FRANCESE v. AMERICAN MODERN INSURANCE GROUP, INC. et al

Filing 119

OPINION. Signed by Judge William J. Martini on 4/16/19. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
LUIGI FRANCESE, on behalf of himself and
all others similarly situated,
Civ. No. 2:17-2246

Plaintiff,

OPINION
v.
AM. MODERN INS. GRP., INC., et al.,
Defendants.
WILLIAM J. MARTINI, U.S.D.J.:
This matter comes before the Court upon Defendants American Modern Insurance
Group, Inc.’s and American Modern Home Insurance Company’s (collectively,
“AMIG”), Residential Credit Solutions, Inc.’s (“RCS”), Specialized Loan Servicing,
LLC’s (“SLS”), Southwest Business Corporation’s (“SWBC”), and American Security
Insurance Company’s (“ASIC”) motions to dismiss. ECF Nos. 97, 99–102. The Court
decides the matter on the papers without need for oral argument. L. Civ. R. 78.1(b). For
the reasons set forth below, Defendants’ motions to dismiss are GRANTED.
I.

BACKGROUND 1

The Court assumes familiarity with the facts and procedural history of this case, as
set out in the Court’s prior opinion. ECF No. 29 at 1–2. Plaintiff Luigi Francese
(“Francese”) alleges his mortgage loan servicers (RCS and SLS) and insurers (AMIG,
SWBC, and ASIC) charged borrowers for “kickbacks” when buying force-placed or
lender-placed hazard insurance policies (“LPIs”). See Second Am. Compl. ¶¶ 11–17, 22–
44, ECF No. 63 (“SAC”). He also asserts RCS, SWBC, and AMIG together undervalued
losses on LPI-covered properties and that, when his Property suffered damage,
misappropriated the insurance proceeds. Id. ¶¶ 14, 91.

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In motions to dismiss, a court may consider a document referenced in the complaint if the
document is central to the plaintiff’s claims and its authenticity is not in question. In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997); Pension Ben. Guar.
Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). The Court thus
considers the loan documents attached as exhibits in Defendants’ motions to dismiss.
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A. Individual Allegations
1. The Mortgage Loan
Francese owns real property in New Jersey (the “Property”), for which he signed a
mortgage loan (the “Mortgage”). Id. ¶¶ 45–46. RCS originally serviced the Mortgage,
and then in 2016, SLS took over as the loan servicer. Id. ¶ 48. Francese’s Mortgage
required him to maintain insurance on the Property “in the amounts . . . for the periods
that Lender requires.” Id. ¶ 47; AMIG Br., Ex. A, ECF No. 98-1. If he failed to maintain
adequate, continuous insurance, then:
Lender may obtain insurance coverage, at Lender’s option and Borrower’s
expense. . . . [S]uch coverage shall cover Lender, but might or might not protect
Borrower, Borrower’s equity in the Property, or the contents of the Property, . . . and
might provide greater or lesser coverage than was previously in effect. Borrower
acknowledges that the cost of the [Lender] insurance coverage so obtained might
significantly exceed the cost of the insurance that Borrower could have obtained.
Ibid. (emphasis added). And if a loss occurred, then:
[A]ny insurance proceeds, whether or not the underlying insurance was required
by Lender, shall be applied to restoration or repair of the Property, if the restoration or
repair is economically feasible and Lender’s security is not lessened. . . . If the
restoration or repair is not economically feasible or Lender’s security would be lessened,
the insurance proceeds shall be applied to the sums secured by this Security
Instrument, . . . with the excess, if any, paid to Borrower.
Ibid. (emphasis added). The Mortgage further provided that, “[i]f (a) Borrower
fails to perform the covenants and agreements contained in this Security Instrument, . . .
then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s
interest in the Property and rights under this Security Instrument[.]” AMIG Br., Ex. A.
2. The Lender-Placed Insurance Policies and Insurance Proceeds
In New Jersey, the Commissioner of the Department of Banking and Insurance
(“Commissioner” or “DOBI”) approves and regulates insurance rates. N.J. Stat. Ann.
§ 17:29AA-5. Once an insurer submits its rate, the Commissioner must review and either
approve or disapprove the rates. Id. § 17:29A-7. Also, the Commissioner can only
approve “rates that are not unreasonably high . . . and are not unfairly discriminatory.”
Id.; see id. § 17:16V-3g (“[LPI] costs charged to the debtor shall not be excessive or
discriminatory. Any cost or element of cost which is approved by the [DOBI] or filed
with the department and not disapproved . . . shall not be deemed to be excessive or
discriminatory.”); In re N.J. Title Ins. Litig., 683 F.3d 451, 453 (3d Cir. 2012) (noting
same as to title insurance rates).
In 2014 and 2015, when Francese failed to provide evidence of his own insurance,
RCS sent “several” letters informing him that it had obtained AMIG LPI certificates that
covered the Property. SAC ¶ 49; AMIG Br., Ex. C. The letters warned Francese that LPI
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premiums may be “much higher” than if he obtained his own insurance, the LPI
“coverage provided may be less” than securing insurance himself, and that “[p]art of the
policy premium may be used by [AMIG] to reimburse” RCS for expenses incurred in
placing the LPI policies. AMIG Br., Ex. C at 1–11. The letters also informed Francese
that if he provided proof of coverage, RCS would cancel the policy. Id.
SWBC “administer[ed] the lender-placed insurance program for RCS,” SAC ¶ 5,
and issued RCS the AMIG LPI certificates, AMIG Br., Ex. C at 3, 7, 11 (“Evidence of
Insurance” documents). When RCS obtained the LPI policies, the listed annual premiums
were within the Residential Hazard-Lender Placed insurance rates AMIG filed with, and
approved by, DOBI: $1.00 for each $100 of coverage. See AMIG Br., Ex. D (Decl. of
Steve Mackie), Exs. D-1, D-2 (AMIG rate filing excerpts); Decl. of Michael J.
Fitzpatrick, Ex. 5, ECF No. 101-2.
In June 2015, the Property “sustained extensive damages due to an incident,” SAC
¶ 51, rendering it “not habitable due to damage and mold infestation,” id. ¶ 61. AMIG
inspected the Property, covered the loss, and paid RCS the insurance proceeds. Id. ¶¶ 54–
55. RCS forwarded the second and final AMIG claims payment to the new loan servicer,
SLS. Id. ¶ 55. Neither RCS nor SLS sent Francese the insurance proceeds. Id.
In 2016, when SLS took over as the loan servicer, it sent Francese “several” letters
about maintaining hazard insurance on the Property. SAC ¶ 50; Decl. of Ronald K.
Wilson (“Wilson Decl.”), Exs. 1, 2, 4, 5, 7, ECF No. 99-1. Francese failed to fulfill his
insurance obligation, so SLS notified him that it bought LPI policies from ASIC, naming
itself as the insured. SAC ¶ 50; Wilson Decl., Ex. 3, 6, 8. The ASIC LPI policies covered
the Property, with annual premiums falling within the DOBI-approved rate. Wilson
Decl., Exs. 3, 6, 8.
B. Class Allegations
Francese’s amended class action complaint arises out of the forced placement of
hazard insurance on his Property. First, he contends Defendants “manipulate[d] the . . .
LPI market through collusive agreements involving kickback arrangements and other
forms of improper compensation.” SAC ¶ 11 (the “LPI Kickback Scheme”). Specifically,
in exchange for buying LPI policies, insurers (e.g., AMIG and ASIC) paid lenders and
loan servicers (e.g., RCS and SLS) “kickbacks, often euphemistically termed
commissions, as a percentage of the force-placed charges ultimately imposed on
borrowers[.]” Id. ¶ 16. Second, RCS and AMIG “also engaged in a scheme to materially
undervalue insurance claims made on property insured by a[n LPI] policy and to delay
unreasonably or deny entirely the release of insurance monies in order to make necessary
repairs and restoration to the property.” Id. ¶ 14 (the “Insurance Benefits Scheme”).

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Francese asserts 12 causes of action on behalf of himself and all other persons
similarly situated (unless otherwise noted):
• Count I: Violations of the New Jersey Consumer Fraud Act, N.J. Stat. Ann.
§ 56:8-2, for the LPI Kickback Scheme against SLS and ASIC. He alleges
the same in his individual capacity only against RCS, SWBC, and AMIG;
• Count II: Violations of the New Jersey Consumer Fraud Act, N.J. Stat.
Ann. § 56:8-2, against RCS, SWBC, and AMIG for the Insurance Benefits
Scheme;
• Counts III and IV: Violations of the Federal Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962 et seq., and New
Jersey Civil RICO, N.J. Stat. Ann. § 2C:41-1 et seq., against SLS and ASIC
for the LPI Kickback Scheme;
• Counts V and VI: Breach of Contract and the Implied Covenant of Good
Faith and Fair Dealing against RCS and SLS for the LPI Kickback Scheme;
• Count VII: Breach of the Implied Covenant of Good Faith and Fair Dealing
against RCS for the Insurance Benefits Scheme;
• Count VIII: Tortious Interference with a Business Relationship against
ASIC, SWBC, and AMIG for the LPI Kickback Scheme;
• Count IX: Tortious Interference with a Business Relationship against
AMIG and SWBC for the Insurance Benefits Scheme;
• Count X: Unjust Enrichment against RCS and SLS for the Insurance
Benefits Scheme;
• Count XI: Civil Conspiracy against Defendants for the LPI Kickback
Scheme and against RCS, SWBC, and AMIG for the Insurance Benefits
Scheme; and
• Count XII: Violations of the Truth in Lending Act, 15 U.S.C. § 1601 et
seq., against SLS and in his individual capacity only against RCS for the
LPI Kickback Scheme.
Id. ¶¶ 80–169.
II.

LEGAL STANDARD

In a Rule 12(b)(6) motion to dismiss, a complaint must allege “enough facts to
state a claim to relief that is plausible on its face.” Bell Atl. 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court must accept all
plausible allegations in the complaint as true and credit all reasonable inferences in the
plaintiff’s favor. See Bell Atl. Corp., 550 U.S. at 555. But a court cannot ‘“accept
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unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a
factual allegation.”’ Castleberry v. STI Grp., 863 F.3d 259, 263 (3d Cir. 2017) (quoting
Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 2013) (en banc)).
III.

DISCUSSION

Defendants LPI kickback claim arguments fall into two broad categories. First, the
filed rate doctrine bars the claims. Second, even if the doctrine does not apply, the
allegations miss the plausibility mark. As to the insurance benefits claims, RCS, SWBC,
and AMIG contend Francese has failed to allege sufficient facts showing he was entitled
to recover the insurance proceeds. See generally Defendants’ Mots. to Dismiss Brs.
A. The Filed Rate Doctrine Bars Francese’s LPI Kickback Claims
The law in New Jersey, where the Property is located, directs that “every insurer
shall, before using or applying any rate to any kind of insurance, file with the
commissioner a copy of the rating-system upon which such rate is based, . . . fixed or
determined.” N.J. Stat. Ann. § 17:28A-6. “[T]he [filed rate] doctrine holds that any filed
rate . . . [approved by the governing regulatory agency] is per se reasonable and
unassailable in judicial proceedings brought by ratepayers.” In re N.J. Title Ins. Litig.,
683 F.3d at 461 n.7 (quotation marks and citation omitted). Two principles underlie this
doctrine: (1) nondiscrimination – prohibiting price discrimination by insurers among
ratepayers and (2) nonjusticiability – preserving a regulatory agency’s role in approving
reasonable rates and excluding courts from second-guessing rate making practices. See
id. at 455–56 (citation omitted). “[T]he doctrine applies strictly whenever either the
nondiscrimination strand or the nonjusticiability strand . . . is implicated.” Id. at 459
(citation omitted) (holding the filed rate doctrine’s nonjusticiability strand applied, thus
barring claims challenging alleged “payoffs, kickbacks, and other charges that are
unrelated to the issuance of title insurance or the business of insurance,” and concluding
“[t]his result is also appropriate under New Jersey law”); McCray v. Fidelity Nat’l Title
Ins. Co., 682 F.3d 229, 241–42 (3d Cir. 2012) (The filed rate doctrine’s nonjusticiability
strand barred wrongful conduct claims involving kickbacks because deciding what should
have been a reasonable title insurance rate in the past is “a function that regulatory
agencies are more competent to perform.” (citation omitted)).
Francese’s LPI kickback allegations—that Defendants acted collectively to inflate
premiums—represent attacks on Defendants’ underlying conduct, implicating both the
nonjusticiability and nondiscrimination principles. As to the nonjusticiability issue, the
complaint is replete with allegations challenging the reasonableness of the LPI premiums
charged. SAC ¶ 23 (SLS, RCS, AMIG, and ASIC agreed “to manipulate the [LPI] market
and inflate the amounts charged to Plaintiff and other similarly situated borrowers”), ¶ 24
(AMIG and SWBC “provided RCS with subsidized mortgage services which kicked back
a percentage of the [LPI] charges to RCS as an unearned commission”), ¶ 39 (“SLS is
incentivized through unlawful inducements from ASIC to purchase and force place
insurance policies which include charges in excess of the actual cost of the insurance.”),
¶ 97 (Together, SLS and ASIC forced “borrowers to pay high premiums for [LPI],”
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through a scheme [] that inflated such premiums to cover kickbacks and other unearned
fees.”); ¶ 125 (RCS and SLS “manipulat[e] the [LPI] market by selecting insurers [here,
AMIG and ASIC] that will artificially inflate premiums to include kickbacks to RCS and
SLS and issue excess insurance coverage not necessary to cover RCS’s and SLS’s
risk[.]”). Thus, to grant relief would compel the Court to second-guess LPI premiums
charged, which would impermissibly undermine DOBI’s authority in regulating
insurance rates. Because the nonjusticiability principle applies, Francese cannot plausibly
plead the LPI kickback claims.
The nondiscrimination principle also bars the LPI kickback claims. Here, Francese
cannot use litigation as a means to obtain preferential rates. See Rothstein v. Balboa Ins.
Co., 794 F.3d 256, 263 (2d Cir. 2015) (“Any damages recovered by these Plaintiffs
would operate ‘like a rebate . . . to give [them] a preference’ over other borrowers who
were charged for LPI. While non-suing borrowers serviced by GMAC would be billed at
the filed LPI rates, Plaintiffs would enjoy the discount that Newport allegedly provided to
GMAC.” (quoting Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156, 163 (1922)). Thus, the
LPI kickback claims also implicate the nondiscrimination principle because recovering
damages would result in Francese paying a preferential LPI rate unavailable to non-suing
borrowers.
Francese relies on Alston v. Countrywide Financial Corporation, 585 F.3d 753 (3d
Cir. 2009), as binding precedent, but that decision is inapposite. “Although it discussed
the filed rate doctrine in the context of the Real Estate Settlement Procedures Act
(‘RESPA’) in Alston, the Third Circuit has not yet decided whether the doctrine bars the
[LPI] claims at issue here.” Santos v. Carrington Mortg. Servs., LLC, 2015 WL
11071479, at *1 (D.N.J. Sept. 2, 2015). The court in Alston “briefly address[ed]” the filed
rate doctrine and discussed neither the nonjusticiability or nondiscrimination principles.
Id. at 763. Alston held the filed rate doctrine did not bar RESPA claim based on private
mortgage insurance overcharges because RESPA provided a private right of action and
prescribed remedy of treble damages. See Alston, 585 F.3d at 764. Thus, the Third Circuit
explained there was “no need to parse or second guess rates.” Id. (citation omitted). That
is not the case here. And two courts of appeal have held the filed rate doctrine bars LPI
kickback claims. See Patel v. Specialized Loan Servicing, LLC, 904 F.3d 1314, 1325–27
(11th Cir. 2018) and Rothstein, 794 F.3d at 262. “[T]hat other district courts within this
Circuit have applied Alston’s holding to non-RESPA claims” does not bind this Court.
Santos, 2015 WL 11071479, at *1. Thus, the Court finds Alston neither conflicts with In
re New Jersey Title Insurance Litigation or McCray, nor does it control here.
B. Francese Fails to State the Insurance Benefits Claims
Francese has failed to plausibly plead how he can recover the insurance proceeds.
RCS, as the loan servicer, is the named insured under the LPI policies. AMIG Br., Ex.
B-1 at 1, 7–8 (directing RCS receive any loss payments), Ex. B-2, at 1, 7 (same). Besides,
the Mortgage directed that if repairs were “not economically feasible or Lender’s security
would be lessened,” then RCS could apply the insurance proceeds to the principal loan
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balance. Id., Ex. A at 7. Accordingly, AMIG paid RCS, not Francese, because that is
what the insurance contract required. The LPI policies contained unambiguous terms
showing the contracting parties (RCS and AMIG) had no intention to make Francese a
beneficiary. See Ross v. Lowitz, 120 A.3d 178, 189 (N.J. 2015) (“As a general rule, an
individual or entity that is a stranger to an insurance policy has no right to recover the
policy proceeds.”); Rieder Cmtys., Inc. v. Twp. of N. Brunswick, 546 A.2d 563, 566–67
(N.J. Super. Ct. App. Div. 1988) (Absent the contracting parties intending to confer a
benefit on others, “a third party has no cause of action [even though] it may derive an
incidental benefit from the contract’s performance.”). And no Mortgage term, policy, or
law compelled a lender obtaining an LPI policy to provide Francese coverage.
In all, RCS, SWBC, and AMIG conducted a regular business transaction
authorized under both the Mortgage’s terms and LPI policies. Therefore, Francese has no
right to recover the insurance proceeds arising under the LPI policies and thus cannot
sufficiently plead the claims tied to the Insurance Benefits Scheme.
C. To Grant Leave to Amend Would be Futile
“Leave to amend should be freely given when justice so requires, including for a
curative amendment unless such an amendment would be inequitable or futile.” Free
Speech Coalition, Inc. v. Att’y General of U.S., 677 F.3d 519, 545 (3d Cir. 2012). Here,
no amendment could cure the deficient LPI kickback and insurance benefits claims.
As to the LPI kickback claims, the filed rate doctrine bars the Court from
meddling with DOBI’s regulatory authority over insurance rates. See In re N.J. Title Ins.
Litig., 683 F.3d at 456. And no repleading could make the insurance benefits claims
plausible because Francese has no established right to receive the insurance proceeds
stemming from the LPI policies. Therefore, amendment would be futile and leave to
amend is DENIED.
IV.

CONCLUSION

Based on the foregoing, Defendants’ motions to dismiss are GRANTED.
Francese’s Second Amended Complaint is DISMISSED in its entirety with prejudice.
An appropriate order follows.

/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Dated: April 16, 2019

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