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Desiree Morris, Individually and As A Representative of the Classes v. Wells Fargo Bank N.A.

September 7, 2012


The opinion of the court was delivered by: David Stewart Cercone United States District Judge

Electronic Filing


Plaintiff commenced this action on behalf of herself and as a member of three putative classes seeking redress for alleged improper charges and expenses incurred as a result of unnecessary and unauthorized flood insurance placed on real estate that was purchased with a Federal Housing Administration ("FHA") mortgage. Presently before the court are defendants Wells Fargo Bank, N.A. ("W. F. Bank") and Wells Fargo Insurance, Inc.'s ("W. F. Insurance") motions to dismiss plaintiff's first amended class action complaint. For the reasons set forth below, the motions will be granted in part and denied in part.

I. Standard of Review

It is well-settled that in reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "the court [is required] to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party." Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). Under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561 (2007), dismissal of a complaint pursuant to Rule 12(b)(6) is proper only where the averments of the complaint fail to raise plausibly, directly or inferentially, the material elements necessary to obtain relief under a viable legal theory of recovery. Id. at 544. In other words, the allegations of the complaint must be grounded in enough of a factual basis to move the claim from the realm of mere possibility to one that shows entitlement by presenting "a claim to relief that is plausible on its face." Id. at 570.

"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In contrast, pleading facts that are merely consistent with a defendant's liability is insufficient. Id. Similarly, tendering only "naked assertions" that are devoid of "further factual enhancement" falls short of presenting sufficient factual content to permit an inference that what has been presented is more than a mere possibility of misconduct. Id. at 1949-50. See also Twombly, 550 U.S. at 563 n. 8 (factual averments must sufficiently raise a "'reasonably founded hope that the [discovery] process will reveal relevant evidence' to support the claim.") (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347 (2005) & Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 741 (1975)).

This is not to be understood as imposing a probability standard at the pleading stage. Iqbal, 556 U.S. at 678 ("The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully."); Phillips v. County of Allegheny, 515 F.3d 224, 235 (3d Cir. 2008) (same). Instead, "[t]he Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating . . . a claim requires a complaint with enough factual matter (taken as true) to suggest the required element . . . [and provides] enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.'" Phillips, 515 F.3d at 235; see also Wilkerson v. New Media Technology Charter School Inc., 522 F.3d 315, 321 (3d Cir. 2008).

II. Background and Contentions

The facts taken in a light most favorable to the non-moving party are as follows. On November 24, 2009, Desiree Morris ("plaintiff") obtained a FHA mortgage loan through Victorian Finance, LLC for $115,371.00. W. F. Bank acquired the mortgage within a few months thereafter. Wells Fargo Home Mortgage, an unincorporated subdivision of W. F. Bank, began to service the mortgage on or before February 1, 2010. A principal balance of about $113,000.00 remained when the complaint was filed.

Plaintiff generally alleges that defendants "systematically" violated plaintiff and other class members' rights by "unfairly, unjustly, and unlawfully" force-placing flood insurance upon their property in excess of the amount (1) required by law and under their mortgages and (2) needed to protect W. F. Bank's financial interest(s). Defendants "unfairly, unjustly, and unlawfully" profited from force-placing the insurance by charging more than the net costs expended in purchasing such insurance and by "directing kickbacks, commissions, and other compensation to [defendants] in connection with [the force-placed flood insurance]."

More specifically, plaintiff is required to maintain flood insurance under federal law because her property is located in a Special Flood Hazard Area ("SFHA"). Her mortgage agreement states:

Borrower shall insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. 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.

Pursuant to federal law and the above terms plaintiff obtained $118,000.00 of flood insurance coverage at the origination of her mortgage, which was deemed adequate by Victorian Finance at closing and by W. F. Bank when it acquired the mortgage. Plaintiff increased her flood insurance to $129,800.00 upon renewal of her flood insurance policy in November 2010.

Commencing in December of 2010 plaintiff received several notices indicating she had less than the required amount of flood insurance under the mortgage and if she did not obtain additional insurance it would be purchased on her behalf and her escrow account would be charged. Plaintiff received a notice of deficiency dated December 9, 2010, authored by Wells Fargo Home Mortgage ("W. F. Home Mortgage"). The notification advised plaintiff that she was required to maintain "replacement cost coverage" up to the National Flood Insurance Program cap of $250,000.00, and if she did not obtain the additional insurance and provide proof of the same within 45 days, W. F. Home Mortgage would secure the additional coverage, which would be arranged by an "affiliate" of W. F. Bank, W. F. Insurance, at her expense. In addition, the notification stated that W. F. Bank would be compensated in connection with the lender-placed insurance and in nearly all cases flood insurance obtained by the borrower was less costly than that purchased by W. F. Home Mortgage.

Plaintiff received a "Notice of Temporary Flood Insurance Due to Deficient Coverage" on the same letterhead, which was dated February 8, 2011. This notification stated that plaintiff had "agreed to maintain flood insurance on [her] property in the amount and for the period required by [her] mortgage company[,]" reiterated the need to maintain full replacement cost coverage, advised that "we" have not received evidence of adequate insurance, and indicated that $94,000.00 in additional coverage had been purchased in the form of a 90 day binder (with an effective date of January 28, 2011) at the cost of $893.00, which would be charged to plaintiff's escrow account. The notification indicated plaintiff had 30 days to purchase the additional coverage and provide proof of such coverage, or a one-year policy would be obtained and W. F. Insurance would receive a commission for the insurance "we obtain."

Plaintiff received a "Notice of Flood Insurance Change in Coverage," dated March 3, 2011, which indicated that "a revised flood insurance policy would be issued" in place of the previous policy, for which W. F. Home Mortgage would be "reimbursed by the insurance company."

Plaintiff then received a second "Notice of Temporary Flood Insurance Due to Deficient Coverage," which was dated March 7, 2011. This notice was identical to the February 8, 2011, notice, and among other things it advised plaintiff that "you agreed to maintain insurance on your property in the amount and for the period required by your mortgage company." Enclosed was a 90-day binder for replacement flood insurance coverage of $82,200, issued by QBE, with a premium of $780.90, which was to be charged to plaintiff's escrow account. This notice also stated that a one-year insurance policy would be obtained if plaintiff did not obtain the additional "required" coverage and send proof of such coverage in 30 days. It further advised that "Wells Fargo Insurance, Inc. will receive a commission on the insurance we obtain." No explanation for the differences in coverage amounts and premiums was provided. Such additional coverage was thereafter obtained and W. F. Insurance did receive a commission in connection with the force-placed insurance.

Plaintiff avers that defendants knew or should have known that plaintiff was not "required" to purchase the additional flood insurance coverage based on the following:

1. the plain language of plaintiff's mortgage does not require flood insurance in excess of her principal balance;

2. the NFIA and its accompanying regulations do not require flood insurance in excess of a borrower's principal balance;

3. HUD does not require flood insurance in excess of a borrower's principal balance;

4. Victorian Finance did not require flood insurance in excess of plaintiff's principal balance upon originating her mortgage;

5. defendants held and serviced plaintiff's mortgage for ten months, without claiming that plaintiff was "required" to obtain flood insurance for the full replacement cost value of her home;

6. defendants did not and cannot identify any changes in federal law, the mortgage documents, or the circumstances surrounding the loan that justified defendants' representation that plaintiff's coverage suddenly was not adequate and was "less than the coverage required"; and

7. defendants' notice of temporary flood insurance and second notice of temporary flood insurance misrepresented the terms of plaintiff's mortgage, and fraudulently omitted to reference the relevant language of her mortgage, which only requires her to maintain insurance "against loss by floods to the extent required by the Secretary" of HUD.

Plaintiff's complaint advances causes of action against W. F. Bank for (1) violation of the Truth-In-Lending Act ("TILA"), the Real Estate Settlement Procedures Act ("RESPA"), and the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL") and (2) breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and unjust enrichment. W. F. Insurance is named in the counts for violation of RESPA and UTPCPL and the common law claim for unjust enrichment.

Defendants move to dismiss on a multitude of bases. Generally, W. F. Bank and W. F. Home Mortgage (collectively "W. F. Bank") contend that W. F. Bank was authorized under the mortgage to require the lender to maintain flood insurance "in the amounts and for the periods" it determined to be necessary, subject to the $250,000.00 cap ("the cap") established by the National Flood Insurance Act, 42 U.S.C. §§ 4001 -- 4129 ("NFIA"). From their perspective, the mortgage is an FHA form mortgage that tracks the applicable legislation and regulations. The first two sentences of the mortgage's hazards clause provision properly is interpreted to give W. F. Bank the authority to determine the necessary amount of flood insurance, while the third sentence sets the minimum coverage it must require the mortgagor to maintain. As a result, there can be no claims that are premised on a breach of the mortgage (i.e., breach of contract, breach of the covenant of good faith and faith dealing, and breach of fiduciary duty). Furthermore, TILA did not place any pre-loan or post-loan disclosure requirements on W. F. Bank and the transaction(s) in question did not constitute a "settlement service" within the scope of the anti-kickback and fee-splitting provision of RESPA. W. F. Bank did not owe a fiduciary duty to plaintiff under Pennsylvania law because the language of the agreement did not create a trust with regard to the escrow funds. It administered the escrow funds in accordance with the agreement and the fiduciary duty claim is barred by "the gist of the action" doctrine in any event. The unjust enrichment claim cannot stand because the parties' relationship is founded on a written agreement and plaintiff cannot establish that she conferred a benefit on W. F Bank or that any fee it received was "unjust" or "inequitable" under the circumstances. Finally, W.F. Bank argues that plaintiff's UTPCPL claim fails because it acted pursuant to the terms of the mortgage, plaintiff cannot identify any misrepresentation upon which she justifiably relied and the economic loss doctrine bars any such tort-based recovery.

W. F. Insurance generally contends that plaintiff has not identified any specific conduct attributable to it and therefore her complaint fails to meet the federal pleading standards. Plaintiff's RESPA claim is untimely because all referenced conduct occurred more than a year after closing. Plaintiff cannot establish the elements of an unjust enrichment claim for the same reasons identified by W. F. Bank. In addition, the identified conduct constituted nothing more than a statutory undertaking authorized for plaintiff's benefit, notice was given for the fees incurred, and all measures merely constitute a common form of everyday business. Finally, W. F. Insurance argues that plaintiff's UTPCPL claim fails because ...

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