Lyons v. Litton Loan Servicing LPLyons v. Litton Loan Servicing LP
Plaintiffs bring this purported class action suit against loan servicers and insurers. Plaintiffs are borrowers who were required to pay their loan servicers for lender-placed insurance in connection with their residential mortgage loans.
On September 29, 2015, this Court issued an Order to Show Cause as to why Plaintiffs’ claims should not be dismissed pursuant to Fed.R.Civ,P. 12(b)(6). (ECF No. 121.) This Order was occasioned by a recent Second Circuit decision, Rothstein v. Balboa Ins. Co.,
With this Opinion and Order, the -Court gives a fuller explanation of its original denial of the Assurant Defendants’ motion to dismiss pursuant to
BACKGROUND
I. Factual Background
Plaintiffs Jimmy and Jacqueline Lyons, Johnnie and Frances Erring, Enrique Dominquez, Gerald Coulthurst, Lisa En-gelhardt, Anthony Papapietro, and Sheila Heard brought this suit on behalf of themselves and all other borrowers who were required to pay for lenderplaced insurance (“LPI”), also called force-placed insurance, in connection with a residential mortgage serviced by one or more of three sets of loan servicers (the “Loan Servicing Defendants”):
(1) the “Litton Defendants” (Defendants Litton Loan Servicing LP (“Litton”), Goldman Sachs Group, Inc. (“Goldman Sachs”), and Arrow Corporate Member Holdings LLC (“Arrow”));
(2) the “Ocwen Defendants” (Ocwen Loan Servicing, LLC (“OLS”) andOcwen Financial Corporation (“OFC”)); and
(3) the “Saxon Defendants” (Saxon Mortgage Services, Inc. (“Saxon”) and Morgan Stanley). (Plaintiffs’ Second Amended Complaint (“SAC”) ¶ 1, ECF No. 93).
Plaintiffs, also brought suit against the insurance companies that provided the lender-placed insurance (the “Insurer Defendants”):
(1) the “Assurant Defendants” (Assu- ' rant, Inc. (d/b/a Assurant Specialty Property) (“Assurant, Inc.”), and its subsidiaries American Security Insurance Company and Standard Guaranty Insurance Company); and
(2) the “American Modern Defendants” (American Modern Insurance Group and its subsidiary American Modern Home Insurance Company). (SAC ¶ 2.)
Plaintiffs are all borrowers of loans secured by property mortgages. (SAC ¶ 1.) The mortgage loan agreements required Plaintiffs to purchase and keep hazard or flood insurance on their mortgaged properties to protect the lenders’ interests. (SAC ¶ 6.) When borrowers fail to maintain the required insurance policies, lenders — acting on their own behalf or through loan servicers — may purchase lender-placed insurance policies on their behalf, in order to protect the value of the property and the lenders’ interest in the property. (SAC ¶¶ 4, 7.)
. Plaintiffs contend that each of the Loan Servicing Defendants entered into an exclusive agreement with an Insurer Defendant. (SAC ¶ 98.) Under these exclusive agreements, Plaintiffs allеge, the Loan Servicing Defendants and the Insurer Defendants together exploited the Loan Servicing Defendants’ ability to force-place insurance in order to reap additional profits in the form of fees, commissions, rebates, reinsurance, and other forms of consideration at the expense of borrowers whose insurance was force-placed. (SAC ¶¶ 4-5, 13, 15, 19, 106, 230.) The agreements resulted in “inflated” or “excessive” LPI premiums, and these inflated prices were then passed on to the borrowers when the Loan Servicing Defendants demanded reimbursement for the LPI. (SAC ¶¶ 4-5.)
II. Procedural History
a. Parties
Plaintiffs filed the original complaint in this action on January 23, 2013. (ECF No. 1.) They amended it twice to include additional plaintiffs and claims against additional defendants, and the second amended complaint was filed November 19, 2013. (ECF No. 93.) Since then, the number of parties involved has been greatly reduced. First, Plaintiff Papapietrо voluntarily dismissed his claims. (ECF No. 130.) Second, Plaintiffs Johnnie and Frances Erv-ing, Dominquez, Coulthurst, Engelhardt, and Sheila Heard entered into a nationwide class action settlement in an overlapping class action pending in the Southern District of Florida. See Lee v. Ocwen Loan Servicing, LLC, 14-cv-60649,
As a result,-three sets of claims remain to be addressed in this Opinion and Order: (1) claims asserted by Johnnie and Frances Erving against the'Saxon Defendants and the Assurant Defendants;- (2) claims asserted by Heard against the Litton Defendants; and (3) claims asserted by Jimmy and Jacqueline Lyons against the Litton Defendants. However, the Litton Defendants, the Saxon Defendants, and the Assurant Defendants decline to address the claims of Jimmy and Jacqueline Lyons in the instant motions, as they assert that the American Modem Defendants — who declined to join in the briefing, in light of their proposed settlement — were most knowledgeable about whether the LPI rates chargéd to the Lyons were approved by a ratemaking authority. (Mem. Law Supp. Def.’s Mot. Dismiss, ECF No. 191 (“Def.Mot.”), 2 n.2.) This Opinion and Order therefore addresses: (1) claims asserted by Johnnie and Frances Erving against the Saxon Defendants and the Assurant Defendants; and (2) claims asserted by Heard against the Litton Defendants.
b. Proceedings
Following' the filing of the Amended Complaint, Defendants moved оn January 21, 2014, to sever Plaintiffs’ claims, arguing that Plaintiffs had improperly joined claims against three separate mortgage servicers. (ECF No.' 98.) Plaintiffs opposed, and on September 29, 2014, the Court denied the motion to sever without prejudice but observed that Defendants had “correctly noted issues that may merit severance later in the action — before trial and possibly before discovery.” (ECF No. 138,12-13.)
Also on January 21, 2014, the Assurant Defendants moved for dismissal under
Finally, on February 20, 2015, all Defendants moved for dismissal under
STANDARD OF REVIEW
I.
“A case is properly dismissed for lack of subject matter jurisdiction under
II.
To survive a motion to dismiss pursuant to
For the purposes of a motion to dismiss, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs favor. See Famous Horse Inc. v. 5th Ave. Photo Inc.,
“A motion for reconsideration is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources.” Drapkin v. Mafco Consol. Group, Inc.,
DISCUSSION
I.
The Assurant Defendants allege that Plaintiffs do not have standing to bring at least some of their claims. “The irreducible constitutional minimum of standing contains three requirements: (1) an injury in fact; (2) traceability, i.e., a causal connection between the injury and the actions complained of; and (3) redressability, i.e., a likelihood that the requested relief will redress the alleged injury.” Steel Co. v. Citizens for a Belter Env’t,
The Assurant Defendants raised four separate grounds for dismissal under
The Court denied the Assurant Defendants’
a. Filed Rate Doctrine
The Court must first address whether Assurant Defendants’ filed rate doctrine arguments are properly brought on a
As discussed below, the Court does find that the filed rate doctrine limits the claims here. But such arguments are not appropriate for a
This Court recognizes that disagreement exists in other circuits regarding whether the filed rate doctrine is an issue of standing or merit. See Hoover,
The Court further denies the As-surant Defendants’ motion to reconsider, as Rothstein does not constitute an “intervening change of controlling law.” YLL Irrevocable Trust,
b. Standing to Assert Nationwide Claims
■The Assurant Defendants next argue that Plaintiffs only having standing to assert unjust enrichment and aiding and abetting claims on behalf of borrowers in their home states (those in which Plaintiffs reside or were specifically injured). The Assurant Defendants argue that because “plaintiffs’ purported ‘nationwide’ classes include persons who allegedly were injured in states other than-those of plaintiffs,” and “plaintiffs do not allege injury under those states’ laws,” plaintiffs must “lack standing to assert claims for unjust enrichment or aiding and abetting on behalf of borrowers allegedly injured outside of plaintiffs’ states.” (Def.’s Mem. Law Supp. Mot. Dismiss Under
A plaintiff “must demonstrate standing for each claim he seeks to press.” DaimlerChrysler Corp. v. Cuno,
This- order of proceedings makes sense: in situations' where a named plaintiff has established individual standing to bring specific claims against a defendant in her own right, and also asserts parallel common law claims arising under different states’ law on behalf of a putative class, “the issue is. not whether the named plaintiff has standing to sue the defendant, but whether his or her injuries are sufficiently similar to those of the purported class to justify the prosecution of a nationwide class action, which is properly determined at the class certification stage, when th[e] [c]ourt may consider commonality and typicality issues with respect to the named plaintiffs and other putative class .members.” In re DDAVP Indirect Purchaser Antitrust Litigation,
This case is the kind of exception to which the Second Circuit referred. Plaintiffs propose a nationwide' class, including both claimants in the same states
c. Causation of Plaintiffs Injuries
The Assurant Defendants also claim that Plaintiffs lack standing against Assurant, Inc. specifically, as they fail to establish the causation prong of standing. While the Complaint alleges that the Loan Servicing Defendants entered into agreements with Assurant, Inc. and that Assurant, Inc. is a provider of insurance products, including LPI, the Assurant Defendants deny that Assurant, Inc. is an insurance company, that it contracts with mortgage servicers, and that it had any contractual relationship with the Loan Servicing Defendants. (See SAC ¶¶ 6, 8, 81; Def.’s R. 12(b)(1) Mot., 14.) Instead, the Assurant Defendants attributes these actions to Assurant’s underwriting subsidiaries and argue that Plaintiffs’ allegations concern only the independent actions of Assurant’s co-defendants, including its indirectly owned subsidiaries.
Courts have split on whether plaintiffs in similar suits have standing to bring claims against Assurant, Inc. Compare Roberts v. Wells Fargo Bank. N.A., No. 4:12-cv-200,
“Relying on affidavits submitted in support of its motion to dismiss, Assurant states that it is a publicly-traded holding company and not an insurance company, and that it did not have a contract with the ... Defendants. Thus, Assurant argues, no causal connection exists between Assurant and Plaintiffs’ injury and, therefore, Plaintiffs lack standing to sue Assurant....
[Plaintiffs claim the injury is traceable to Assurant. Plaintiffs allege that Assu-rant, acting with [the lender], provided grossly overpriced homeowners insurance policies as foreeplaced insurance to [the lender’s] borrowers, and then paid commissions to [the lender] for the referral of business. Plaintiffs contend this arrangement establishes that their injury is directly traceable to Assurant’s conduct, and that Assurant was a substantial part of the ‘scheme’ to defraud plaintiffs .... As plaintiffs have adequately alleged the requirements of Article III case-or-controversy standing, the Court denies Assurant’s motion to dismiss based on lack of standing.”
Hoover v. HSBC Mortgage Corp. (USA),
d. Failure to Exhaust Administrative Remedies
Finally, the Assurant Defendants allege that the Ervings, whose mortgaged
Plaintiffs argue that they were not required to exhaust under the statute, because they were not challenging the rates and were instead challenging conduct. At the time the Court issued its summary order, Plaintiffs had ample support for that position. A line of cases found, “Plaintiffs are not complaining of an excessive insurance rate, they are complaining that the defendant bank acted unlawfully when it chosе this particular insurance company and this particular rate. For these reasons, the doctrine of primary agency jurisdiction does not bar this action.” Abels v. JPMorgan Chase Bank N.A.,
The Second Circuit’s decision in Rothstein would seem to weaken that rationale. However, the Assurant Defendants did not move for reconsideration on this ground. Further, courts have since articulated a second, independent reason why the Florida statute does not require Plaintiffs to exhaust their administrative remedies: “the plain text of the statute makes clear that the remedy provided by § 672.321 is available to plaintiffs claiming violations of Florida’s insurance code.” Wilson v. EverBank, N.A., 11 F.Supp.3d 1202, 1235 (S.D.Fla.2015) (quoting Montoya v. PNC Bank. N.A., No. 14-20474-CIV,
II.
All Defendants move to dismiss pursuant to
The filed rate doctrine has a wide reach. Indeed, “[w]hen the filed rate doctrine applies, it is rigid and unforgiving.” Simon v. KeySpan Corp.,
Until recently, however, it was unclear whether the doctrine barred claims where Plaintiffs were not the direct customers of the rate filer. This question arose in cases, like this one, where plaintiffs’ lenders or mortgage servicers purchased lender-placed (or force-placed) insurance policies and passed the cost onto plaintiffs, and plaintiffs sued their lenders and mortgage servicers, the insurance companies, or both. Some courts — including the only court in this Circuit to consider the question — found the filed rate doctrine inapplicable to such suits, characterizing the claims “not so much as a challenge to the legal rates charged, but rather as a challenge to the-manner in which the defendants select the insurers, the manipulation of the force-place insurance policy process, and the impermissible kickbacks included in the premiums.” Rothstein v. GMAC Mortgage, LLC, No. 12 Civ. 3412 AJN,
Overturning the District Court’s determination, the Second Circuit in Rothstein agreed with those courts that found the filed rate doctrine applicable. In Roth-stein. the plaintiffs alleged that “they were fraudulently overbilled because the rates they were charged” by their mortgage ser-vicer as reimbursement for LPI “did not reflect secret rebates and kickbacks. that [the servicer] received from [the insurance company] through [the company’s] affiliate.” Rothstein,
Finally, the Second Circuit disаgreed with the District Court’s holding “that the filed rate doctrine does not apply at all because the doctrine addresses only a simple A-to-B transaction — in which A, the insurer, approved a rate and charged it to B, not the A-to-B-to-C arrangement at issue here, in which the insurer billed the lender and the lender in turn billed the borrower.” Rothstein,
“The distinction between an ‘A-to-B’ transaction and an‘A-to-B-to-C’ transaction is especially immaterial in the LPI context because LPI travels invariably ‘A-to-B-to-C.’’.:. There are three participants in the transaction (insurer, lender, borrower), but the lender is a go-between that connects the insurer (the party- selling insurance) to the borrower (the party actually paying for it). Thus LPI is an A-to-B-to-C transaction that implements a two-party transaction between the insurer and the borrower.”,
MThe Court did note “that the lender need not act as a pass-through, and could theoretically decouple its- purchase of LPI from .its demand of reimbursement, for example, by charging the borrower twice (or half), the filed rate.” Id. However, the Second Circuit was dubious that “any such action by the lender could result in liability for the insurer, which would (under any such -arrangement) still be legally compelled to charge the filed rate.” d. (emphasis in original). But because no such facts were alleged in Rothstein. the Court stopped short of definitively answering that question.
Defendants here argue that Plaintiffs’ case is indistinguishable from Roth-stein. and Plaintiffs’ claims against all Defendants must be dismissed. Plaintiffs, on the other hand, make four arguments as to why their case is distinguishable from Rothstein and Why their claims should not be dismissed: first, they argue that Roth-stein applies’the filed rate doctrine only to claims brought by borrowers against insurers, not claims brought by borrowers' against lenders or servicers; second, they claim that the kickbacks they allege are substantively different than those alleged in Rothstein'; third, they assert that the Rothstein plaintiffs directly challenged the rate, whereas they challenge only Defendants’ unlawful conduct; and fourth, they point out that the policies at issue here are “commercial lines” policies, rather thah “personal lines” policies. The Court finds all of these arguments unavailing. .
i. Applicability to Mortgage Servicers
Plaintiffs first argue that Rothstein bears only upon claims brought by borrow
While it is true that at the time the Second Circuit decided Rothstein. only insurer-defendants remained in the case,
But regardless of who is ultimately resрonsible for setting the amount charged to borrowers and what that amount is set at, claims against the Loan Servicing Defendants implicate the nonjusticiability principle of the filed rate doctrine. This is clearest where, as here, the Loan Servicing Defendants pass on to Plaintiffs an amount equal to the premium paid for the LPI. (Wilson Decl., ECF No. 101 (Erv-ings); Wilson Decl. ECF No. 102 (Heard)). If the Court were to inquire into the reasonableness of the amount charged by the Loan Servicing Defendants to the Plaintiffs, the Court would necessarily have to inquire into the reasonableness of the filed rates charged by the insurers to the Loan Servicing Defendants. This is not allowed. See Rothstein,
While Rothstein was directed at a case with an insurer-defendant, the Second Circuit made clear that the “doctrine operates notwithstanding an intermediary that passes along the rate.” Id. at 264. It would make little sense to apply the filed rate doctrinе to bar claims by plaintiffs against insurer-defendants challenging rates, but to allow claims by plaintiffs against the intermediary loan servicing defendants challenging the very same rates. In cases like this one, the filed rate doctrine applies equally to claims against the Insurer Defendants and claims against the Loan Servicing Defendants. See Trevathan v. Select Portfolio Servicing, Inc., No. 15-61175-Civ.,
ii. Form of Alleged Kickbacks
Next, Plaintiffs assert that the alleged kickbacks in their case are substantively different than those at issue in Rothstein. (PL’s Opp., 12.) While the kickbacks alleged in Rothstein took the form of free tracking services, the kickbacks alleged here also include unlawful reinsurance, referral fees, commissions, and services. (SAC ¶¶ 17-19, 40, 99, 101, 107.) The conduct alleged here, Plaintiffs argue,
Regardless of the form of the alleged scheme, however, the same concerns are implicated: the Court cannot examine whether any form of benefit or alleged scheme impermissibly inflated the amounts charged to Plaintiffs without also examining the rates set by regulators. Setting aside the form of the scheme, Plaintiffs’ “claims ... rest on the premise that the rates approved by the regulators were too high,” Rothstein,
iii. Characterization of Claims
Third, Plaintiffs claim that the Rothstein plaintiffs directly challenged the rate, whereas they challenge Defendants’ unlawful conduct. (Pl.’s Opp., 13.) This, they argue, means that the filed-rate doctrine is not implicated. Their argument, however, flies in the face of the Rothstein decision, which held that “[a] claim may be barred under the filed rate doctrine even if it can be characterized as challenging something other than-the rate itself.”
Plaintiffs here characterize their claims not as a challenge to the rates they were charged but as a challenge to the Defendants’ unlawful conduct, the payment and acceptance of kickbacks in exchange for purchasing a partiсular type of insurance. (PL’s Opp., 13; SAC ¶44). While Plaintiffs characterize the Rothstein plaintiffs’ claims as directly challenging the rates approved by regulators, the Rothstein plaintiffs in fact raised substantively the same argument. Like Plaintiffs here, the Rothstein plaintiffs insisted “that the filed rate doctrine did not bar their claims because they were attacking the fraudulent scheme, not the rates themselves.” Roth-stein.
As in Rothstein, Plaintiffs’ claims would require the Court to consider the reasonableness of the rates charged. Plaintiffs allege that the amounts for which the Loan Servicing Defendants sought reimbursement from Plaintiffs — that is, purported insurance premiums in line with the filed rates — “do not constitute their actual cost once the ‘commissions,’ tracking fees and other payments between the Insurer Defendants and the Loan Servicing Defendants are taken into account.” (Pl.’s Opp., 13; SAC ¶ 44.) To analyze that allegation, the Court would have to determine whether the approved rates had been inflated— that is, whether “insurеr-provided services should have been reflected in the calculation of LPI” or, likewise, whether the alleged commissions, reinsurance, or expense reimbursement payments should have been reflected in the calculation of LPI. It is not for the Court to answer these questions; “under the nonjusticiability principle, the'question is reserved exclusively to the regulators.” Rothstein,
Plaintiffs’ arguments to the contrary are not persuasive. First, they rely heavily on cases that predate Rothstein for the proposition that the filed rate doctrine does not apply to challenges to allegedly improper conduct underlying the rates. Only one of these eases, Hoover v. HSBC Mortgage Corp., (USA),
Plaintiff’s second argument is similarly in tension with Rothstein. Plaintiffs argue that in the Second Circuit, the filed rate doctrine only bars claims that are characterized as challenges to fraud on regulators. (PL’s Opp. 16-17). However, as discussed above, the Rothstein plaintiffs alleged that the insurer and lender engaged in a fraudulent scheme to overstate insurance costs and recoup inflated reimbursements from plaintiffs; they did not allege fraud on the regulators. Faced with the same type of fraud alleged here, rather than limit the applicability of the filed rate doctrine to claims of fraud on regulators, the Second Circuit found the filed rate doctrine applicable. Regardless of how Plaintiffs characterizе their claims, they are barred by the filed rate doctrine,
iv. Nature of Policies
Finally, Plaintiffs point out that the LPI at issue is “commercial lines” insurance, covering businesses, as opposed to “personal lines” insurance, covering individual consumers. Here, the mortgage servicer was identified as' the “primary insured” under the policy and the Plaintiffs were identified as “Additional Insured.” (See, e.g. Exh. 39, SAC.) The policies provided ■that the “Named" Insured Mortgagee is authorized- to act for such Additional Insured in all matters pertaining to this insurance including the receipt of Notice of Cancellation; and return of premium, if any.” (Id.) This, Plaintiffs argué, fundamentally changes the Loan Servicing Defendants’role. •
Plaintiffs’ 'contention seems to be that it is because the Loan Servicing Defendants are the primary policy holders that the LPI protects their commercial interest in the properties, and “thus, to the extent any rate is approved for the сommercial LPI product, it is the rate that the Insurer Defendants are permitted to ■ charge the Mortgage Servicing Defendants.” (PL’s Opp., 19).' Put this way, the commercial lines argument is níerely a recapitulation of their earlier argument that the filed rate doctrine "should not bar claims against the Loan Servicing Defendants because the amount they demand from Plaintiffs is not necessarily the filed rate. To the extent that the arguments overlap, the Court reiterates that it cannot examine the amount charged for reimbursement to Plaintiffs 'Without 'considering the reasonableness of the filed rate — and that exercise would violate the nonjusticiability principle.
To the extent that Plaintiffs are arguing that the purpose of LPI — and thus the Rothstein analysis — is different based on who is listed as primary insured versus additional insured, the Court finds this argument unconvincing. Regardless of who is listed in what role, LPI serves to “mitigate the risk that the mortgaged property will be damaged or destroyed before the loan is. repaid,” Rothstein,
CONCLUSION
For the reasons above, the Court DENIES the Assurant Defendants’ motion for partial reconsideration of their
SO ORDERED.
. As explained infra, this Order is directed only at the claims raised by Francis and Johnnie Erving against the Saxon and Assurant Defendants and the claims raised by Heard against the Litton Defendants.
. While Plaintiffs initially alleged that the Defendants engaged in practices of backdating policies and overinsuring properties, in addition to the "kickback” scheme described above, Plaintiffs later withdrew those claims. (ECF No. 166, 2 n.4))
. Plaintiffs point to a comment Judge Lynch made during the Rothstein oral argument as to the form of the kickback. However, as other courts have noted, "it is the judicial opinion which stands as the sole expression of the court; statements made at oral argument do not determine the scope of аn opinion unless explicitly incorporated into the opinion.” United States v. Maciel-Alcala,
. See also Corrected Brief of Plaintiffs-Appellees, 1, Rothstein v. Balboa Ins.,
. Plaintiffs and the American Modem Defendants have submitted a proposed class action settlement for the Court’s approval. (ECF No. 197.) The Court entered an Order on January 13, 2016, granting preliminary approval of a class action settlement of the claims against the American Modem Defendants. (ECF No. 207.) A hearing regarding final approval of the Settlement will be held on April 22, 2016.(Id.)