Perryman v. Litton Loan Servicing, LP

• Decision Date: 01 October 2014
• Docket Number: Case No. 14-cv-02261-JST
• Court: U.S. District Court — Northern District of California
• Parties: MARGO PERRYMAN, Plaintiff, v. LITTON LOAN SERVICING, LP, et al., Defendants.

MARGO PERRYMAN, Plaintiff, v. LITTON LOAN SERVICING, LP, et al., Defendants.

Case No. 14-cv-02261-JST

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

October 1, 2014

ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

Re: ECF Nos. 37, 43, 44.

I. INTRODUCTION

In this proposed class action challenging Defendants' practices of instituting lender-placed insurance ("LPI"), the four named defendants Southwest Business Corporation ("Southwest"), Litton Loan Servicing, LP ("Litton"), Ocwen Loan Servicing, LLC ("Ocwen"), and American Security Insurance Company ("ASIC") have filed three separate motions to dismiss. ECF Nos. 37, 43 & 44. The matter came for hearing on August 21.

II. BACKGROUND

A. Procedural History

Plaintiff Margo Perryman ("Plaintiff" or "Perryman") filed a proposed class action complaint in May 2014. Class Action Complaint ("Compl."), ECF No. 1. The complaint brings twelve causes of action: for "honest services fraud" against Defendants Litton and Southwest under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), for honest services fraud against Defendants Ocwen and ASIC, for mail and wire fraud under RICO against Litton and Southwest, for mail and wire fraud against Ocwen and ASIC, for conspiracy to violate RICO against Defendants Litton and Southwest, for conspiracy to violate RICO against Defendants Ocwen and ASIC, for breach of fiduciary duty against Litton and Ocwen, for aiding and abetting a breach of fiduciary duty against Southwest and ASIC, for "breach of contract, including breach ofthe implied covenant of good faith and fair dealing" against Litton and Ocwen, for unjust enrichment against all Defendants, for conversion against Litton and Ocwen, and for violation of California's Unfair Competition Law ("UCL"), Cal. Bus & Prof. Code §§ 17200, et seq, against all Defendants.

Defendant ASIC filed a motion to dismiss on June 20. Motion to Dismiss Class Action Complaint by Defendant American Security Insurance Company ("ASIC Mot."), ECF No. 37. Defendant Southwest filed a motion to dismiss on June 30, and Defendants Litton & Ocwen jointly filed a third motion to dismiss the same day. Southwest Business Corporation's Motion to Dismiss ("Southwest Mot."), ECF No. 43; Litton Loan Servicing, LP's and Ocwen Loan Servicing, LLC's Motion to Dismiss ("Litton & Ocwen Mot."), ECF No. 44.

B. Allegations in the Complaint

Plaintiff Perryman's home is secured by a deed of trust signed by her and by lender Fremont Investment & Loan. ¶ 33,¹ and Deed of Trust, Exh. A to Compl. Under the deed of trust, Plaintiff is required to insure the property against the risks of fires, floods and/or other hazards. Id. If Plaintiff fails to maintain the required coverage, the deed of trust allows the lender to obtain the required insurance coverage at Plaintiff's expense. Id. This is a common practice known as "lender-placed insurance" ("LPI"). ¶¶ 1, 4.

Specifically, section 5 of Plaintiff's deed of trust, entitled "property insurance," states:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term "extended coverage," and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance. This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. What Lender requires pursuant to the preceding sentences can change during the term of the Loan.

[. . .]

If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any

particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

Deed of Trust § 5. The deed goes on to provide that if the "Borrower fails to perform the covenants and agreements contained in this Security Instrument . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property." Deed of Trust § 9. "Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument." Id.

On February 22, 2011, Litton was the servicer of Plaintiff's loan. ¶ 34. On that date, Plaintiff received a letter on Litton's letterhead, stating that Plaintiff's home was in a flood zone and that she was required by her deed of trust to provide proof of flood insurance. Id.² Plaintiff does not dispute that she never provided such proof of insurance.³ Subsequently, Plaintiff received other letters on Litton letterhead, stating that flood insurance had been placed on her property and that her escrow account had been charged for the premium. ¶¶ 35-36.

On October 14, 2011, Litton and Ocwen sent Plaintiff a notice stating that effective November 1, 2011, Litton would transfer the servicing of Plaintiff's account to Ocwen. ¶ 37. "On November 2, 2011, Litton sent Plaintiff a notice stating that due to the transfer of Plaintiff'saccount to Ocwen, her flood insurance was cancelled effective November 1, 2011, but that an earned premium of $463.43 was charged to her account for the time the policy was in force." Id. Litton sent subsequent notices to Plaintiff that it had established new LPI on her home with insurer ASIC, and charged her escrow account for those premiums. ¶¶ 38-41.

Plaintiff alleges that every time Southwest or ASIC force-places an insurance policy on one of Litton or Ocwen borrowers' properties, they also kick back a portion of the premium to Litton, Ocwen, or one of their affiliates. ¶¶ 108-110, 119-122. Litton and Ocwen perform no work and provide no services to earn the "costs" or "expenses." ¶ 9. Instead, Southwest and ASIC make these payments to Litton and Ocwen for the sole purpose of securing the privilege of force-placing insurance on a designated portion of Litton and Ocwen's portfolio. Id. "As a result of these practices, borrowers often end up paying two to ten times as much for force-placed insurance than for insurance they could get on the open market." ¶ 15.

C. Requests for Judicial Notice

In addition to the complaint, the parties have proposed that the Court also consider the following documents, to which the opposing party has not objected:

• Exhibits to the Declaration of Rebecca Voyles ("Voyles Decl."), ECF Nos. 37-1 through 37-4. These are public records of form and premium rate filings made to and approved by the California Department of Insurance, which are public records noticeable pursuant to Rule 201(b) of the Federal Rules of Evidence. SeeLeghorn v. Wells Fargo Bank, N.A., 950 F. Supp. 2d 1093, 1106 (N.D. Cal. 2013). The documents can also be considered to the extent they are relevant to a dispute over Plaintiff's Article III standing and the Court's subject-matter jurisdiction. SeeSafe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004) ("In resolving a [Rule 12(b)(1)] factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment."); seealsoKingman Reef Atoll Investments, L.L.C. v. United States, 541 F.3d 1189, 1196-97 (9th Cir. 2008) "[I]n general, a district court is permitted to resolve disputed factual issues bearing upon subject matter jurisdiction in the context of a Rule 12(b)(1) motion").

• The Declaration of Ronald K. Wilson ("Wilson Decl."), and exhibits A-J thereto. These are ASIC's records of correspondence sent on Ocwen letterhead to Perryman (ECF No. 37-5). ASIC argues that these are noticeable because the complaint refers to correspondence sent by the servicers to Perryman, and no party contests the letters' authenticity. ASIC Mot., at 3, n. 1 (citing Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1160 (9th Cir. 2012)). While Plaintiff objects to the Court considering very similar correspondence submitted by Litton & Ocwen during the period that Southwest allegedly was the insurer on her home, seeinfra, Plaintiff has not disputed the authenticity of the correspondence submitted by ASIC and she has not objected to the Court considering it. To the contrary, she quotes extensively from the declaration and attached letters in her opposition brief, arguing that they support the viability of her claims. Plaintiff's Opposition to American Security Insurance Company's Motion to Dismiss ("Opp. to ASIC"), ECF No. 53, at 10:18-24, 11:27, 12:18-13:6, 16:6-19, 22:19-25.

• Paragraphs 17-21 of the Wilson Declaration, and Exhibit J thereto, which provide additional information about ASIC's rate filings with the California Department of Insurance. This information can be considered to the extent it is relevant to the Court's consideration of Plaintiff's standing.

• The declaration of Plaintiff Margo Perryman (ECF No. 55). Plaintiff submitted this document solely to dispute the noticeability of documents submitted by Litton & Ocwen, and the Court addresses it more fully infra.

• Several other documents which can be considered to the extent they are relevant to ASIC's standing argument,...