GRAY et al v. CIT BANK, N.A. et al
Filing
57
OPINION. Signed by Judge Renee Marie Bumb on 12/27/2018. (rss, )
[Dkt No. 30, 31]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
MONICA GRAY, EXECUTRIX, ET AL.,
Plaintiffs,
Civil No. 18-1520 (RMB/AMD)
v.
OPINION
CIT BANK, N.A., ET AL.,
Defendants.
APPERANCES:
LAW OFFICE OF ROOSEVELT N. NESMITH, LLC
By: Roosevelt N. Nesmith, Esq.
363 Bloomfield Avenue, Suite 2C
Montclair, New Jersey 07024
Counsel for Plaintiffs
GREENBERG TRAURIG, LLP
By: Louis Smith, Esq.
Aaron Van Nostrand, Esq.
500 Campus Drive, Suite 400
Florham Park, New Jersey 07932
Counsel for Defendants CIT Bank N.A., and Financial
Freedom Senior Funding Corporation
BUCKLEY SANDLER LLP
By: Robyn C. Quattrone, Esq.
Stephen M. LeBlanc, Esq.
Mary C. Flemming, Esq.
1250 24th Street NW, Suite 700
Washington, D.C. 20037
and
SILLS CUMMIS & GROSS P.C.
By: Charles J. Falletta, Esq.
One Riverfront Plaza
1
Newark, New Jersey 07102
Counsel for Defendants QBE Insurance Corporation, QBE First
Insurance Agency, Inc., and MIC General Insurance Corporation
BUMB, UNITED STATES DISTRICT JUDGE:
Plaintiffs bring this putative class action suit alleging that
Defendants CIT Bank, N.A., a mortgage lender (“CIT”); Financial
Freedom Senior Funding Corporation, a mortgage servicer (“Financial
Freedom”); and insurance companies QBE Insurance Corporation, QBE
First Insurance Agency, Inc., and MIC General Insurance Corporation
(collectively “the Insurer Defendants”) conspired to: (1) overcharge
Plaintiffs in connection with forced-placed hazard insurance; and (2)
charge unnecessary property inspection fees.
Defendants move to dismiss all claims asserted in the Amended
Complaint. 1
For the reasons stated herein, the Insurer Defendants’
motion will be granted as to the tortious interference claim and
denied in all other respects; and the other Defendants’ motion will
be denied.
I.
Facts
This suit concerns a reverse mortgage on a residential property
located in Cinnaminson, New Jersey.
(Amend. Compl. ¶¶ 1, 80)
In
Oral argument on the Motions to Dismiss was held on August 9,
2018. For the reasons set forth on the record during oral argument,
the Court allowed Plaintiffs to file an Amended Complaint. (See
Docket #40, Order of August 9, 2018) Defendants have subsequently
filed supplemental briefs which the Court has considered along with
the moving and reply briefs.
1
2
2008, Earl Gray Jr. obtained the reverse mortgage from Defendant
Freedom Financial.
(Id. ¶ 80-81)
Gray failed to maintain hazard
insurance coverage on his property as required by the mortgage
documents, and so, in accordance with the loan documents, beginning
in 2011, Defendant Financial Freedom began force-placing hazard
insurance on the property.
(Id. ¶ 83)
Allegedly, “Financial Freedom
imposed a charge [for the insurance premium] on Gray’s mortgage
account . . . in the amount of $3,510.00.”
(Id.)
Thereafter, Plaintiffs allege, the same pattern continued from
2012 through 2017; Freedom Financial force-placed insurance on the
subject property, then charged Gray-- and subsequently the new
property owners upon Gray’s death in 2016 2-- for what Financial
Freedom said was the cost of the insurance premiums. 3
¶ 83)
(Amend. Compl.
According to Plaintiffs, however, what Financial Freedom
represented what the cost of the insurance premiums was actually the
cost plus an “unearned commission” or “kickback” that Financial
Freedom obtained through its “interlocking agreements” with the
Insurer Defendants.
(Id. ¶¶ 59-64)
The alleged misrepresentations
Earl Gray, Jr. passed away on December 3, 2016. (Amend. Compl. ¶
88) Through Gray’s will, the property passed to Plaintiffs Justin
Gray and Jasmine Gray-Oliver per stirpes. (Id.) Thus, as further
set forth infra, certain claims are brought only by Monica Gray, as
executrix of Gray’s estate, and other claims are brought by Justin
and Jasmine (with Monica Gray as Jasmine’s trustee), as well as
Gray’s estate.
2
The Amended Complaint alleges that Defendant QBE provided the
force-placed insurance from 2012 through 2016, and that Defendant MIC
General provided the insurance in 2017. (Amend. Compl. ¶ 83)
3
3
as to the cost of the insurance allegedly were contained in various
notices sent to the property.
(Amend. Compl. ¶¶ 84, 89)
Plaintiffs also allege that Financial Freedom obtained
excessive-- and therefore, allegedly unnecessary-- insurance coverage
for the property.
For example, Plaintiffs allege that in 2013,
Financial Freedom obtained insurance coverage in the amount of
$330,000 even though “the outstanding principle [sic] balance of
Gray’s loan was $235,600,”-- i.e., substantially less than the
coverage amount.
(Amend. Compl. ¶ 84)
Lastly, Plaintiffs allege that Financial Freedom charged Gray’s
mortgage account for unnecessary inspections.
charges occurred on March 25, 2011.
The first of these
(Amend. Compl. ¶ 86)
The other
15 alleged unnecessary inspection fees were charged for inspections
done after “Financial Freedom declared Gray’s loan due and payable .
. . on June 4, 2015.”
(Id. ¶¶ 85-86)
Plaintiffs contend that all of
the inspections were unnecessary because the property was always
“occupied” and “Monica Gray was in regular contact with Financial
Freedom concerning the Gray Property.”
(Id. ¶ 87)
Plaintiffs allege
that Financial Freedom ordered the property inspections “without a
legitimate basis solely to generate fees.”
(Id. ¶ 69)
The Amended Complaint asserts nine counts: (1) Monica Gray,
Executrix v. Financial Freedom and CIT-- breach of contract; (2)
Monica Gray, Executrix v. Financial Freedom and CIT-- breach of the
duty of good faith and fair dealing;
4
(3) all Plaintiffs v. Financial
Freedom and CIT-- violation of the New Jersey Consumer Fraud Act,
N.J.S.A. § 56:8-2 (“NJ CFA”);
(4) all Plaintiffs v. the Insurer
Defendants-- violation of the NJ CFA;
Defendants—civil conspiracy;
(5) all Plaintiffs v. all
(6) Monica Gray, Executrix v. the
Insurer Defendants-- tortious interference;
(7) all Plaintiffs v.
all Defendants-- violation of RICO, 18 U.S.C. § 1962(c);
(8)
all
Plaintiffs v. all Defendants-- violation of RICO, 18 U.S.C. §
1962(d); and (9) Monica Gray, Executrix v. CIT-- violation of the
Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”).
II.
Motion to Dismiss Standard
To withstand a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), “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 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“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. at 663.
“[A]n unadorned, the defendant-unlawfully-harmed me accusation” does
not suffice to survive a motion to dismiss.
Id. at 678.
“[A]
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment]
to relief’ requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.”
5
Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265,
286 (1986)).
In reviewing a plaintiff’s allegations, a district should
conduct a three-part analysis:
First, the court must take note of the elements a
plaintiff must plead to state a claim. Second, the court
should identify allegations that, because they are no
more than conclusions, are not entitled to the assumption
of truth.
Third, when 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.
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011) (internal
citations, quotations, and modifications omitted) (quoting Iqbal, 556
U.S. at 675, 679).
Rule 12(b)(6) requires the district court to “accept as true all
well-pled factual allegations as well as all reasonable inferences
that can be drawn from them, and construe those allegations in the
light most favorable to the plaintiff.”
1.
Bistrian, 696 F.3d at 358 n.
Only the allegations in the complaint and “matters of public
record, orders, exhibits attached to the complaint and items
appearing in the record of the case” are taken into consideration.
Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n. 2
(3d Cir. 1994) (citing Chester Cty. Intermediate Unit. v.
Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990)).
A court
may also “consider an undisputedly authentic document that a
defendant attaches as an exhibit to a motion to dismiss if the
plaintiff’s claims are based on the document.”
6
Pension Ben. Guar.
Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993).
Additionally, Fed. R. Civ. P. 9(b) requires allegations of fraud
to be pled with particularity.
well as RICO claims.
The rule applies to NJ CFA claims as
Jaye v. Oak Knoll Vill. Condo. Owners Ass’n,
Inc., 2018 WL 4360901 at *2 (3d Cir. 2018);
Frederico v. Home Depot,
507 F.3d 188, 200 (3d Cir. 2007).
III.
Analysis
A. Standing
Defendants assert that all claims asserted by Plaintiffs Justin
Gray and Jasmine Gray-Oliver should be dismissed for lack of standing
because the Amended Complaint does not allege that either Justin or
Jasmine were the recipients of any allegedly false or misleading
communications which form, in part, the basis of the NJ CFA,
conspiracy, and RICO claims.
Plaintiffs respond that Defendants frame the claims too
narrowly.
According to Plaintiffs, the NJ CFA and attendant
conspiracy claim are based on the harm Plaintiffs suffered in the
form of an “increased lien against their property” resulting from the
alleged “inflated charges” associated with the force-placed insurance
(Supp. Brief, Dkt 46, p. 12), not simply the allegedly misleading
notices concerning the force-placed insurance sent to the address of
the property at issue.
According to Plaintiffs, the claims specific
to them accrued in 2017-- after Earl Gray, Jr. died and Defendants
7
CIT and Financial Freedom allegedly continued to charge the mortgage
account for the costs associated with the force-placed insurance.
(Id.)
The Court concludes that Justin Gray and Jasmine Gray-Oliver
have sufficiently pled that they have personally suffered injuries
for which they may pursue the NJ CFA and conspiracy claims for a
limited time frame.
The Amended Complaint alleges that in 2017, when
Justin and Jasmine were the property owners and “responsible to
satisfy Financial Freedom’s mortgage lien,” Financial Freedom charged
the mortgage account for “‘insurance charges’” in the amount of
“$2,357.06 for the period 11/02/2017 to 11/02/2018.” (Amend. Compl. ¶
89-91)
Accordingly, the Motions to Dismiss Justin Gray and Jasmine
Gray-Oliver’s NJ CFA and conspiracy claims for lack of standing will
be denied.
As to the RICO claims, Plaintiffs contend that it is not
necessary that the allegedly misleading November 9, 2017 notice be
addressed to Justin and Jasmine, rather, it is sufficient that the
notice-- addressed to Earl Gray, who was then deceased-- was sent to
the property at issue.
Plaintiffs explain, “these Notice Letters
directed to the Estate of Earl Gray were effectively sent to Justin
and Jasmine Gray, given that they resided at the Gray Property and
were the only ones with an insurable interest in the property and
authority to obtain voluntary property insurance.”
46, p. 13)
(Supp. Brief, Dkt
Additionally, the parties agree that Monica Gray was
8
simultaneously the Executrix of Earl Gray’s estate and Jasmine GrayOliver’s Trustee (Amend. Compl. ¶¶ 1-3, 88), and the Amended
Complaint alleges that Monica Gray received and read the notice (Id.
¶ 89), effectively imputing direct receipt of the notice at least to
Jasmine.
The Court holds that these alleged facts are sufficient, at the
pleadings stage, to establish the standing of Plaintiffs Justin Gray
and Jasmine Gray-Oliver.
The Motions to Dismiss for lack of standing
will be denied.
B. HOLA Preemption
Financial Freedom and CIT assert that all of the state law
claims asserted against them (Counts 1-3, and 5) are preempted by the
Home Owners’ Loan Act (“HOLA”), 12 U.S.C. § 1461, and its
implementing regulations, specifically in this case, 12 C.F.R. §§
560.2(b) and (c). 4
The Court disagrees. 5
4
Paragraph (b) of § 560.2 provides the “types of state laws
preempted by paragraph (a)” of the regulation “include, without
limitation, state laws purporting to impose requirements regarding”
thirteen different categories of lending operations. These
categories include “[t]he terms of credit,” “[l]oan-related fees,”
“[e]scrow accounts,” and “[d]isclosure and advertising.” §
560.2(b)(4), (5), (6), (9).
Paragraph (c) of § 560.2 provides a list of state laws that “are
not preempted to the extent that they only incidentally affect the
lending operations of Federal savings associations or are otherwise
consistent with the purposes of paragraph (a) of this section.” That
list includes “[c]ontract and commercial law.” § 560.2(c)(1).
5
In light of this ruling, the Court does not reach the issue
whether the protections of HOLA may be transferred from one bank to
another-- i.e., whether HOLA preemption runs with the loan to a
successor, or remains with the originating lender. See Campidoglio
9
While neither the Supreme Court, nor the Third Circuit, has
ruled on the preemptive effect of these specific regulations on the
state law claims asserted here 6, a clear consensus emerges from the
persuasive authorities that have addressed these issues.
As to the common law breach of contract claim (Count 1), such
claims rarely, if ever, are held to be preempted under either
paragraph (b) or (c) of § 560.2.
See, e.g., Campidoglio LLC v. Wells
Fargo & Co., 870 F.3d 963, 972-73 (9th Cir. 2017) (“the Borrowers’
claim against Wells Fargo seeks to impose only the state law
requirement that Wells Fargo honor a contractual promise made by its
predecessor-in-interest.
credit.
Contract law is silent regarding terms of
Furthermore, it is the contract, not the law, that regulates
Wells Fargo’s conduct. . . . ‘Contract and commercial law’ . . . is a
LLC v. Wells Fargo & Co., 870 F.3d 963, 971 (9th Cir. 2017)
(“Whether, and to what extent, HOLA applies to claims against a
national bank when that bank has acquired a loan executed by a
federal savings association is an open question in our court. But we
need not resolve this question because we find that, even assuming
that HOLA applies to the Borrowers’ claims against Wells Fargo, it
would not preempt the Borrowers’ . . . claim.”).
In Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982)
the Supreme Court held that 12 C.F.R. § 545.8–3(f), which allowed
“due-on-sale” clauses in mortgage contracts, preempted California law
which prohibited such clauses.
The Third Circuit has never issued a decision concerning HOLA
preemption other than to rule that HOLA preemption is not a basis for
federal question subject matter jurisdiction. See Trent Realty
Assocs. v. First Fed. Sav. & Loan Ass’n of Philadelphia, 657 F.2d 29,
30 (3d Cir. 1981).
6
10
law that ‘only incidentally affects lending operations.’”). 7
Nonetheless, “courts must look not to the label placed on the claim
but to the substance of the allegation to determine whether HOLA
preemption applies.”
Barzelis v. Flagstar Bank, F.S.B., 784 F.3d 71,
974-75 (5th Cir. 2015); see also, McCauley v. Home Loan Inv. Bank,
F.S.B., 710 F.3d 551, 556 (4th Cir. 2013) (“the framework supplied by
HOLA’s implementing regulation requires an examination of” “all the
acts alleged in the complaint.”); In re Ocwen, 491 F.3d at 648 (“On
remand, the [district] judge must focus on the acts alleged in the
complaint, seeking clarification from the plaintiffs where necessary
and deciding in accordance with this opinion which [claims] are
preempted [by HOLA] and which are not.”); Brown v. Wells Fargo Bank,
869 F. Supp. 2d 51, 60 (D.D.C. 2012) (“[HOLA] preemption depends on
7
See also, Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 577 (7th
Cir. 2012) (“[W]e [have] held that HOLA and the [Office of Thrift
Supervision] regulations do not preempt suits by ‘persons harmed by
the wrongful acts of savings and loan associations’ seeking ‘basic
state common-law-type remedies,’ and we allowed state-law claims like
those in this case-- breach of contract, fraud, and violation of
consumer protection statutes-- to go forward. . . . We decline to
disturb this holding.”) (quoting In re Ocwen Loan Servicing , LLC
Mortg. Servicing Litig., 491 F.3d 638, 643 (7th Cir. 2007)); Molosky
v. Washington Mutual, Inc., 664 F.3d 109, 114 (6th Cir. 2011)
(“Lending practices cannot be more than incidentally affected by
claims that merely seek to make defendants live up to the word of
their agreements they sign with their customers.”) (internal citation
and quotation omitted); Yeomalakis v. FDIC, 562 F.3d 56, 61 (1st Cir.
2009) (“HOLA does not preempt ordinary contractual claims based on
state law.”); Wieck v. CIT Group, Inc., et al., 308 F. Supp.3d 1093,
1113 (D. Haw. 2018) (holding common law contract claim not preempted
by HOLA; following Campidoglio, Barzelis, and Molosky).
11
the nature and effects of the claims alleged.”). 8
If the breach of
contract claim is truly a breach of contract claim, it is not
preempted.
Id. 9
Turning to the allegations of the Amended Complaint, it is plain
that Count 1, the breach of contract claim, is a traditional common
law breach of contract claim.
Financial Freedom and CIT’s assertion
to the contrary notwithstanding (see Supplemental Brief, Dkt 45, p.
9), Monica Gray asserts that Financial Freedom and CIT violated two
express provisions of the mortgage contract.
First, she asserts that
8
In this regard the Court also emphasizes that its analysis focuses
on the allegations specific to the Plaintiffs-- i.e., the factual
allegations contained in paragraphs 80 through 91 of the 282paragrpah, 106-page Amended Complaint. The Amended Complaint
generally and broadly alleges numerous “unlawful actions” taken by
“Defendants,” see, e.g., paragraph 22, and goes well beyond the
necessary and relevant facts supporting Plaintiffs claims to include
allegations concerning “State Insurance Department Regulatory Action
Against the Insurance Providers” as well as “Financial Freedom
[being] Sanctioned by the Justice Department for its Foreclosure
Practices.” Such allegations are not tied in any way to Plaintiffs
and their specific claims-- and frankly do not belong in the
pleading, see Fed. R. Civ. P. 8(a)(2) (“A pleading that states a
claim for relief must contain a short and plain statement of the
claim”) (emphasis added)-- therefore, the allegations do not figure
into the Court’s analysis.
9
In Barzelis, the Fifth Circuit observed that while “Barzelis’
first claim is called breach of contract, [] a closer examination
reveals that it is actually two claims: one based on the provisions
of the Security Instrument and another based on the Texas Property
Code.” 784 F.3d at 974. The Court held that the Texas Property Code
claim, which the Court suggested was “disguise[d]” as a breach of
contract claim “to avoid preemption,” was preempted by HOLA. See
also, Tinsley v. OneWest Bank, FSB, 4 F. Supp.3d 805, 825 (S.D.W. Va.
2014) (“Though Defendant’s second claim is also identified in the
Complaint as a ‘breach of contract’ claim, it does not, in fact,
allege a breach of the terms of the Deed.”).
12
by allegedly (a) charging the cost of the force-placed insurance
premiums plus an allegedly undisclosed “unearned commission” or
“kickback”, and (b) over-insuring the property at issue, Financial
Freedom and CIT violated the mortgage contract provision which states
that “Lender may do and pay whatever is necessary to protect the
value of the Property and Lender’s rights in the Property, including
the payment of taxes, hazard insurance and other items . . . .”
(Amend. Compl. ¶ 82) (emphasis added)
According to Plaintiff, the
unearned commission and the cost of the excess insurance were not
“necessary” to protect the property; rather those extra charges
served only to enrich Financial Freedom and CIT.
(Opposition Brief,
Dkt. 32, p. 23)
Second, Monica Gray asserts that the inspection fee charges
violate the mortgage contract provision concerning property
inspections.
That provision states: “Lender . . . may . . . inspect
. . . the Property in a reasonable manner . . . provided that [the] .
. . purpose for the inspection . . . must be related to the Lender’s
interest in the Property.”
(Amend. Compl. ¶ 82)
Plaintiff asserts
that “because the property was not vacant, Plaintiffs were in contact
with Financial Freedom, and that inspection fees were generated
automatically by the default status of the loan,” (Opposition Brief,
Dkt. 32, p. 29) the inspections were “not reasonable and [therefore]
in breach of” the inspection fee provision of the mortgage contract.
13
Both of these claims allege only that Financial Freedom and CIT
failed to honor their contractual promises, therefore the Court holds
that such claims “only incidentally affect the lending operations of
Federal savings associations . . . .” 12 C.F.R. § 560.2(c), and are
not preempted.
See Tinsley, 4 F. Supp. 3d at 825 (“Plaintiffs claim
that Defendant required Plaintiff to get flood insurance in excess of
what was required under the Deed of Trust and force-placed such
insurance, charging the cost to Plaintiff, is not preempted under
HOLA.”).
Logically, the same result should obtain as to the breach of
good faith and fair dealing claim (Count 2), which, for purposes of
the HOLA preemption analysis, is not meaningfully distinguishable
from the breach of contract claim.
See Degutis v. Financial Freedom,
LLC, 978 F. Supp. 2d 1243, 1256 (M.D. Fla. 2013) (“Because Plaintiff
is bringing a common law claim for breach of the implied covenant of
good faith and fair dealing based upon the contract, the Court finds
that Plaintiff’s [breach of contract and good faith and fair dealing
claims] are not preempted as they are expressly exempted under 12
C.F.R. § 560.2(c).”); cf. Binetti v. Washington Mut. Bank, 446 F.
Supp. 2d 217, 218–19 (S.D.N.Y. 2006) (explaining that HOLA did not
preempt plaintiff’s breach of contract claim and therefore it did not
preempt “plaintiff’s wholly-derivative unjust enrichment claim.”).
Plaintiff explains in her opposition brief that her good faith and
fair dealing claims are premised on the same conduct as her breach of
14
contract claims.
(Opposition Brief, Dkt. 32, p. 35) (“Plaintiffs
challenge CIT Bank’s abuse of its discretion . . . by charging for
items unrelated to the cost of the insurance and selecting policies
that benefit themselves through unearned commissions and other
kickbacks.”).
The Court thus holds that the good faith and fair
dealing count is not preempted by HOLA.
Similarly, as to the New Jersey Consumer Fraud Act claim (Count
3), courts have held that claims under state consumer protection
statutes that are based on conduct which is simultaneously an alleged
breach of contract, as well as allegedly violative of the state
consumer protection statute 10, are not preempted by HOLA.
See
Barzelis, 784 F.3d at 976-97 (“We agree with the consensus,
concluding that similar state consumer-protection laws-- those that
establish the basic norms that undergird commercial transactions-- do
not have more than an incidental effect on lending and thus escape
preemption.”) (internal citations and quotation omitted); Wigod, 673
F.3d at 578-79 (holding Illinois Consumer Fraud and Deceptive
Business Practices Act claims not preempted by HOLA); Foley v. Wells
Fargo Bank, N.A., 109 F. Supp. 3d 317, 326 (D. Mass. 2015) (“HOLA
does not preempt [Massachusetts Consumer Protection law] claims where
the purported violation was based on breach of contract.”); Tinsley,
10
Plaintiffs explain in their opposition brief that their NJ CFA
claim is based on the allegations that “Defendants imposed on
borrowers” “extraneous charges” “which [Defendants] misrepresented as
‘costs’ of force-placed insurance.” (Opposition Brief, Dkt 33, p. 16)
15
4 F. Supp.3d at 827 (holding that state consumer fraud act claims
based on “affirmative misrepresentations” and alleged breaches of
contract are not preempted by HOLA); Degutis, 978 F. Supp.2d at 1257
(“Because Plaintiff is bringing a claim regarding deceptive acts and
practices under the Florida statute, the Court finds that Plaintiff’s
claims under Count III are not preempted.
They are expressly
exempted under 12 C.F.R. § 560.2(c) as it encompasses commercial law
and is vital to state interest only incidentally affecting lending
operations.”) (citing McCauley and Wigod); Binetti, 446 F. Supp. 2d
at 220 (“the New York Consumer Fraud Statute, which declares unlawful
‘deceptive acts or practices in the conduct of any business, trade,
or commerce or in the furnishing of any service in this state,’ is
not directly aimed at lenders, and has only an incidental impact on
lending relationships. . . . Additionally, there is nothing in the
record to suggest that the New York statute is in conflict with the
federal objectives identified in § 560.2.
Indeed, the New York
Consumer Fraud Statute is precisely the type of general commercial
law designed to “‘establish the basic norms that undergird commercial
transactions’ that OTS has indicated it does not intend to
preempt.”); see also, Tuxedo Beach Club Corp. v. City Federal Savings
Bank, 749 F. Supp. 635 (D.N.J. 1990) (“Defendant correctly points out
that the Savings and Loan industry is intensely regulated by
Congress.
However, defendant does not point to, nor does our
research reveal, any provision in FIRREA or any other federal statute
16
which would conflict with a private right of action under the [NJ]
CFA. . . . Notably, other states have applied their consumer fraud
statutes against banks and savings institutions.”) (internal
citations omitted); contrast Midouin v. Downey Sav. & Loan Ass’n,
F.A., 834 F. Supp. 2d 95, 115 (E.D.N.Y. 2011) (“Because plaintiff’s
claims do not arise from a breach of contract, but rather attempt to
establish extra-contractual substantive requirements for savings
associations . . . , her claims seek an application of state law that
would more than incidentally affect federal lending practices.
Accordingly, plaintiff’s claims under NYGBL § 349 are preempted by
HOLA.”).
Thus, the Court holds that Count 3, the NJ CFA claim
against CIT and Financial Freedom, is not preempted by HOLA.
Lastly, Financial Freedom and CIT make no argument for
preemption of the conspiracy claim (Count 5) that is independent of
the NJ CFA claim discussed above. (See Moving Brief, Dkt 31-3, p. 15)
Because the NJ CFA claim survives, this claim survives as well.
Accordingly, the Court holds that none of the state law claims,
as pled, asserted against CIT and Financial Freedom in this suit are
preempted by HOLA.
C. Breach of Contract / Breach of Good Faith and Fair Dealing
In addition to HOLA preemption, Financial Freedom and CIT also
assert that the breach of contract claim, and the good faith and fair
dealing claim, fail on the merits.
They argue that: (1) the mortgage
was not breached; (2) Plaintiff failed to perform under the mortgage;
17
and (3) Plaintiff has not alleged damages.
All three arguments fail
at this pleadings stage.
First, as discussed above, Plaintiff Monica Gray asserts that
two specific provisions of the mortgage contract were breached in
three different ways.
CIT’s and Financial Freedom’s arguments to the
contrary misunderstand Plaintiff’s claims.
Plaintiff does not, as
Defendants assert, base her breach of contract claims on allegations
that CIT and Financial Freedom “plac[ed] insurance on the Property
and backdat[ed] coverage” (Moving Brief, Dkt 31-1 p. 17), and she
does, indeed, “challenge the inspection activity in her breach of
contract count.”
(Id. p. 18)
Likewise, Defendants misunderstand the
good faith and fair dealing claim.
As already stated, Plaintiffs do
not assert that Defendants had no “right to place insurance on the
Property when Mr. Gray failed to do so.”
(Reply Brief, Dkt 35, p. 8)
Second, while it is undisputed that Gray and his successors-ininterest did not obtain the requisite hazard insurance on the
property and did not pay the property taxes, those facts do not
legally bar the breach of contract claim.
Upon each failure to
obtain hazard insurance and failure to pay taxes, Defendants elected
their remedies as provided in the mortgage contract-- at first
charging the mortgage account for the costs (Amend. Compl. ¶ 83), and
later declaring a default and commencing a foreclosure action.
(Amend. Compl. ¶¶ 85-86)
It is not alleged that CIT / Financial
18
Freedom elected to terminate the mortgage contract upon the failure
to obtain insurance or pay taxes.
Third, Defendants argue that Plaintiff has not alleged damages
because it is not alleged that anyone ever paid the alleged
excessive, unreasonable or unnecessary charges.
As Plaintiff
correctly observes, however, the charges resulted in increased
indebtedness on the mortgage, which is a quantifiable, concrete
injury.
Moreover, lack of damages is not a complete defense to a breach
of contract claim.
Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97
N.J. 37, 46 (1984) (“The general rule is that whenever there is a
breach of contract, or an invasion of a legal right, the law
ordinarily infers that damage ensued, and, in the absence of actual
damages, the law vindicates the right by awarding nominal damages.”);
see also, Coca-Cola Bottling Co. of Elizabethtown v. Coca-Cola Co.,
988 F.2d 386, 409 (3d Cir. 1993) (discussing “the general proposition
that a breach of contract without pecuniary harm entitles the nonbreaching party to no more than nominal damages”; citing Restatement
(Second) of Contracts § 346(2)). 11
Accordingly, the Motion to Dismiss the breach of contract and
good faith and fair dealing claims (Counts 1 and 2) will be denied.
11
In general, a lack of damages is mainly a complete defense to tort
claims sounding in negligence. See Nappe, 97 N.J at 48 (“[i]t is
well established that the plaintiff must show a breach of duty and
resulting damage to prevail in a negligence action.”) (italics in
original). Such claims are not asserted in this suit.
19
D. New Jersey Consumer Fraud Act
All Defendants move to dismiss the NJ CFA claims (Counts 3 and
4) asserting that Plaintiffs fail to allege: (1) a misrepresentation;
(2) an unconscionable commercial conduct; and (3) an ascertainable
loss.
The Court disagrees.
The NJ CFA provides, in relevant part,
The act, use or employment by any person of any
unconscionable commercial practice, deception, fraud,
false pretense, false promise, misrepresentation, or the
knowing, concealment, suppression, or omission of any
material fact with intent that others rely upon such
concealment, suppression or omission, in connection with
the sale or advertisement of any merchandise or real
estate, or with the subsequent performance of such person
as aforesaid, whether or not any person has in fact been
misled, deceived or damaged thereby, is declared to be an
unlawful practice. . . .
N.J.S.A. § 56:8-2.
With respect to argument (1), like their arguments as to the
breach of contract claims, Defendants misperceive the nature of
Plaintiffs’ claims.
Plaintiffs do not complain of the fact that
hazard insurance was force-placed on the property at issue, and
therefore they do not complain about actions that were specifically
contemplated and disclosed in the mortgage contract.
Rather,
Plaintiffs assert that the cost of the force-placed insurance was
misrepresented because that cost “include[ed] extraneous charges”
20
resulting from the alleged “unearned compensation” / “kickback”
scheme. (Opposition Brief, Dkt 33, p. 16) 12
Moreover, Defendants’ argument that they disclosed that they
“may receive compensation in connection with the insurance coverage”
(Supp. Brief, Dkt 45, p. 16), and therefore could not have
misrepresented anything, fails for two reasons.
documents outside the pleadings.
First, it relies on
Second, it is too vague to defeat a
plausible conclusion that the disclosure was misleading.
Plaintiffs
contend that the misrepresentation was not that Defendants may have
received compensation, but rather that the “cost” of their insurance
premiums was not the actual cost.
With respect to argument (2), the Court disagrees that
Plaintiffs’ NJ CFA claim which is based upon the alleged unnecessary
inspection fees fails for lack of a deceptive element.
See Ciser v.
Nestle Waters N. Am. Inc., 596 F. App’x 157, 162 (3d Cir. 2015)
(“Until the New Jersey Supreme Court decides otherwise, we read
precedent as suggesting that the CFA requires some element of
deceptive conduct, explicit or implicit, to be actionable as an
unconscionable practice.”).
Plaintiffs allege that CIT and Financial
Freedom misrepresented the circumstances under which they would
12
See also, Amend. Compl. ¶ 21 (“Plaintiffs do not challenge
Financial Freedom’s ability to obtain force-placed insurance to
protect its interest in borrowers’ loans it services as set forth in
their mortgage agreements. Rather, they challenge its manipulation
of the force-placed insurance process through its scheme with the
other Defendants to enrich itself and the other Defendants[.]”).
21
inspect the property.
This is sufficient at this stage of the case,
although just barely 13, to state a claim for violation of the NJ CFA
based on an alleged unconscionable commercial practice.
Lastly, with respect to argument (3), consistent with the
Court’s discussion above concerning the damages resulting from the
breach of contract claim, the Court holds that the Amended Complaint
sufficiently pleads an ascertainable loss.
As the Third Circuit has
recently explained,
The CFA requires a plaintiff to allege “ascertainable
loss.” See N.J. Stat. Ann. § 56:8-19; D’Agostino v.
Maldonado, 216 N.J. 168, 78 A.3d 527, 536-37 (2013). The
New Jersey Supreme Court has defined “ascertainable loss”
as “either an out-of-pocket loss or a demonstration of
loss in value that is quantifiable or measureable.” Marcus
v. BMW of N. Am., LLC, 687 F.3d 583, 606 (3d Cir. 2012)
(quoting Thiedemann v. Mercedes-Benz U.S.A., LLC, 183
N.J. 234, 872 A.2d 783, 792-93 (2005)) (internal quotation
marks omitted).
Furthermore, that court has held that
such a loss “need not yet have been experienced as an outof-pocket loss to the plaintiff.” Thiedemann, 872 A.2d at
793.
The New Jersey Superior Court Appellate Division
13
Although the parties’ briefs do not distinguish between the one
inspection that occurred before the loan was “declared . . . due and
payable” (Amend. Compl. ¶¶ 85-86) and the other 15 alleged
inspections, the distinction could be material. Plaintiffs’ theory
of their case appears to be that inspections are only “necessary,” as
that term is used in the contract, to determine that a house is
“occupied.” (Amend. Compl. ¶ 87) This theory is somewhat more
plausible with respect to the one inspection that took place prior to
the acceleration of the loan. With respect to the other inspections,
however, the theory becomes somewhat less plausible. Upon
acceleration, the lender may have legitimate concerns about
intentional damage to its collateral that do not exist (or exist to a
lesser extent) prior to acceleration. While the Court need not
explore the distinction further at this early stage of the case,
counsel are encouraged to consider that such a distinction may have
important implications at both the class certification stage and
summary judgment stage of this case, should this case progress that
far.
22
has stated that a plaintiff is not required to allege the
nature of the loss or present evidence of it at the motion
to dismiss stage.
Alpizar-Fallas v. Favero, 908 F.3d 910, 919 (3d Cir. 2018).
The
alleged increased indebtedness that resulted from the alleged
excessive, unreasonable or unnecessary charges associated with the
force-placed insurance and property inspections is an ascertainable
loss under the standard discussed in Alpizar-Fallas.
Thus, the Court
holds that the Amended Complaint sufficiently pleads an ascertainable
loss.
Defendants’ Motions to Dismiss the NJ CFA claims will be denied.
E. Conspiracy
Defendants briefly argue in conclusory fashion that the
conspiracy claim (Count 5) fails because it does not “adequately
allege an underlying fraud” (Moving Brief, Dkt 31-1 p. 28) or a
“valid underlying tort claim.” (Supp. Brief, Dkt 45 p. 20)
As the
Court has held above, Plaintiffs have stated claims for violation of
the NJ CFA.
claim fails.
Accordingly, Defendants’ argument as to the conspiracy
The Motions to Dismiss the conspiracy claim will be
denied.
F. RICO
Defendants assert that the RICO claims (Counts 7 and 8) are
time-barred and that they fail on the merits.
As to the statute of limitations issue, Plaintiffs contend that
equitable tolling applies, or that the injury discovery rule delays
23
the accrual of their claims.
Defendants disagree, but do so relying
on an opinion deciding a motion for summary judgment, Weiss v. Bank
of America, 2016 WL 6879566 (W.D.Pa. Nov. 22, 2016), and evidence
outside the pleadings, namely, the Balettie Declaration.
Defendants’
argument in this regard demonstrates that the statute of limitations
issue-- one in which they ultimately may prevail-- is better decided
after discovery.
The Amended Complaint specifically alleges that in “notices”
that were mailed to Plaintiffs in 2010 through 2016, Defendants
actively misled Plaintiffs to believe that Defendants were only
imposing charges authorized by the mortgage.
(Amend. Compl. ¶ 217)
This is sufficient, at the pleadings stage, to nudge the equitable
tolling issue past the line of possible, and into the realm of
plausible.
Thus, the Court declines to rule on the issue now.
Turning to the merits, Defendants assert that the Amended
Complaint suffers from four deficiencies: failure to particularly
allege (1) an injury; (2) CIT’s participation in the “conduct” of an
enterprise; (3) any predicate act of mail or wire fraud; and (4) the
existence of an association-in-fact enterprise.
With regard to the injury argument, the Court will not belabor
the point.
As discussed above with regard to the damages element of
the breach of contract claims, and the ascertainable loss element of
the NJ CFA claims, Plaintiffs have sufficiently pled an injury in the
form of increased indebtedness.
24
As to the “conduct” issue, the parties agree on the applicable
standard: a defendant “must have some part in directing the affairs
of the RICO enterprise.”
Reves v. Ernst & Young, 507 U.S. 170, 179
(1993); see also, In re Ins. Brokerage Antitrust Litig., 618 F.3d
300, 371 (3d Cir. 2010) (“The Supreme Court has held that the
‘conduct or participate’ element requires a defendant to ‘have some
part in directing those affairs.’
More precisely, ‘one is not liable
under [§ 1962(c)] unless one has participated in the operation or
management of the enterprise itself.’”) (quoting Reves).
The Amended
Complaint contains numerous allegations concerning CIT’s
participation in the alleged enterprise.
Compl. ¶¶ 231-245.
See generally, Amend.
Specifically, paragraph 234 of the Amended
Complaint alleges,
CIT Bank participated in the operation and management of
the enterprise during the relevant time period by agreeing
to grant the QBE Defendants and MIC General the exclusive
right to force-place insurance on borrowers’ properties
in the Financial Freedom portfolio in exchange for
kickbacks under the Insurance Producer Agreement, and
below-cost insurance administration services under the
Outsourcing Services Agreement.
See also, Amend. Compl. ¶¶ 22(b), 258.
Defendants’ supplemental
brief does not address any of these factual allegations.
Defendants
simply fall back on the generalized legal arguments made in their
moving and reply briefs.
(Supp. Brief Dkt 45, p. 22)
The Court thus
considers the point conceded for purposes of these motions and need
not rule on the issue.
25
Similarly, the Amended Complaint elaborates on both the
predicate acts and association-in-fact elements of Plaintiffs’ RICO
claims.
See Amend. Compl. ¶¶ 244-257 (predicate acts of alleged mail
fraud) and ¶¶ 223-30 (association-in-fact).
Defendants have not
addressed these specific factual allegations either, and so the Court
considers these points conceded for purposes of these motions as
well.
The Motions to Dismiss the RICO claims will be denied.
G. TILA
CIT asserts that the TILA claim (Count 9) is time-barred.
Plaintiffs respond that equitable tolling should apply based on the
misrepresentations alleged in the Amended Complaint.
CIT replies
that Plaintiffs must nonetheless demonstrate that they exercised
reasonable diligence.
As set forth above, equitable tolling is more
appropriately addressed on a developed record rather than at the
pleadings stage.
Accordingly, like the RICO statute of limitations
issue, the Court declines to rule on the TILA statute of limitations
issue at this time.
In support of its argument that Plaintiffs have failed to state
a TILA claim, CIT once again reiterates its argument that “the
Mortgage authorized Financial Freedom to place insurance on the
Property if Plaintiff failed to maintain insurance as required by the
Mortgage.”
(Moving Brief, Dkt 31-3 p. 38; see also Supp. Brief, Dkt
26
45 p. 26)
As discussed above, this is not Plaintiffs’ theory of
liability as to any of the claims asserted in the Amended Complaint.
CIT’s Motion to Dismiss the TILA claim (Count 9) will be denied.
H. Tortious Interference
Lastly, the Insurer Defendants assert that the tortious
interference claim should be dismissed for lack of allegations
supporting a plausible conclusion that the Insurer Defendants acted
with “malice.”
In the context of a tortious interference claim,
“[m]alice is not used [] in its literal sense to mean ‘ill will;’
rather, it means that harm was inflicted intentionally and without
justification or excuse.”
285, 306 (2001).
Lamorte Burns & Co. v. Walters, 167 N.J.
Thus, the Insurer Defendants assert that the
Amended Complaint does not allege facts supporting a plausible
conclusion that the Insurer Defendants intended to interfere with the
mortgage contract at issue.
The Court agrees.
While Plaintiffs’ Supplemental Brief points to the Amended
Complaint’s expanded factual allegations in support of the tortious
interference claim-- namely, that the Insurer Defendants allegedly
drafted and mailed letters that allegedly misrepresented what
Plaintiffs were being charged (Supp. Brief, Dkt 46, p. 29, citing
Amend. Compl. ¶¶ 216-217)-- none of those facts support a conclusion
that the Insurer Defendants intended for CIT and Financial Freedom to
allegedly charge Plaintiffs more than the cost of the insurance and
to allegedly conduct unwarranted inspections of the property.
27
Further, Plaintiffs’ allegations in Amended Complaint paragraphs 214
and 215 that the Insurer Defendants “intentionally and unjustifiably
interfered with Plaintiffs’ . . . rights under the mortgage” are
merely conclusory, and therefore cannot defeat a motion to dismiss.
Accordingly, the Insurer Defendants’ Motion to Dismiss the
tortious interference claim will be granted.
IV.
Conclusion
For the forgoing reasons, the Insurer Defendants’ motion will be
granted as to the tortious interference claim and denied in all other
respects; and the other Defendants’ motion will be denied.
An Order
accompanies this Opinion.
December 27, 2018
s/ Renée Marie Bumb _______
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE
28
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?