Martorella v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 18 March 2013
• Docket Number: Case No. 12–80372–CIV.
• Parties: Madelaine MARTORELLA, individually and for all others similarly situated, Plaintiff, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, as Indenture Trustee for American Home Mortgage Investment Trust 2006–1 and American Home Mortgage Servicing, Inc., Defendants.
• Court: U.S. District Court — Southern District of Florida

931 F.Supp.2d 1218

Madelaine MARTORELLA, individually and for all others similarly situated, Plaintiff,

v.DEUTSCHE BANK NATIONAL TRUST COMPANY, as Indenture Trustee for American Home Mortgage Investment Trust 2006–1 and American Home Mortgage Servicing, Inc., Defendants.

Case No. 12–80372–CIV.

United States District Court,

S.D. Florida.

March 18, 2013.

Edward F. Haber, Michelle H. Blauner, Shapiro Haber & Umy, LLP, Boston, MA, James A. Bonfiglio, James A. Bonfiglio, P.A., Boynton Beach, FL, Jay Douglas Dean, Robert J. Axelrod, Pomerantz Hudek Grossman and Gross, LLP, New York, NY, Jeffrey M. Liggio, Liggio Benrubi, Louis M. Silber, Silber & Davis, West Palm Beach, FL, for Plaintiff.

Abigail M. Lyle, Hunton & Williams, Miami, FL, Brian V. Otero, Ryan A. Becker, Stephen R. Blacklocks, Hunton & Williams, New York, NY, for Defendants.

OPINION AND ORDER DENYING MOTION TO DISMISS

KENNETH A. MARRA, District Judge.

THIS MATTER is before the Court on AHMSI and Deutsche Bank's Motion to Dismiss [DE 7]. The Court has carefully considered the motion, response, reply, oral argument of counsel at a hearing held on February 27, 2013, and is otherwise fully advised in the premises.

Introduction

Plaintiff, Madelaine Martorella (“Martorella”), has brought this action against Defendants Deutsche Bank National Trust Company, as Indenture Trustee for American Home Mortgage Investment Trust 2006–1 (“Deutsche Bank”) and American Home Mortgage Servicing, Inc. (“AHMSI”) (collectively, “Defendants”). This action arises out of Defendants' participation in an alleged scheme to charge Martorella and the members of the putative classes for the cost of force-placed insurance coverage on their property at grossly excessive rates. Martorella alleges that Defendants acted in bad faith by charging for force-placed insurance at exorbitantly high premiums that bear no relationship to the insurable risk in return for kickbacks from the insurance carriers. As a result, Defendants and their insurance carriers allegedly reaped huge profits from insurance policies which cost mortgagors many times the market rate for competitively priced insurance policies while providing significantly less insurance coverage. Defendants move to dismiss the Class Action Complaint (“Complaint” or “Compl.”) filed by Martorella and to strike the class action allegations contained therein.

Standard of Review

For purposes of deciding a motion to dismiss, the Court accepts the allegations of the complaint as true and views the facts in the light most favorable to it. See, e.g., Hill v. White, 321 F.3d 1334, 1335 (11th Cir.2003); Murphy v. Federal Deposit Ins. Corp., 208 F.3d 959, 962 (11th Cir.2000). A plaintiff is required to allege “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A complaint may be dismissed if the facts as pled do not state a claim for relief that is plausible on its face.” Sinaltrainal v. Coca–Cola Co., 578 F.3d 1252, 1260 (11th Cir.2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 664, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). “[W]hile notice pleading may not require that the pleader allege a ‘specific fact’ to cover every element or allege ‘with precision’ each element of a claim, it is still necessary that a complaint ‘contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.’ ” Roe v. Aware Woman Ctr. for Choice, Inc., 253 F.3d 678, 683 (11th Cir.2001) (quoting In re Plywood Antitrust Litigation, 655 F.2d 627, 641 (5th Cir.1981)).

Summary of the Factual Allegations

Martorella is the owner and mortgagor of property located in Palm Beach County, Florida (“Martorella Property”). Compl. ¶ 5. Deutsche Bank holds the standard form note and mortgage on the Martorella Property and has appointed AHMSI to act as its agent to service Martorella's loan. Compl. ¶¶ 6–7. When it assumed the servicing of Martorella's loan, AHMSI assumed the obligations under Martorella's standard form note and mortgage. Compl. ¶ 8.

Under the standard form mortgage entered into by Martorella and the members of the class, if the homeowner fails to maintain property insurance coverage, then AHMSI may step in and buy a property insurance policy on behalf of the homeowner so that the home remains insured. Compl. ¶ 10. Such policies commonly are referred to as “force-placed insurance.” However, in exercising their right to protect the lender's interest in the property owned by Martorella and the members of the class, Plaintiff asserts that Defendants had to act consistently with the covenant of good faith and fair dealing implied in the mortgages. Thus, Plaintiff claims Defendants were required to exercise their discretion in good faith and within reasonable limits consistent with the parties' purpose in contracting. Compl. ¶ 11.

It is further alleged that in early 2009, AHMSI, acting as agent for Deutsche Bank, wrongly claimed that Martorella did not have insurance on her property and it purchased force-placed insurance through a specialty insurance carrier named Empire Indemnity Insurance Company (“Empire”). Compl. ¶ 12. As a result, Martorella's insurance premium increased nearly fourfold, as reflected by the increase in her monthly escrow fees from $499.31 per month to $1,924.81 per month. Compl. ¶ 13. Martorella immediately notified AHMSI of its error and provided AHMSI with proof of her insurance coverage on the property. Compl. ¶ 14. Despite this notification, Deutsche Bank foreclosed on the Martorella Property in June 2009, which foreclosure stemmed from the fact that AHMSI had wrongly quadrupled her monthly escrow and refused to accept the correct monthly payment from her. Compl. ¶ 15. In August 2009, AHMSI acknowledged its error and notified Martorella that the force-placed policy had been cancelled. However, AHMSI refused to remove the charges for one month's coverage, even though Martorella had continuous coverage. Compl. ¶ 16.

Plaintiff claims that force-placed insurance is two to four times (but sometimes up to ten times) more costly than regular hazard insurance policies. At the same time, force-placed insurance policies provide less comprehensive insurance coverage than a typical homeowner's policy. Compl. ¶ 17. Plaintiff asserts that the premiums imposed in this case for force-placed insurance are neither bona-fide nor reasonable, and do not bear a reasonable relationship to the insurable risk. Id.

It is also alleged that the servicers' wrongful insurance practices stem from a conflict of interest that aligns servicers and their force-place-insurer partners against the borrowers. Force-placed insurance is frequently placed with an insurance carrier in exchange for commissions, reinsurance fees or other remuneration paid by the insurance company to the mortgage servicers, such as AHMSI. Compl. ¶ 18. Instead of purchasing less expensive policies, which would benefit the borrowers, the mortgage servicers such as AHMSI place the policies with the force-placed insurers that pay them commissions, or other kickbacks, thus driving up the premiums for force-placed insurance. Id. The interests of the servicers and the insurance carriers are so aligned, in fact, that in many cases, there ceases to be a clear difference between the entity purchasing insurance and the entity selling it. Compl. ¶ 21.

AHMSI engaged in the foregoing abusive practices when it force-placed insurance upon the Martorella Property, which benefitted AHMSI. Compl. ¶ 22. Martorella claims her experience was typical of other members of the class, many of whom had insurance force placed in error, and all of whom were charged grossly excessive premiums for their force-placed insurance policies. Compl. ¶¶ 132, 31–32.

Martorella asserts four different claims for relief in her Complaint. She alleges that

• Defendants violated the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201 et seq. (“FDUTPA”) (Counts I–IV);

• Defendants breached the mortgage agreement and the covenant of good faith and fair dealing implied therein (Counts V–VIII);

• Defendants violated the Florida Consumer Collection Practices Act, Fla. Stat. § 559.72 (“FCCPA”) (Counts IX–X); and

• Defendant AHMSI was unjustly enriched (Count XI).

Martorella brings this case for herself and on behalf of a class of all individuals in Florida who have had residential mortgages serviced by AHMSI, as agent for Deutsche Bank, or another note holder, and for whom AHMSI purchased force-placed insurance from November 1, 2007 to the present. Compl. ¶ 25. She also brings this case on behalf of three sub-classes of individuals in Florida who have had residential mortgages serviced by AHMSI. Compl. ¶ 26.

Discussion

1. Florida Deceptive and Unfair Trade Practices Act

Defendants assert Counts I through IV (FDUTPA violations) fail because (a) the conduct alleged does not involve trade or commerce; (b) Martorella identifies no deceptive act; and (c) neither AHMSI nor Deutsche Bank's alleged conduct is linked to an injury or any cognizable damages.

Although not specifically identified in the statute, there are three elements that are required to be alleged to establish a claim pursuant to the FDUTPA: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. Borchardt v. Mako Marine Int'l, Inc., 2009 WL 3856678, *5 (S.D.Fla. Nov. 17, 2009) (quoting KC Leisure, Inc. v. Haber, 972 So.2d 1069, 1073 (Fla.Dist.Ct.App.2008)). The Court finds the Complaint adequately states causes of action for violations of FDUTPA.

A. Allegation of Deceptive or Unfair Act

Defendants argue that there were no deceptive or unfair acts with regard to the imposition of force-placed insurance on the Martorella Property because the terms of the mortgages permitted the placing of such insurance. In making that...