OPINION
JOSEPH E. IRENAS, District Judge.
Plaintiff Robert DiGiacomo ("Plaintiff") took a mortgage loan from non-party EquiFirst Corporation ("Equifirst") on March 17, 2008, secured by real property in West Berlin, New Jersey. (Complaint, Dkt. No. 1 ("Compl.") ¶ 45)
Plaintiff filed the instant class action against Statebridge, American Modern, American Modern's corporate parent American Modern Insurance Group ("AMIG"), and Midwest Enterprises, Inc. d/b/a Ameritrac Business Solutions ("Ameritrac"), the wholly owned subsidiary of AMIG that acts as the program manager for American Modern's force-placed insurance programs. (Id. ¶¶ 3-5) Alleging that American Modern, AMIG, and Ameritrac (collectively, "AMIG Defendants") and Statebridge "manipulated the force-placed insurance market through collusive agreements involving kickback arrangements and other forms of improper compensation," (id. ¶ 7), Plaintiff brings suit against Statebridge for breach of contract, breach of implied covenant of good faith and fair dealing, violation of the New Jersey Consumer Fraud Act ("NJCFA"), breach of fiduciary duty, and violations of the Racketeer Influenced and Corrupt Organizations ("RICO") Act.
Presently before the Court is Statebridge's Motion to Dismiss Plaintiff's Class-Action Complaint, Dkt. No 9 ("SMTD") for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6).
I. Relevant Facts
Plaintiff alleges the following facts in his Complaint. Under a typical mortgage agreement, lenders and servicers have a right to "force-place" insurance upon borrowers who fail to obtain or maintain the requisite insurance coverage on property that secures a loan. (Compl. ¶ 10) As is typical, Plaintiff's mortgage agreement with Equifirst requires in Section 5 that Plaintiff maintain insurance against loss by fire, flood, earthquake "and any other hazards . . . for which Lender requires insurance . . . in the amounts (including deductible levels) and for the periods Lender requires." (Compl. Ex. A, Dkt. 1-2 ("Mortgage Agreement") at 3) "If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense." (Id.) After executing his mortgage agreement in 2008, Plaintiff appears to have made voluntary insurance payments for some time before his coverage lapsed; in any event, Statebridge did not seek to impose force-placed insurance until 2012. (Compl. ¶ 31)
The agreement makes it clear that borrowers are better off maintaining their own insurance rather than being subject to any coverage that the lender may apply by force:
(Mortgage Agreement at 3)
However, Section 9 further provides that where Borrower "fails to perform the covenants and agreements contained in" the agreement, "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." (Id. at 4-5)
According to Plaintiff's Complaint, Statebridge arranged to purchase force-placed hazard insurance exclusively from AMIG Defendants, even though these insurance plans provided less coverage and cost borrowers such as Plaintiff considerably higher premiums than voluntary insurance. (Compl. ¶¶ 8-9, 26) Statebridge then charged Plaintiff (and other borrowers in the putative class) even higher premiums than was "reasonable or appropriate to protect [their] interest in the Property," because it used the excess amount collected to give itself "kickbacks disguised as `commissions,' . . . lucrative reinsurance arrangements which included unmerited charges, and/or . . . other financial benefits which are not attributable to the cost of insuring the individual property." (Id. ¶ 26)
"AMIG Defendants have acknowledged that they pay `commissions' in connection with force-placed insurance," but Plaintiff alleges that these payments are kickbacks for maintaining exclusive agreements with AMIG, rather than "commissions" awarded for legitimate services. (Id. ¶¶ 35, 37) Since no individualized underwriting is required to force-place insurance, Plaintiff alleges that acquisition expenses should be lower, not higher. (Id. ¶ 29) Moreover, the kickbacks incentivize Statebridge "to purchase the high-priced forceplaced insurance policies from American Modern, rather than simply renew the lower priced insurance policy obtained by the borrower in the open market," since "the higher the cost of the insurance policy, the higher the kickbacks to Statebridge." (Id. ¶ 37)
Plaintiff states that in addition to "commissions," AMIG Defendants returned some of the excessive premiums to Statebridge via reinsurance agreements: "while Statebridge and/or its affiliates purportedly provided reinsurance, they did not assume any real risk." (Id. ¶ 40) Consequently, these "ceded premiums are nothing more than a kickback[.]" (Id.)
In addition to these alleged kickbacks, Plaintiff claims that Statebridge used the excess premiums to subsidize a service AMIG Defendants provide wherein AMIG Defendants monitor or track Statebridge's entire loan portfolio below cost.
(Id. ¶ 38)
Finally, Plaintiff alleges that Defendants
Defendants allegedly engaged in these activities with regard to many borrowers but Statebridge informed the instant Plaintiff that it was force-placing insurance on his property on July 6, 2012, to be applied retroactively to January 29, 2012. (Id. ¶ 31) The five months of insurance charges were then applied to Plaintiff's escrow account, plus interest. (Id. ¶ 33) While Plaintiff previously paid an annual premium of $1,165.14 through his voluntary insurer, Defendants' policy increased his premium 17.5% to $1,368, despite dropping his coverage from $289,000 to $152,000 and no longer covering contents, personal effects, or liability. (Id. ¶ 47)
II. Jurisdiction
Though the parties did not address the issue of standing in their briefs, "standing is a jurisdictional matter" raised "[p]ursuant to Rule 12(b)(1)." Ballentine v. United States, 486 F.3d 806, 810 (3d Cir. 2007) (internal quotations and citations omitted). Therefore, "we are required to raise issues of standing sua sponte if such issues exist." Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399, 405 (3d Cir. 2005) (internal quotations and citations omitted). Prior to reaching the merits of Statebridge's motion, however, the Court must confirm that Plaintiff has established standing to bring this suit.
"[T]he core component of standing is an essential and unchanging part of the case-or-controversy requirement of Article III" of the Constitution. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992). Article III constitutional standing requires that (1) plaintiff has suffered an injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) that a causal connection exists between the injury and the conduct complained of; and (3) that it is likely, not merely speculative, that the injury will be redressed by a favorable decision. Ballentine v. United States, 486 F.3d 806, 814 (3d Cir. 2007) (internal quotations and citation omitted).
Moreover, "plaintiffs in a putative class action must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent." Montanez v. HSBC Mortgage Corp. (USA), 876 F.Supp.2d 504, 512 (E.D. Pa. 2012) (citing Klein v. Gen. Nutrition Cos., 186 F.3d 338, 345 (3d Cir. 1999)) (finding a concrete and particularized injury where plaintiffs alleged they paid too much for forceplaced insurance, a causal connection where defendants allegedly worked to conceal kickbacks and redundant charges, and redressability where plaintiffs sought the "very conventional remedy" of money damages).
Here, Plaintiff states facts similar to those in Montanez: "[o]nce coverage is forced on the property, Defendants charge the borrower, an amount they attribute to the AMIG forced-placed premium, which is either deducted from the borrower's mortgage escrow account by the Defendants or added to the balance of the borrower's loan." (Compl. ¶ 33) But because "plaintiffs in a putative class action must allege and show that they personally have been injured," Montanez at 512, it is insufficient to make general statements of injury to the class without specifying injuries to Plaintiff himself. Plaintiff must state whether charges were deducted from his escrow account or whether his loan balance increased in a way that made it more difficult to resolve his mortgage situation.
Regarding his own finances, Plaintiff alleges that "escrow funds of Plaintiff which were designated to pay insurance, taxes and other items were used to pay non-designated costs of Defendants, including kickbacks, reinsurance fees and ceded premiums, and low cost loan tracking services." (Compl. ¶ 102) Because "general factual allegations of injury resulting from the defendant's conduct may suffice" to state an injury at this stage of litigation, the Court finds this allegation sufficient to state an injury and establish Article III standing at this stage of litigation.
In addition, Plaintiff alleges that Defendants charged him excessive premiums, which constitute an injury regardless of whether he ever actually paid them. For example, Plaintiff alleges that Defendants informed him in a letter dated July 6, 2012, "that insurance charges will be applied to [his] account, plus interest" and that Defendants "charged his account the prior month for the five months of insurance premiums" they claimed he owed since the lapse of his previous policy. (Compl. ¶ 33) See also id. ¶¶ 81 and 85, describing the application of the charge to Plaintiff's loan balance and against his escrow account. Plaintiff does not clearly assert what portion (any or all) of these charges he actually paid.
A charged fee, though unpaid, can constitute injury. See Barrows v. Chase Manhattan Mortgage Corp., 465 F.Supp.2d 347, 366 (D.N.J. 2006)(finding that plaintiff had standing to claim a breach of implied covenant of good faith and fair dealing, because "Plaintiff's contention that Defendants had a duty to insure the propriety of any attempt to collect [the fees charged] negates Defendants' argument that Plaintiff needed to have actually paid such fees.")(emphasis added). Moreover, the application of allegedly unlawful charges to Plaintiff's loan balance (Id. ¶ 81) necessarily increased his balance, and this accumulation of debts may reduce equity, affect credit ratings, limit borrowing capacity, or otherwise cause a concrete injury to a plaintiff, even if he never actually pays the debt accumulated, perhaps due to foreclosure or bankruptcy.
Beyond Article III standing, this Court has statutory jurisdiction over "any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs" and where "any member of a class of plaintiffs is a citizen of a State different from any defendant." Fed. R. Civ. P. 1332(d)(2). Plaintiff here, a citizen of New Jersey, alleges against Defendants, citizens of Ohio or Colorado, an amount in controversy exceeding $5 million. (Compl. ¶¶ 20-23)
Having confirmed jurisdiction, the Court now turns to the merits of Statebridge's motion to dismiss.
III. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In order to survive a motion to dismiss, a complaint must allege facts that raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Fed. R. Civ. P. 8(a)(2).
When considering a Rule 12(b)(6) motion, the reviewing court must accept as true all allegations in the complaint and view them in the light most favorable to the plaintiff. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). In reviewing the allegations, a court is not required to accept sweeping legal conclusions cast in the form of factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Instead, the complaint must state sufficient facts to show that the legal allegations are not simply possible, but plausible. Phillips, 515 F.3d at 234. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Finally, the Court considers "only the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim." Lum v. Bank of Am., 361 F.3d 217, 221 n.3 (3d Cir. 2004). A document forms the basis of a claim when it is "integral to or explicitly relied upon in the complaint." Id. (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)).
IV. Discussion
Statebridge moves to dismiss Plaintiff's Complaint on the grounds that a) all of Plaintiff's claims are barred by the filed rate doctrine; b) Plaintiff cannot claim breach of contract because Statebridge was not a party to the contract, the contract authorized the actions alleged to be unlawful, and Plaintiff himself violated the contract; c) Plaintiff cannot claim breach of the implied covenant of good faith and fair dealing, because Plaintiff has failed to allege that Statebridge deprived him of the benefit of his bargain or that Statebridge acted in bad faith; d) Plaintiff cannot claim breach of fiduciary duty, because no such duty exists between a mortgagor and mortgagee; e) Plaintiff cannot claim violation of the NJCFA, because Plaintiff has failed to allege that Statebridge engaged in an unlawful practice or that Plaintiff suffered an ascertainable loss; and f) Plaintiff cannot claim RICO violations, because Plaintiff has failed to allege a RICO enterprise or a pattern of racketeering activity.
The Court considers each of these arguments in turn.
A. The Filed Rate Doctrine
Statebridge first argues that all of Plaintiff's claims are barred by the filed rate doctrine, which "provides that a rate filed with and approved by a governing regulatory agency is unassailable in judicial proceedings brought by ratepayers." Clark v. Prudential Ins. Co. of Am., 736 F.Supp.2d 902, 913 (D.N.J. 2010) (citing Alston v. Countrywide Fin. Corp., 585 F.3d 753, 763 (3d Cir. 2009)).
Specifically, "[t]he filed rate doctrine bars suits that challenge the reasonableness of filed rates or that would have the practical effect of causing certain consumers to pay a rate that varies from the filed and approved rate." (SMTD at 25 (citing Smith v. SBC Commc'ns, Inc., 178 N.J. 265, 274-75 (2004))) Statebridge argues that this non-justiciability strand deprives courts of subject-matter jurisdiction over such suits and "reflects the courts' `general reluctance to substitute their judgment for the judgment of the regulatory agency vested with primary authority to make such decisions and the courts' limited ability to determine the reasonableness of rates.'" (Id. at 26 (quoting Clark v. Prudential Ins. Co. of Am., 736 F.Supp.2d 902, 913 (D.N.J. 2010)).
However, the filed rate doctrine does not apply to bar claims where "Plaintiffs challenge [Defendant's] allegedly wrongful conduct, not the reasonableness or propriety of the rate that triggered that conduct." Alston v. Countrywide Fin. Corp., 585 F.3d 753, 765 (3d Cir. 2009). In Alston, the Third Circuit considered allegations of wrongful conduct involving unlawful kickbacks. "Plaintiffs may not sue . . . if they simply think that the price they paid for their settlement services was unfair," the Court found, but plaintiffs "may allege a violation of fair business practices through the use of illegal kickback payments. The filed-rate doctrine bars suit from the former class of plaintiffs and not the latter." Id. at 764 (internal quotation marks and citation omitted).
Here, Plaintiff alleges that Defendants engaged in an unlawful, undisclosed kickback scheme, colluding to charge borrowers rates the borrowers believed were necessary to cover their insurance costs but which were actually used to fund kickbacks to Statebridge, among other improper benefits. These rates were higher than the voluntary rates borrowers were able to obtain on the open market, but Plaintiff does not allege that they were unreasonable in absolute terms. Rather, Plaintiff objects to Defendants' allegedly wrongful conduct, which "was neither filed with, nor approved by, the state regulatory agency and thus fell firmly outside the scope of the filed rate doctrine." (Plaintiff's Opp. to SMTD, Dkt. No. 23 ("Pl.'s Opp.") at 10)
Under New Jersey law, "every insurer shall, before using or applying any rate
N.J.S.A. 17:29A-7.
Once a rate is approved, "[n]o insurer . . . shall knowingly charge, demand or receive a premium for any policy of insurance except in accordance with the respective ratingsystems on file with and approved by the commissioner." N.J.S.A. 17:29A-15.
Here, Statebridge's filed rating-system was approved, and the rate that Statebridge charged Plaintiff complied with the rate on file. However, there is no evidence that Defendants included in their application for approval of their ratingsystem the portion of the premium devoted to kickbacks, as Plaintiff has alleged. Such extraneous payments are forbidden as follows:
N.J.S.A. 17:29A-15.
Plaintiff DiGiacomo alleges that AMIG Defendants paid and Statebridge accepted, as an inducement to insurance, or after insurance has been effected, kickbacks that would qualify as the sort of payments prohibited by N.J.S.A. 17:29A-15.
The filed rate doctrine cannot offer any protection against such a charge. While the doctrine precludes a borrower from bringing a claim challenging the rate of force-placed insurance, Plaintiff here is not challenging the rate: a finding in his favor would establish only that Defendants engaged in an unlawful kickback scheme that was not disclosed to New Jersey regulators, not cast doubt on any determination such regulators made that a certain rate is reasonable. In imposing a rate that regulators deem reasonable, Defendants may nonetheless engage in conduct that violates, as Plaintiff alleges, the NJCFA or RICO statutes or Defendants' contractual and fiduciary obligations.
Statebridge's motion to dismiss Plaintiff's Complaint based on the filed rate doctrine will therefore be denied.
B. Breach of Contract
Statebridge next argues that Plaintiff cannot claim breach of contract because Statebridge was not a party to the contract, the contract authorized the actions alleged to be unlawful, and Plaintiff did not perform his own duties under the contract.
a. Statebridge was plausibly a party to the mortgage contract.
Only a party to a contract can be found liable for breach of contract, and a loan servicer is not an original party to a mortgage agreement between a lender and a borrower as a matter of law.
Here, Statebridge argues that Plaintiff has failed to state a claim for breach of contract, because "a `servicer' only receives limited rights and obligations under the mortgage contract relating to servicing" and Statebridge therefore "does not have the required privity between the parties[.]" (SMTD at 29) However, this question of fact should not be resolved at this stage. For now, the Court notes only that Statebridge is the party listed on Plaintiff's "Evidence of Insurance" form under "Insured/Lender" (Dkt. No. 9-1 at 16) and finds that Statebridge plausibly stands in the shoes of EquiFirst with regard to Plaintiff's mortgage agreement with EquiFirst.
Statebridge's motion to dismiss Plaintiff's breach of contract claim on the basis that Statebridge is not a party to the contract will therefore be denied.
b. The contract does not authorize Defendants' actions.
Statebridge also argues that the mortgage agreement authorizes Defendants' actions, because it alerts borrower that they must maintain insurance "in the amounts . . . and for the periods that Lender requires," and that if such coverage lapses, the Lender "is under no obligation to purchase any particular type or amount of [force-placed] coverage" which "shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect." (SMTD at 30-31) The agreement further provides that the cost of force-placed insurance "might significantly exceed the cost of insurance that Borrower could have obtained." (Id. at 31) Based on this language, Statebridge concludes that the breaches that Plaintiff alleges "are in fact contemplated by and expressly authorized by the Mortgage." (Id.)
This conclusion is not persuasive. Section 9 of the Mortgage Agreement authorizes a Lender to "do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument." (Mortgage Agreement at 4-5) But Plaintiff has alleged a kickback scheme that imposes costs on the borrower beyond the costs of providing force-placed insurance. In executing the Mortgage Agreement, Plaintiff may have agreed, in the event of a lapse in voluntary coverage, to allow the forceplacement of insurance that is more expensive and less protective of Plaintiff's interests than the coverage that lapsed; however, the agreement in no way evidences Plaintiff's consent to or awareness of the alleged kickback scheme driving some portion of those additional costs. In fact, Plaintiff alleges that Defendants used the Mortgage Agreement to suggest that excessive premiums were legitimately necessary to cover the costs of providing force-placed insurance, masking the illegitimate profits Statebridge collected instead. The agreement authorizes no such action, as it is neither reasonable nor appropriate to protect the Lender's interest, and the Court will therefore deny Statebridge's motion to dismiss Plaintiff's breach of contract claim on that basis.
c. Plaintiff has not pled his own performance under the contract.
Finally, Statebridge asserts that Plaintiff has not asserted his own performance of the contract. Specifically, plaintiff satisfies his pleading requirements if he alleges (1) a contract; (2) a breach of that contract; (3) damages flowing therefrom; and (4) that plaintiff performed his own contractual duties. Pub. Serv. Enter. Grp., Inc. v. Philadelphia Elec. Co., 722 F.Supp. 184, 219 (D.N.J. 1989) (citing 5 Wright & Miller, Federal Practice and Procedure, § 1235 at 189-90). In other words, "when pleading a claim for the breach of an express contract . . . the complaint must contain some allegation that the plaintiffs actually performed their obligations under the contract." R.H. Damon & Co. v. Softkey Software Products, Inc., 991 (S.D.N.Y. 1993) (dismissing plaintiff's case for failure to do so).
Here, Statebridge has alleged that "Plaintiff failed to perform his contractual duties under the Mortgage," because he "failed to make timely payments pursuant to the Note and Mortgage" and is thereby estopped from bringing a breach of contract claim against Statebridge under the Mortgage Agreement. (Def.'s Reply at 12) By nature, Defendants use force-placed insurance only when a mortgagor has failed to maintain insurance on the property at issue, and the Court recognizes that a financially distressed borrower failing to make insurance payments may simultaneously fail to make mortgage payments as well. Nonetheless, Plaintiff must show his own performance in order to collect damages under the contract itself. Finding that Plaintiff has failed to do so, the Court will dismiss Plaintiff's breach of contract claim.
C. Breach of Implied Covenant of Good Faith and Fair Dealing
Plaintiff has, however, stated a claim for breach of the implied covenant of good faith and fair dealing, because he has pleaded that Statebridge deprived him of the benefit of his bargain and that Statebridge acted in bad faith.
The implied covenant of good faith and fair dealing, which accompanies all contracts under New Jersey law, "mandates that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Faistl v. Energy Plus Holdings, LLC, No. CIV.A. 12-2879 JLL, 2012 WL 3835815, at *6 (D.N.J. Sept. 4, 2012) (quoting Seidenberg v. Summit Bank, 348 N.J.Super. 243, 254 (App. Div. 2002)).
"A party exercising its right to use discretion in setting prices under a contract breaches the duty of good faith and fair dealing if that party exercises its discretionary authority arbitrarily, unreasonably, or capriciously, with the objective of preventing the other party from receiving its reasonably expected fruits under the contract." Wilson v. Amerada Hess Corp., 168 N.J. 236, 251, 773 A.2d 1121, 1130 (2001). "Essential to a breach of the good faith obligation is a finding of improper motive. `Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance.'" Bartello v. Option One Mortgage Corp., No. A-2492-07T1, 2009 WL 137229, at *4 (N.J. Super. Ct. App. Div. Jan. 22, 2009) (quoting Wilson, 168 N.J. at 251).
It is undisputed here that Statebridge retained discretionary authority to choose a force-placed insurance provider. However, the implied covenant of good faith precluded Defendants from exercising that discretion "unreasonably . . . with the objective of preventing the other party from receiving its reasonably expected fruits under the contract." Statebridge argues that Plaintiff cannot meet this standard, because he has failed to allege sufficient facts showing that Statebridge deprived him of the benefit of his bargain. (SMTD 32-37)
In support of this position, Statebridge quotes Bartello, 2009 WL 137229, at *5:
(SMTD 32) In other words, Plaintiff signed the Mortgage Agreement to obtain a loan to purchase a home and received that loan, so he cannot now claim a breach of the implied covenant of good faith.
However, this characterization of Plaintiff's bargain is incomplete.
Laffan, 2014 WL 2693158 at *5.
Similarly here, while Statebridge was allowed to forceplace insurance "to protect the lender's interest in the property," Statebridge "was not entitled to use its discretion to obtain secret kickbacks." Defendants had the discretion to force-place insurance at a price to be determined by the market, but they were required to exercise that discretion reasonably. Artificially inflating that price to benefit themselves through undisclosed kickbacks, as Plaintiff has alleged, would qualify as an "unreasonable" exercise of their discretion and would therefore breach the implied covenant of good faith and fair dealing.
Statebridge also argues that Plaintiff has failed to allege sufficient facts showing that Statebridge acted in bad faith. (SMTD 32-34) However, Plaintiff's allegation that Defendants intentionally force-placed insurance upon him with a deliberately undisclosed and unlawful profit motive extraneous to the terms agreed upon in the mortgage contract sufficiently alleges bad faith. The Court will therefore deny Statebridge's motion to dismiss Plaintiff's claim that Statebridge breached the implied covenant of good faith and fair dealing.
D. Fiduciary Duty
Plaintiff alleges that Statebridge acted as a fiduciary in holding Plaintiff's escrow funds and violated that duty by applying the funds towards undisclosed kickbacks for itself rather than the legitimate costs of providing force-placed insurance. Statebridge claims that it engaged Plaintiff only in a debtor-creditor relationship, which imposes upon Statebridge no fiduciary duty. (SMTD 37) However, Statebridge's fiduciary obligation roots from its control over Plaintiff's escrow funds, independent of its identity as Plaintiff's lender.
"Escrow agents have a fiduciary responsibility to the parties to an escrow transaction." Laffan, 2014 WL 2693158, at *6 (citing Snyder v. Dietz & Watson, Inc., 837 F.Supp.2d 428, 444 (D.N.J. 2011). In Laffan, the Court denied a motion to dismiss a fiduciary duty claim:
Id.
Similarly, the Court finds here that Plaintiff has sufficiently pled that Statebridge abused its discretion over his escrow funds by funding undisclosed kickbacks unrelated to providing force-placed insurance. Consequently, Statebridge's motion to dismiss Plaintiff's fiduciary duty claim will be denied.
E. New Jersey Consumer Fraud Act ("NJCFA")
"To state a cause of action under the [NJ]CFA, a plaintiff must allege: (1) an unlawful practice by the defendants; (2) an ascertainable loss by plaintiff; and (3) a causal nexus between the first two elements — defendants' allegedly unlawful behavior and the plaintiff's ascertainable loss." Arcand v. Brother Int'l Corp., 673 F.Supp.2d 282, 296 (D.N.J. 2009).
In moving to dismiss Plaintiff's claims under the NJCFA, Statebridge argues that Plaintiff's allegations were not an unlawful practice because they were consistent with the Mortgage Agreement
As discussed above, the Mortgage Agreement does not authorize the kickbacks alleged, and the filed rate doctrine does not apply here. Rule 9(b)
Plaintiff here has alleged with sufficient particularity a fraudulent scheme wherein Defendants led Plaintiff to believe that his higher force-placed insurance premiums were necessary to provide him coverage, when they were actually used to provide kickbacks to Statebridge. (Compl. ¶¶ 81-82) These kickbacks were not disclosed to Plaintiff and qualify as a material omission in Statebridge's communications with Plaintiff, such as the July 6, 2012, letter. Consequently, Statebridge's motion to dismiss Plaintiff's claims under the NJCFA will be denied.
F. >Racketeer Influenced and Corrupt Organizations ("RICO") Act
Finally, Statebridge seeks to dismiss Plaintiff's RICO claims, which allege mail and wire fraud (Count VII) and RICO conspiracy (Count VIII) under 18 U.S.C. § 1962(c) and (d).
In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 269 (3d Cir. 2009) (internal citations omitted).
First, Statebridge alleges that Plaintiff has failed to plead a RICO enterprise, because he "has failed to allege wrongful actions in the conduct of the enterprise" beyond the "procurement of insurance [which] is one of [Statebridge's] duties as a servicer of the Mortgage." (SMTD at 44) However, Plaintiff pleads more than mere procurement of insurance; he pleads that Defendants made material omissions and misrepresentations regarding the purposes of the force-placed insurance premiums, "knowingly and intentionally foster[ing] the mistaken impression that the force-placed insurance premiums that Plaintiff was charged represented the `cost' of the policies and that it was authorized to impose costs of the kickbacks and improper expenses under the Loan Agreement or Mortgage." (Compl. ¶¶ 116-17) Plaintiff also alleges that Defendants "transferred sums among themselves, including but not limited to kickbacks[.]" (Id. ¶ 118) These actions, as alleged, go well beyond Statebridge's duties as a loan servicer.
Second, Statebridge argues that Plaintiff has alleged insufficient facts regarding Statebridge's participation in the enterprise alleged. But Plaintiff alleges, among other things, that Statebridge "directed and controlled the enterprise by . .. drafting of [sic] the language of the letters and correspondence to borrowers that were specifically designed to deceive borrowers related to what the `cost' of the insurance purchased for them was . . . [and] caus[ing] debits to the borrowers [sic] escrow accounts amounts which are not the actual or effective cost for lender placed insurance." (Compl. ¶ 119)
Finally, Statebridge argues that Plaintiff has not asserted any facts that substantiate his allegations of kickbacks. However, Plaintiff has asserted that "AMIG Defendants have acknowledged that they pay `commissions' in connection with force-placed insurance," (Id. ¶ 35), that very few insurance companies control virtually the entire market for force-placed insurance (Id. ¶ 15), and that Plaintiff's force-placed premiums were 17.5% higher than his primary insurance (Id. ¶ 47). The Court finds these facts sufficient to warrant discovery.
Consequently, the Court will deny Statebridge's motion to dismiss Plaintiff's RICO claims.
VI. Conclusion
For the reasons set forth above, Statebridge's motion to dismiss Plaintiff's breach of contract claim will be granted; the remainder of its motion will be denied. An appropriate Order accompanies this Opinion.
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