IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
July 17, 2012
LAQUENTA MONTANEZ AND SERGIO MONTANEZ, INDIVIDUALLY AND ON BEHALF OF THEMSELVES AND OTHERS SIMILARLY SITUATED,
HSBC MORTGAGE CORPORATION (USA) AND HSBC MORTGAGE SERVICES, INC.,
The opinion of the court was delivered by: DuBOIS, J.
This case arises from defendants HSBC Mortgage Corporation's ("HSBC Mortgage") and HSBC Mortgage Services, Inc.'s ("HSBC Services") practice of force-placing*fn1 insurance policies on properties that secure mortgages they issued. Plaintiffs-borrowers on whose property defendants force-placed insurance-allege that the premiums on the force-placed insurance policies were unreasonably high and that defendants profited unlawfully by accepting kickbacks from insurers and purchasing unnecessary policies. Plaintiffs assert claims for breach of contract, unjust enrichment, and violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 Pa. Cons. Stat. Ann. §§ 201-1 et seq.*fn2
Both defendants filed motions to dismiss. For the reasons that follow, the Court grants defendant HSBC Services' Motion to Dismiss and grants in part and denies in part defendant HSBC Mortgage's Motion to Dismiss.
A. LaQuenta and Sergio Montanez
LaQuenta and Sergio Montanez are a married couple living in Philadelphia. (Am. Compl. ¶ 16.) On or about December 13, 2005, they obtained a home mortgage loan from HSBC Mortgage in the amount of $85,800. (Id. ¶ 17; Mortgage Contract, Am. Compl. Ex. 1.) Section five of the mortgage contract required plaintiffs to maintain insurance on the property. (Mortgage Contract, Am. Compl. Ex. 1 § 5.) Section five of the mortgage contract also stated,
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. (Id.) This clause allowed HSBC Mortgage to "force-place" insurance on the property if plaintiffs failed to maintain the required insurance. (Am. Compl. ¶ 2.) The purpose of force-placing insurance is to protect the lender's security interest in the property in the event that the borrower fails to insure the property adequately. (Id. ¶ 64.)
Plaintiffs obtained a homeowner's insurance policy when HSBC Mortgage issued the mortgage loan. (Id. ¶ 18.) The policy covered the period from December 9, 2005, through December 9, 2006, and the annual premium was $698. (Id.) However, the issuer of that policy notified plaintiffs in early 2006 that the policy would be cancelled "due to an adjacent dwelling that was boarded up." (Id.) Plaintiffs thereafter obtained another insurance policy, effective February 21, 2006, with an annual premium of $1,016.40 ("February 21, 2006, Policy"). (Id. ¶ 21.)
On or about April 18, 2006, HSBC Mortgage's Insurance Department sent
plaintiffs a letter requesting proof of insurance and stating that
HSBC Mortgage would force-place insurance on the property unless it
received such proof within ten days. (Id. ¶ 22, Ex. 8.) The letter
stated that the policy that HSBC Mortgage would force-place would have
an annual premium of $1,302 and would not cover some items that might
have been covered under plaintiffs' prior coverage. (Id.) Plaintiffs
sent a fax to HSBC Mortgage on May 10, 2006, stating that they had
sent HSBC Mortgage a copy of the February 21, 2006, Policy on April 5,
2006, and attaching another copy of the policy. (Id. ¶ 23.)
Nevertheless, HSBC Mortgage sent plaintiffs a letter on May 19, 2006,
stating that HSBC Mortgage had force-placed the insurance policy with
an annual premium of $1,302.*fn4 (Id. ¶ 24.)
Plaintiffs made the increased mortgage payments in 2006.*fn5
On or about April 22, 2008, plaintiffs received another letter from HSBC Mortgage's Insurance Department stating that it had purchased another force-placed insurance policy. (Id. ¶ 26.) While the letter stated that HSBC Mortgage was "now" providing the force-placed insurance, the policy actually became effective on February 21, 2008. (Id.) The annual premium was $1,271. (Id.) That policy was renewed three times, effective February 2009, February 2010, and February 2011. (Id. ¶¶ 27--29.) On April 5, 2011, the property was foreclosed upon and the Sheriff of the County of Philadelphia sold it to HSBC Mortgage for $3,500. (Id. ¶ 30, Ex. 16.)
HSBC Services was not directly involved with plaintiffs' mortgage. However, plaintiffs allege that HSBC Services "received financial benefits in connection with Mr. and Mrs. Montanez's force-placed insurance policies." (Id. ¶ 31.) The Amended Complaint does not specify how HSBC Services received such benefits; it merely states that HSBC Services and HSBC Mortgage are affiliates. (Id. ¶ 34.)
B. General Allegations Regarding Defendants' Force-Placed Insurance Practices
HSBC Mortgage is a residential mortgage lender, originator, and servicer. (Id. ¶ 36.) HSBC Mortgage serviced plaintiffs' loan. (Id.) HSBC Services "primarily services mortgage loans of borrowers who were financed by two former institutions acquired by defendants' parent company, HSBC Holdings PLC." (Id. ¶ 37.) Plaintiffs allege that both defendants regularly use their right to force-place insurance on property to profit at the borrowers' expense. (Id. ¶ 4.) Plaintiffs allege that defendants do so in two ways: through kickbacks and redundant charges. According to the Amended Complaint, both defendants engaged in these general practices, (e.g., id. ¶ 45), and both defendants took steps to keep this scheme secret, (id. ¶¶ 65, 104, 105, 108, 109).
According to plaintiffs, defendants receive kickbacks from insurers that provide force-placed insurance policies. (Id. ¶¶ 54--68.) Specifically, defendants purchase force-placed insurance policies at unreasonably high prices-which the borrower ultimately pays-and then receive a certain amount of the premiums back from the insurer pursuant to either a "commission arrangement" or a "captive reinsurance arrangement." (Id.) Under a commission arrangement, the insurance provider pays a commission to the lender or the lender's affiliate-in essence, a kickback. (Id. ¶ 55.) Because the borrower ultimately bears the cost of the policy, this commission acts as payment from the borrower to lender. (Id.) Under a captive reinsurance arrangement, the lender or a subsidiary agrees to reinsure a portion of the policy in exchange for a portion of the premium. (Id. ¶ 56.) Plaintiffs allege that HSBC Mortgage accepted kickbacks in force-placing insurance on plaintiffs' property. (Id. ¶ 31.)
2. Redundant Charges
Defendants allegedly increase the kickbacks they receive by force-placing insurance where no insurance is necessary to protect defendants' interest in the property. (Id. ¶ 69--72.) Plaintiffs point to three ways in which defendants do so: (1) requiring borrowers to pay for insurance coverage that exceeds the amount necessary to protect defendants' interest in the property; (2) backdating policies to cover time that has already passed without damage to the property, i.e., time for which there is no risk of damage occurring to the property; and (3) insuring property for periods of time following a lapse in coverage even though the lender's interest in the property was covered during those time periods pursuant to a "standard mortgage clause."*fn6 (Id. ¶ 70.) Plaintiffs allege that HSBC Mortgage backdated its force-placed insurance policies on their property and force-placed insurance notwithstanding the fact that the property was insured pursuant to a standard mortgage clause in the plaintiffs' February 21, 2006, Policy. (Id. ¶ 21.)
III. LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must allege facts that "'raise a right to relief above the speculative level.'" Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). To satisfy the plausibility standard, a plaintiff's allegations must show that defendant's liability is more than "a sheer possibility." Id. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).
In Twombly, the Supreme Court used a "two-pronged approach," which it later formalized in Iqbal. Iqbal, 556 U.S. at 679--80; Fowler v. UPMC Shadyside, 578 F.3d 203, 210-- 11 (3d Cir. 2009). Under this approach, a district court first identifies those factual allegations that constitute nothing more than "legal conclusions" or "naked assertions." Twombly, 550 U.S. at 555, 557. Such allegations are "not entitled to the assumption of truth" and must be disregarded. Iqbal, 556 U.S. at 679. The court must then assess "the 'nub' of the plaintiff['s] complaint-the well-pleaded, nonconclusory factual allegation[s] . . . to determine" whether it states a plausible claim for relief. Id. at 680.
Plaintiffs assert three claims against HSBC Mortgage. First, plaintiffs make a breach-of-contract claim in Count II, alleging that HSBC Mortgage breached the implied covenant of good faith and fair dealing inherent in every contract in Pennsylvania by secretly profiting from the force-placement of insurance on plaintiffs' property. Second, plaintiffs make a claim in Count III for unjust enrichment. Third, plaintiffs make a claim in Count IV under the UTPCPL's prohibition on "fraudulent or deceptive conduct." 73 Pa. Cons. Stat. Ann. §§ 201-2(4)(xxi) & 201-3.
Plaintiffs assert two claims against HSBC Services: (1) unjust enrichment in Count III and (2) violation of the UTPCPL in Count IV.*fn7 These claims are based on the same facts underlying plaintiffs' claims against HSBC Mortgage.
HSBC Mortgage seeks dismissal of all claims against it. First, it argues that the mortgage contract gave it discretion to force-place any insurance policy it deemed appropriate on plaintiffs' property. Second, it argues that an action for unjust enrichment may not be maintained in the presence of an express contract and that plaintiffs have failed to allege that HSBC Mortgage was unjustly enriched. Third, it argues that the economic loss doctrine bars plaintiffs' UTPCPL claim and that plaintiffs have failed to sufficiently state a claim under the UTPCPL.
HSBC Services first argues that plaintiffs lack standing to sue it under Article III of the United States Constitution because HSBC Services was not involved in force-placing the policies on plaintiffs' property. Alternatively, HSBC Services argues that plaintiffs have failed to state a claim against it under either an unjust enrichment theory or the UTPCPL.
This Memorandum will first address the Article III standing issue. Then it will proceed to the arguments related to Count II, Count III, and Count IV in turn.
A. Article III Standing*fn8
HSBC Services contends that "[p]laintiffs lack standing to sue HSBC Mortgage Services because they have not alleged any conduct undertaken by HSBC Mortgage Services in connection with the origination or servicing of their mortgage loan, let alone any conduct that caused them alleged injury." (Mem. Law Supp. Def. HSBC Mortgage Services, Inc.'s Mot. Dismiss First Am. Class Action Compl. Notice Joinder ("HSBC Services Br.") 4.)
Article III of the Constitution of the United States provides that a federal court may exercise jurisdiction only where there is an actual case or controversy to be decided. See Golden v. Zwickler, 394 U.S. 103, 108 (1969). Standing is a legal device, the "core component [of which] is an essential and unchanging part of the case-or-controversy requirement of Article III." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Standing limits a plaintiff's ability to invoke the power of the federal courts. "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498 (1975). As the standing requirement is derived from Article III, it is a threshold inquiry in every case, one for which "[t]he party invoking federal jurisdiction bears the burden" of proof. Lujan, 504 U.S. at 561. To meet this burden, the party seeking federal jurisdiction must establish three elements:
First, the plaintiff must have suffered "an injury in fact"-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) "actual or imminent, not 'conjectural' or 'hypothetical.'" Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be "fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court." Third, it must be "likely," as opposed to merely "speculative," that the injury will be "redressed by a favorable decision." [Id. at 38, 42].
Id. at 560--61 (alterations in original) (citations omitted).
Further, plaintiffs in a putative class action "'must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent.'" Klein v. Gen. Nutrition Cos., 186 F.3d 338, 345 (3d Cir. 1999) (quoting Lewis v. Casey, 518 U.S. 343, 357 (1996)).
Plaintiffs have established these three elements of standing with respect to their claims against HSBC Services. First, they have alleged a "concrete and particularized" injury because they allege that they paid too much for the force-placed insurance policies. Second, they have established a causal connection because they allege that HSBC Services worked with HSBC Mortgage-the entity that actually charged plaintiffs the higher premiums-to conceal the kickbacks and redundant charges, (Am. Compl. ¶¶ 65, 104, 105, 108, 109), which allowed HSBC Mortgage to continue with the allegedly unlawful scheme. Finally, plaintiffs seek money damages, a "very conventional remedy" that "would do much to redress their injuries." Carlough v. Amchem Prods., Inc., 834 F. Supp. 1437, 1456 (E.D. Pa. 1993) ("'[A] damage claim, by definition, presents a means to redress an injury.'" (quoting Cardenas v. Smith, 733 F.2d 909, 914 (D.C. Cir. 1984)).
For the aforementioned reasons, the Court concludes that plaintiffs have Article III standing with respect to their claims against HSBC Services.
B. Count II-Breach of Contract Claim Against HSBC Mortgage
To prove a breach of contract under Pennsylvania law, a plaintiff must establish "(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract[,] and (3) resultant damages." Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003) (citation omitted). HSBC Mortgage focuses on the second element, arguing that plaintiffs have failed to allege that HSBC Mortgage breached any duty imposed by the contract because the mortgage contract explicitly allowed HSBC Mortgage to "obtain insurance coverage, at [its] option and [plaintiffs'] expense." (Mortgage Contract, Am. Compl. Ex. 1, § 1.) Further, the mortgage contract stated that HSBC Mortgage was "under no obligation to purchase any particular type or amount of coverage." (Id.) Plaintiffs respond that HSBC Mortgage "did not exercise its discretion in a reasonable manner by force-placing unnecessary insurance with excessive premiums and limited coverage while obtaining a kickback from the placement of such insurance," and thus breached the implied covenant of good faith and fair dealing inherent in every contract governed by Pennsylvania law.*fn9 (Pls.' Opp'n Def. HSBC Mortgage Corp.'s Mot. Dismiss First Am. Class Action Compl. ("Pls.' Opp'n HSBC Mortgage's Mot Dismiss") 24.)
Section 205 of the Restatement (Second) of Contracts states, "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." The Pennsylvania Superior Court adopted this section of the Restatement in Creeger Brick & Building Supply Inc. v. Mid-State Bank & Trust Co., 560 A.2d 151, 154--55 (Pa. Super. Ct. 1989), and Baker v. Lafayette College, 504 A.2d 247, 255 (Pa. Super. Ct. 1986). "[T]he duty of good faith limits the parties' ability to act unreasonably in contravention of the other party's reasonable expectations." 3A Arthur L. Corbin, Corbin on Contracts § 654A(B), at 89 (Supp. 1994). "The covenant of good faith may also be breached when a party exercises discretion authorized in a contract in an unreasonable way." Phila. Plaza-Phase II v. Bank of Am. Nat'l Trust & Savings Assoc., No. 3745 APRIL TERM 2002, 2002 WL 1472337, at *6 (Pa. Ct. Com. Pl. Phila. Cnty. June 21, 2009) (citing Burke v. Daughters of the Most Holy Redeemer, Inc., 26 A.2d 460, 461 (Pa. 1942)).
In this case, plaintiffs have alleged facts sufficient to state a claim for breach of the implied covenant of good faith and fair dealing. The purpose of a force-placement clause is to protect the lender's interest in the property securing the mortgage loan. Plaintiffs allege a scheme whereby HSBC Mortgage used its power to force-place insurance on the property to gain additional profits at plaintiffs' expense rather than using such power simply to protect its interest in the property. While section five of the mortgage contract did not require HSBC Mortgage to obtain the cheapest or most cost-effective insurance available, it was not entitled to use its discretion to obtain secret kickbacks on policies or charge plaintiffs for insurance covering periods of time that had passed without damage occurring to the property. Such behavior contravened plaintiffs' reasonable expectations. For this reason, courts around the country have held in cases with almost identical facts that plaintiffs stated a claim for breach of the covenant of good faith and fair dealing. See, e.g., Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2012 WL 2003337 (S.D. Fla. June 4, 2012); McNeary-Calloway v. JP Morgan Chase Bank, N.A., No. C-11-03058 JCS, 2012 WL 1029502 (N.D. Cal. Mar. 26, 2012); Williams v. Wells Fargo Bank N.A., No. 11-21233, 2011 WL 4901346 (S.D. Fla. Oct. 14, 2011); Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273 (S.D. Fla. 2009).*fn10
In its briefs in support of its Motion to Dismiss, HSBC Mortgage cites numerous cases for the proposition that "the implied duty of good faith cannot act to displace the express terms of the contract. Further, there can be no implied duty as to any matter specifically covered by the written agreement." Middletown Carpentry v. C. Arena & Co., Inc., No. 2698, CONTROL 091526, 2001 WL 1807379, at *5 (Pa. Ct. Com. Pl. Nov. 27, 2001) (citing Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 388 (Pa. 1986)). HSBC Mortgage relies in particular on Lorah v. Suntrust Mortgage, Inc., No. 08-703, 2010 WL 5342738, at *5--6 (E.D. Pa. Dec. 17, 2010). In Lorah, the plaintiffs were taken in by a swindler who offered to refinance their existing mortgage at a lower rate.*fn11 The swindler told the plaintiffs that they should obtain a mortgage loan from the defendant bank but pay the swindler a lower monthly rate. The swindler promised to pay the defendant mortgage lender the amount owed to it. The swindler predictably failed to do so, and plaintiffs defaulted on the loan. The plaintiffs in Lorah made a claim for breach of the implied covenant of good faith and fair dealing, alleging that the defendant bank (1) unreasonably remained unaware of the swindler's activities and (2) "refus[ed] to reasonably accommodate [p]laintiffs (to [defendant's] own detriment) for the harm caused by the [swindler] (e.g., by not imposing late fees, applying certain loan balances, reporting negative credit events, or threatening foreclosure)." Id. at *5. Citing the rule that "a lending institution cannot 'violate a separate duty of good faith by adhering to its agreement with the borrower or by enforcing its legal and contractual rights as creditor,'" the Lorah court dismissed the plaintiffs' claims. Id. (quoting Elleta Corp. v. Bank of New England, N.A., No. 89-5077, 1990 WL 6101, at *2 n.1 (E.D. Pa. Jan. 25, 1990)).
Lorah is plainly distinguishable from this case. In that case, there was no allegation that the bank had anything to do with the swindler's activities or that the bank profited by any secret deals with third parties. Rather, plaintiffs in that case argued that the bank should have exceeded the requirements of the mortgage contract to accommodate them. Plaintiffs in this case allege that HSBC Mortgage engaged in a nefarious and secret scheme to profit from the force-placed insurance provision in the mortgage contract. That alleged scheme clearly contravened the purpose of that provison and plaintiffs' reasonable expectations of how HSBC Mortgage would use its powers under that section. Cf. Cable & Assocs. Ins. Agency, Inc. v. Commercial Nat. Bank of Pa., 875 A.2d 361, 364 (Pa. Super. Ct. 2005) ("[A] lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons." (emphasis added) (citing Creeger Brick, 560 A.2d at 154)).*fn12
Finally, the Court notes that in many of the cases involving force-place insurance cited above, the courts were interpreting the law of states that, like Pennsylvania, do not permit the implied covenant of good faith and fair dealing to change the express terms of a contract. See, e.g., McNeary-Calloway, 2012 WL 1029502, at *21 ("An implied covenant of good faith and fair dealing cannot contradict the terms of a contract."); Abels, 678 F. Supp. 2d at 1278 ("[A]s long as the implied covenant does not vary the express terms of the contract, the failure to perform a discretionary act in good faith may be a breach of the implied covenant of good faith and fair dealing."). Nevertheless, those cases refused to dismiss the plaintiffs' claims, even when confronted with arguments similar to those that HSBC Mortgage makes in this case. The Court finds these cases very persuasive.
For the reasons stated above, the Court concludes that plaintiffs have stated a claim for breach of the implied covenant of good faith and fair dealing. Thus, the Court denies HSBC Mortgage's Motion to Dismiss as to Count II.
C. Count III-Unjust Enrichment
In Count III, plaintiffs make claims for unjust enrichment against both defendants. For the reasons that follow, the Court grants both defendants' motions to dismiss with respect to Count III.
1. Unjust-Enrichment Claim Against HSBC Mortgage
HSBC Mortgage argues that the existence of the mortgage contract bars plaintiffs' claim for unjust enrichment against HSBC Mortgage. Plaintiffs acknowledge that unjust enrichment claims are "not applicable to agreements deliberately entered into by the parties," Third Nat'l Bank & Trust Co. of Scranton v. Lehigh Valley Coal Co., 44 A.2d 571, 574 (Pa. 1945), but argue that they are entitled to plead in the alternative by alleging both breach of contract and unjust enrichment. For the reasons that follow, the Court agrees with HSBC Mortgage and concludes that plaintiffs' unjust-enrichment claim against HSBC Mortgage must be dismissed.
Pennsylvania has long ascribed to the rule that when "the parties' relationship is based on an express written contract no unjust enrichment recovery is permitted." Novacare, Inc. v. S. Health Mgmt. Inc., No. 97-5903, 1998 WL 470142, at *1 (E.D. Pa. Aug. 11, 1998); see also First Wis. Trust Co. v. Strausser, 653 A.2d 688, 693 n.2 (Pa. Super. 1995) ("[T]he existence of the written note and/or mortgage agreement precludes a claim of unjust enrichment."); Schott v. Westinghouse Elec. Corp., 259 A.2d 443, 448 (Pa. 1969) ("[T]his Court has found the quasi-contractual doctrine of unjust enrichment inapplicable when the relationship between parties is founded on a written agreement or express contract."). There is no dispute that plaintiffs and HSBC Mortgage entered into a binding contract that governed the terms of the mortgage, including the power of HSBC Mortgage to force-place insurance.
Plaintiffs argue that they are exercising their right to plead in the alternative. However, this argument ignores the fact that, in this case, there is no dispute that the mortgage contract was valid and enforceable. Courts typically allow a plaintiff to plead both a breach-of-contract claim and an unjust-enrichment claim only where there is some dispute as to whether a valid, enforceable written contract exists. See, e.g. Premier Payments Online, Inc. v. Payment Sys. Worldwide, No. 11-3429, 2012 WL 262680, at *11 (E.D. Pa. Jan. 27, 2012) ("A plaintiff is permitted to plead alternative theories of recovery based on breach of contract and unjust enrichment in cases where there is a 'question as to the validity of the contract in question.'" (quoting AmerisourceBergen Drug Corp. v. Allscripts Healthcare, LLC, No. 10-6087, 2011 WL 3241356, at *3 (E.D. Pa. July 29, 2011))); Sur. Admins., Inc. v. Pacho's Bail Bonds, No. 05-CV-5851, 2007 WL 1002136, at *4 (E.D. Pa. Mar. 30, 2007) (allowing a plaintiff to plead breach-of-contract and unjust-enrichment claims alternatively where defendant "dispute[d] the existence of a contract"); DTK Ventures, L.P. v. Russo, No. 05-EQ-4059, 2006 WL 2988463, at *5 (Pa. Com. Pl. Lackawanna Cnty. Aug. 21, 2006) (allowing such alternative pleading where the plaintiff alleged "that in the event that an express contract is found not to exist, the [defendants'] conduct created an enforceable implied contract").*fn13
Because there is no dispute that the mortgage contract in this case was valid and enforceable, plaintiffs may not assert an unjust-enrichment claim premised on the absence of a contract. Thus, plaintiffs' unjust-enrichment claim against HSBC Mortgage is dismissed.
2. Unjust-Enrichment Claim Against HSBC Services
Because there is no contract between plaintiffs and HSBC Services, the analysis set forth in the previous section does not apply to plaintiffs' unjust-enrichment claim against HSBC Services. HSBC Services argues nonetheless that plaintiffs have failed to state a claim against it. For the reasons that follow, the Court agrees.
"In Pennsylvania, a party seeking to plead unjust enrichment must allege the following elements: '(1) a benefit conferred on the defendant by the plaintiff; (2) appreciation of the benefit by the defendant; and (3) the defendant's acceptance and retention of the benefit under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value.'" Kliesh v. Select Portfolio Servicing, Inc., No. 12-548, 2012 WL 2500973, at *8 (E.D. Pa. June 29, 2012) (quoting Giordano v. Glaudio, 714 F. Supp. 2d 508, 530 (E.D. Pa. 2010)). Plaintiffs have failed to allege that they conferred a benefit of HSBC Services. HSBC Services did not service plaintiffs' mortgage contract and did not benefit from HSBC Mortgage's force-placement of insurance policies on plaintiffs' property; in fact, HSBC Services had nothing to do with plaintiffs' mortgage contract. HSBC Mortgage was the entity that force-placed the insurance policies on plaintiffs' property, and plaintiffs made mortgage payments to HSBC Mortgage, not HSBC Services.
The only allegation that plaintiffs' payments benefitted HSBC Services
is contained in paragraph thirty-one of the Amended Complaint, which
states, "Upon information and belief, Defendants and/or their
subsidiaries/affiliates received financial benefits in connection with
Mr. and Mrs. Montanez's force-placed insurance policies."*fn14
Plaintiffs do not explain, even in general terms, how HSBC
Mortgage "received financial benefits" from plaintiffs. This
conclusory allegation is "not entitled to the assumption of truth" and
must be disregarded. Iqbal, 556 U.S. at 679.*fn15
Plaintiffs argue that they have alleged that HSBC Services assisted HSBC Mortgage in both carrying out its scheme and keeping that scheme secret. However, this does not change the fact that plaintiffs have not alleged that HSBC Services received a benefit from plaintiffs.
Accordingly, the Court concludes that plaintiffs have failed to state a claim for unjust enrichment against HSBC Services.
D. Count IV-UTPCPL
Plaintiffs make claims against both defendants under the UTPCPL, 73 Pa. Stat. Ann. §§ 201-1 et seq. Section 201-3 of the UTPCPL makes "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . unlawful."
Section 201-2(4)(xxi), the so-called "catch-all" definition, defines "[u]nfair methods of competition and unfair or deceptive acts or practices" as "[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding." Plaintiffs claim that defendants' scheme of profiting from the force-placement of insurance constitutes "deceptive conduct" under the UTPCPL.
Both defendants seek dismissal of Count IV, albeit on different grounds. This Memorandum will first address HSBC Mortgage's argument that the economic loss doctrine bars plaintiffs' claim under the UTPCPL against HSBC Mortgage. It will then address HSBC Services' argument that plaintiffs have failed to state a claim against it for a violation of the UTPCPL.
1. UTPCPL Claim Against HSBC Mortgage
HSBC Mortgage argues that plaintiffs' UTPCPL claim is barred by the economic loss doctrine. The economic loss doctrine provides that "no cause of action [can] be maintained in tort for negligence or strict liability where the only injury was 'economic loss'-that is, loss that is neither physical injury nor damage to tangible property." 2--J Corp. v. Tice, 126 F.3d 539, 541 (3d Cir. 1997). "The doctrine developed in the products liability context to prevent tort recovery where the only injury was to the product itself." Sarsfield v. CitiMortgage, Inc., 707 F. Supp. 2d 546, 556 (M.D. Pa. 2010). However, courts have expanded its scope and applied it in a myriad of settings, including to claims under the UTPCPL. Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir. 2002).
In Werwinski, the Third Circuit addressed for the first time the question whether the economic loss doctrine applies to intentional torts, including claims under the UTPCPL involving allegations of fraud. Id.*fn16 The Werwinski court held that the economic loss doctrine applies to claims under the UTPCPL, but only "'where the claims at issue arise independent[ly] of the underlying contract.'" Id. at 676 (alteration in original) (quoting Raytheon Co. v. McGraw-Edison Co., Inc., 979 F. Supp. 858, 870 (E.D. Wis. 1997)). Later cases expounded on this narrow exception, holding that "'fraudulent representations concerning a party's performance of a contract are interwoven with the terms of the contract,'" and the economic loss doctrine bars them. Wulf v. Bank of Am., 798 F. Supp. 2d 586, 596 (E.D. Pa. 2001) (quoting Ferki v. Wells Fargo Bank, Nat. Ass'n, No. 10-2756, 2010 WL 5174406, at *10 (E.D. Pa. Dec. 20, 2010)).
In this case, plaintiffs have suffered purely economic loss. Plaintiffs do not allege any injury to themselves or to their tangible property. In essence, plaintiffs contend that HSBC Mortgage's behavior caused plaintiffs to pay too much for insurance coverage. This is analogous to the Werwinski plaintiffs' claim they paid too much for faulty automobile transmissions.
Further, the narrow exception from Werwinski does not apply in this case because plaintiffs' claim does not "arise independently of the underlying contract." The HSBC Mortgage's alleged behavior on which plaintiffs' UTPCPL claim is based relates exclusively to the force-placement of insurance policies, which is governed by section five of the mortgage contract. In other words, plaintiffs allege "fraudulent representations concerning a party's performance of a contract," which the Wulf court held to be "interwoven" with the contract and thus, not subject to the exception in Werwinski. 798 F. Supp. 2d at 596.*fn17
Accordingly, the economic loss doctrine bars plaintiffs' claim under the UTPCPL against HSBC Mortgage. Count IV, as asserted against HSBC Mortgage, is dismissed.
2. HSBC Services
HSBC Services argues that plaintiffs have failed to allege facts sufficient to state a claim for deception under the UTPCPL.*fn18 As noted above, sections 201-2(4)(xxi) and 201-3, when read together, make it unlawful to "engag[e] in . . . deceptive conduct which creates a likelihood of confusion or of misunderstanding." To state a claim for "deceptive conduct" under the UTPCPL, a plaintiff must satisfy three elements:
First, a plaintiff must allege facts showing a deceptive act, that is conduct that is likely to deceive a consumer acting reasonably under similar circumstances. Next, the plaintiff must allege justifiable reliance, in other words that he justifiably bought the product in the first place (or engaged in some other detrimental activity) because of the defendants' misrepresentation or deceptive conduct. Finally, the plaintiff must allege that this justifiable reliance caused ascertainable loss.
Seldon v. Home Loan Serv., Inc., 647 F. Supp. 2d 451, 470 (E.D. Pa. 2009) (internal quotations and citations omitted); see also Vassalotti v. Wells Fargo Bank, N.A., 732 F. Supp. 2d 503, 510-- 11 (E.D. Pa. 2010). "A plaintiff alleging deceptive conduct may proceed without satisfying the particularity requirement of Federal Rule of Civil Procedure 9(b)."*fn19 Vassalotti, 732 F. Supp. 2d at 511 (citing Seldon, 647 F. Supp. 2d at 469--70).
Plaintiffs have not alleged that HSBC Services engaged in any conduct
that could be described as deceptive. "Deception . . . is defined as
intentional misleading by falsehood spoken or acted." Christopher v.
First Mut. Corp., No. 05-1149, 2006 WL 166566, at *3 (E.D. Pa. Jan.
20, 2006); accord Sherzer v. Homestar Mortg. Servs., No. 07-5040, 2010
WL 1947042, at *7 (E.D. Pa. May 7, 2010), report and recommendation
adopted as modified, No. 07-5040, 2010 WL 2649852 (E.D. Pa. July 1,
2010). Accordingly, the court in Christopher dismissed a plaintiff's
deception claim under the UTPCPL because "[t]here were no
representations and no contact between [plaintiff] and [defendants]."
Christopher, 2006 WL 166566, at *3. Plaintiffs argue that they have satisfied the elements of deception under the
UTPCPL because they allege that HSBC Services helped HSBC Mortgage
keep the scheme secret. However, they do not allege any specific acts
that HSBC Services took to do so, nor do they allege that HSBC
Services engaged in any "spoken or acted" falsehood.*fn20
Like in Christopher, there were "no representations and no
contact between" HSBC Services and plaintiffs.
Accordingly, plaintiffs have failed to state a claim against HSBC Services under the UTPCPL.
For the above-stated reasons, the Court grants in part and denies in part HSBC Mortgage's Motion to Dismiss and grants HSBC Services' Motion to Dismiss. Count III, a claim for unjust enrichment, and Count IV, a claim under the UTPCPL, are dismissed with respect to plaintiffs' claims against HSBC Mortgage. All claims against HSBC Services are dismissed. The dismissal of plaintiffs' claims is without prejudice to plaintiffs' right to file a Second Amended Class Action Complaint consistent with this Memorandum if warranted by the facts.
An appropriate Order follows.