Ellsworth v. U.S. Bank, N.A., No. C 12–02506 LB

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
Writing for the CourtLAUREL BEELER, United States Magistrate Judge
Citation30 F.Supp.3d 886
PartiesStephen Ellsworth, Marilyn Weaver, and Lawrence and Donene Skelley, individually and as representatives of the classes and on behalf of the general public, Plaintiffs, v. U.S. Bank, N.A., and American Security Insurance Company, Defendants.
Decision Date21 March 2014
Docket NumberNo. C 12–02506 LB

30 F.Supp.3d 886

Stephen Ellsworth, Marilyn Weaver, and Lawrence and Donene Skelley, individually and as representatives of the classes and on behalf of the general public, Plaintiffs
U.S. Bank, N.A., and American Security Insurance Company, Defendants.

No. C 12–02506 LB

United States District Court, N.D. California, San Francisco Division.

Signed March 21, 2014

30 F.Supp.3d 890

Matthew C. Helland, Nichols Kaster, PLLP, San Francisco, CA, Rebekah Lynn Bailey, E. Michelle Drake, Kai Richter, Megan D. Yelle, Nichols Kaster PLLP, Sarah W. Steenhoek, Minneapolis, MN, for Plaintiffs.

James R. McGuire, Morrison & Foerster LLP, San Francisco, CA, Forrest K. Tahdooahnippah, Timothy John Droske Dorsey and Whitney LLP, Vernle C. Durocher, Jr., Minneapolis, MN, for Defendants.


ECF Nos. 174, 175

LAUREL BEELER, United States Magistrate Judge


In this putative class action, Plaintiffs challenge their lender U.S. Bank's business practices associated with force-placing flood insurance on their real property that was underwritten by Defendant American Security Insurance Company (“ASIC”). They also allege that U.S. Bank received kickbacks or other compensation from ASIC. Second Amended Class Action Complaint (“SAC”), ECF No. 169, ¶ 2.1 Plaintiffs states six claims in the SAC: (1) breach of contract against U.S. Bank; (2) breach of the covenant of good faith and fair dealing against U.S. Bank; (3)–(4) unjust enrichment against U.S. Bank and ASIC; and (5)–(6) violations of California Business & Professions Code section 17200 et seq. against U.S. Bank and ASIC. See id., ¶¶ 86–130.

ASIC and U.S. Bank move to dismiss the SAC, arguing that certain claims are (1) moot, (2) barred by the filed rate doctrine, (3) barred by the express terms of the governing contracts, and (4) fail to state a claim. See ASIC Motion to Dismiss, ECF No. 175; U.S. Bank Motion to Dismiss, ECF No. 174. Ellsworth opposed the motions on February 14, 2014. See Opposition, ECF No. 180. ASIC and U.S. Bank filed replies on February 27, 2014. See ASIC Reply, ECF No. 181; U.S. Bank Reply, ECF No. 182. The court denies the motions to dismiss.


Plaintiffs and the putative class members have mortgages secured by residential property and were charged for lender-placed (also called “force-placed”) flood insurance by U.S. Bank. SAC ¶ 1. Lenders generally have the right to force-place flood insurance where the property securing the loan falls in a Special Flood Hazard Area (“SFHA”) and is not insured by

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the borrower. Id. ¶ 2. Plaintiffs allege that U.S. Bank abused that right by (1) purchasing backdated policies, (2) charging borrowers for expired or partially expired coverage, and (3) arranging for kickbacks, commissions, qualified expense reimbursements, or other compensation for itself and/or its affiliates in connection with force-placed flood insurance coverage. See id. ¶ 2. Plaintiffs further allege that ASIC actively participated in this scheme by issuing backdated lender-placed flood insurance for U.S. Bank and by offering kickbacks, commissions, qualified expense reimbursements, or other compensation to U.S. Bank in return for the business. Id. ¶ 3. Plaintiffs allege that U.S. Bank and ASIC did this in bad faith and knowing that their actions were not authorized by the borrowers' mortgage contracts or the National Flood Insurance Act and were inconsistent with applicable law. Id. ¶ 4.


A. Defendants

Defendant U.S. Bank is a national banking association headquartered in Cincinnati, Ohio that does business in California and throughout the United States. Id. ¶ 11. U.S. Bank Home Mortgage is one of U.S. Bank's divisions. Id. Defendant ASIC is a Delaware corporation with its principal place of business in Atlanta, Georgia, is a subsidiary of Assurant, Inc., and does business in California and throughout the United States. Id. ¶ 12.

B. Plaintiff Stephen Ellsworth

On or about July 2, 2007, Plaintiff Stephen Ellsworth obtained a $393,892 mortgage loan from U.S. Bank that was secured by the deed of trust on his Napa County, California home.2 See SAC, ECF No. 169, ¶¶ 8, 18, Ex. 1 at 3–4. Ellsworth's mortgage is a standard Fannie Mae/Freddie Mac Uniform Instrument. Id. ¶ 18. U.S. Bank is the lender-in-interest, and it services Ellsworth's loan through its U.S. Bank Home Mortgage division. Id. ¶ 19. Ellsworth's mortgage includes a provision that allows U.S. Bank, in its discretion, to require that Ellsworth maintain flood insurance on the property. Id. ¶ 20, Ex. 1 at 7. The provision states:

5. Property Insurance. 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. The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender's right to disapprove Borrower's choice, which right shall not be exercised unreasonably. Lender may require Borrower to pay, in connection with this Loan, either: (a) a one-time charge for flood zone determination, certification and tracking services; or (b) a one-time charge for flood zone determination and certification services and subsequent charges each time remappings or similar charges occur which reasonably might affect such determination or certification.

SAC Ex. 1, ECF No. 169–1 at 7. The same provision permits U.S. Bank to force-place flood insurance at Ellsworth's expense

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if he fails to maintain the required amount of coverage. SAC ¶ 20, Ex. 1 at 7.

If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage 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. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

Id. Ellsworth alleges that U.S. Bank's discretion to force-place insurance is constrained by the mortgage's paragraph 9, which provides:

9. Protection of Lender's Interest in the Property and Rights Under this Security Instrument. If (a) 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.

Id. Ex. 1 at 8; see SAC ¶ 20. Ellsworth's mortgage also contains a provision titled “Loan Charges,” which provides that U.S. Bank “may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting [U.S. Bank's] interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees, property inspection and valuation fees.” Id. at 11.

When Ellsworth entered into the mortgage agreement, U.S. Bank did not require him to carry flood insurance.3 Id. at 5 n.2. On or about June 9, 2010, U.S. Bank sent Ellsworth a “Notice of Temporary Flood Insurance Placed by Lender Due to Cancellation, Expiration, or Missing Policy Information,” stating that “[o]ur records indicate your property is located in a Special Flood Hazard Area (SFHA) as determined by the Federal Emergency Management Agency (FEMA)” and that the Mortgage and the Flood Disaster Protection Act of 1973 required Ellsworth to purchase flood insurance. Id. ¶ 21, Ex. 2, ECF No. 169–2 at 2. The notice explained that U.S. Bank had purchased a 45–day flood insurance binder for Ellsworth's property from ASIC. Id. ¶ 22. The binder was effective as of July 3, 2009, and would expire 45 days after the June 9, 2010 notice.Id. ¶ 22, Ex. 2 at 2–3. If Ellsworth failed to provide adequate proof of flood insurance within 45 days, “this temporary coverage will convert to a full year policy and the annual premium [$2,250] will be added...

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