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

Filing 29

OPINION. Signed by Judge William J. Martini on 10/26/17. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
LUIGI FRANCESE,
Civ. No. 2:17-2246 (WJM)

Plaintiff,
v.

OPINION

AM. MODERN INS. GRP., INC., et al.,
Defendants.

WILLIAM J. MARTINI, U.S.D.J.:
Defendants American Modern Insurance Group, Inc., and American
Modern Home Insurance Company (collectively, “AMIG”); Residential Credit
Solutions, Inc. (“RCS”); and Specialized Loan Servicing, LLC (“SLS”) (jointly,
“Defendants”) move to dismiss Counts I and II in Plaintiff’s Complaint for failure
to plead fraud with heightened particularity. Next, Defendants RCS and SLS
(“Loan Servicers”) seek to dismiss the remaining contract-based causes of
action—Counts III, IV, and V—for failure to state a claim. The matter was taken
on submission without oral argument. FED. R. CIV. P. 78(b). For the reasons that
follow, Defendants’ Motions to Dismiss are GRANTED and Plaintiff’s Complaint
is DISMISSED WITHOUT PREJUDICE.
I.

BACKGROUND

After purchasing a home (“Property”) and signing a Mortgage Agreement
(“Agreement”), this dispute began when Plaintiff filed a claim for damage or loss
to the Property. See AMIG’s Notice of Removal, Ex. A, ¶¶ 6-21, ECF No. 1
[hereinafter “Compl.”]; Samon Decl., Ex. 1, ECF No. 18-3. AMIG’s
representatives then inspected the Property as to the claimed damage and assessed
“the total damages at $53,9433.14 [sic],” Compl. ¶¶ 8, 14, while Plaintiff averred
over $322,000 in damages. Id. at ¶¶ 9, 16, 17. After an inspection, AMIG sent
RCS, the then-Loan Servicer on Plaintiff’s loan, $22,468.72, and then again sent
RCS, who forwarded it to SLS, the new Loan Servicer, $25,750.62. Plaintiff
argues the Loan Servicers wrongfully withheld these insurance proceeds, thereby
unjustly enriching themselves. Id. at ¶¶ 38-40. Further, along with AMIG, Plaintiff
contends the Loan Servicers conspired to offer a low dollar figure as to the
Property damage claim, all part of an alleged unlawful kickback scheme. Id. at ¶¶
24.e., 34.d.

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This dispute over a failure to forward Plaintiff the insurance proceeds stems
from a lender, in a mortgage agreement, requiring a borrower to maintain hazard
insurance on a mortgaged property to protect the lender’s interest in said property.
If the borrower fails to maintain insurance coverage, at its option, the lender may
purchase, at a borrower’s expense, a force-placed—or “lender-placed”—insurance
policy (hereinafter “FPI”).
After failing to provide proof of hazard insurance, Plaintiff alleges his Loan
Servicers—the lenders and mortgage holders on his Property—wrongfully forceplaced the required insurance in buying FPI at a premium that was likely more
expensive than a borrower-purchased insurance policy. Through written warning
notices, the Loan Servicers notified Plaintiff of its actions. The two notices
included the annual premium, the effective insurance backdate, and advised that if
Plaintiff provided proof of insurance, RCS and SLS would cancel its FPI and
refund Plaintiff any premium payments made. Both notices explained in bold
typeface how FPI would likely be more expensive than borrower-purchased
coverage and how it represented limited coverage. See Pl.’s Decl., Exs. A-B, ECF
No. 25-1. Although Plaintiff’s Agreement allowed Defendants to procure FPI
absent proof of insurance, Plaintiff contends Defendants had an exclusive
arrangement to buy and sell high-premium FPIs which were unreasonable to
protect the interest in the Property. Defendants then collected the FPI premiums
and unknown excess amounts and redistributed the sums disguised as
commissions and other fees not attributable to insuring the Property. Plaintiff
labels the commission or fee a “kickback.” Compl. ¶ 24.
Through its unlawful kickback scheme, Plaintiff alleges Defendants
committed consumer fraud and engaged in and conspired to violate New Jersey’s
Civil RICO statute (“RICO”) through its unconscionable commercial practices in
misleading unsophisticated borrowers into purchasing or agreeing to FPI. Also,
although permitted under the Agreement to withhold the Property damage claim’s
insurance proceeds, Plaintiff asserts the Loan Servicers breached it and thereby
unjustly enriched themselves.1 In all, instead of purchasing hazard insurance,
Plaintiff filed suit and Defendants timely removed.
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Covenant 5. Property Insurance.
Borrower shall keep . . . the Property insured against loss by fire, hazards . . . and any other
hazards . . . for which Lender requires insurance . . . . If Borrower fails to maintain any of
the coverages described above, 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,
against any risk, hazard or liability and might provide greater or lesser coverage than was
previously in effect. Borrower acknowledges that the cost of the insurance coverage so
obtained might significantly exceed the cost of insurance that Borrower could have
obtained. . . . In the event of loss, . . . any insurance proceeds, whether or not the underlying
insurance was required by the Lender, shall be applied to restoration or repair of the
Property, if restoration or repair is economically feasible and Lender’s security is not
lessened. During such repair and restoration period, Lender shall have the right to hold

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II.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which
relief can be granted. The moving party bears the burden of showing that no claim
has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In
deciding a motion to dismiss, a court must take all allegations in the complaint as
true and view them in the light most favorable to the plaintiff. See Warth v. Seldin,
422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts
Inc., 140 F.3d 478, 483 (3d Cir. 1998).
Although a complaint need not contain detailed factual allegations, “a
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Thus, the factual allegations must be sufficient to raise a plaintiff’s right to relief
above a speculative level, such that it is “plausible on its face.” See id. at 570; see
also Umland v. PLANCO Fin. Servs., Inc., 542 F.3d 59, 64 (3d Cir. 2008). “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) (citing Twombly,
550 U.S. at 556). While “[t]he plausibility standard is not akin to a ‘probability
requirement’ . . . it asks for more than a sheer possibility.” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 556). Apart from the complaint, a court may
consider an “undisputedly authentic document” included as an exhibit in a party’s
motion to dismiss. Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998
F.2d 1192, 1196 (3d Cir. 1993).
Under Federal Rule of Civil Procedure 9(b), “a plaintiff alleging fraud must
state the circumstances of the alleged fraud with sufficient particularity to place
such insurance proceeds until Lender has had an opportunity to inspect such Property to
ensure the work has been completed to Lender’s satisfaction, provided that such inspection
shall be undertaken promptly. . . . 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 . . . .
Covenant 9. Protection of Lender’s Interest in the Property and Rights Under this Security Instrument.
If . . . Borrower fails to perform the covenants and agreements contained in this Security
Instrument . . ., then Lender may do and pay for whatever is reasonable and appropriate to
protect Lender’s interest in the Property and rights under this Security Instrument,
including . . . repairing the Property.
Although Lender may take action under this Section 9, Lender does not have to do so and
is not under any duty or obligation to do so. It is agreed that Lender incurs no liability for
not taking any or all actions authorized under this Section 9.
Any amounts disbursed by Lender under this Section 9 shall become additional debt of
Borrower secured by this Security Instrument.
Samon Decl., Ex. 1, ECF No. 18-3.

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the defendant on notice of the precise misconduct with which [it is] charged.”
Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (citation and internal
quotations omitted). That is, “the who, what, when, where, and how: the first
paragraph of any newspaper story.” Institutional Inv’rs Grp. v. Avaya, Inc., 564
F.3d 242, 253 (3d Cir. 2009) (internal quotation marks and citation omitted).
III.

DISCUSSION

The Court will discuss, in turn, the state consumer fraud and RICO claims
against all Defendants and then the contract-based claims against RCS and SLS.
A. The New Jersey Consumer Fraud Act (“CFA”) Claim Against
All Defendants (N.J. STAT. ANN. § 56:8-1, et seq.)
First, Defendants argue Plaintiff has failed to meet Rule 9(b)’s requisite
specificity. Second, AMIG—joined by RCS—aver the CFA offers no relief
because, in not purchasing a good or service, Plaintiff cannot qualify as a
“consumer.” Since Plaintiff has failed to state a viable CFA claim with the
required particularity, the Court need not discuss the qualified consumer argument.
To begin, Plaintiff must allege the Defendants engaged in an unlawful
practice that caused an ascertainable loss and show a causal nexus between the
defendants’ illegal acts and the plaintiff’s ascertainable loss. Int’l Union of
Operating Eng’rs Local No. 68 Welfare Fund v. Merck & Co., Inc., 929 A.2d
1076, 1086 (N.J. 2007) (per curiam) (citation omitted). In New Jersey, an
“unconscionable” commercial practice denotes a “lack of good faith, honesty in
fact and observance of fair dealing.” Cox v. Sears Roebuck & Co., 647 A.2d 454,
462 (N.J. 1994) (internal quotations and citation omitted).
Plaintiff has failed here to allege with particularity an unconscionable
commercial practice. The vague pleading lacks distinction among the three
Defendants’ conduct to put those parties on notice. Instead, it teems with
allegations that Defendants engaged in unlawful conduct that fueled a fraudulent
FPI kickback scheme. As it stands, the Agreement and the warning notices to
purchase lender-procured FPI put Plaintiff on notice. Plaintiff describes the fees
and commissions Defendants received as “kickbacks” but injects no factual
precision and substantiation to answer the who, what, when, where, and how
questions. Indeed, attaching a “kickback” label fails to transform alleged business
conduct into unconscionable acts. If anything, asking Plaintiff to purchase hazard
insurance was a reminder of the Agreement’s contractual obligations. Absent the
required particularity, Plaintiff cannot simply call an FPI commission or fee a
kickback. Thus, Plaintiff’s CFA claim misses the heightened plausibility mark.
B. The New Jersey Civil RICO Claim Against All Defendants
(N.J. STAT. ANN. § 2C:41-1 et seq.)
Next, Plaintiff alleges Defendants acted through an enterprise in the
residential insurance and real estate market to engage and participate in a pattern
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of racketeering activities through using deceptive FPI practices. To show a pattern
of racketeering activity, Plaintiff must show that at least two racketeering
predicate acts are related and continuous. Prof’l Cleaning and Innovative Bldg.
Servs., Inc. v. Kennedy Funding Inc., 408 F. App’x 566, 572 (3d Cir. 2010). To
show an “enterprise,” Plaintiff must plead facts that demonstrate oversight and
coordination of the racketeering acts and other activities on an ongoing basis. State
v. Ball, 661 A.2d 251, 261 (N.J. 1995).
What Plaintiff pleads here represents nothing more than bare conclusions,
i.e., Defendants operate in the residential insurance and real estate markets which
makes AMIG, RCS, and SLS an enterprise that has conspired and engaged in
unlawful conduct. See Compl. ¶¶ 27-34. Like the deficient CFA claim, Plaintiff
has merely applied labels to alleged conduct. The pleading fails to specify the
alleged misrepresentations and how the Defendants operated its enterprise apart
from the pattern of racketeering activity. Hence, Plaintiff’s RICO claim fails to
comport with Rule 9(b)’s heightened pleading requirements.
C. Unjust Enrichment Against RCS and SLS
With an unjust enrichment claim, Plaintiff must allege “the defendant
received a benefit and that retention of the benefit would be inequitable.” Hassler
v. Sovereign Bank, 374 F. App’x 341, 345 (3d Cir. 2010) (citation omitted). To
allege the withheld benefit as being unjust requires showing the Loan Servicers
were “enriched beyond its contractual rights.” Id. at 345 (citation omitted). The
presence of a valid, express contract involving the same subject between the
parties precludes an unjust enrichment claim. See Hassler v. Sovereign Bank, 644
F. Supp. 2d 509, 519 (D.N.J. 2009) (citing cases), aff’d, 374 F. App’x 341 (3d Cir.
2010).
The unjust enrichment claim bristles with severity that infect Plaintiff’s
pleading alone. As discussed above, the Agreement’s covenants and the sent
notices of lender-purchased FPI disclosed to Plaintiff that the Loan Servicers’
decision to purchase FPI was to ensure its own—not Plaintiff’s—interest in the
Property. The Agreement disclosed the consequences for Plaintiff’s failure to
purchase hazard insurance. Plaintiff’s argument as to Defendants being in
exclusive possession of unspecified evidence carries no water because, on the
AMIG-issued Mortgage Security Policy, RCS is the named insured and loss
payee.2 See AMIG Mot. to Dismiss, Ex. A (Part 1), ECF No. 16-2. Also, the
Agreement authorized RCS and SLS to withhold the insurance proceeds until
satisfactory completion and inspection of repairs. The pleading lacks mention of
any repair work being performed. And even if repairs were made, per the
Plaintiff cited Ninth Circuit cases to support an argument for relaxing Rule 9(b)’s pleading standard—
and refrain from pleading specific instances of conduct—to which this Court finds unavailing. Even so, the
Ninth Circuit suggested it may be appropriate to relax the heightened pleading Rule if evidence is within a
party’s exclusive possession. See United States ex rel. Tamanaha v. Furukawa Am., Inc., 445 F. App’x 992,
994 (9th Cir. 2011) (emphasis added) (citation omitted).
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Agreement’s covenants, the monies would go towards the Property’s outstanding
loan balance, not Plaintiff’s pocket. All in all, since the Agreement authorized the
Loan Servicers’ to receive the insurance proceeds, the unjust enrichment claim
falls short.
D. Breach of Contract and the Implied Covenant of Good Faith
and Fair Dealing Against RCS and SLS
Plaintiff next maintains he “properly performed,” under the Agreement’s
terms, see Compl. ¶ 43, and, in almost identical allegations, claims RCS and SLS
failed to hand over the insurance proceeds and thus broke the Agreement and
implied covenant of good faith. Id. at ¶¶ 41-45, 46-50. To establish a viable breach
of contract claim in New Jersey, a plaintiff must allege the parties were part of a
valid contract, the defendant failed to perform its obligations under the contract,
and, because of the breach, the plaintiff suffered damages. Sheet Metal Workers
Int’l Ass’n Local Union No. 27, AFL-CIO v. E.P. Donnelly, Inc., 737 F.3d 879,
900 (3d Cir. 2013) (citation and footnote omitted). All parties in a contract remain
“bound by a duty of good faith and fair dealing in both the performance and
enforcement of the contract.” Brunswick Hills Racquet Club, Inc. v. Route 18
Shopping Ctr. Assocs., 864 A.2d 387, 395 (N.J. 2005). “The implied duty of good
faith and fair dealing does not operate to alter the clear terms of an agreement and
may not be invoked to preclude a party from exercising its express rights under
such an agreement.” Fields v. Thompson Printing Co., Inc., 363 F.3d 259, 271-72
(3d Cir. 2004) (internal quotations and citations omitted).
Like the unjust enrichment claim, the two contract-based claims fall below
the post-Twombly pleading bar. There lacks the asserted breach here because the
Agreement specifically contemplated, in Covenant 5, a lender’s action to withhold
the insurance proceeds and to either apply the proceeds to repairing the Property
or to paying off the outstanding loan balance. See Samon Decl., Ex. 1. And any
Property damage under the Mortgage Security Policy would affect the insuredRCS’ interest. See AMIG Mot. to Dismiss, Ex. A (Part 1). Even more so, there
lacks an express statement in the Agreement that entitles Plaintiff to collect the
insurance proceeds.
As the breach of contract claim subsumes the implied duty of good faith
found in every contract, this claim too ends in defeat. The bad faith claim simply
restates the breach allegation, adding the appropriate labels: “bad faith” and
“breach of implied covenant of good faith and fair dealing.” See Compl. ¶ 50. Like
the others, this claim contains unadorned allegations that fail to meet the postTwombly pleading standard. See Iqbal, 556 U.S. at 678 (stating a party must plead
facts beyond ones “merely consistent with a defendant’s liability”) (internal
quotation marks and citation omitted). And as to issuing the insurance proceeds,
Plaintiff remains silent on whether the Agreement contained unclear terms.

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IV.

CONCLUSION
For the above-stated reasons, Defendants’ Motions to Dismiss are
GRANTED and Plaintiff’s Complaint is DISMISSED WITHOUT
PREJUDICE. An appropriate order follows.

/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: October 25, 2017

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