Lyons v. Litton Loan Servicing LP

• Citation: 158 F.Supp.3d 211
• Decision Date: 02 February 2016
• Docket Number: 1:13-cv-513 (ALC) (GWG)
• Parties: Jimmy Lyons, Jacqueline Lyons, Lisa Chamberlin Engelhardt, Gerald Coulthurst, Enrique Dominquez Frances Erving, Johnnie Erving Anthony Papapietro, and Sheila D. Heard individually and on behalf of all others similarly situated, Plaintiffs, v. Litton Loan Servicing LP, Goldman Sachs Group, Inc., Arrow Corporate Member Holdings LLC, Saxon Mortgage Services, Inc., Morgan Stanley, Ocwen Financial Corporation, Ocwen Loan Servicing, LLC, Assurant, Inc. (d/b/a Assurant Specialty Property), American Security Insurance Company, Standard Guaranty Insurance Company, American Modern Insurance Group, and American Modern Home Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of New York

158 F.Supp.3d 211

Jimmy Lyons, Jacqueline Lyons, Lisa Chamberlin Engelhardt, Gerald Coulthurst, Enrique Dominquez Frances Erving, Johnnie Erving Anthony Papapietro, and Sheila D. Heard individually and on behalf of all others similarly situated, Plaintiffs,

v.Litton Loan Servicing LP, Goldman Sachs Group, Inc., Arrow Corporate Member Holdings LLC, Saxon Mortgage Services, Inc., Morgan Stanley, Ocwen Financial Corporation, Ocwen Loan Servicing, LLC, Assurant, Inc. (d/b/a Assurant Specialty Property), American Security Insurance Company, Standard Guaranty Insurance Company, American Modern Insurance Group, and American Modern Home Insurance Company, Defendants.

1:13-cv-513 (ALC) (GWG)

United States District Court, S.D. New York.

Signed February 2, 2016

Barbara J. Hart, David Charles Harrison, Jeanne F. D'Esposito, Noelle-Kristen Frances Ruggiero, Scott Vincent Papp, Lowey Dannenberg Cohen & Hart, P.C., White Plains, NY, Brett H. Cebulash, Kevin Sylvan Landau, Taus, Cebulash & Landau, LLP, Milo Silberstein, Dealy Silberstein & Braverman, LLP, New York, NY, Charles Joseph Laduca, Cuneo Gilbert & Laduca, LLP, Bethesda, DC, Jennifer E. Kelly, Cuneo Gilbert & Laduca, LLP, Washington, DC, Patrick Fanning Madden, Sarah Schalman–Bergen, Shanon Jude Carson, Berger & Montague, P.C., Philadelphia, PA, Peter A. Muhic, Tyler S. Graden, Kessler Topaz Meltzer & Check, LLP, Radnor, PA, Robert K. Shelquist, Lockridge Grindal Nauen PLLP, Minneapolis, MN, for Plaintiffs.

Brian V. Otero, Ryan Andrew Becker, Stephen Roy Blacklocks, Hunton & Williams, LLP, Melvin Arnold Brosterman, Patrick Nicholas Petrocelli, Quinlan Daniel Murphy, Stroock & Stroock & Lavan LLP, Mary Gail Gearns, Matthew Minerva, Morgan Lewis & Bockius, LLP, Robert Carl Stillwell, Bingham McCutchen, Andrew Todd Solomon, Sullivan & Worcester LLP, Lauren J. Resnick, Baker & Hostetler LLP, New York City, NY, Lisa M. Simonetti, Benjamin Gary Diehl, Catherine Huang, Wesley Griffith, Stroock & Stroock & Lavan, LLP, Los Angeles, CA, Frank G. Burt, William Glenn Merten, Jorden Burt LLP, Washington, DC, Julianna Thomas McCabe, Jorden Burt LLP, Miami, FL, Joseph E. Ezzie, Mark A. Johnson, Rodger L. Eckelberry, Robert James Tucker, Baker & Hostetler LLP, Columbus, OH, for Defendants.

OPINION AND ORDER

ANDREW L. CARTER, JR., United States District Judge:

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.¹ Plaintiffs allege that the loan servicers purchased lender-placed insurance policies from the insurers under exclusive and illegal arrangements that included kickbacks from the insurers. These kickbacks, Plaintiffs allege, inflated the price of the policies and as a result inflated the price they then had to pay their servicers as reimbursement for the insurance.

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., 794 F.3d 256 (2d Cir.2015) ( “Rothstein ”), which dealt with claims related to lender-placed insurance similar to those raised here and which ultimately dismissed those claims under the filed rate doctrine. Per this Court's Order, Plaintiffs were ordered to show cause as to why their case should not be dismissed against all Defendants on the grounds that the filed rate doctrine precluded their claims against both the insurer defendants and the loan servicing defendants. The Court also granted leave to one group of defendants, the Assurant Defendants, to file a motion to reconsider its previously denied motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1), as those Defendants had also raised filed rate doctrine arguments there.

With this Opinion and Order, the Court gives a fuller explanation of its original denial of the Assurant Defendants' motion to dismiss pursuant to Rule 12(b)(1) and DENIES the Assurant Defendants' motion to reconsider. Further, the Court GRANTS Defendants' motion to dismiss pursuant to this Court's Order to Show Cause.²

BACKGROUND

I. Factual Background

Plaintiffs Jimmy and Jacqueline Lyons, Johnnie and Frances Erving, Enrique Dominquez, Gerald Coulthurst, Lisa Engelhardt, 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”) and Ocwen 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” (Assurant, 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 allege, 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.)³

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 Papapietro voluntarily dismissed his claims. (ECF No. 130.) Second, Plaintiffs Johnnie and Frances Erving, 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, 2015 WL 5449813 (S.D.Fla., Sept. 14, 2015). That settlement resolved those Plaintiffs' claims concerning lender-placed insurance purchased by Ocwen from the Assurant Defendants. Id. Finally, the American Modem Defendants submitted a proposed class action settlement, settling their claims with Plaintiffs Jimmy and Jacqueline Lyons and Sheila Heard. (ECF No. 197.) The Court entered an Order granting the motion for preliminary approval of the class action settlement and staying all proceedings in the action as to the American Modem Defendants, except as necessary to effectuate the terms of the settlement. (ECF No. 207.)

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 charged 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 on 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 Rule 12(b)(1), on the grounds that Plaintiffs lacked standing—based on the filed rate...