Wieck v. CIT Grp., Inc.

• Decision Date: 30 March 2018
• Docket Number: Civ. No. 16–00596 JMS–RLP
• Parties: Julia WIECK, on behalf of herself and all others similarly situated, Plaintiff, v. CIT GROUP, INC.; CIT Bank, N.A.; Financial Freedom; Seattle Specialty Insurance Services, Inc.; Certain Underwriters of Lloyd's, London; and, Great Lakes Reinsurance (UK), PLC, Defendants.
• Court: U.S. District Court — District of Hawaii

308 F.Supp.3d 1093

Julia WIECK, on behalf of herself and all others similarly situated, Plaintiff,

v.CIT GROUP, INC.; CIT Bank, N.A.; Financial Freedom; Seattle Specialty Insurance Services, Inc.; Certain Underwriters of Lloyd's, London; and, Great Lakes Reinsurance (UK), PLC, Defendants.

Civ. No. 16–00596 JMS–RLP

United States District Court, D. Hawai‘i.

Signed March 30, 2018

Bridget Gallagher Morgan, James J. Bickerton, Stephen M. Tannenbaum, Bickerton Dang LLLP, Honolulu, HI, Catherine E. Anderson, Pro Hac Vice, Giskan Solotaroff & Anderson LLP, New York, NY, Roosevelt N. Nesmith, Pro Hac Vice, Law Office of Roosevelt N. Nesmith, LLC, Montclair, NJ, for Plaintiff.

Judy A. Tanaka, Michelle N. Comeau, Alston Hunt Floyd & Ing, Honolulu, HI, Louis Smith, Pro Hac Vice, Greenberg Traurig, LLP, Florham Park, NJ, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS, ECF NOS. 55, 56 & 59, AND GRANTING PLAINTIFF'S MOTION REQUESTING JUDICIAL NOTICE OF OFFICIAL GOVERNMENT REPORTS, ECF NO. 67

J. Michael Seabright, Chief United States District Judge

I. INTRODUCTION

In this putative class action, Plaintiff Julia Wieck ("Plaintiff" or "Wieck") seeks damages and injunctive relief on behalf of herself and others similarly situated, alleging several causes of action based on lender-placed insurance ("LPI") or "force-placed" insurance on her reverse mortgage—specifically, hurricane coverage. (Throughout this Order, the court refers to LPI and force-placed insurance interchangeably.) Wieck claims Defendants overcharged her and improperly benefitted from the placement in violation of state and federal laws. Three sets of Defendants have filed Motions to Dismiss the First Amended Complaint ("FAC"). ECF Nos. 55, 56, 59. Based on the following, the Motions are GRANTED in PART and DENIED in PART.

II. BACKGROUND

A. Factual Background

The 73–page FAC, ECF No. 15, makes both individual and class allegations. It bases federal jurisdiction on the Class Action Fairness Act of 2005, Pub. L. No. 109–2, 119 Stat. 4—it alleges minimal diversity of citizenship under 28 U.S.C. § 1332(d)(2)(A) ; an aggregated amount-in-controversy of over $5,000,000 under 28 U.S.C. § 1332(d)(6) ; and a class of over 100 members under 28 U.S.C. § 1332(d)(5)(B). Given the FAC's length and that it is very premature to address class matters, the court does not reiterate all the pertinent allegations of the FAC. Rather, the court focuses on factual allegations as to Wieck to examine whether she has alleged sufficient facts to withstand the Motions to Dismiss. And in so doing, the court sets forth only the essential allegations as necessary to understand the nature of Wieck's claims. Further details are also provided in the appropriate discussion sections that follow.

For purposes of these Motions, the court assumes the following factual allegations are true. See, e.g., Turner v. City & Cty. of S.F. , 788 F.3d 1206, 1210 (9th Cir. 2015) ("In assessing whether a party has stated a claim upon which relief can be granted, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party[.]").

1. Wieck Obtains a Reverse Mortgage From and Serviced by CIT

Wieck is an 86–year old resident of Lahaina, Maui. FAC ¶ 4. She has lived at her residence ("the Property") for over thirty-eight years, and obtained a reverse mortgage on the Property from Defendant Financial Freedom Senior Funding Corporation ("Financial Freedom") in 2006. Id. ; FAC Ex. A, ECF No. 15–1 ("Home Equity Conversion Mortgage").

Reverse mortgages are government backed loans that allow Americans over the age of sixty-two (62) to borrow against the value of their homes. Borrowers do not have to pay interest on their reverse mortgage loan and can live in their homes for life. A sale of the property can be used to repay the debt. The reverse mortgage loans are backed by insurance from the Federal Housing Administration ("FHA"). When a loan comes due, the loan servicer can earn interest on the loan from the FHA by meeting deadlines for certain tasks such as getting an appraisal and starting the foreclosure process. If the loan servicer misses the FHA deadlines, the service is not entitled to earn interest from the FHA while waiting for the agency to pay its claim.

FAC ¶ 17.

Traditionally, a reverse mortgage is meant to come due and payable when the resident dies. However, there are other events which may cause the reverse mortgage to become due and payable, such as the borrower's failure to pay property taxes or insurance, or the property is deemed vacant, thus enabling the loan servicer to commence foreclosure proceedings.

Id. ¶ 18.

Financial Freedom is a division of Defendant CIT Bank, N.A. ("CIT Bank"). FAC ¶ 5. CIT Bank is a wholly owned subsidiary of Defendant CIT Group, Inc. ("CIT Group"), which is a financial holding company. Id. ¶ 7. Where appropriate, the court refers to Financial Freedom, CIT Bank, and CIT Group collectively as "CIT," and sometimes refers to actions taken by Financial Freedom as taken by CIT.

"Until 2011, Financial Freedom originated and serviced reverse mortgages. Financial Freedom aggressively marketed reverse mortgages to elderly consumers .... In 2011, Financial Freedom stopped making new loans and operated exclusively as a reverse mortgage loan servicer." Id. ¶ 19. Financial Freedom was a subsidiary of IndyMac Bank, FSB, when Wieck's loan was originated. Id. ¶¶ 5, 19, 65 & Ex. A. IndyMac Bank was a predecessor of OneWest Bank FSB, which changed its charter from a federal savings bank to a national association on February 28, 2014, and eventually became CIT Bank, N.A. See Balettie Decl. ¶ 5, ECF No. 55–2.

Among others, Wieck's reverse mortgage with CIT contains the following potentially relevant provisions:

2. Payment of Property Charges . Borrower shall pay all property charges consisting of taxes, ground rents, flood and hazard insurance premiums, and special assessments in a timely manner, and shall provide evidence of payment to Lender, unless Lender pays property charges by withholding funds from monthly payments due to the Borrower or by charging such payments to a line of credit as provided for in the Loan Agreement.

3. Fire, Flood and Other Hazard Insurance . Borrower shall insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards, casualties, and contingencies, including fire. This insurance shall be maintained in the amounts, to the extent and for the periods required by the Lender or the Secretary of Housing and Urban Development ("Secretary"). Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected, against loss by floods to the extent required by the Secretary....

....

5. Charges to Borrower and Protection of Lender's Rights in the Property.

....

If Borrower fails to make these payments or the property charges required by Paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, ... then Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property, including payment of taxes, hazard insurance and other items mentioned in Paragraph 2.

To protect Lender's security in the Property, Lender shall advance and charge to Borrower all amounts due to the Secretary for the Mortgage Insurance Premium as defined in the Loan Agreement as well as all sums due to the loan servicer for servicing activities as defined in the Loan Agreement. Any amounts disbursed by Lender under this Paragraph shall become an additional debt of Borrower as provided for in the Loan Agreement and shall be secured by this Security Instrument.

6. Inspection. Lender or its agent may enter on, inspect or make appraisals of the Property in a reasonable manner and at reasonable times provided that Lender shall give the Borrower notice prior to any inspection or appraisal specifying a purpose for the inspection or appraisal which must be related to Lender's interest in the Property. If the Property is vacant or abandoned or the loan is in default, Lender may take reasonable action to protect and preserve such vacant or abandoned Property without notice to the Borrower.

....

9. Grounds for Acceleration of Debt.

....

(b) Due and Payable with Secretary Approval. Lender may require immediate payment in full of all sums secured by this Security Instrument, upon approval of the Secretary, if:

....

(iii) An obligation of the Borrower under this Security Instrument is not performed.

FAC ¶ 66 (language modified as in Mortgage, Ex. A).

2. "Windstorm (including hail/hurricane)" Coverage is Force Placed on Wieck's Mortgage

The FAC makes various allegations about whether Wieck had "windstorm" coverage, whether she initially understood that separate hurricane coverage was required, and whether CIT accepted or approved the mortgage in 2006 without requiring hurricane coverage (which is often excluded from general hazard property insurance, and requires a separate rider). FAC ¶¶ 67–69. But the parties essentially agree (at least for purposes of these Motions) that some kind of coverage against damage from hurricanes is required under the mortgage—and the fundamental dispute alleged in the FAC stems from this requirement.¹ Wieck also does not dispute that CIT is allowed to force-place coverage if necessary. Rather, the dispute centers on the manner and terms upon which such coverage is placed.

"[O]n or around August 24, 2010, Financial Freedom notified Plaintiff that she did not have windstorm coverage, which was incorrect, and that it would force place a windstorm insurance policy (backdated to February 15, 2010), and would charge Plaintiff $10,000 plus for the policy."Id. ¶ 70. "A second notice from Financial Freedom requiring Plaintiff to provide proof of windstorm coverage was mailed on or about September 21, 2010." Id. The actual August 24, 2010 letter from...