McKenzie v. Wells Fargo Home Mortg., Inc.
| Decision Date | 30 October 2012 |
| Docket Number | Case No.: C-11-04965 JCS |
| Parties | CLIFFORD McKENZIE, et al., Plaintiffs, v. WELLS FARGO HOME MORTGAGE, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
This is a putative class action brought by Plaintiffs Clifford McKenzie, Daniel and Robin Biddix, David Kibiloski, and Virginia Ryan ("Plaintiffs") against Defendants Wells Fargo Home Mortgage, Inc., Wells Fargo Bank, N.A., Wells Fargo & Company, and Wells Fargo Insurance, Inc. (collectively, "Wells" or "Defendants") for breach of contract, unjust enrichment, breach of fiduciary duty, conversion, violation of the New Mexico Unfair Trade Practices Act, and violation of the Truth in Lending Act ("TILA"). Plaintiffs allege that Defendants improperly forced them to maintain flood insurance with higher policy limits than their mortgage contracts or federal law require. Presently before the Court are Defendants' Motion to Dismiss Plaintiffs' Second AmendedComplaint ("Motion to Dismiss") and Defendants' Motion to Transfer Venue ("Motion to Transfer"). A hearing on the Motions was held on August 31, 2012 at 9:30 a.m. For the reasons stated below, the Court GRANTS the Motion to Dismiss and DENIES the Motion to Transfer.
Defendants have requested under Fed. R. Evid. 201(b) that the Court take judicial notice of four documents that are matters of public record. Defendants' Request for Judicial Notice in Support of Motion to Dismiss ("RJN"), 2-3. Fed. R. Evid. 201(b) states that courts may take judicial notice of facts that are "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Plaintiffs have not objected to Defendants' request or challenged the authenticity of any of the attached documents. Accordingly, the Court takes judicial notice of these documents pursuant to Rule 201 of the Federal Rules of Evidence.
In 1968, Congress enacted the National Flood Insurance Act ("NFIA") in response to a growing concern that the private insurance industry was unable to offer reasonably priced flood insurance on a national basis. See 42 U .S.C. 4001(a), (b); see also Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386, 387 (9th Cir. 2000). As such, the NFIA authorized the federal government to establish the National Flood Insurance Program ("NFIP") to provide affordable flood insurance on a national basis and to discourage the construction of new structures in flood prone areas. See 42 U.S.C. 4001(b), 4011(a); 1968 U.S. Code Cong. & Admin. News 2873, 2966-67, 2969; see also Hofstetter v. Chase Home Fin., LLC, 2010 WL 3259773, at *3 (N.D. Cal. Aug. 16, 2010) (Alsup, J.). The NFIP is currently carried out under the auspices of the Federal Emergency Management Agency ("FEMA").
Congress expanded flood insurance coverage through the Flood Disaster Protection Act of 1973, which requires that individuals or organizations situated in federally designated special flood hazard areas obtain flood insurance coverage in order to be eligible for certain federal and private financing. 42 U.S.C. 4012a(a), (b). 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, thelender is required to purchase additional coverage on the borrower's behalf. 42 U.S.C. § 4012a(e)(2); Pub.L. No. 103-325, 108 Stat. 2160; see also Hofstetter, 2010 WL 3259773, at *4; Arnett v. Bank of Am., N.A., 2012 WL 2848425, at *2 (D. Or. July 11, 2012). The statute provides that 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)(l) (emphasis added).1
Plaintiffs allege that Defendants SAC, ¶ 2. Plaintiffs also contend that if a borrower fails to purchase the increased flood insurance on his own, Defendants will force-place flood insurance Id. at ¶ 3. Defendants charge the premium of these force-placed insurance ("FPI") policies to borrowers' escrow accounts, so that Defendants, who service the loans, "can also charge late fees and reap potentially other fee income, such as fees from loan modifications and . . . foreclosure." Id. at ¶ 5.
The specific allegations concerning the individual Plaintiffs are as follows:
(1) Clifford McKenzie
On March 5, 2004, Cliff McKenzie ("McKenzie") entered into a home loan in the amount of $109,264 with Mortgage Resource Group, LLC, which was secured by a deed of trust on his home located at 2619 Sailboat Drive, Houston, Texas. Id. at ¶¶ 24, 27. Plaintiff's loan is now owned and/or serviced by Defendants. Id. at ¶ 25. McKenzie carried a flood insurance policy with acoverage amount of $215,000 through FEMA's NFIP with a yearly premium of $595. Id. at ¶ 26, 32. McKenzie's home had a market value of less than $200,000. Id. at ¶ 26.
On June 2, 2011, McKenzie received a letter from Defendants titled "FLOOD INSURANCE COVERAGE DEFICIENCY NOTIFICATION." Id. at ¶ 28. The letter states that the amount of coverage provided by Plaintiff's flood insurance carrier is less than the coverage required by Wells. Id. The letter also says if the additional coverage is not obtained in 45 days, Wells is "required to secure additional flood insurance for you at your expense." Id. (citing Ex. D (June 2 Letter)). McKenzie provided Defendants with evidence of his flood insurance policy, which had a policy limit in excess of both the outstanding loan balance and the value of the value of the property. Id. at ¶ 32. Nevertheless, on July 22, 2011, Defendants force-placed $21,300 in additional flood insurance on McKenzie's home, charging McKenzie the annual premium of $192. Id. at ¶ 32.
(2) Daniel and Robin Biddix
In December 2002, Plaintiffs Daniel Biddix and Robin Biddix ("the Biddixes") obtained a mortgage loan in the amount of $44,650 through Defendant Wells Fargo Home Mortgage, Inc. on a residential property in San Angelo, Texas. Id. at ¶ 35. Defendants did not require flood insurance as a condition of closing the loan. Id. at ¶ 36 (citing Ex. G (TILA Disclosure)). In 2011, Defendants offered the Biddixes a refinance loan. Id. at ¶ 38. The proposal included a requirement that the Biddixes buy flood insurance to cover the replacement cost value ("RCV") of their home. Id. at ¶¶ 38-40. The Biddixes rejected the proposed refinance loan. Id. at ¶ 41. On September 16, 2011, Defendants sent them a letter saying they needed to buy the flood insurance anyway. Id. at ¶ 42.2 When the Biddixes did not buy the required insurance, Defendants did and charged them the $648
premium for the $72,000 policy. Id. at ¶¶ 47-48.
(3) David Kibiloski and Virginia Ryan
In 1986, Plaintiffs David Kibilowski and Virginia Ryan purchased a home located at 315 Keathley Drive, Las Cruces, New Mexico. Id. at ¶ 52. On December 18, 2001, Kibiloski and Ryan refinanced their initial mortgage with Defendants in the amount of $55,000, which was secured by a mortgage on the Las Cruces property. Id. at ¶53. Accompanying their mortgage, Kibilowski and Ryan executed a Notice of Special Flood Hazards, which states, in part:
At a minimum, flood insurance 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 NFIP. Id.
Kibiloski and Ryan bought flood insurance with limits of at least $89,000, which is the depreciated value of the property. Id. at ¶ 54. Each year beginning in 2005 and continuing through the present, they received a letter from Wells warning them that their flood insurance was deficient and that Defendants would buy additional insurance for them if they did not. Id. at ¶¶ 57-60. Kibiloski and Ryan were often able to convince Defendants that their existing flood insurance sufficed, but in 2012, Wells force-placed a 90-day gap policy with $29,700 in coverage and charged them the $282.15 premium, which has not been refunded. Id. at ¶¶ 58-60.
Plaintiffs assert the following six claims in their SAC:3
(1) Violation of TILA, 15 U.S.C. § 1601, et seq.: Plaintiffs allege that Defendants "failed to provide proper disclosures regarding [their] amendment of the terms of the loan, including the alteration of the terms with regard to the amount of flood insurance required by borrower." Id. at ¶ 86 (citing 12 C.F.R. Part 226). Specifically, Defendants sent notices to Plaintiffs demanding additional flood insurance "in amounts greater than necessary to secure the principle loan balance"without disclosing "the terms of the flood insurance requirement[s] in place or under law." Id. at ¶¶ 84-85.
(2) Breach of Contract: Plaintiffs claim that Defendants breached the express terms of Plaintiffs' mortgages by "force-placing flood insurance on Plaintiffs' loans and the loans of members of the Nationwide Class in excess of their principal loan balance and the amount of coverage required by the contractual relationship." Id. at ¶ 97. Furthermore, in regards to McKenzie, Kibiloski, and Ryan, Defendants force-placed insurance even though they "carr[ied] adequate flood insurance." Id. Plaintiffs also allege that Defend...
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