Robinson v. Standard Mortg. Corp.

• Citation: 191 F.Supp.3d 630
• Decision Date: 07 June 2016
• Docket Number: CIVIL ACTION NO. 15-4123
• Parties: Jordella ROBINSON, Individually and as a Representative of a Class of Similarly Situated Borrowers v. STANDARD MORTGAGE CORPORATION and Standard Mortgage Insurance Agency, Inc.
• Court: U.S. District Court — Eastern District of Louisiana

191 F.Supp.3d 630

Jordella ROBINSON, Individually and as a Representative of a Class of Similarly Situated Borrowers

v.STANDARD MORTGAGE CORPORATION and Standard Mortgage Insurance Agency, Inc.

CIVIL ACTION NO. 15-4123

United States District Court, E.D. Louisiana.

Signed June 7, 2016

Susanne W. Jernigan, Jernigan Law Firm, Ronald Lawrence Wilson, Law Office of Ron Wilson, New Orleans, LA, Raymond Nicholas Barto, Stephen John Fearon, Jr., Thomas G. O'Brien, Squitieri & Fearon, LLP, New York, NY, for Jordella Robinson, Individually and as a Representative of a Class of Similarly Situated Borrowers.

John Anthony Dunlap, Frank A. Tessier, Haley E. Nix, Russell L. Foster, Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, New Orleans, LA, for Standard Mortgage Corporation and Standard Mortgage Insurance Agency, Inc.

SECTION: R

ORDER AND REASONS

SARAH S. VANCE, UNITED STATES DISTRICT JUDGE

Defendants Standard Mortgage Corporation and Standard Mortgage Insurance Agency, Inc. move the Court to dismiss plaintiff's claims under the Racketeer Influenced Corrupt Organizations Act, 18 U.S.C. §§ 1962(c) and 1962(d), for failure to state a claim.¹ Because plaintiff fails to plausibly allege racketeering activity based on the predicate acts of mail fraud, wire fraud, honest services fraud, or extortion, the Court grants defendants' motion.

I. BACKGROUND

A. Defendants' Alleged Force-Placed Insurance Arrangement

Mortgage lenders often require homeowners to maintain hazard insurance on the mortgaged property to protect the lender's interest in the collateral. When a homeowner fails to obtain the required coverage, the lender has the option to independently obtain insurance and add the cost of the premiums to the principal due under the note. This is known as a "force-placed" insurance policy or "lender-placed insurance." See Caplen v. SN Servicing Corp. , 343 Fed.Appx. 833, 834 (3d Cir.2009).

In her Amended Complaint, Robinson alleges that Standard Mortgage Corporation, the servicer of the mortgage on her home, colludes with Standard Mortgage Insurance ("SM Insurance") to manipulate the force-placed insurance market by artificially inflating the amounts that borrowers pay for coverage.² According to Robinson, defendants' force-placed insurance scheme proceeds as follows.

Standard Mortgage gives SM Insurance and its affiliates the exclusive right to receive premiums for force-placed insurance for Standard Mortgage's portfolio of loans whenever a borrower fails to obtain or maintain insurance coverage.³ As part of the agreement, SM Insurance monitors Standard Mortgage's portfolio to ensure mortgaged properties remain adequately insured.⁴ SM Insurance provides this service to Standard Mortgage for only nominal consideration.⁵ When a borrower fails to obtain insurance coverage, Standard Mortgage and/or SM Insurance notify the borrower of the deficiency.⁶ If the borrower does not take corrective action, defendants force-place insurance on the property, charging premiums that are allegedly well in excess of the cost of borrower-obtained insurance coverage.⁷

Once force-placed insurance coverage begins, Standard Mortgage advances premiums to SM Insurance and adds the cost of the advances to the principal due under the borrower's note.⁸ SM Insurance and its affiliates then pay a portion of the premium back to Standard Mortgage or to a subsidiary allegedly posing as an insurance agent.⁹ SM Insurance styles these payments as "commissions" allegedly on the pretense that a third party facilitated the pre-determined insurance transaction.¹⁰ The payments are allegedly a "kickback" that SM Insurance pays Standard Mortgage in exchange for the privilege of collecting "inflated, noncompetitive" premiums from Standard Mortgage's borrowers.¹¹ Together with the low-cost monitoring services that SM Insurance provides, these payments significantly reduce Standard Mortgage's force-placed insurance costs.¹² But Standard Mortgage does not pass these savings along to its borrowers.¹³ Instead, it allegedly "retains the rebates/kickbacks itself" and falsely charges borrowers "based on the full purported price of the force-placed insurance."¹⁴

Allegedly, the harm to borrowers does not stop with Standard Mortgage's failure to pass along force-placed insurance savings. According to Robinson, Standard Mortgage actively seeks force-placed insurance policies that provide little value to its borrowers.¹⁵ Because Standard Mortgage's kickback payments increase with gross force-placed insurance premiums, Standard Mortgage allegedly purchases the most expensive force-placed insurance available.¹⁶

B. The Force-Placed Arrangement Applied to Robinson

Robinson alleges that she was victimized by defendants' force-placed insurance scheme. The facts of her case, as alleged in the Amended Complaint, are as follows. In 2004, Robinson purchased a home in Harvey, Louisiana and mortgaged it to her lender, Standard Mortgage.¹⁷ The mortgage agreement required Robinson to "insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards" and mandated that the insurance "be maintained in the amounts and for the periods that Lender requires."¹⁸ The agreement also authorized Standard Mortgage to purchase insurance on the property if Robinson failed to do so and to add the costs of the premiums to the principal due under the note.¹⁹

Robinson initially purchased a homeowner's insurance policy with an annual premium of approximately $2,000.²⁰ Eight years later, the policy lapsed.²¹ On September 7, 2012, Standard Mortgage sent a letter to Robinson notifying her that Standard Mortgage's records reflected an absence of coverage and requesting proof of insurance coverage within 20 days.²² The letter informed Robinson that if she did not provide proof of coverage, "it will be necessary for us to secure coverage at your expense."²³ It further stated:

Because we will not have all of the information that you would normally provide when purchasing coverage directly, the rate for the coverage we acquire may be higher than what you might otherwise be able to obtain. The premium will be $8,820.00.²⁴

On October 26, 2012, Standard Mortgage sent a nearly identical letter to Robinson, again requesting proof of insurance within 20 days and stating that the premium for force-placed insurance would be $8,845.20.²⁵ Like the first letter, the October 26, 2012 letter explained the high premium amount on the grounds that "we will not have all of the information that you would normally provide when purchasing coverage directly."²⁶

Ten weeks later, Standard Mortgage informed Robinson that it still had not received acceptable proof of hazard insurance. By letter dated January 4, 2013, Standard Mortgage indicated that it had therefore secured an insurance policy on the mortgaged property at a cost of $8,845.20.²⁷ The letter explained that if Robinson provided Standard Mortgage with proof of coverage under an acceptable replacement policy, "we will cancel our coverage and promptly refund any unearned portion of the premium."²⁸ According to the Amended Complaint, Standard Mortgage purchased the force-placed insurance from SM Insurance, and Standard Mortgage withdrew approximately $8,000 from Robinson's escrow account to pay SM Insurance's artificially inflated premium.²⁹

Robinson characterizes several aspects of Standard Mortgage's communications as materially false and misleading. For instance, Standard Mortgage's September 7, 2012 and October 26, 2012 letters stated that Robinson's force-placed insurance premium would be higher due to Standard Mortgage's lack of property and homeowner-specific information. Robinson alleges that the premium was actually higher because it included the cost of cash and in-kind kickback for Standard Mortgage.³⁰ Robinson further alleges that "had [she] been aware that the high premium Defendants asserted was due, not to the cost of force-placed insurance, but rather to a substantial kickback to Standard Mortgage, [she] would have procured her own insurance."³¹

C. Robinson's Amended Claim and RICO Allegations

On September 3, 2015, Robinson filed this putative class action lawsuit against Standard Mortgage and SM Insurance. In her Amended Complaint, Robinson alleges violations of the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) (Count One); conspiracy to violate RICO, 18 U.S.C. § 1962(d) (Count Two); breach of the implied covenant of good faith and fair dealing (Count Three); and unjust enrichment (Counts Four and Five). Robinson asserts her civil RICO and RICO conspiracy claims individually and on behalf of a proposed nationwide class of "all persons who have or had a mortgage loan or line of credit owned, originated or serviced by Standard Mortgage and/or its affiliates secured by property located in the United States and, in connection therewith, were charged for ‘force-placed’ insurance on the secured property within the applicable statute of limitations."³² Robinson proposes a sub-class for her state law claims comprised of similar property owners in Louisiana.³³

As to her civil RICO claim, Robinson alleges an association-in-fact enterprise comprised of Standard Mortgage, SM Insurance, and their affiliates.³⁴ Allegedly, the enterprise had the common purpose of "defrauding borrowers and loan owners by overcharging them for force-placed insurance with respect to Standard Mortgage- serviced loans."³⁵ Robinson alleges that the enterprise engaged in a pattern of racketeering, marked by three predicate acts. First, defendants committed mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343.³⁶ In furtherance of a scheme to defraud borrowers, defendants allegedly sent false and misleading notices to Robinson and putative class members by means of mail and wire communication.³⁷ Second, defendants engaged in honest-services fraud, in violation of 18 U.S.C. § 1346. Standard Mortgage allegedly "owed legal duties to...