Robinson v. Standard Mortgage Corporation et al
Filing
55
ORDER AND REASON granting 39 Motion to Dismiss Plaintiff's RICO claims.. Signed by Judge Sarah S. Vance on 6/7/16. (jjs)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
JORDELLA ROBINSON,
INDIVIDUALLY AND AS A
REPRESENTATIVE OF A CLASS
OF SIMILARLY SITUATED
BORROWERS
CIVIL ACTION
VERSUS
NO. 15-4123
STANDARD MORTGAGE
CORPORATION and STANDARD
MORTGAGE INSURANCE
AGENCY, INC.
SECTION: R
ORDER AND REASONS
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.
1
R. Doc. 39.
I.
BACKGROUND
A.
Defendants'
Arrangement
Alleged
Force-Placed
Insurance
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 "forceplaced" insurance policy or "lender-placed insurance." See Caplen v. SN
Servicing Corp., 343 Fed. App'x 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
2
R. Doc. 38 at 6 ¶ 27.
2
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 forceplace 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
3
Id. at 11 ¶ 48.
4
Id. at 11 ¶ 49, 35-36 ¶ 168.
5
Id. at 35 ¶ 168, 37 ¶ 172.
6
Id.
7
Id.
8
Id. at 25 ¶ 114, 115.
9
Id. at 37 ¶ 173.
3
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,
10
Id.
11
Id.
12
Id. at 38 ¶ 114.
13
Id.
14
Id.
15
Id. at 9 ¶ 37.
4
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
16
Id.
17
Id. at 12 ¶ 53.
18
Id. at 12 ¶ 54.
19
Id.
20
Id. at 13 ¶ 56.
5
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
21
R. Doc. 40 at 3.
22
R. Doc. 38 at 13 ¶ 58; see also R. Doc. 39-4 at 1. When considering a motion to
dismiss, courts may rely upon "documents incorporated into the complaint by reference
. . . ." Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008). Documents
"attache[d] to a motion to dismiss are considered part of the pleadings if they are
referred to in the plaintiff's complaint and are central to her claim." Collins v. Morgan
Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Robinson mentions
Standard Mortgage's letters in her complaint and relies on representations contained
within those letters for her mail and wire fraud claims. The Court will therefore
consider the letters in their entirety in ruling on defendants' motion to dismiss.
23
R. Doc. 38 at 13 ¶ 58; see also R. Doc. 39-4 at 1.
24
R. Doc. 39-4 at 1.
25
R. Doc. 38 at 13 ¶ 60; see also R. Doc. 39-6 at 1.
6
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
26
R. Doc. 39-6 at 1.
27
R. Doc. 38 at 14 ¶ 63; R. Doc. 38-1 at 10.
28
R. Doc. 38-1 at 10.
29
R. Doc. 38 at 15 ¶ 66.
7
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
30
Id. at 14 ¶ 65, 67.
31
Id. at 39 ¶ 183.
8
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
32
Id. at 19 ¶ 81.
33
Id. at 19 ¶ 82.
34
Id. at 34 ¶ 157.
35
Id. at 35 ¶ 166.
36
Id. at 28 ¶ 127.
9
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 render services to loan
owners and borrowers" but "misused its position as the servicer of the loans
to extract bribes and kickbacks from SM Insurance."38 Third, defendants
extorted or conspired to extort borrowers in violation of the Hobbs Act, 18
US.C. § 1951(a). Specifically, defendants allegedly "used and attempted and
conspired to use, the actual or threatened fear of default and foreclosure to
induce" borrowers to pay kickbacks and fees in excess of the costs of insuring
their properties.39
D.
Defendants' Motion to Dismiss
Standard Mortgage and SM Insurance move to dismiss Robinson's civil
RICO claims under Federal Rule of Civil Procedure 12(b)(6), asserting several
arguments for dismissal.40 Specifically, defendants argue that Robinson fails
to plausibly allege (1) the existence of an enterprise that is distinct from
Standard Mortgage and SM Insurance, (2) the predicate acts of mail and wire
37
Id. at 28 ¶ 128, 131, 134.
38
Id. at 32 ¶ 148.
39
Id. at 33 ¶ 151.
40
R. Doc. 39-1.
10
fraud, or (3) an injury proximately caused by a RICO violation. In addition,
defendants argue that Robinson fails to state a RICO conspiracy claim because
she has not adequately pleaded an underlying, substantive RICO violation.
II.
LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead
"enough facts to state a claim to relief that is plausible on its face." Ashcroft
v. Iqbal, 556 U.S. 662, 697 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). A claim is facially plausible when the plaintiff pleads
facts that allow the court to "draw the reasonable inference that the defendant
is liable for the misconduct alleged." Id. at 678. A court must accept all
well-pleaded facts as true and must draw all reasonable inferences in favor of
the plaintiff. See Lormand v. US Unwired, Inc., 565 F.3d 228, 239 (5th Cir.
2009); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).
A legally sufficient complaint must establish more than a "sheer
possibility" that the plaintiff's claim is true. Iqbal, 556 U.S. at 678. It need not
contain detailed factual allegations, but it must go beyond labels, legal
conclusions, or formulaic recitations of the elements of a cause of action. Id.
In other words, the face of the complaint must contain enough factual matter
to raise a reasonable expectation that discovery will reveal evidence of each
11
element of the plaintiff's claim. Lormand, 565 F.3d at 257. If there are
insufficient factual allegations to raise a right to relief above the speculative
level, or if it is apparent from the face of the complaint that there is an
insuperable bar to relief, the claim must be dismissed. Twombly, 550 U.S. at
555.
III. DISCUSSION
In Count I of the Amended Complaint, Robinson alleges that defendants
violated RICO, 18 U.S.C. § 1962(c), by overcharging for force-placed insurance
and misleading borrowers about the reason for the excessive prices. Section
1962(c) makes it unlawful "for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of
such enterprise's affairs through a pattern of racketeering activity. . . ." Id. at
1962(c). To withstand a motion to dismiss, a civil RICO plaintiff must allege
facts sufficient to establish each of the essential elements of his or her RICO
claim. See Price v. Pinnacle Brands, Inc., 138 F.3d 602, 606 (5th Cir. 1998).
A plaintiff must allege specific facts concerning (1) the conduct (2) of an
enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L.
v. Imrex Co., 473 U.S. 479, 496 (1985); see also Elliott v. Foufas, 867 F.2d 877,
12
880 (5th Cir. 1989) (finding that each of RICO's essential elements "is a term
of art which carries its own inherent requirements of particularity").
Defendants argue that Robinson fails to adequately allege any elements of a
RICO cause of action.
A.
The Person/Enterprise Distinction
Defendants' first argument implicates the distinctiveness requirement
of section 1962(c). Because "a RICO person cannot employ or associate with
himself," Crowe v. Henry, 43 F.3d 198, 206 (5th Cir. 1995), a plaintiff
asserting a section 1962(c) violation must demonstrate the existence of two
distinct entities: "(1) a 'person'; and (2) an 'enterprise' that is not simply the
same 'person' referred to by a different name." Cedric Kushner Promotions,
Ltd. v. King, 533 U.S. 158, 161 (2001); see also Old Time Enterprises, Inc. v.
Int'l Coffee Corp., 862 F.2d 1213, 1217 (5th Cir. 1989) (noting that the "person"
who engaged in racketeering "must be must be distinct from the enterprise
whose affairs are thereby conducted").
Here, the Amended Complaint
identifies two RICO "persons," defendants Standard Mortgage and SM
Insurance--both of which are corporations and which appear to be affiliated.41
41
Although the Amended Complaint does not specifically allege that Standard
Mortgage and SM Insurance are affiliated entities, it does allege that both corporations
share the "Standard Mortgage" name and a single business address. R. Doc. 39 at 4 ¶ 15,
5 ¶ 19.
13
The alleged "enterprise" is an association-in-fact consisting of Standard
Mortgage, SM Insurance, and unnamed affiliates of each corporation.42
Defendants argue that because Robinson alleges that Standard Mortgage
and SM Insurance are both RICO persons and members of an association-infact enterprise, her civil RICO claim fails the distinctiveness requirement as
a matter of law. In support, defendants cite St. Paul Mercury Ins. Co. v.
Williamson, 224 F.3d 425 (5th Cir. 2000). There, the court rejected the
argument that an individual defendant may never be both a RICO person and
one of several members of an association-in-fact enterprise. Id. at 446-47. In
so doing, it reasoned that because a corporate entity cannot simultaneously be
a "person" and an "enterprise," a different analysis might apply when, as in
this case, the defendant is a corporation, rather than an individual. See id.
The court explained that "[t]o get around having a corporation named as both
a RICO defendant and a RICO enterprise, many plaintiffs have charged the
corporation as being part of an association-in-fact enterprise and also as a
RICO defendant. Courts have roundly criticized this formulation." Id. at 447
n. 16 (emphasis added).
42
R. Doc. 38 at 34 ¶ 157.
14
As a general rebuke of Robinson's pleading methodology, St. Paul
Mercury supports defendants' position.
But St. Paul Mercury is
distinguishable from this case because it involved an individual defendant, not
a corporate entity like Standard Mortgage or SM Insurance. Thus, the Court
is not convinced by defendants' argument that St. Paul Mercury's footnote
constitutes a clear holding that two corporations can never serve as both RICO
persons and as members of an association-in-fact enterprise. Compare Glob.
Oil Tools, Inc. v. Barnhill, No. CIV.A. 12-1507, 2012 WL 5866139, at *10 (E.D.
La. Nov. 19, 2012) (dismissing RICO claim when plaintiff alleged that a
corporation was both a "person" and a member of an association-in-fact
enterprise); with Burford v. Cargill, Inc., No. CIV.A. 05-0283, 2011 WL
4382124, at *5 (W.D. La. Sept. 20, 2011) ("[A] corporate defendant [can]
simultaneously be a RICO person and a member of an association-in-fact
enterprise. . . ." (quoting TransFirst Holdings, Inc. v. Phillips, No. 06–2303,
2007 WL 1468553, *3 (N.D. Tex. May 18, 2007)).
The Court therefore turns to defendants' second argument--that
Robinson fails to establish a pattern of racketeering activity.
B.
Pattern of Racketeering Activity
To allege a "pattern of racketeering activity," a plaintiff must show that
the defendant committed two or more predicate offenses that are (1) related
15
and (2) amount to or pose a threat of continued criminal activity. H.J. Inc. v.
Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). Predicate offenses include
violations of certain state and federal laws, including the wire and mail fraud
statutes and the Hobbs Act, which prohibits extortion. 18 U.S.C. § 1961(1).
Here, Robinson asserts that the predicate acts of mail and wire fraud, honest
services fraud, and extortion provide the basis for the pattern of racketeering
needed for a RICO violation.
1.
Mail and Wire Fraud
The elements of wire fraud are "(1) a scheme to defraud, and (2) the use
of, or causing the use of, wire communications in furtherance of that scheme."
United States v. Rush, 236 F. App'x 944, 947 (5th Cir. 2007). Proof of a
scheme to defraud requires a showing that the defendant possessed a
fraudulent intent. Id. "The elements of mail fraud are (1) a scheme to defraud;
(2) use of the mails to execute the scheme; and (3) the specific intent on the
part of the defendant to defraud." United States v. Smith, 46 F. App'x 225,
2002 WL 1939843, at *2 (5th Cir. July 16, 2002). "Among other things, both
RICO mail and wire fraud require evidence of intent to defraud, i.e., evidence
of a scheme to defraud by false or fraudulent representations." St. Paul
Mercury Ins. Co. v. Williamson, 224 F.3d 425, 441 (5th Cir. 2000).
16
A scheme to defraud is measured by a "nontechnical standard," rooted
in notions of moral uprightness, fundamental honesty, fair play, and right
dealing.
United States v. Bruce, 488 F.2d 1224, 1229 (5th Cir. 1973).
Although this standard is broad, a scheme to defraud must involve fraudulent
misrepresentations or omissions "reasonably calculated to deceive persons of
ordinary prudence and comprehension." United States v. Netterville, 553 F.2d
903, 909 (5th Cir. 1977).
Federal Rule of Civil Procedure 9(b)'s pleading requirements apply to
RICO claims resting on allegations of fraud, and a plaintiff must plead his
fraud-based RICO claims with particularly. See Williams v. WMX Techs., Inc.,
112 F.3d 175, 177 (5th Cir. 1997). To satisfy Rule 9(b), "a plaintiff must state
the factual basis for the fraudulent claim with particularity and cannot rely on
speculation or conclusional allegations." United States ex rel. Rafizadeh v.
Continental Common, Inc., 553 F.3d 869, 873 (5th Cir. 2008). In general,
such a statement should include the "time, place, and contents of the false
representation[ ], as well as the identity of the person making the
misrepresentation and what that person obtained thereby." U.S. ex rel.
Grubbs v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009) (quoting United
States ex rel. Russell v. Epic Healthcare Mgmt. Group., 193 F.3d 304, 308
17
(5th Cir. 1999)); see also United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997).
Here, many of Robinson's fraud allegations lack the specificity that Rule
9(b) demands. For instance, Robinson contends that Standard Mortgage and
SM Insurance initiated a number of mail and/or wire communications,
including "notices," "monthly statements," "remittance reports," and "monthly
servicing reports."43 Although Robinson alleges, in a conclusory manner, that
each communication was "materially false and misleading,"44 she provides no
details about the contents of any of these documents. Nor does she specify
when defendants made these communications or to whom, specifically, they
were directed. Such vague, general allegations are plainly insufficient to state
a plausible claim for relief. See, e.g., Gustafson v. BAC Home Loans Servicing,
LP, No. SACV 11-915-JST ANX, 2012 WL 7051318, at *5-*6 (C.D. Cal. Dec. 20,
2012) (dismissing fraud claim under Rule 9(b) when complaint referred
generally to "notices, telephone calls, correspondence and other
communications"); Hill v. Hunt, No. CIV A 307-CV-2020-O, 2010 WL 54756,
at *4 (N.D. Tex. Jan. 4, 2010) (dismissing fraud claim under Rule 9(b) when
complaint did "not identify any particular mail or wire communication(s),
43
R. Doc. 38 at 28-29 ¶ 131.
44
Id.
18
[defendant's] relationship to the communication(s), when or how the
communication was made, or why the communication was fraudulent").
Robinson provides more detailed allegations concerning letters and
notices that Standard Mortgage sent her from September 2012 to January
2013, but the disclosures contained in those letters defeat any claim of fraud
or misrepresentation. As Robinson acknowledges, her mortgage agreement
required her to maintain hazard insurance and authorized Standard Mortgage
to force-place insurance on the mortgage property if Robinson failed to do so.45
After Robinson's borrower-obtained insurance lapsed, Standard Mortgage's
September 7, 2012 letter informed her of the deficiency, asked her to submit
proof of insurance coverage, and stated that failure to act would cause
Standard Mortgage to force-place insurance with a rate of coverage "higher
than what you might otherwise be able to obtain."46 Indeed, the letter defined
the cost of inaction with precision, stating that "[t]he premium will be
$8,820.00."47 Thus, from the outset, Standard Mortgage informed Robinson
that she would have to pay a substantially higher premium--several times
45
Id. at 12 ¶ 54.
46
Id. at 13 ¶ 58.
47
Id. Apparently, a later letter, dated October 26, 2012 provided Robinson an
additional 20 days to provide proof of insurance and informed her that the force-placed
insurance premium would be $ 8,845.20. R. Doc. 39-6 at 1.
19
more than what she had been paying--if force-placed insurance became
necessary and urged Robinson to give the matter her attention. Standard
Mortgage's subsequent letters to Robinson contained the same or similar
disclosures.48 And Robinson does not allege that her force-placed insurance
premium differed from the price the letters described.
Despite these clear disclosures, Robinson argues that Standard
Mortgage's letters were misleading because they attributed the high cost of
insurance to Standard Mortgage's lack of property and homeowner-specific
information when, allegedly, bogus commissions and other undisclosed
"kickbacks" were to blame. Similarly, Robinson contends that the letters' use
of the terms "rate of coverage" and "premium" is misleading because the
amount defendants charged Robinson was unmoored to the actual cost of
providing insurance coverage. These arguments are unpersuasive.
Standard Mortgage repeatedly warned Robinson that she lacked
adequate insurance and that failure to cure would prompt Standard Mortgage
to purchase force-placed insurance priced at nearly $9,000. Like several other
district courts that have considered similar allegations in the force-placed
insurance context, the Court finds these disclosures inconsistent with a
48
See R. Doc. 39-6 at 1.
20
scheme to defraud. See Meyer v. One W. Bank, F.S.B., 91 F. Supp. 3d 1177,
1184 (C.D. Cal. 2015) (dismissing RICO claim involving similar allegations,
reasoning
that
"[plaintiff's]
tortured
interpretation
of
relatively
straightforward language [in a force-placed insurance notice letter] cannot
plausibly be read as evincing fraudulent intent"); Wilson v. EverBank, N.A.,
No. 14-CIV-22264, 2015 WL 1600549, at *3 (S.D. Fla. Apr. 9, 2015)
(dismissing civil RICO claim when lender informed borrower that force-placed
insurance would cost substantially more than borrower-obtained insurance
and that increased amount would be charged to borrowers); Gustafson, 2012
WL 7051318, at *7 (finding that similar force-placed insurance kickback and
nondisclosure claims fail as a matter of law).
Robinson correctly notes that other district courts have reached a
different conclusion in similar lawsuits. See, e.g., Montoya v. PNC Bank, N.A.,
94 F. Supp. 3d 1293, 1317-19 (S.D. Fla. 2015); Perryman v. Litton Loan
Servicing, LP, No. 14-CV-02261-JST, 2014 WL 4954674, at *15 (N.D. Cal. Oct.
1, 2014); Cannon v. Wells Fargo Bank. N.A., No. C-12-1376 EMC, 2014 WL
324556, at *2-*3 (N.D. Cal. Jan. 29, 2014). But these cases are not binding on
this Court, and the Court finds their analyses, or lack thereof, unpersuasive.
As explained, Standard Mortgage notified Robinson that failing to
correct an insurance deficiency would result in the imposition of force-placed
21
insurance; it accurately disclosed the amount that Robinson would be charged
for force-placed insurance coverage; and it informed Robinson that she would
probably be able to obtain less expensive coverage by purchasing her own
insurance policy. Robinson had previously obtained her own insurance on the
same property for four times less money. And she was given multiple
opportunities to avail herself of that option to avoid a known higher cost to
herself. Simply put, "[t]he Court cannot see how letters that warn of an
imminent bad deal and urge one to seek better, could possibly be calculated
to deceive anyone." Weinberger v. Mellon Mortgage Co., No. CIV.A. 98-2490,
1998 WL 599192, at *5 (E.D. Pa. Sept. 10, 1998).
Moreover, setting aside the disclosures in Standard Mortgage's letters,
Robinson's "kickback" allegations are facially implausible. Robinson alleges
that SM Insurance pays commissions to Standard Mortgage and/or certain,
unnamed affiliate companies from its force-placed insurance premiums. She
further alleges that, in exchange for the right to serve as Standard Mortgage's
exclusive force-placed insurance provider, SM Insurance monitors Standard
Mortgage's property portfolio for insurance gaps--allegedly for only nominal
consideration. Robinson labels these benefits "kickbacks." But, as the Seventh
Circuit explained in a recent force-placed insurance case, "simply calling [a]
commission a kickback doesn't make it one." Cohen v. Am. Sec. Ins. Co., 735
22
F.3d 601, 611 (7th Cir. 2013). Rather, "[t]he defining characteristic of a
kickback is divided loyalties." Id.; see also Feaz v. Wells Fargo Bank, N.A.,
745 F.3d 1098, 1111 (11th Cir. 2014) (same).
Standard Mortgage was not subject to divided loyalties when it forceplaced insurance on Robinson's property. The mortgage agreement makes
clear that the insurance requirement exists to protect the lender's interest in
the mortgaged property: "Borrower shall insure all improvements on the
property . . . 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."49 The mortgage
agreement also empowers the lender to protect its interest by "do[ing] and
pay[ing] whatever is necessary to protect the value of the Property and the
Lender's rights in the property. . . ."50 Nothing in these terms requires the
lender to purchase the cheapest insurance or the insurance that provides the
most value for the borrower. Thus, Standard Mortgage did not act on
Robinson's behalf when it force-placed insurance coverage; it acted to protect
its own interest in the mortgaged property--an interest that Robinson
threatened by breaching her own contractual duty to maintain insurance
49
R. Doc. 39-3 at 3.
50
Id. at 4.
23
coverage. So although Robinson sprinkles her complaint with the "kickback"
label, the commissions and portfolio monitoring that SM Insurance provided
to Standard Mortgaged were "not . . kickback[s] in any meaningful sense."
Cohen, 735 F.3d at 611 (holding that commission paid to mortgage lender's
affiliate for force-placing insurance was not a "kickback" when the lender "was
subject to an undivided loyalty to itself, and it made this clear from the start");
see also Feaz, 745 F.3d at 1111 (agreeing with Cohen's analysis).51
Given the clear disclosures in Standard Mortgage's letters, as well as
Robinson's failure to plausibly allege an unlawful kickback arrangement, the
Amended Complaint does not state a claim for a violation of the federal mail
and wire fraud statutes.
2.
Honest Services Fraud
Robinson also charges Standard Mortgage with honest services fraud.
"The elements of honest services fraud include (1) a scheme to deprive another
of the right to honest services; (2) use of the mails and/or wires to execute the
51
Robinson tries to distinguish Cohen on the grounds that the mortgage lender in
that case disclosed that it would receive a commission from its force-placed insurance
provider, whereas Standard Mortgage's letters contained no such disclosures. Robinson
also notes that the homeowner in Cohen did not allege that the commissions were
unearned, while Robinson makes that claim in her Amended Complaint. While
accurate, these distinctions miss the broader point that an unlawful kickback
arrangement requires divided loyalties. Cohen, 735 F. 3d at 611. No such division
appears from Robinson's well-pleaded factual allegations.
24
scheme; and (3) materiality of the falsehoods employed in the scheme."
United States v. Hoeffner, 626 F.3d 857, 868 (5th Cir. 2010). According to the
Amended Complaint, Standard Mortgage owed borrowers a legal duty to
ensure continuous insurance coverage on mortgaged properties, and it
breached this duty by devising a scheme to "extract bribes and kickbacks from
SM Insurance."52 These allegations share the same defect as Robinson's mail
fraud and wire fraud claims--Robinson's failure to plausibly allege a scheme
intended to deceive. Thus, Robinson's honest services fraud claims also fail
to establish the predicate act that RICO demands.
3.
Extortion
Finally, Robinson attempts to ground her RICO claim in the predicate
acts of extortion and conspiracy to commit extortion in violation of the Hobbs
Act, 18 U.S.C. § 1951. Section 1951(b)(2) defines "extortion" as "the obtaining
of property from another, with his consent, induced by wrongful use of actual
or threatened force, violence, or fear, or under color of official right."
Robinson alleges that Standard Mortgage, SM Insurance, and
unspecified affiliates "used, and attempted and conspired to use, the actual or
threatened fear of default and foreclosure to induce [Robinson] and the Class
52
Id. at 32 ¶ 148.
25
to pay" premiums in excess of Standard Mortgage's force-placed insurance
costs.53 But despite its length, the Amended Complaint does not identify a
single, specific instance of threatening conduct by either Standard Mortgage
or SM Insurance. Instead, it offers only broad, general assertions such as
"Standard Mortgage routinely collected unpaid force-placed insurance charges
through foreclosure,"54 and "[Robinson] and the Class reasonably believed . .
. that Standard Mortgage would exploit [its apparent contractual] power and
foreclose if borrowers failed to pay the insurance charges that Standard
Mortgage and SM Insurance imposed."55 Such vague, conclusory allegations
are insufficient to state a plausible extortion claim. Absent supporting factual
allegations, Robinson's claim must be dismissed. See Morris v. Green Tree
Servicing, LLC, No. 2:14-CV-01998-GMN, 2015 WL 4113212, at *13 (D. Nev.
July 8, 2015) (characterizing allegation that defendant "threatened that
Plaintiff's credit would be destroyed, that his home would be foreclosed on,
and that it was Plaintiff's fault that his loan was in default" as conclusory and
insufficient to establish an extortion claim); Valdez v. Saxon Mortgage Servs.,
Inc., No. 2:14-CV-03595-CAS, 2014 WL 7968109, at *15 (C.D. Cal. Sept. 29,
53
Id. at 33 ¶ 151.
54
Id. at 33 ¶ 153
55
Id. at 33-34 ¶ 154.
26
2014) (dismissing extortion claim grounded in allegation that defendants
"used, and attempted and conspired to use, the actual or threatened fear of
foreclosure to induce Plaintiff and the Class to pay the improper charges
imposed" for failure to state a claim).
Even setting aside the dearth of well-pleaded factual allegations,
Robinson's extortion theory is implausible. The Amended Complaint alleges
that Standard Mortgage coerced Robinson and similarly situated borrowers
into paying artificially-inflated force-placed insurance premiums. As noted,
however, Robinson had a contractual duty to maintain continuous insurance
coverage on her mortgaged property.
And while Standard Mortgage
eventually force-placed insurance on Robinson's property--as the mortgage
agreement expressly authorized it to do--the choice to purchase her own, less
expensive insurance was available to Robinson at every turn. Standard
Mortgage explained this to Robinson on several occasions. After Robinson's
borrower-obtained insurance lapsed, Standard Mortgage mailed Robinson a
series of letters asking her to submit proof of a new insurance policy and
warning that inaction would necessitate force-placed insurance coverage at a
rate of $8,820.56 When force-placed insurance went into effect, Standard
56
R. Doc. 39-4 at 1; R. Doc. 39-6 at 1.
27
Mortgage sent Robinson another letter reminding her that she need only
present proof of insurance and the force-placed insurance coverage would be
cancelled and the premium refunded on a pro rata basis.57
The Seventh Circuit addressed a similar situation in Cohen v. Am. Sec.
Ins. Co., 735 F.3d 601 (7th Cir. 2013). There, Wachovia force-placed insurance
on a borrower, who sued under the Illinois Consumer Fraud and Deceptive
Business Practices Act, alleging that she and a putative class were "coerced
into having insurance provided by [an insurer] at a price far above that which
they had previously paid." Id. at 609. The district court dismissed this count
for failure to state a claim, and the Seventh Circuit affirmed. The court
explained that the borrower
never lacked a meaningful choice to avoid expensive lender-placed
property insurance. Wachovia reminded her at every step that she
could comply with her obligation to purchase insurance or have
the coverage placed by Wachovia at a much higher cost. To use
the Illinois Supreme Court's formulation, there was a "total
absence of oppressiveness" because all along she "could have gone
elsewhere" to buy cheaper insurance.
Id. at 610. Although Cohen involved claims under Illinois law, the Seventh
Circuit's analysis applies to Robinson's Hobbs Act claims as well. Like the
borrower in Cohen, Robinson could have avoided force-placed insurance by
57
R. Doc. 38 at 14 ¶ 63; R. Doc. 38-1 at 10.
28
simply purchasing borrower-obtained insurance--insurance that her mortgage
agreement required her to maintain. Thus, for all of Robinson's conclusory
assertions of extortion, the facts alleged evince a "total absence of
oppressiveness" on the part of Standard Mortgage.
In sum, Amended Complaint fails to state a plausible claim of
racketeering activity by Standard Mortgage or SM Insurance. Although
Robinson has had two opportunities to plead her claims--once with the benefit
of defendants' Rule 12(b)(6) motion challenging her original complaint--she
has failed to adequately allege mail fraud, wire fraud, honest services fraud, or
extortion.
Accordingly, Robinson's civil RICO claim against Standard
Mortgage and SM Insurance must be dismissed.
C.
Causation
Although Robinson's failure to plead racketeering activity is itself fatal
to her claim, Robinson also fails to plausibly allege causation. RICO provides
civil remedies to "[a]ny person injured in his business or property by reason
of a violation of section 1962." 18 U.S.C. § 1964(c). "An injured party must
show that the violation was the but-for and proximate cause of the injury."
Allstate Ins. Co. v. Plambeck, 802 F.3d 665, 676 (5th Cir. 2015) (citing Bridge
v. Phoenix Bond & Indem. Co., 553 U.S. 639, 654 (2008)). In cases predicated
on mail or wire fraud, first-party reliance is not a necessary element. Bridge,
29
533 U.S. at 655-56. The Supreme Court has explained, however, that "in most
cases, the plaintiff will not be able to establish even but-for causation if no one
relied on the misrepresentation." Id. at 658. In general, "a RICO plaintiff
alleging injury by reason of a pattern of mail fraud must establish at least
third-party reliance in order to prove causation." Id. at 659.
Here, Robinson's causation claim rest on allegations of first-party
reliance. Robinson's core theory is that Standard Mortgage's fraudulent
mailings led her to believe that her force-placed insurance premium
represented the "actual cost of the insurance policy," not a cost inflated by
undisclosed kickbacks. Robinson alleges that these misrepresentations were
material to her decision-making. According to the Amended Complaint,
"[h]ad Plaintiff 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, Plaintiff would have procured her own
insurance."58 Defendants argue that this after-the-fact allegation is insufficient
to establish that Standard Mortgage's mailings caused Robinson not to
purchase her own insurance to avoid the force-placed alternative.
58
R. Doc. 38 at 39 ¶ 183.
30
The Court draws on "judicial experience and common sense" to
determine whether Robinson's Amended Complaint states a plausible claim
for relief. Ashcroft v. Iqbal, 556 U.S. 662, 697 (2009) (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). Common sense casts significant
doubt on Robinson's causation allegations. Standard Mortgage repeatedly
notified Robinson that her insurance coverage had lapsed and that, if she
failed to take corrective action, it would become "necessary for us to secure
coverage at your expense."59 Standard Mortgage's letters did not mislead
Robinson about how much she would be charged for force-placed insurance
coverage; they plainly stated that "[t]he premium will be $8,845.20."60 Nor
did the letters attempt to "lull" Robinson into inaction by suggesting, for
example, that Robinson would be unable to obtain cheaper coverage on the
insurance market. Cf. Smith v. Our Lady of the Lake Hosp., Inc., 960 F.2d
439, 445 (5th Cir. 1992) (recognizing that publications, if used "to lull
[plaintiff] into not resisting the efforts to fire him, . . . could be part of the
fraud underlying the RICO offense"). To the contrary, Standard Mortgages's
letters accurately explained that "the rate for the coverage we acquire may be
59
R. Doc. 38 at 13 ¶ 58; see also R. Doc. 39-4 at 1.
60
R. Doc. 39-4 at 38 at 13 ¶ 60; see also R. Doc. 39-6 at 1.
31
higher than what you might otherwise be able to obtain."61 Having previously
purchased her own insurance on the same property for four times less money,
Robinson knew how much cheaper borrower-obtained insurance would likely
be. And she was given multiple opportunities to avail herself of that option to
avoid a known higher cost to herself. Instead, she took no action, prompting
Standard Mortgage to force-place insurance on the mortgaged property.
Given her inaction in the face of a known, imminent detriment to herself,
Robinson's bare assertion that she would have acted differently had she known
that Standard Mortgage stood to benefit rings false. See Wilson 77 F. Supp. 3d
at 1227 ("Plaintiffs have not even alleged with the requisite plausibility that,
but for EverBank's allegedly fraudulent conduct regarding the force-placed
insurance charges . . . Plaintiffs would not have paid the full force-placed
insurance charges but, rather, would have opted either to now get their own
insurance. . . ."). Absent additional factual allegations to support or explain
this assertion, Robinson's pleadings fail to "nudge[] [her] claims across the
line from conceivable to plausible." Twombly, 550 U.S. at 547. Accordingly,
the Amended Complaint fails to plausibly allege that Robinson's injuries were
61
R. Doc. 39-6 at 1.
32
caused by Standard Mortgage's alleged mail fraud, and Robinson's civil RICO
claims must be dismissed.
D.
RICO Conspiracy
Count II of the Amended Complaint alleges that Standard Mortgage and
SM Insurance conspired to violate RICO in violation of 18 U.S.C. § 1962(d).
Because Robinson's allegations fail to state a substantive RICO claim upon
which relief may be granted, her conspiracy claim fails as well. See Nolen v.
Nucentrix Broadband Networks Inc., 293 F.3d 926, 930 (5th Cir. 2002) ("The
failure to plead the requisite elements of either a § 1962(a) or a § 1962(c)
violation implicitly means that [Nolen] cannot plead a conspiracy to violate
either section."); Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir.
2000) ("Plaintiffs cannot claim that a conspiracy to violate RICO existed if
they do not adequately plead a substantive violation of RICO."); Efron v.
Embassy Suites (Puerto Rico), Inc., 223 F.3d 12, 21 (1st Cir. 2000) (same).
Therefore, the Court dismisses Robinson's RICO conspiracy claims against
both defendants.
33
IV.
CONCLUSION
For the foregoing reasons, the Court grants defendants' motion to
dismiss Robinson's RICO claims.
7th
New Orleans, Louisiana, this ____ day of June, 2016.
________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
34
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