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Pnc Bank, Na v. Republic Mortgage Insurance Co.

United States District Court, Third Circuit

May 23, 2013

PNC BANK, N.A., Plaintiff,
v.
REPUBLIC MORTGAGE INSURANCE COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER OF COURT

TERRENCE F. McVERRY, District Judge.

Pending before the Court is DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT AND DEMAND FOR JURY TRIAL (ECF No. 17) filed by Republic Mortgage Insurance Company ("Republic"), with brief in support. Plaintiff PNC Bank, N.A. ("PNC") filed a response in opposition with numerous exhibits and Republic filed a reply brief. PNC did not attach the relevant insurance policies to its Amended Complaint. However, Republic has provided copies of Master Policy No. 39643, Mortgage Guaranty Pool Insurance Policy No. N02PA10202, and the Commitment/Certificates issued pursuant to the policies for each of the five loans cited as examples in the Amended Complaint. PNC's claims are based on these policies and there appears to be no dispute as to authenticity. Accordingly, the Court will consider the documents in ruling on the motion to dismiss. Pension Ben. Guar. Corp. v. White Consol. Indus. Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). The motion is ripe for disposition.

Factual and Procedural History

This complex insurance coverage dispute arises out of the "mortgage crisis" in the 2008-2009 timeframe. PNC, and its predecessor National City Corporation (collectively "PNC"), originated home mortgage loans. PNC purchased mortgage insurance coverage from Republic, which was marketed as a means to protect lenders from the volatility of the mortgage market. Specifically, Republic sold a "flow" mortgage insurance policy to PNC, effective December 1, 1989. A "flow" policy is intended to insure against the risk of borrower default on a particular, individual loan even if that loan is sold by PNC in the secondary market. Republic also sold a "pool" policy to PNC, effective January 1, 2005. A "pool" policy covers loans that are submitted as part of a pooling, or grouping, arrangement or securitization and is intended to protect the lender against the risk of exposure to investors in the event of adverse economic conditions or increased borrower defaults.

Plaintiff alleges that it paid all premiums and complied or substantially complied with all of its duties under the Republic insurance policies. PNC alleges that Republic has wrongfully refused to provide coverage as required under the policies. Accordingly, PNC has been forced to repurchase loans and "stands the prospect of having to repurchase loans worth millions of dollars more in the near future." PNC alleges that Republic was aware of its underwriting practices, including "stated income" and "no income" loans. PNC further alleges that Republic raised no objections to these underwriting practices until after the real estate market collapsed and default rates soared. Republic has allegedly attempted to escape its coverage obligations through unreasonable, bad faith and wrongful rescissions and/or cancellations, in large part based on post-loss underwriting. PNC submits a list of 248 Disputed Loans and avers that Republic possesses an extensive file on each loan at issue.[1]

The 42-page First Amended Complaint recites substantial detail regarding the various grounds asserted by Republic for cancelling and/or rescinding coverage as to certain "example loans." The justification cited by Republic included misrepresentations by PNC as to: (1) borrower information; (2) information that was not required to be disclosed; (3) appraised property value; (4) borrower liabilities/debts; (5) missing documents; and (6) other miscellaneous grounds based on alleged improper interpretation of the insurance policies. PNC avers that Republic engaged NIA Consulting ("NIA") to seek grounds for cancelling and/or rescinding coverage.

PNC seeks: (1) Declaratory Judgment as to how the insurance policies should be interpreted and applied to the Disputed Loans and ongoing and future claims; (2) money damages for breach of contract; and (3) compensatory and punitive damages for insurer bad faith pursuant to 42 Pa.C.S.A. ยง 8371 and Ohio law. The jurisdiction of this Court is based on the diversity of citizenship of the parties.

The original complaint in this case was filed in October 2012. Republic filed a motion to dismiss. Pursuant to a stipulation by the parties, PNC filed the instant Amended Complaint in lieu of a response to the initial motion. Republic has now filed a Motion to Dismiss the Amended Complaint.

Standard of Review

A motion to dismiss pursuant to Rule 12(b)(6) challenges the legal sufficiency of a complaint, which may be dismissed for the "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6) When reviewing a motion to dismiss, the Court must accept all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. Burtch v. Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir. 2011), cert. denied, 132 S.Ct. 1861 (2012) (citing In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010)). However, as the Supreme Court of the United States made clear in Bell Atlantic Corp. v. Twombly, such "[f]actual allegations must be enough to raise a right to relief above the speculative level." 550 U.S. 554, 555 (2007).

The Supreme Court later refined this approach in Ashcroft v. Iqbal, emphasizing the requirement that a complaint must state a plausible claim for relief in order to survive a motion to dismiss. 556 U.S. 662, 678 (2009). "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." Id. (citing Twombly, 550 U.S. at 555). Nevertheless, "the plausibility standard is not akin to a probability requirement, '" but requires a plaintiff to show "more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 555).

To determine the legal sufficiency of a complaint after Twombly and Iqbal, the United States Court of Appeals for the Third Circuit instructs that a district court must take a three step approach when presented with a motion to dismiss for failure to state a claim. Santiago v. Warminster Twp., 629 F.3d 121, 130 n.7 (3d Cir. 2010) (noting that although Iqbal describes the process as a "two-pronged approach, " it views the case as outlining three steps) (citing Iqbal, 556 U.S. at 675). First, "the court must "tak[e] note of the elements a plaintiff must plead to state a claim.'" Id. at 130 (quoting Iqbal, 556 U.S. at 675) (alteration in original). Second, the court "should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth.'" Id. (quoting Iqbal, 556 U.S. at 679). Third, "where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.'" Id. (quoting Iqbal, 556 U.S. at 679).

Accordingly, the Court must separate the factual and legal elements of the claim and "accept the factual allegations contained in the Complaint as true, but [ ] disregard rote recitals of the elements of a cause of action, legal conclusions, and mere conclusory statements." James v. City of Wilkes-Barre, 700 F.3d 675, 679 (3d Cir. 2012) (citing Iqbal, 556 U.S. at 678-79; Twombly, 550 U.S. at 555-57; Burtch, 662 F.3d at 220-21). The Court "must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.' In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to show' such an entitlement with its facts." Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) (citing Iqbal 556 U.S. at 678). The determination for "plausibility" will be "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. at 211 (quoting Iqbal, 556 U.S. at 679).

However, nothing in Twombly or Iqbal changed the other pleading standards for a motion to dismiss pursuant to Rule 12(b)(6) and the requirements of Rule 8 must still be met. See Phillips v. Co. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (internal citations omitted). The Supreme Court did not abolish the Rule 12(b)(6) requirement that "the facts must be taken as true and a complaint may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on those merits." Phillips, 515 F.3d at 231 (citing Twombly, 550 U.S. at 553). Rule 8 also still requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Iqbal, 556 U.S. at 677-78 (citing Fed.R.Civ.P. 8(a)(2)). While this standard "does not require detailed factual allegations, ' [ ] it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation" and a "pleading that offers labels and conclusions' or a formulaic recitation of ...


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