fail to maintain coverage; Longest (CA) and the Cais (FL) seek class treatment for similar policies.
- Plaintiffs allege Green Tree Servicing (GTS) purchased force-placed insurance (FPI) from insurers (notably Assurant) and passed inflated premiums to borrowers, while affiliated Green Tree Insurance (GTI) received large “commissions” that were actually unearned kickbacks.
- Plaintiffs claim the kickbacks caused overcharges that were added to loan balances or escrow, harming borrowers; they assert claims under California law (breach of contract, breach of implied covenant, UCL, restitution) and Florida law (breach of contract, breach of implied covenant, unjust enrichment).
- Defendants moved to dismiss, arguing (inter alia) that mortgage language authorized charging the cost of FPI (including commissions), plaintiffs failed to plead performance under the mortgages, and the filed-rate doctrine bars relief.
- The Court accepted judicial notice of the mortgage instruments and applied California law to Longest and Florida law to the Cais per choice-of-law clauses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract (CA & FL) — whether charging premiums that include alleged kickbacks breaches the mortgage | Mortgage allows charging only the true cost and amounts disbursed; defendants’ receipt of unearned kickbacks makes premiums unlawfully inflated | Mortgage permits charging the cost of FPI (including disclosed commissions); no contractual breach as a matter of law; plaintiffs failed to allege performance; filed-rate doctrine bars damages | Denied dismissal — plausibly pleaded breach; contract language ambiguous; plaintiffs adequately alleged excused performance; filed-rate doctrine does not bar challenge to the servicer’s conduct (damages tied to alleged kickbacks) |
| Breach of implied covenant (CA & FL) — whether servicer abused contractual discretion | GTS had discretionary power to select FPI but exercised it in bad faith to self-deal and maximize profit via kickbacks | Claim duplicates breach-of-contract and is superfluous | Denied dismissal — allegations of conscious self-dealing and bad faith are sufficiently distinct from the contract claim to survive pleading stage |
| Unjust enrichment / restitution (CA & FL) — whether plaintiffs can sue GTI for monies received | Plaintiffs paid inflated premiums that benefited GTI; retention of those benefits is unjust | Quasi-contract unavailable because express contract governs; under FL law plaintiffs didn’t pay GTI directly | Denied dismissal — alternative pleading permissible under Rule 8(d); plaintiffs plausibly allege benefit conferred and inequitable retention (direct-benefit requirement satisfied given flow of funds) |
| UCL (Cal. Bus. & Prof. Code § 17200) — whether practice is "unfair" | Force-placing inflated policies via kickbacks is immoral, oppressive, and substantially injures consumers | Disclosed commissions and mortgage language preclude UCL unfairness as a matter of law | Denied dismissal — allegations satisfy the California balancing test for unfairness at pleading stage |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must state plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to assumed truth)
- Cohen v. American Security Insurance Co., 735 F.3d 601 (7th Cir.) (addressed kickback theory in FPI context)
- Feaz v. Wells Fargo Bank, N.A., 745 F.3d 1098 (11th Cir.) (addressed force-placed insurance and alleged kickbacks)
- Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17 (filed-rate doctrine principle)
- Ghirardo v. Antonioli, 14 Cal.4th 39 (Cal. 1996) (elements of restitution/unjust enrichment under California law)
- Perdue v. Crocker Nat'l Bank, 38 Cal.3d 913 (Cal. 1985) (implied covenant limits exercise of contractual discretion)
- McNeary-Calloway v. JP Morgan Chase Bank, N.A., 863 F.Supp.2d 928 (N.D.Cal.2012) (permitting parallel contract and implied covenant claims in FPI cases)