Norwest Mortgage, Inc. v. Superior Court

• Decision Date: 28 April 1999
• Docket Number: No. D032050,D032050
• Citation: 72 Cal.App.4th 214,85 Cal.Rptr.2d 18
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 3706, 1999 Daily Journal D.A.R. 4696 NORWEST MORTGAGE, INC., Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; Bruce H. Conley et al., Real Parties in Interest.

Page 18

85 Cal.Rptr.2d 18

72 Cal.App.4th 214, 99 Cal. Daily Op. Serv. 3706,

1999 Daily Journal D.A.R. 4696

NORWEST MORTGAGE, INC., Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent;

Bruce H. Conley et al., Real Parties in Interest.

No. D032050.

Court of Appeal, Fourth District, Division 1, California.

April 28, 1999.

Severson & Werson and Jan T. Chilton, San Francisco, for Petitioner.

No appearance for Respondent.

Blumenthal, Ostroff & Markham, Norman B. Blumenthal, David R. Markham, Sheldon A. Ostroff, Barron E. Ramos, San Diego, Chavez & Gertler and Mark A. Chavez, San Francisco, for Real Parties in Interest.

McDONALD, J.

Real Parties in Interest Bruce and Kathleen Conley and Kenneth and Dorine Younger (collectively plaintiffs) sued Norwest Mortgage, Inc. (Norwest Mortgage), alleging that Norwest Mortgage's "Forced Placement Insurance" (FPI) program was an unfair business practice under California's unfair competition law (UCL). (BUS. & PROF.CODE , § 17200¹ et seq.) Plaintiffs allege that on lapse or cancellation of the insurance they were required to maintain as borrowers from Norwest Mortgage, Norwest Mortgage provided replacement insurance under the FPI program and charged the cost to plaintiffs. Plaintiffs allege the FPI cost charged to plaintiffs was unnecessarily expensive because it included an amount sufficient to cover rebates provided by the insurer to Norwest Mortgage.

The complaint, styled as a class action lawsuit, asserts it is brought on behalf of all borrowers throughout the United States for whom Norwest Mortgage purchased FPI during the four years prior to the lawsuit. Although the complaint originally pleaded numerous claims, plaintiffs dismissed all but the UCL claim. Plaintiffs sought nationwide class certification. Norwest Mortgage opposed nationwide class certification, arguing that the UCL does not and cannot be applied to claims of non-California residents arising out of the purchase of FPI outside of California.

The trial court granted nationwide class certification. The trial court concluded, in part, that the UCL provides a remedy to non-California residents for unfair business practices that occur entirely outside California. Norwest Mortgage's petition for a writ of mandate seeks to reverse the order granting nationwide class certification.

I The Facts ²

A. The Parties.

Norwest Mortgage is a mortgage company incorporated in California but with its principal place of business in Iowa. Norwest Mortgage makes and services loans to homeowners secured by deeds of trusts or mortgages (the security instruments) in all 50 states. Plaintiffs are California residents for whom FPI was purchased by Norwest Mortgage under security instruments encumbering California real estate. The members of its proposed class (the borrowers) include similarly situated California residents and non-California residents for whom FPI was purchased by Norwest Mortgage under security instruments encumbering non-California real estate.

B. The FPI Program.

The security instruments contain a covenant that obligates the borrowers to insure their homes against various physical hazards, including fire, and to make Norwest Mortgage an additional insured under the insurance policy. The security instruments provide that if the borrowers do not maintain the required insurance, Norwest Mortgage may purchase the FPI to protect its interests in the encumbered property and charge the borrowers for the FPI premiums.

Norwest Mortgage purchased FPI for the borrowers after the borrowers' insurance lapsed or was canceled. An estimated 27,000 class members for whom FPI was purchased reside in California; the remaining approximately 50,000 class members reside in other states.

Norwest Mortgage buys FPI from American Security Insurance Company (ASIC) through Norwest Insurance, Inc. Norwest Insurance, Inc. is an affiliate of Norwest Mortgage, is licensed as an insurance agent in California and most, but not all, of the other 49 states and is headquartered in Minnesota. ASIC is headquartered in Georgia.

All decisions regarding Norwest Mortgage's FPI program were made by Norwest Mortgage employees at its headquarters in Iowa or at its other principal facility in Minneapolis, Minnesota. Until August 1995, Norwest Mortgage performed various tasks relating to FPI from its loan servicing centers in North Carolina, Michigan, Maryland, Illinois, Arizona and Ohio. Since August 1995 most of those functions have been "outsourced" to ASIC's Hazard Insurance Processing Center in Ohio ³; the remaining functions are performed by Norwest Mortgage at its Iowa facility.

Since mid-1996 no functions related to the FPI program have been conducted by Norwest Mortgage in California. Between mid-1995 and mid-1996, Norwest Mortgage conducted in California some functions relating to FPI in connection with a portfolio of loans Norwest Mortgage acquired when it purchased Directors Mortgage (Directors), a small California mortgage company. After acquiring Directors in mid-1995, Norwest Mortgage operated Director's loan servicing center in Riverside, California for an approximately 12-month period and then transferred the loan servicing functions to Norwest Mortgage's facilities in other states. Only during that 12-month period did Norwest Mortgage perform in California any functions relating to FPI and then only with respect to those loans in Directors' portfolio, which represented less than 11 percent of Norwest Mortgage's nationwide portfolio of loans.

C. The Alleged UCL Violation.

Under some circumstances, Norwest Insurance, Inc. collects a commission in connection with the FPI it places for Norwest Mortgage. ⁴ The complaint asserts that it is an unfair business practice actionable under the UCL for Norwest Mortgage to procure FPI and charge the premium to the borrowers to the extent Norwest Mortgage benefits from "cash kickbacks" in the form of commissions paid to its affiliate, Norwest Insurance, Inc.

Plaintiffs also assert that in connection with placing FPI Norwest Mortgage committed unfair business practices actionable under the UCL because it received and benefited from "in-kind kickbacks" from ASIC. Although plaintiffs' theory of "in-kind kickbacks" is somewhat murky, they apparently contend that ASIC provides "free" services ⁵ to Norwest Mortgage, including tracking the borrowers' insurance coverage and sending warning letters to defaulting borrowers on Norwest Mortgage's behalf, the cost of which Norwest Mortgage would otherwise be required to fund as part of its loan servicing functions. Plaintiffs appear to contend this arrangement is an unfair business practice in violation of the UCL because ASIC charges, and Norwest Mortgage passes on to defaulting borrowers, FPI premiums that are sufficiently inflated to subsidize ASIC's services to Norwest Mortgage.

II Procedural History

The first amended complaint alleged Norwest Mortgage could have replaced the borrowers' lapsed or canceled insurance policies at lower premiums but instead purchased FPI at inflated premiums to benefit from the cash and in-kind kickbacks offered by ASIC. The complaint alleged this conduct was an unfair business practice in violation of the UCL and sought restitution of the excessive premiums charged to the borrowers and an injunction against Norwest Mortgage to prohibit this conduct. ⁶

Plaintiffs moved for certification of the nationwide class, asserting all elements necessary to certification of the nationwide class were present: there was an ascertainable class; there were predominant common questions of law and fact; and the class representatives possessed claims typical of the class and adequately represented the class. From this predicate, plaintiffs argued the court should certify the nationwide class because Norwest Mortgage could not satisfy its burden under Clothesrigger, Inc. v. GTE Corp. (1987) 191 Cal.App.3d 605, 236 Cal.Rptr. 605 (hereafter Clothesrigger ) of showing that (1) the laws of other interested states were in actual conflict with the UCL in a manner that would affect the outcome of the litigation, or (2) the other states had an interest in applying their laws to this dispute, or (3) the laws of other interested states rather than the UCL should be applied under the "comparative impairment" analysis. Plaintiffs also argued the choice of law provisions in the security instruments were irrelevant because the claim asserted by the lawsuit was not based on breach of contract but on violation of a statute, and a statutory claim was not governed by the choice of law provisions of the security instruments.

Norwest Mortgage opposed the motion. It argued the UCL was not intended to, and constitutionally could not, apply to the claims of non-California residents. Norwest Mortgage also asserted that even if California's statute could be applied to the claims of non-California residents, (1) the gravamen of the claim was sufficiently connected to the security instruments to require application of the choice of law provision of the security instruments, or (2) traditional choice of law principles showed there was an actual and true conflict among the laws of the various states and that each state had a paramount interest in having its law applied to the claims of its residents. Norwest Mortgage argued that in either case the court would be required to apply the laws of all 50 states, which would eliminate the commonality of legal issues necessary to certification of the nationwide class. ⁷

The court granted the motion for certification of the nationwide class, reasoning that application of the UCL to the claims held by non-California residents was constitutionally permissible because Norwest Mortgage did not show the UCL was in conflict with the laws of any other state in a manner that would affect the outcome of the litigation. ⁸

III Applicable Standards

The burden is on the party seeking certification of a class to...