Miller v. Wells Fargo Bank, N.A.

• Decision Date: 30 January 2014
• Docket Number: No. 13 CV 1541(VB).,13 CV 1541(VB).
• Citation: 994 F.Supp.2d 542
• Parties: Wayne MILLER, for himself and on behalf of all others similarly situated, Plaintiff, v. WELLS FARGO BANK, N.A., Wells Fargo Insurance, Inc., Assurant, Inc. and American Security Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of New York

994 F.Supp.2d 542

Wayne MILLER, for himself and on behalf of all others similarly situated, Plaintiff,

v.WELLS FARGO BANK, N.A., Wells Fargo Insurance, Inc., Assurant, Inc. and American Security Insurance Company, Defendants.

No. 13 CV 1541(VB).

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

Jan. 30, 2014.

David Charles Harrison, Jeanne F. D'Esposito, Scott Vincent Papp, Lowey Dannenberg Cohen & Hart, P.C., White Plains, NY, for Plaintiff.

Allison J. Schoenthal, Lisa Jean Fried, Hogan Lovells U.S. LLP, New York, NY, for Defendants.

MEMORANDUM DECISION

BRICCETTI, District Judge:

Plaintiff Wayne Miller brings this putative class action against defendants Wells Fargo Bank, N.A. (“Wells Fargo Bank”), Wells Fargo Insurance, Inc. (“Wells Fargo Insurance” and, together with Wells Fargo Bank, the “Wells Fargo Defendants”), Assurant, Inc. (“Assurant”), and American Security Insurance Company (“ASIC” and, together with Assurant, the “Assurant Defendants”), challenging their practice of “force-placing” hazard insurance on residential properties. Plaintiff alleges defendants violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and also asserts claims under New York law for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, unjust enrichment, violation of Section 349 of the New York General Business Law (“GBL”), and declaratory and injunctive relief.¹

The Wells Fargo Defendants and the Assurant Defendants have filed separate motions to dismiss the Corrected Class Action Complaint (“complaint”). (Doc. 37, 40). All defendants have moved to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The Assurant Defendants have also moved to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, contending plaintiff lacks standing to sue them under Article III of the United States Constitution.

For the following reasons, both motions are GRANTED in part and DENIED in part.

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and the Class Action Fairness Act, 28 U.S.C. § 1332(d).

BACKGROUND

The following facts are drawn from the complaint, the exhibit thereto, and documentson which plaintiff relied in bringing suit. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002).

I. Plaintiff's Mortgage

In January 2007, plaintiff obtained a $270,000 mortgage loan (the “Mortgage”) from American Home Mortgage to purchase his home in Nanuet, New York. Sometime before November 2008, the Mortgage was assigned to Wells Fargo Bank.

The Mortgage requires plaintiff to “obtain hazard or property insurance to cover all buildings and other improvements” on his property. (Compl. Ex. 1 at 7). Any such insurance policy must include a “Standard Mortgage Clause.” ² ( Id.). The premiums for plaintiff's hazard insurance are among the “Escrow Items” he must pay periodically to Wells Fargo Bank. ( Id. at 5). The amounts paid for Escrow Items are termed “Escrow Funds.” ( Id.). Wells Fargo Bank must “use the Escrow Funds to pay the Escrow Items.” ( Id. at 6). Nothing in the Mortgage specifically provides that Wells Fargo Bank owes any fiduciary duties with respect to the Escrow Funds.

If plaintiff fails to maintain the required insurance, the Mortgage authorizes Wells Fargo Bank to “obtain insurance coverage, at [its] option and [plaintiff's] expense.” ( Id. at 7). An insurance policy purchased by a lender upon the lapse of a borrower's insurance policy is called a “force-placed” insurance policy. The Mortgage provides that Wells Fargo Bank “is under no obligation to purchase any particular type or amount of coverage,” and warns that force-placed insurance “will cover” Wells Fargo Bank but might afford less coverage than a policy purchased by plaintiff. ( Id.). The Mortgage adds that the cost of force-placed insurance “might significantly exceed the cost of insurance that [plaintiff] could have obtained.” ( Id.).

In addition to expressly allowing Wells Fargo Bank to force-place insurance if plaintiff's insurance lapses, the Mortgage states that if plaintiff does not “keep [his] promises and agreements,” then Wells Fargo Bank “may do and pay for whatever is reasonable or appropriate to protect [its] interest” in plaintiff's property. ( Id. at 9).

II. Plaintiff's Force–Placed Insurance

In January 2007, plaintiff obtained a homeowner's insurance policy. The policy expired October 25, 2008, and was not renewed.

By letter dated January 28, 2009, Wells Fargo Bank notified plaintiff it had purchased hazard insurance from ASIC, a subsidiary of Assurant, because he had not provided proof of insurance. The letter informed plaintiff that the ASIC policy was “obtained with the assistance of Wells Fargo Insurance,” a Wells Fargo Bank affiliate, and that Wells Fargo Insurance receives commissions on force-placed insurance obtained for the bank. Plaintiff alleges Wells Fargo Insurance does nothing to assist in securing force-placed insurance and exists solely to collect commissions. The ASIC policy was made effective as of October 25, 2008. Plaintiff does not allege whether his property sustained any damage between October 25, 2008, when his insurance policy expired, and January 28, 2009, when the force-placed policy was issued. Nor does he allege he informed Wells Fargo Bank about the condition of his property before or after issuance of the force-placed policy,or if Wells Fargo Bank inspected the property itself. In any event, plaintiff paid the annual premium for this force-placed policy.

Wells Fargo Bank force-placed ASIC hazard insurance policies again in 2010, 2011, and 2012. These policies covered the period from December 2, 2009, to September 2, 2013.³ Plaintiff alleges he maintained his own hazard insurance policies covering the period from October 2009 through September 11, 2013, although he has not provided the Court with copies of the policies or discussed their terms in the complaint. (Compl. ¶¶ 22–30). Plaintiff told Wells Fargo Bank he had, in fact, procured his own coverage, but the bank refused to remove the force-placed policies for nearly one year or to rescind the accrued premium charges. Instead, the bank added the premiums to plaintiff's escrow account, thereby raising his monthly mortgage payments by approximately $1,000.

The 2010, 2011, and 2012 force-placed policies each provided $540,000 in coverage and charged annual premiums ranging from $4,037 to $5,184. Plaintiff alleges $540,000 in coverage was excessive because the balance of his mortgage loan as of 2010 was less than $260,000. He also challenges the reasonableness of the premiums, contending they include charges for costs unrelated to the protection of Wells Fargo Bank's interest in his property, such as commissions paid to Wells Fargo Insurance or costs incurred monitoring Wells Fargo Bank's mortgage portfolio for lapses in hazard insurance. Although plaintiff was cautioned the premiums “may be higher than the amount you would pay if you were to purchase coverage from an insurance company of your choice” (ASIC Decl. Exs. I, N), plaintiff describes this statement as a “half-truth” because it does not mention the premiums are inflated by amounts unrelated to the costs of obtaining the insurance itself. But plaintiff does not dispute the premiums were calculated using rates approved by the New York State Department of Financial Services (“DFS”), the agency responsible for regulating the insurance industry in New York State.

Plaintiff alleges defendants, along with “other insurance producers and entities involved in force-placing insurance on behalf of the Wells Fargo Defendants,” perpetrated a scheme to defraud plaintiff “and other borrowers who were required to pay for force-placed hazard insurance.” (Compl. ¶ 83). Plaintiff makes no mention of the role played by the “other entities” in the alleged scheme, other than that they “assist[ed]” defendants. ( Id.).

DISCUSSION

I. Standard of Review

As noted above, the Assurant Defendants have moved to dismiss the complaint under Rule 12(b)(1) for lack of Article III standing and under Rule 12(b)(6) for failure to state a claim.

“[A] district court must generally ... establish that it has federal constitutional jurisdiction, including a determination that the plaintiff has Article III standing, before deciding a case on the merits” under Rule 12(b)(6). Alliance For Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 85 (2d Cir.2006).

Here, however, the Court need not address standing because the Assurant Defendants have presented merits arguments in the guise of standing arguments. The Assurant Defendants contend the “filed rate doctrine,” see generally Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17 (2d Cir.1994), forecloses any argument plaintiff suffered an “injury in fact” by having paid too much in force-placed insurance premiums, and that even if plaintiff can establish an injury in fact, he has failed to allege Assurant's conduct caused such an injury. To be sure, injury in fact and causation are essential elements of constitutional standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). But the injury-in-fact inquiry focuses on whether the alleged injury is “judicially cognizable”—that is, whether it is “distinct and palpable” rather than “abstract or conjectural or hypothetical,” Allen v. Wright, 468 U.S. 737, 751–52, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984) (internal quotation marks omitted)—not whether plaintiff can satisfy the injury element of a particular cause of action. Clearly, economic injuries, such as those alleged by plaintiff, are judicially cognizable. Natural Res. Def. Council, Inc. v. U.S. Food & Drug Admin., 710 F.3d 71, 85 (2d Cir.2013) (“Even a small financial loss is an injury for purposes of Article III standing.”). And the causation...