931 F. Supp. 2d 1028
N.D. Cal.2013Background
- Plaintiffs McKenzie, Biddix, Kibiloski, and Ryan sue Wells Fargo entities and Insurance Defendants for excessive force-placed flood insurance and related claims (breach of contract, unjust enrichment, conversion, tortious interference, and UPA).
- TAC presents two theories: (i) kickback theory (not challenged here) and (ii) excessive insurance theory demanding flood coverage above what GSEs/NFIA require.
- Plaintiffs allege Wells Fargo, as Loan Servicer, forced flood insurance beyond GSE floor, inflating premiums via commissions/backdating and misrepresenting obligations in notices.
- GSE servicing guidelines are alleged to set floors, while NFIA/HUD policies require certain minimums; servicer discretion to set higher levels is disputed.
- The Court’s October 30, 2012 Order dismissed the excessive insurance theory with prejudice and allowed amendment only for the kickback theory; TAC adds excessive-insurance allegations but the Court treats them as beyond the scope of leave to amend.
- Court grants Wells Fargo’s motion to dismiss under Rule 12(b)(6) for the excessive-insurance claims, and dismisses related unjust enrichment, conversion, tortious interference, and UPA theories to the extent based on that theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether excessive insurance claims survive after the October 30, 2012 Order | TAC clarifies Wells Fargo as Loan Servicer and renews excessive-insurance theory. | Excessive-insurance theory was dismissed with prejudice and not within the authorized leave to amend. | Dismissed with prejudice. |
| Whether Wells Fargo breached the mortgage contracts by force-placing insurance above the unpaid balance | As Loan Servicer, Wells Fargo exceeded authority and breached contract. | Wells Fargo acted within Lender’s delegated authority to set flood insurance levels. | No breach; claim dismissed. |
| Whether unjust enrichment claims can stand apart from contract for the force-placed insurance | Wells Fargo unjustly enriched beyond contractual terms. | Contract governs; unjust enrichment fails. | Dismissed with prejudice (beyond kickback theory). |
| Whether conversion claims survive based on force-placed insurance | Funds diverted from escrow to pay force-placed premiums exceed unpaid balance. | Wells Fargo acted within authority; no conversion. | Dismissed (as to excessive-insurance theory). |
| Whether tortious interference with business relations and UPA claims remain viable | Wells Fargo interfered with contractual relationships and engaged in unfair practices. | Actions within delegated authority; guidelines not enforceable by plaintiffs; no UPA violation. | Tortious interference and UPA claims dismissed. |
Key Cases Cited
- Hinton v. Fannie Mae, 945 F. Supp. 1052 (S.D. Tex. 1996) (servicing guidelines set minimums but do not create enforceable duties for borrowers)
- Edlund v. Bounds, 842 S.W.2d 719 (Tex. App. 1992) (conversion elements and rights in property under Texas law)
- Ontiveros Insulation Co., Inc. v. Sanchez, 129 N.M. 200, 3 P.3d 695 (N.M. Ct. App. 2000) (New Mexico unjust enrichment doctrine recognizes restitution-based claims)
- Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 (9th Cir. 2010) (Rule 12(f) vs. 12(b)(6) distinctions for striking claims; preclusion by law not properly struck under 12(f))