Arnett v. Bank of Am., N.A.

• Decision Date: 11 July 2012
• Docket Number: Case No. 3:11–cv–01372–SI.
• Citation: 874 F.Supp.2d 1021
• Parties: Larry ARNETT and Ronda Arnett, individually and on behalf of all others similarly situated, Plaintiffs, v. BANK OF AMERICA, N.A. and BAC Home Loans Servicing, L.P., Defendants.
• Court: U.S. District Court — District of Oregon

874 F.Supp.2d 1021

Larry ARNETT and Ronda Arnett, individually and on behalf of all others similarly situated, Plaintiffs,

v.BANK OF AMERICA, N.A. and BAC Home Loans Servicing, L.P., Defendants.

Case No. 3:11–cv–01372–SI.

United States District Court, D. Oregon.

July 11, 2012.

Scott A. Shorr, Timothy S. DeJong, Nadine A. Gartner, Stoll Berne, Portland, OR, Eric L. Cramer, Patrick F. Madden, Shanon J. Carson, Berger & Montague, PC, Philadelphia, PA, Brett H. Cebulash, Kevin S. Landau, Taus, Cebulash & Landau, LLP, New York, NY, of Attorneys for Plaintiffs.

Peter D. Hawkes, Tanya Durkee Urbach, Lane Powell, PC, Portland, OR, John C. Englander, Dennis N. D'Angelo, Matthew G. Lindenbaum, Goodwin Procter LLP, Boston, MA, David L. Permut, Goodwin Procter LLP, Washington, DC, of Attorneys for Defendants.

OPINION AND ORDER

SIMON, District Judge.

In this putative class action, Plaintiffs Larry and Ronda Arnett (“Plaintiffs” or “the Arnetts”) contend that Defendants Bank of America, N.A. and BAC Home Loan Servicing, L.P.¹ (“Defendants” or “BOA”) “forced” Plaintiffs and the other putative class members “to purchase and/or maintain flood insurance in excess of the amounts required by federal law, in amounts greater than Defendants' secured interest in the property, and contrary to the amounts agreed upon in the relevant loan and mortgage documents.” Complaint (“Compl.”) at ¶ 2 (Dkt. 1). In their Complaint, the Arnetts assert statutory claims for violation of the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601, et seq.; the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601, et seq.; and Oregon's Unlawful Debt Collection Practices Act (“UDCPA”), Or.Rev.Stat. § 646.639. The Arnetts also assert four common law claims. Before the court is Defendants' Motion for Judgment on the Pleadings (Dkt. 25). For the reasons discussed below, Defendants' motion is granted with respect to Plaintiffs' statutory claims and the tort claims of unjust enrichment and breach of fiduciary duty but denied with respect to Plaintiffs' contract claim (both express contract and implied covenant) and the remaining tort claim of conversion.

BACKGROUND

A. National Flood Insurance Act

The Arnetts allegations are framed in part by the provisions of the National Flood Insurance Act (“NFIA”), 42 U.S.C. § 4001, et seq. Congress enacted NFIA in 1968 “in response to a growing concern that the private insurance industry was unable to offer reasonably priced flood insurance on a national basis.” Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386, 387 (9th Cir.2000). NFIA aimed to alleviate this concern by providing federally subsidized flood insurance to individuals and organizations in flood-prone areas. “The availability of government subsidized flood insurance did not, however, provide adequate incentive to attract extensive local community participation in the Flood Program.” Mid–America Nat. Bank of Chicago v. First Sav. & Loan Ass'n of S. Holland, 737 F.2d 638, 641 (7th Cir.1984).

Congress later amended NFIA to require that individuals or organizations situated in federally designated special flood hazard areas ² obtain flood insurance coveragein order to be eligible for certain federal and private financing. Id. In particular, federally regulated private lenders are prohibited from making loans secured by real property situated in a special flood hazard area unless the borrower obtains flood insurance coverage for the life of the loan. 42 U.S.C. § 4012a(b)(1); Paul v. Landsafe Flood Determination, Inc., 550 F.3d 511, 513 (5th Cir.2008) (“Any federally regulated lender making a loan secured by improved real estate located in a designated flood-risk zone must as a condition of making the loan require the purchase of insurance through the National Flood Insurance Program.”).

In 1994, Congress again amended NFIA, providing that if a borrower fails to maintain at least a statutorily-set minimum amount of flood insurance coverage, the lender is required to purchase additional coverage on the borrower's behalf.³42 U.S.C. § 4012a(e)(2); Pub.L. No. 103–325, 108 Stat. 2160; see also Hofstetter v. Chase Home Fin., LLC, No. C 10–01313–WHA, 2010 WL 3259773 (N.D.Cal. Aug. 16, 2010). To satisfy this requirement, the amount of flood insurance maintained on the property must be in “an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the Act with respect to the particular type of property, whichever is less.” 42 U.S.C. § 4012a(b)(1).

B. Factual Allegations⁴

In July 2008, the Arnetts obtained a mortgage loan for $135,000 from KeyBank National Association (“KeyBank”) to purchase residential property in Roseburg, Oregon. Compl. ¶ 21. In November 2008, Countrywide Bank took over servicing of the Arnetts' loan. Compl. ¶ 26. BOA later acquired Countrywide. Id. The Arnetts allege that the “mortgage was ... transferred from Countrywide Bank to BOA (when BOA acquired Countrywide).” ⁵Id.

Because the Arnetts' property is located in a special flood hazard area, NFIA required the Arnetts to purchase flood insurance in order to obtain their mortgage loan from KeyBank. Compl. ¶ 22. The Arnetts' trust deed ⁶ securing their loan does not, on its own, expressly require the Arnetts to obtain and maintain flood insurance. The trust deed, however, requires the Arnetts to “keep the improvements now existing or hereafter erected on the Property” insured against any hazards “including, but not limited to, earthquakes and floods, for which Lenders requires insurance.” Dkt. 23–1, Ex. 1. It also permits the lender to “obtain insurance coverage, at Lender's option and Borrower's expense” in the event that the Arnetts fail to maintain coverage. Id. Section five of the Arnetts' trust deed provides in part:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage,” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance. This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. What Lender requires pursuant to the preceding sentences can change during the term of the Loan....

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.

On the same day that the Arnetts signed the trust deed, the Arnetts also signed a document titled “Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance” (hereinafter the “NSFH”). Dkt. 23–1, Ex. 2. Unlike the trust deed, the NSFH expressly required the Arnetts to purchase and maintain flood insurance. It provides in part:

Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance for you at your expense.

• [...]

• At a minimum, flood insurance purchased must cover the lesser of:

(1) the outstanding principal balance of the loan; or

(2) the maximum amount of coverage allowed for the type of property under the [National Flood Insurance Program (“NFIP”) ].

Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located.

Id. Near the bottom of the NSFH are signature lines for both the borrower and the lender. The Arnetts signed and dated the NSFH; there is no signature on the line for the lender.

Before closing, the Arnetts received a document titled “Flood Insurance Requirements” (hereinafter the “FIR”). Dkt. 23–1, Ex. 3. It contains the KeyBank logo and states that the lender “requires that an original flood insurance policy (or application for such insurance) and a prepaid receipt for the first year's premium ... be presented at closing.” Id. It also provides that the “enclosed Flood Notice must be signed and returned to Lender.” Id. Like the NSFH, this document defines the amount of coverage required. The FIR provides:

Flood insurance coverage must be for the lower of:

— 100% of the replacement cost of the insurable value of the improvement.

OR

— The maximum insurance available under the appropriate National Flood Insurance Administration Program.

OR

— The Outstanding principal balance of the loan plus any junior lien loan amounts.

Id. Unlike the NSFH, the FIR does not include signature lines.

The Arnetts obtained a $250,000 flood insurance policy from Harford Insurance Company at the time the loan was originated. Compl. ¶ 25. They also maintained an excess flood insurance policy of $203,000 from Lloyd's of London. Id. The Arnetts obtained a separate and independent policy for their garage totaling $27,500. Id.

On September 14, 2010, BOA sent the Arnetts a letter stating that the Arnetts had failed to maintain adequate flood insurance. Compl. ¶ 32. This letter stated that the Arnetts must obtain $87,280 in additional flood insurance coverage. Id. It also stated that “to maintain acceptable insurance, we [Defendants] require that you maintain flood insurance coverage in an amount at least equal to the lesser of: (1) the maximum insurance available under the NFIP for participating communities, which is currently $250,000; or (2) the replacement value of the improvements to your Property.” Id. In response to the letter of September 14, 2010, the Arnetts provided Defendants with proof of adequate insurance. Compl. ¶ 34. Nevertheless, on November 4, 2010, Defendants obtained an $87,280 flood insurance policy (the “2010 Garage Policy” ⁷) for the Arnetts and charged the Arnetts $445.13 through an escrow account. Compl. ¶ 34; Answer ¶ 34. Several months later, Defendant...