Rothstein v. Balboa Insurance Co.
2015 U.S. App. LEXIS 12623
| 2d Cir. | 2015Background
- Borrowers (plaintiffs) failed to maintain required hazard insurance; servicer GMAC purchased lender-placed insurance (LPI) from Balboa and sought reimbursement from borrowers at rates Balboa filed with state regulators.
- Plaintiffs allege a scheme: Balboa provided loan-tracking services via affiliate Newport to GMAC (quid pro quo), effectively reducing Balboa’s net price; GMAC nevertheless billed borrowers the full filed rates and kept the benefit.
- Plaintiffs sued under RICO and RESPA (class action). GMAC-related claims were settled in bankruptcy; remaining defendants Balboa and Newport moved to dismiss.
- The district court denied dismissal, reasoning the filed rate doctrine did not apply because plaintiffs were not direct customers of Balboa.
- The Second Circuit reversed: it held the filed rate doctrine bars challenges to regulator-approved rates even when the rate passes through an intermediary (A→B→C), because such challenges would (1) undermine regulators’ rate-setting (nonjusticiability) and (2) create preferential treatment (nondiscrimination).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the filed rate doctrine bars claims attacking billed LPI when insurer filed rates with regulators but billing passed through lender | Rothstein: claims challenge a corrupt scheme (rebates/kickbacks) and not the filed rates themselves; plaintiffs are entitled to challenge overbilling | Balboa/Newport: filed rates are per se reasonable; plaintiffs cannot attack regulator-approved rates even if passed through an intermediary | Doctrine applies; claims barred because they would undermine regulatory rate-setting and yield preferential rebates to plaintiffs |
| Whether the filed rate doctrine applies when the plaintiff is not the direct customer of the rate filer (A→B→C) | Rothstein: doctrine governs only direct A→B transactions; here insurer billed lender, not borrower | Balboa/Newport: doctrine extends to ultimate ratepayers who pay filed rates through intermediaries | Doctrine extends to A→B→C transactions; intermediaries do not avoid the doctrine |
| Whether alleged ancillary services (Newport loan-tracking) transform or avoid the filed rate | Rothstein: Newport services effectively discounted the rate; the filed rate should reflect net pricing | Balboa/Newport: regulators decide what to include in filed rates; services do not change filed-rate protection | Court: inclusion/valuation of services is for regulators; judicial inquiry would improperly second-guess rate-making |
| Whether class recovery would defeat nondiscrimination concerns | Rothstein: class suit remedies disparities; class relief is appropriate | Balboa/Newport: allowing damages would function as rebates, giving class members preferential rates over other ratepayers | Court: class status does not cure nondiscrimination; damages would create preferential treatment and are barred |
Key Cases Cited
- Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17 (2d Cir. 1994) (establishes filed rate doctrine; courts must not second-guess regulator-approved rates)
- Marcus v. AT&T Corp., 138 F.3d 46 (2d Cir. 1998) (filed rate bars claims that would undermine nonjusticiability and nondiscrimination principles)
- Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156 (U.S. 1922) (filed rate prevents individual ratepayers from obtaining preferential rebates)
- Simon v. KeySpan Corp., 694 F.3d 196 (2d Cir. 2012) (filed rate doctrine applies even where consumer buys through intermediary)
- Ark. La. Gas Co. v. Hall, 453 U.S. 571 (U.S. 1981) (prohibits courts from awarding retroactive rate adjustments based on speculation about what regulators might have done)
- Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479 (2d Cir. 1998) (reiterates that plaintiffs cannot recharacterize claims to avoid filed rate doctrine)