ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS Re: ECF Nos. 37, 43, 44.
JON S. TIGAR, District Judge.
In this proposed class action challenging Defendants' practices of instituting lender-placed insurance ("LPI"), the four named defendants — Southwest Business Corporation ("Southwest"), Litton Loan Servicing, LP ("Litton"), Ocwen Loan Servicing, LLC ("Ocwen"), and American Security Insurance Company ("ASIC") — have filed three separate motions to dismiss. ECF Nos. 37, 43 & 44. The matter came for hearing on August 21.
A. Procedural History
Plaintiff Margo Perryman ("Plaintiff" or "Perryman") filed a proposed class action complaint in May 2014. Class Action Complaint ("Compl."), ECF No. 1. The complaint brings twelve causes of action: for "honest services fraud" against Defendants Litton and Southwest under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), for honest services fraud against Defendants Ocwen and ASIC, for mail and wire fraud under RICO against Litton and Southwest, for mail and wire fraud against Ocwen and ASIC, for conspiracy to violate RICO against Defendants Litton and Southwest, for conspiracy to violate RICO against Defendants Ocwen and ASIC, for breach of fiduciary duty against Litton and Ocwen, for aiding and abetting a breach of fiduciary duty against Southwest and ASIC, for "breach of contract, including breach of the implied covenant of good faith and fair dealing" against Litton and Ocwen, for unjust enrichment against all Defendants, for conversion against Litton and Ocwen, and for violation of California's Unfair Competition Law ("UCL"), Cal. Bus & Prof. Code §§ 17200, et seq, against all Defendants.
Defendant ASIC filed a motion to dismiss on June 20. Motion to Dismiss Class Action Complaint by Defendant American Security Insurance Company ("ASIC Mot."), ECF No. 37. Defendant Southwest filed a motion to dismiss on June 30, and Defendants Litton & Ocwen jointly filed a third motion to dismiss the same day. Southwest Business Corporation's Motion to Dismiss ("Southwest Mot."), ECF No. 43; Litton Loan Servicing, LP's and Ocwen Loan Servicing, LLC's Motion to Dismiss ("Litton & Ocwen Mot."), ECF No. 44.
B. Allegations in the Complaint
Plaintiff Perryman's home is secured by a deed of trust signed by her and by lender Fremont Investment & Loan. ¶ 33,
Specifically, section 5 of Plaintiff's deed of trust, entitled "property insurance," states:
Deed of Trust § 5. The deed goes on to provide that if the "Borrower fails to perform the covenants and agreements contained in this Security Instrument . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property." Deed of Trust § 9. "Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument."
On February 22, 2011, Litton was the servicer of Plaintiff's loan. ¶ 34. On that date, Plaintiff received a letter on Litton's letterhead, stating that Plaintiff's home was in a flood zone and that she was required by her deed of trust to provide proof of flood insurance.
On October 14, 2011, Litton and Ocwen sent Plaintiff a notice stating that effective November 1, 2011, Litton would transfer the servicing of Plaintiff's account to Ocwen. ¶ 37. "On November 2, 2011, Litton sent Plaintiff a notice stating that due to the transfer of Plaintiff's account to Ocwen, her flood insurance was cancelled effective November 1, 2011, but that an earned premium of $463.43 was charged to her account for the time the policy was in force."
Plaintiff alleges that every time Southwest or ASIC force-places an insurance policy on one of Litton or Ocwen borrowers' properties, they also kick back a portion of the premium to Litton, Ocwen, or one of their affiliates. ¶¶ 108-110, 119-122. Litton and Ocwen perform no work and provide no services to earn the "costs" or "expenses." ¶ 9. Instead, Southwest and ASIC make these payments to Litton and Ocwen for the sole purpose of securing the privilege of force-placing insurance on a designated portion of Litton and Ocwen's portfolio.
C. Requests for Judicial Notice
In addition to the complaint, the parties have proposed that the Court also consider the following documents, to which the opposing party has not objected:
Litton & Ocwen have also requested judicial notice of the declaration of Kevin Flannigan ("Flannigan Decl.") and exhibits thereto, which are Ocwen's records of correspondence sent to and from Perryman regarding her obligation to purchase flood insurance. ECF No. 44-1. Litton & Ocwen argue that the Court can consider these documents because they are incorporated by reference in the complaint. Litton & Ocwen Mot., at 4, n. 1. But the complaint nowhere refers to correspondence sent by Perryman. Therefore, the Court will not consider Exhibits B, E, G, K, M, N, O or P to the Flannigan Declaration.
As for the documents sent to Perryman, Plaintiff does not oppose the Court considering four letters which are specifically mentioned in the complaint, Exhibits A, D, H and J to the Flannigan Declaration. Plaintiff's Opposition to Litton Loan Servicing, LP's and Ocwen Loan Servicing, LLC's Motion to Dismiss ("Opp. to Litton & Ocwen"), at 6 (ECF No. 52). She opposes the Court taking notice of other letters sent to Plaintiff, Exhs. C, F, I, L, Q and R to Flannigan Decl., which she argues are not referenced in the complaint. But in fact, the complaint alleges that Defendants sent out "boilerplate `cycle letters'" to borrowers, and that representations in those letters contained material omissions and misrepresentations which form the basis of her claims. ¶¶ 6-7, 13, 65, 188. Plaintiff did not object to the noticeability of similar letters attached as exhibits to the Wilson Declaration. Since the complaint refers to Defendants' correspondence to her regarding their LPI practices, since those materials are central to her misrepresentation-based claims, and because Plaintiff does not dispute the letters' authenticity, the Court will consider them.
In addition, while Plaintiff does not dispute the authenticity of a June 16, 2011 letter, Exh. J to Flannigan Decl., Plaintiff contests the authenticity of a "certificate of insurance" that Litton & Ocwen claim were included as an attachment to that letter. Opp. to Litton & Ocwen, at 6:17-24. Plaintiff's counsel argues that "[t]his document is not in Plaintiff's records and Plaintiff questions its authenticity."
Finally, after briefing was complete, on the morning of the hearing of the motion to dismiss, Plaintiff requested judicial notice of an August 4, 2014 public letter from the New York State Department of Financial Services to the General Counsel of Ocwen Financial Corporation. ECF No. 70. The Court will not consider this document because it was filed in violation of Civil Local Rule 7-3, which, with exceptions that do not apply here, precludes the filing of supplementary materials "without prior Court approval." Civil L.R. 7-3(d). Had Plaintiff sought leave of Court, the Court could take notice of the existence of the letter pursuant to Rule 201(b) of the Federal Rules of Evidence, but could not assume the truth of facts asserted by the letter's author, since those facts are subject to reasonable dispute. The letter is therefore of little probative value.
D. Legal Standards
ASIC moves to dismiss under both Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) tests the subject matter jurisdiction of the Court. When subject matter jurisdiction is challenged, "the party seeking to invoke the court's jurisdiction bears the burden of establishing that jurisdiction exists."
"Article III's case-or-controversy requirement . . . provides a fundamental limitation on a federal court's authority to exercise jurisdiction . . . [and] `the core component of standing is an essential and unchanging part of the case-or-controversy requirement of Article III.'"
"A district court's dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is proper if there is a `lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.'"
On a motion to dismiss, courts accept the material facts alleged in the complaint, together with reasonable inferences to be drawn from those facts, as true.
To survive a motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face."
Assuming Plaintiff has standing,
The three motions raise numerous shared, and other distinct, grounds for dismissal. The Court addresses each in turn.
A. The Filed-Rate Doctrine
All Defendants challenge the sufficiency of the complaint by invoking the "filed rate doctrine." Defendant ASIC moves pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, arguing that under the doctrine, Plaintiff lacks Article III standing to bring any of her claims. Defendants Southwest and Litton & Ocwen move to dismiss pursuant to Rule 12(b)(6), arguing that because of the doctrine, the complaint fails to state a claim. Because Article III standing is a threshold jurisdictional question, the Court will address this argument first, assuming arguendo that if the doctrine applies, it deprives Plaintiff of Article III standing.
"The filed rate doctrine, also known as the `Keogh doctrine,' is a judicially created concept which originated in
Notwithstanding the "expansive reading and application" the filed rate doctrine has been given in this circuit,
Defendants argue that the filed rate doctrine applies here because the charges applied to Plaintiff's escrow account are consistent with the amounts the California Department of Insurance has approved as reasonable insurance rates under California law.
But the Ninth Circuit has described the filed rate doctrine as "a judicial creation that arises from decisions interpreting federal statutes that give federal agencies exclusive jurisdiction to set rates. . . ."
In all of the Supreme Court and Ninth Circuit cases cited by Defendants, courts applied the filed-rate doctrine because protecting a federal agency's regulatory authority was necessary to effectuate the purposes of a federal statute.
When a federal statute grants strong and pervasive authority to a federal agency, it is understandable why courts interpret the statute to supersede other laws that would stand in the statute's way. Inconsistent state laws are preempted under the Supremacy Clause, and inconsistent federal laws are interpreted to be subordinate to the "stronger" statute. But it is unclear why the California Insurance Commissioner's regulatory authority would impede the otherwise appropriate reach of a federal statute. By arguing that California's state-law regulatory authority bars even otherwise valid federal RICO claims, Defendants' arguments would seem to stand the Supremacy Clause on its head.
Several out-of-circuit cases have held that since utility regulation is an area of traditional state authority, even a federal law like RICO must be interpreted to be consistent with a state regulatory scheme absent a clear statement that Congress intended to alter the traditional federal-state balance.
Even assuming that the Ninth Circuit would follow this line of authority, however, the question of whether the filed-rate doctrine applies turns on the extent of the state regulatory scheme. "Overbroad application of the filed rate doctrine is especially inappropriate where regulators have limited jurisdiction." Jim Rossi, Why the Filed Rate Doctrine Should Not Imply Blanket Judicial Deference to Regulatory Agencies, ADMIN. & REG. L. NEWS, Fall 2008, at 11, 12. The question is one of state-law statutory interpretation, and it depends upon how broadly the state intends for its regulatory authority to reach. When state-law regulatory authority provides the basis of the filed rate doctrine, the doctrine should be based on a careful analysis of the text and purpose of the underlying state law, rather than blanket application of the filed rate doctrine to all challenges which touch a regulated industry. Otherwise, a court might end up curtailing a state's valid laws in order to preserve a regulatory authority that the state does not even exercise. In addition, while "[t]he filed rate doctrine has been given an expansive reading and application in this Circuit," the Ninth Circuit has also held that in a given arena, it is "`open to repudiation by the. . .'" relevant agency.
Here, the California Insurance Commissioner has specifically disclaimed any authority to regulate the conduct challenged in the complaint. In 2001, California Superior Court Judge David Moon stayed a very similar LPI case and sought guidance from the Insurance Commissioner regarding actions Judge Moon understood to fall within the Commissioner's authority to regulate. Exh. A to Plaintiffs' RJN, at 3;
In other words, another court already attempted to defer to the Insurance Commissioner on exactly the type of claim before this court, and the Commissioner refused to accept the offered deference. It is for this reason that courts of this district held that the filed-rate doctrine does not bar claims brought by homeowners, because "they are not the ratepayers."
Defendants argue that Plaintiff cannot avoid the filed rate doctrine by merely describing her suit as a challenge to the servicer's behavior rather than the reasonableness of the insurance rate. They argue that "[t]he underlying conduct does not control whether the filed rate doctrine applies."
Just as Plaintiff may not re-characterize the nature of her action to avoid the filed rate doctrine, neither can Defendants re-characterize the nature of Plaintiff's claim. Plaintiff does not dispute the reasonableness of rates charged for insurance. She disputes the amount of that rate which can be passed on to her under the terms of her contract with Defendants.
To see the truth of this, imagine Plaintiff's breach of contract were much stronger. Imagine the deed of trust unambiguously promised that the servicers would pass along no more than $100 of the annual premium to the lender if insurance were force-placed. And then imagine the servicers actually assessed the escrow account a $300 premium, in clear breach of their promise, but still at a rate lower than the one approved by the Insurance Commissioner. Would Defendants still object that her breach of contract claim would be barred? After all, refunding her the $200 she would clearly be owed in that situation would require a court to "determine a reasonable rate and subtract it from the premium."
It is true that in
The filed rate doctrine does not bar Plaintiff's claims.
B. Claims against Southwest
Plaintiff alleges that "[s]ince at least 2011, Litton was a party to a purchase agreement with Defendant Southwest Business Corporation," through which Southwest was "given the exclusive right to force insurance on property securing a loan within the portfolio when a borrower's insurance lapses or the lender determines the borrower's existing insurance is inadequate." ¶ 6. Plaintiffs also allege that it was Southwest, "using Litton letterhead," who sent notices to Plaintiff advising her of her obligation to provide proof of flood insurance, and then, when she did not comply, advising her that it would charge her for lender-placed insurance. ¶¶ 34-36, 108.
But it appears from the record that Southwest was not the insurer of Plaintiff's property. An Ocwen employee with knowledge of Ocwen's business records has declared that the true and correct copy of the June 26, 2011 letter referenced in the complaint included an attached "Evidence of Flood Insurance," which states that American Modern Home, not Southwest, was the insurer placed on the property. Flannigan Decl. ¶¶ 1-5, 15, and Exh. J thereto. The letter, which Plaintiff does not dispute is authentic, lists an insurance certificate number of "LLW001121," and a coverage amount of $63,138.75. Exh. J to Flannigan Decl. The same certificate number and coverage amount appear on the Certificate of Insurance.
Plaintiff argues that the authenticity of the certificate of insurance is in question, but her only evidence of that is her declaration that she "recently contacted Ocwen and asked them what company issued the force-placed insurance policy on my home when Litton serviced my loan in 2011," and that "[t]he Ocwen representative informed me `SWBC,' or Southwest Business Corporation, issued the insurance policy." Perryman Decl. ¶ 2. This is inadmissible hearsay, no foundation has been laid for the basis of the unnamed Ocwen representative's knowledge, and Perryman's declaration does not provide any further details regarding the date of the call and to whom Perryman spoke.
At oral argument, Plaintiff's counsel conceded that "it looks like we got the wrong insurer." The Court finds that, when considered together with other documents appropriately considered on a motion to dismiss, the complaint does not allege facts from which it is plausible to infer that Southwest is responsible for the actions challenged in the complaint. Since this entitles Southwest to dismissal of all claims asserted against it, the Court does not further consider any other Southwest arguments for dismissal.
C. Breach of Contract/Breach of the Covenant of Good Faith and Fair Dealing
The complaint brings a claim for "breach of contract, including breach of the implied covenant of good faith and fair dealing" against Defendants Litton and Ocwen. Plaintiff alleges breach of sections 3, 5 and 9 of the deed of trust. ¶¶ 158-60.
Section nine provides that "Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the property and rights under this Security Instrument," and section five, which gives the lender the right to impose LPI, states that "Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained." Plaintiff alleges that at least some of the charges applied to her account were neither attributable to any actual costs incurred by the lender in obtaining insurance, nor to any costs charged by the insurer for valuable services in providing insurance coverage. She alleges that what Defendants deemed the "cost" of the insurance charged by the insurers was an amount essentially fixed between the insurer and the lender, who were free to set any price as the "cost" of insurance since they knew that neither of them would be ultimately responsible for paying it. Under one plausible reading of the contractual language, a reasonable borrower would not have understood herself to be agreeing to pay these types of charges when she agreed to be held responsible for the "cost of the insurance coverage."
Moreover, even if Litton and Ocwen's alleged actions do not violate the express terms of the deed of trust, Plaintiff has plausibly alleged actions that could be considered a breach of the covenant of good faith and fair dealing. "The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another.
Litton & Ocwen move to dismiss all claims in the complaint "for the reasons stated by the Seventh, Tenth and Eleventh Circuits," citing
Plaintiff argues that Cohen is distinguishable. As she reads Cohen, the court understood the plaintiffs in that case to be merely "calling" the commissions "kickbacks," without explaining why they deserved that designation. Perryman argues that the
Feaz is more distinguishable, since the opinion itself did not directly engage the argument that the lender breached its mortgage agreement by entering into agreements with insurers that set artificial "costs" of insurance.
Considering the cases as a group, and to the extent they are on all fours, this court does not follow them. The Court agrees that the payments might not be appropriately characterized as "kickbacks," since that term usually requires divided loyalty. However, it does not necessarily follow from this that that the payments were contractually authorized or assessed in conformance with the covenant of good faith. The aspect of the three opinions Litton & Ocwen most urge this Court to apply is their conclusion that since the deed of trust advised Plaintiff that the cost of LPI might be significantly higher, and since nothing in the deed of trust specifically prohibited the receipt of commissions and fees as part of the "cost" of insurance, Defendants' actions were authorized under the contract as a matter of law.
But, as Plaintiff argues, if this were the rule, "it would grant unfettered license to mortgage servicers to mark-up the charges for force-placed insurance with no limit whatsoever." Opp. to Litton & Ocwen, at 12. Under this reasoning, "Litton and Ocwen could pay ASIC $100 for a policy on Plaintiff's property, charge Plaintiff $1,000, and pocket the difference."
Litton and Ocwen resist that logical extension of their argument, but not persuasively. They reply that Plaintiff's hypothetical would not be permitted under Anapoell, because "Anapoell holds [only] that a creditor can pass on the entire insurance premium charged by the insurance provider." Litton & Ocwen Reply, at 9. "Anapoell did not argue that defendant bought insurance for one price and then charged him more than that."
If the deed of trust were interpreted to provide lenders with limitless discretion to set any amount as the "cost" of insurance, through any means, the contract would be unconscionable. Therefore, Litton & Ocwen's discretion to assess costs must be limited in some way to the reasonable understanding contracting parties would ascribe to the words of the deed. The Court cannot determine as a matter of law that the under all plausible interpretations of the contract, the charges Defendant are alleged to have assessed were authorized by the contract. The breach of the covenant claim is especially inappropriate for Rule 12 motion practice, since it could hinge on as-yet undiscovered factual evidence.
Litton & Ocwen additionally urge dismissal since the lender who signed her deed of trust was Fremont Investment & Loan, and Plaintiff has failed to plausibly allege that Litton and Ocwen became parties to her contract with Fremont. Plaintiff alleges that Litton and Ocwen became the servicers of her loan. It is plausible to infer that "a servicer can stand in the shoes of the party to the contract to the extent that rights are assigned."
Indeed, it is somewhat implausible that the servicers acquired the rights to enforce the lender's rights under the deed of trust without becoming parties to the contract. But the Court need not decide the question now; whether or not Litton and Ocwen have become parties to the deed of trust is "a fact issue."
Plaintiff's complaint states a claim for breach of contract and breach of the covenant of good faith and fair dealing.
"The RICO statute sets out four elements: a defendant must participate in (1) the conduct of (2) an enterprise that affects interstate commerce (3) through a pattern (4) of racketeering activity or collection of unlawful debt."
Plaintiff's complaint brings three types of RICO cause of action, each of which are asserted against two pairs of Defendants. The first, third and fifth causes of action are asserted against Defendants Litton and Southwest, and the second, fourth and sixth causes of action are asserted against Defendants Ocwen and ASIC. In the first two causes of action, Plaintiff asserts the underlying predicate act of honest services fraud, and in third and fourth causes of action, she asserts the underlying predicate act of mail and wire fraud. Plaintiff's fifth and sixth causes action are for a RICO conspiracy pursuant to 18 U.S.C § 1962(d) against both pairs of Defendants.
Defendants argue that Plaintiff's complaint fails as a matter of law to establish a pattern of racketeering activity, to allege the existence of an enterprise, to allege conduct that caused proximate harm to the victim, and to allege the existence of a conspiracy.
1. Racketeering Activity
Counts one and two plead the "predicate act" of honest services fraud pursuant to 18 U.S.C. § 1346. Counts three and four plead the "predicate act" of mail and wire fraud pursuant to 18 U.S.C. §§ 1341 and 1343. The Court addresses each in turn.
a. Honest Services Fraud
RICO's honest services fraud prohibition "covers only bribery and kickback schemes."
The theory of honest services fraud under RICO "had its genesis in prosecutions involving bribery allegations."
However, while initially "these cases . . . involved bribery of public officials, . . . courts also recognized private-sector honest-services fraud."
For this reason, not all acts of misrepresentation can be described as a deprivation of honest services. "[A] breach of a fiduciary duty is an element of honest services fraud under 18 U.S.C. §§ 1341 and 1346."
It is not plausible to infer from the facts of the complaint that Plaintiff and any of the Defendants had developed "a trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise."
Plaintiff argues that her claims are analogous to those in Milovanovic since that case also involved an arm's-length commercial relationship. The defendants in that case were independent contractors working for a translation service agency, "which itself contracted to provide translation services to government agencies" administering tests for trucking licenses. 678 F.3d at 718. The translators solicited and accepted bribes to assist applicants in cheating on the exams.
But the mortgage servicers in this case were not Plaintiff's agents in any comparable way. Perryman did not hire the mortgage servicers, even indirectly, to serve as agents of her interest. They certainly did not owe her the type of "legal duty of loyalty comparable to that owed by an officer or employee to a private entity."
Plaintiff cites no authority demonstrating that honest-services fraud extends to situations like this one, in which all the allegations of the complaint indicate the parties had an arm's-length commercial relationship, which was not comparable to an employment or other agency relationship, and in which neither reposed trust in, nor professed a duty of loyalty to, the other. Plaintiff fails to state a claim of honest services fraud.
b. Mail and Wire Fraud
"The mail and wire fraud statutes . . . contain three elements: (A) the formation of a scheme to defraud, (B) the use of the mails or wires in furtherance of that scheme, and (C) the specific intent to defraud."
ASIC and Litton & Ocwen move to dismiss on the grounds that Plaintiff has failed to allege a scheme reasonably calculated to deceive from which the Court can infer a specific intent to defraud. The Court finds that it can plausibly infer a scheme to defraud from the allegations in the complaint and other noticeable records. In addition to representing the charges as the "cost" of obtaining substitute coverage in the deed of trust, Defendants sent other communication through the mail which could be reasonably construed as continuing to represent to Plaintiff that the charges she ran the risk of incurring would be attributable to the Defendants' actual costs of obtaining substitute insurance. It appears that some of those communications did specifically warn Perryman that choosing not to get her own insurance would be a bad deal for her, in ways that tend to indicate Defendants were not trying to induce her to default on her coverage obligations. But it still could be the case that the overall intent of the Defendants' representations were calculated to misrepresent the nature of the cots the lenders would pass along to lenders under the LPI clause.
"To establish an `enterprise,' Plaintiff must plead the existence of a `person' and an `enterprise' that are distinct from one another."
The allegations of the complaint are sufficient to plead the existence of an ongoing organization, formal or informal," and to plead that "the various associates function as a continuing unit."
Only a "person injured in his business or property by reason of a violation of section 1962 of this chapter may sue" under 18 U.S.C. § 1964(c). This provision requires that "the defendant's violation was a `but for' cause of plaintiff's injury, and also "requires the plaintiff to establish proximate cause in order to show injury `by reason of' a RICO violation."
Defendants argue that Plaintiff has not shown that Defendants' actions proximately caused Plaintiff any RICO injury, primarily relying on
"Section 1962(d) of Title 18 makes it unlawful to `conspire to violate' RICO, which makes it unlawful, among other things, `for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity'"
Litton, Ocwen and ASIC move to dismiss this claim because Plaintiff has failed to plead any initial RICO violation Defendants could have conspired to violate. For reasons discussed supra, the Court disagrees. ASIC also argues that the complaint fails to allege sufficient facts about the details of the conspiracy, or ASIC's awareness of the scheme. The Court finds the allegations of the complaint sufficient to allege that the parties conspired to violate RICO.
E. Breach of Fiduciary Duty
Plaintiff alleges that Defendants Litton and Ocwen breached their fiduciary duty to Plaintiff, and that Defendants ASIC and Southwest aided and abetted that breach. ASIC, Litton and Ocwen move to dismiss both of these claims on the grounds that Litton and Ocwen do not owe Plaintiff a fiduciary duty.
As a general rule, "[t]he relationship between a lending institution and its borrower-client is not fiduciary in nature."
Defendants argue that Plaintiff has not pled facts demonstrating that the lenders and the servicers exceeded their customary roles. Plaintiff counters that she has alleged the servicers exceeded their customary role — by making the challenged LPI assessments to her escrow account. But when California courts refer to a lender becoming a fiduciary by "exceed[ing] its customary role," they are referring to the formation of the relationship between the lender and borrower, not to later acts that the lender seeks to challenge in a civil action. For example, in Ragland, the Court of Appeal found that a lender had not established a fiduciary relationship by telling a lender "not to make her April 2008 loan payment in order to be considered for a loan modification," since "[t]his advice was directly related to the issue of loan modification and therefore fell within the scope of Downey Savings's conventional role as a lender of money." 209 Cal. App. 4th at 206-07. The Court of Appeal distinguished this situation from
As applied here, the complaint contains no allegations from which this court could infer a similar relationship was created between the parties in which Defendants were advising Plaintiff or holding themselves out as an agent of her will or a guardian of her interests. The servicers' interests in servicing the loan, and the institution of LPI, were for the servicers and the bank's interests, not Plaintiff's.
Plaintiff argues that Litton and Ocwen owed her a fiduciary duty by managing her escrow account. California courts have held than "an escrow holder is an agent and fiduciary of the parties to the escrow," but they have also said that the "agency created by the escrow is limited— limited to the obligation of the escrow holder to carry out the instructions of each of the parties to the escrow."
The Court acknowledges that some courts have found at least some states' breach of fiduciary duty laws sufficient to give rise to a viable claim in similar situations.
F. Unjust Enrichment
Plaintiff pleads a cause of action for "unjust enrichment." In California "[t]here is no cause of action for unjust enrichment. Rather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust."
Moreover, since Plaintiff has pled other claims for which restitution is a remedy, "any unjust enrichment `claim' would be purely duplicative."
Plaintiff's unjust enrichment claim fails as a matter of law.
Plaintiff's twelfth claim for relief arises under California's Unfair Competition Law ("UCL"), Cal. Bus & Prof. Code § 17200, et seq., which has three prongs, prohibiting "unlawful," "unfair," and "fraudulent" practices. Since Plaintiff has validly pled a RICO claim, she has pled a UCL claim under the "unlawful" prong. Defendants move to dismiss this claim insofar as it alleges a "fraudulent" practice, since they maintain that the alleged representations were not misstatements. The Court rejects that argument for the same reasons discussed supra.
Defendants also moved to dismiss the UCL claim under the "unfair" prong for two additional reasons. First, they argue that courts reject such "unfair" claims where the consumer could reasonably have avoided the challenged harm by taking alternative action. See Davis, 691 F.3d at 1170 (rejecting "unfair" prong claim where plaintiff was warned that credit card "restrictions might apply" and "had the opportunity to cancel the account for a full refund"). Plaintiff, of course, had the opportunity to purchase insurance at her own cost and could therefore could have avoided the LPI charges. While the Court has some sympathy for this argument, the wrong Plaintiff seeks to redress is the harm of expecting that she would, if she defaulted on her obligation, only be charged the costs the servicers actually incurred in seeking replacement insurance. She could not reasonably have avoided that harm without knowing how the Defendants allegedly conspired to set the rates for LPI.
ASIC also cites those California courts which have interpreted an "unfair practices" claim to "require that the public policy which is a predicate to the action must be `tethered' to specific constitutional, statutory or regulatory provisions."
ASIC notes that Plaintiff's complaint fails to cite any such specific provision to which her UCL claim is tethered. In her opposition brief, Plaintiff cites 12 U.S.C. § 2605(m), which provides that "All charges, apart from charges subject to State regulation as the business of insurance, related to force-placed insurance imposed on the borrower by or through the servicer shall be bona fide and reasonable."
ASIC objects that this argument does not appear in the complaint. A plaintiff may not seek to incorporate new facts into her complaint during motion practice, but she certainly may make legal argument supporting the viability of her claims. Citing the provision to which her claim is tethered is legal argument, not factual allegation. While it is probably better practice to cite in the complaint the specific constitutional, statutory or regulatory provisions underlying an "unfair practices" claim, it may be done in an opposition brief rather than in the complaint itself.
Litton & Ocwen move to dismiss Plaintiff's cause of action for conversion. "Conversion is the wrongful exercise of dominion over the property of another."
Here, Plaintiff cites no definite sum, and appears to regard the property that is subject to her conversion claim to be coterminous with her immediate damages. ¶ 1, 17. In PCO, the Court of Appeal "reject[ed]" the contention that the actual amount owed "is properly for a jury to determine," and held that where a plaintiff "could only estimate the amount of cash," summary adjudication of plaintiff's conversion claim was warranted. 150 Cal.App.4th at 395, 397. In her opposition, Plaintiff fails to respond to the implications PCO and related California case law have on her conversion claim. While she argues that two courts of this district have allowed conversion claims to proceed past the pleading stage in LPI cases, it does not appear that either court had occasion to consider the argument Litton & Ocwen raise here.
Plaintiff fails to plead a viable claim of conversion.
I. Claims against Ocwen
Finally, Litton & Ocwen moves to dismiss the claims against Ocwen, since Plaintiff is suing Ocwen "in its capacity as successor in interest to Litton," ¶ 3, and Defendants argue she has failed to allege sufficient facts in support of that allegation.
Plaintiff alleges that "Litton transferred the servicing rights to this loan to Ocwen," ¶ 3, that Ocwen's parent company purchased Litton and agreed to certain indemnification provisions for the benefit of Litton, including claims arising out of the force-placed practices complained of in this action, ¶ 24, and that Litton transferred and merged its servicing operations with Ocwen, ¶¶ 3, 37. Proving that Ocwen has become Litton's successor will require proof, of course, but there is nothing implausible about the allegations in the complaint.
Southwest's motion to dismiss is GRANTED. All causes of action are DISMISSED WITHOUT PREJUDICE to the extent they are pled against Defendant Southwest.
Litton & Ocwen's motion, and ASIC's motion, are GRANTED IN PART and DENIED IN PART. The tenth claim for relief, for unjust enrichment, is DISMISSED WITH PREJUDICE, since the Court concludes that it fails as a matter of law. The first, second, seventh, eighth, and eleventh claims for relief are DISMISSED WITHOUT PREJUDICE. Plaintiff has leave to re-assert those claims for relief in an amended complaint if she can allege additional facts not pled in the operative complaint which remedy the deficiencies identified in this order. Plaintiff must file any such amended complaint within 21 days of this order. Failure to meet this deadline or comply with the Court's order may result in dismissal with prejudice of those claims pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. Plaintiff must, with any amended complaint, include a separate document detailing the new factual allegations she has added to the complaint to overcome the deficiencies described in this order.
ASIC has not directed the Court to any Ninth Circuit authority directly addressing this question. In 2007, the Ninth Circuit applied the doctrine in considering the appeal of a filed-rate doctrine dismissal which had been entered pursuant to Rule 12(b)(1).