Tinsley v. OneWest Bank, FSB
Filing
32
MEMORANDUM OPINION AND ORDER granting in part and denying in part Defendant's 12 Motion to Dismiss for Failure to State a Claim; all other claims, including Plaintiff's other breach of contract claim, all of Plaintiff's fraud and in tentional misrepresentation claims, all of Plaintiff's other WVCCPA claims, all of Plaintiff's intentional infliction of emotional distress claims, and all of Plaintiff's negligence or reckless or negligent misrepresentation claims are DISMISSED; denying as moot Plaintiff's 26 MOTION Requesting Hearing on Defendant's Motion to Dismiss. Signed by Judge Robert C. Chambers on 3/14/2014. (cc: attys; any unrepresented parties) (mkw)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION
BETTY TINSLEY,
Plaintiff,
v.
CIVIL ACTION NO. 3:13-23241
ONEWEST BANK, FSB, D.B.A
FINANCIAL FREEDOM,
Defendant.
MEMORANDUM OPINION AND ORDER
Pending is Defendant‘s Motion to Dismiss, ECF No. 12, and Plaintiff‘s Motion Requesting
Hearing on Defendant‘s Motion to Dismiss, ECF No. 26. Defendant‘s Motion to Dismiss is
GRANTED in part and DENIED in part. Plaintiff‘s breach of contract claim that Defendant
required Plaintiff to get flood insurance in excess of what was required under the Deed of Trust,
force-placed such insurance, and charged the cost to Plaintiff survives this Motion to Dismiss.
Plaintiff‘s WVCCPA claims that Defendant violated West Virginia Code §§ 46A-6-104 and
-102(L) by 1) implying to Plaintiff that she was required under company regulations and federal
law to purchase additional flood insurance and 2) twice threatening to foreclose on Plaintiff‘s
property if she did not pay a ―property charge‖ of $1,369.70 also survive this Motion to Dismiss.
All other claims—including Plaintiff‘s other breach of contract claim, all of Plaintiff‘s fraud and
intentional misrepresentation claims, all of Plaintiff‘s other WVCCPA claims, all of Plaintiff‘s
intentional infliction of emotional distress claims, and all of Plaintiff‘s negligence or reckless or
negligent misrepresentation claims—are DISMISSED.
Plaintiff‘s Motion Requesting Hearing is DENIED as moot.
I.
Background
In August 2013, Plaintiff filed the instant case in the Circuit Court of Putnam County,
West Virginia. On September 19, 2013, Defendant removed the case to this Court, and on October
9, 2013, Plaintiff filed a Second Amended Complaint 1 (hereinafter, ―Complaint‖), seeking
compensatory damages, statutory damages, punitive damages, attorneys‘ fees, and court costs and
alleging breach of contract, fraud, intentional misrepresentation, violations of the West Virginia
Consumer Credit and Protection Act (―WVCCPA‖), intentional infliction of emotional distress,
negligence, and reckless or negligent misrepresentation, in connection with a reverse mortgage
entered into by Plaintiff and Defendant‘s predecessor.
In her Complaint, Plaintiff specifically alleges that the Home Equity Conversion Loan
Agreement
2
which she entered into with Financial Freedom Senior Housing Funding
Corporation—the direct predecessor to Defendant Financial Freedom—states,
Lender shall initially set aside from the Principal Limit the amount indicated on the
attached payment plain [sic] (Exhibit 1) to be applied to payment due for a fixed
monthly charge for servicing activities of Lender or its servicer. Such servicing
activities are necessary to protect Lender‘s interest in the Property. A servicing fee
set aside, if any, is not available to the Borrower for any purpose, except to pay for
loan servicing.
Compl. ¶ 30, ECF No. 8. According to Plaintiff, the Agreement provides for a servicing fee set
aside of $5,180.17; however, Plaintiff alleges that the parties did not contract for a particular
servicing fee amount and that she was never given notice that she would be paying a set monthly
servicing fee. Plaintiff alleges that, for the duration of the loan (March 2008 to present), Defendant
has charged her a monthly $30 servicing fee. She alleges that this fee, alone, has resulted in
1
It appears that a First Amended Complaint was filed in this case before it was removed to this Court.
Paragraph 30 of the Complaint labels this Agreement ―Exhibit 1‖; however, no exhibits are attached to the
Complaint.
2
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approximately $1,920 in monthly servicing charges ($360 a year), on top of the following interest
charges: $1,189.42 in 2008, $1,032.59 in 2009, $1,014.78 in 2010, and $1,012.40 in 2011.
Plaintiff further alleges that the Agreement provides that ―the lender is to withhold from
each monthly payment an amount to pay . . . (c) premiums for fire, flood, and other hazard
insurance as required by the Security Agreement.‖ Id. ¶ 6. Plaintiff alleges that the First Deed of
Trust—benefitting Defendant ―Financial Freedom‖—states in small lettering, under the label
―Fire, Flood and Other Hazard Insurance,‖ that the ―Borrower shall also insure all improvements
on the Property, whether now in existence of [sic] subsequently erected, against loss by floods to
the extent required by the Secretary.‖ Id. ¶ 7. Additionally, according to Plaintiff, the Second Deed
of Trust—benefitting the Department of Housing and Urban Development (―HUD‖)—states in
small lettering, under the label ―Fire, Flood and Other Hazard Insurance,‖ that the ―Borrower shall
insure all improvements on the Property, whether now in existence of [sic] subsequently erected,
against loss by floods to the extent required by the lender.‖ Id. ¶ 8. Plaintiff states that she
presumes this to be the amount required by the Secretary of HUD, based upon the above statement
in the First Deed of Trust.
Plaintiff further alleges that, on March 19, 2008, in consideration for the First Deed of
Trust, she borrowed approximately $41,818 from Defendant and that, on January 31, 2008, her
residence appraised for $111,000. As of May 2013, Plaintiff alleges that the outstanding balance
on the reverse mortgage is $83,904.48.
Plaintiff alleges that she had adequate flood insurance through Jim Lively Insurance from
March 21, 2010, through March 21, 2011, in the amounts of $100,100 for buildings and $6,800 for
contents, with a $2,000 deductible; and that this policy was nearly identical to the policy she had
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with the same insurer from March 21, 2009, to March 21, 2010—the only difference being that the
deductible was $1,000 on the older policy.
Plaintiff alleges that, on or about April 6, 2010, Defendant sent her a letter informing her
that her flood insurance policy was inadequate and that she needed an additional $149,900 in flood
insurance, which would have brought her flood insurance coverage up to the maximum amount
allowable under HUD rules.3 The letter allegedly states,
Your mortgage documents and federal law authorize us to require that adequate
flood insurance be maintained with respect to all outstanding loans secured by
improved property located in a Special Flood Hazard Area [―SFHA‖] . . . . Your
property is located in an SFHA, so the terms of your mortgage and federal law
require you to purchase adequate flood insurance. Our records show that we have
not received proof that adequate flood insurance is in force on your property. As a
result, if we do not receive proof that you have adequate flood insurance for the
property, we will purchase the additional flood insurance (lender-placed insurance)
required and charge you for the cost of the insurance. . . . Coverage must be in an
amount that is at least equal to, (i) the last known amount of homeowners insurance
(Coverage A) that you purchased or (ii) the maximum available coverage under the
National Flood Insurance Program (NFIP), (currently $250,000 for residential
properties in participating communities), whichever is lowest.
Id. ¶ 16. Plaintiff further alleges that, on or about March 21, 2010, Defendant force-placed a
second flood insurance policy—for $100,000—on her property through the Lexington Insurance
Company and that this policy carried a premium of $516.25, which was charged to Plaintiff‘s line
of credit.
Plaintiff alleges that, on multiple occasions, she requested information from Defendant to
explain why this insurance was force-placed. In a letter dated April 26, 2011, Plaintiff alleges that
she was again informed that her previous insurance was inadequate and that, because of her failure
3
24 C.F.R. § 203.16a(c)—promulgated by HUD—states that, when flood insurance is required, it ―must be
maintained during such time as the mortgage is insured in an amount at least equal to either the outstanding balance of
the mortgage, less estimated land costs, or the maximum amount of the NFIP insurance available with respect to the
property improvements, whichever is less.‖ This same letter from Defendant is quoted in the Complaint as saying,
―[T]he maximum available coverage under the National Flood Insurance Program (NFIP) . . . [is] currently $250,000
for residential properties in participating communities.‖ Compl. ¶ 16.
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to get adequate insurance, Defendant force-placed insurance for $181,000 with a premium of
$1,801.20, which was again charged to Plaintiff‘s equity. Plaintiff alleges that $181,000 was
$28,747.16 more than double the outstanding mortgage balance of $76,126.42 in April 2011 and
that HUD required only coverage sufficient to cover the outstanding balance.
Plaintiff alleges that, in 2011, she filed a complaint with the Attorney General, based, in
part, upon Defendant‘s practice of force-placing excessive flood insurance and depleting her
equity with the cost of the premiums. Plaintiff further alleges that, in a response letter to the
Attorney General, V. Lyn Niles, Vice President of Loan Administration for Defendant Financial
Freedom, stated:
We recently updated our flood policy to accept coverage for the lesser of the
improved value (i.e., the dwelling(s)) of the property based on the appraisal or the
maximum allowed by the National Flood Insurance program. As such, the
minimum flood coverage amount required is now $91,000 (appraised value of
$111,000 less a site (land) value of $20,000).
Id. ¶ 23. Then, Plaintiff alleges, on March 21, 2012, Defendant force-placed flood insurance on her
property for just $91,000, again through the Lexington Insurance Corporation, for the period of
March 21, 2012, through March 21, 2013, and provided Plaintiff with notice of the insurance
placement. The premium amount of $918.41 was charged to Plaintiff‘s equity.
However, Plaintiff alleges, Defendant next, through a letter dated April 12, 2012, sent
Plaintiff notice that it was force-placing flood insurance on her property in the amount of
$182,000,4 again through the Lexington Insurance Corporation and again for the period of March
21, 2012, through March 21, 2013. The premium amount of $1,811.01 was also to be charged to
Plaintiff‘s equity. Plaintiff further alleges that, in June 2012, the outstanding balance on the loan
was $78,248.60; thus, $181,000 remained more than double the outstanding loan balance.
4
Given the immediately following allegation in paragraph 26 of the Complaint (―[T]hus $181,000 of insurance was
still more than twice the outstanding loan balance . . . .‖), this amount may actually be $181,000.
-5-
Plaintiff alleges that, on June 18, 2013, her counsel mailed a 20 day notice of right to cure
letter to Defendant‘s Repayment Department. The letter was signed for by Darryl Mize. In the
letter, Plaintiff alleged violations of West Virginia consumer laws and provided Defendant with 20
days to cure those violations, including refunding all monies used over and above what was
necessary for force-placed flood insurance. Plaintiff alleges that Defendant wrote a response on
July 12, 2013, stating that 1) Plaintiff‘s new flood insurance for $84,000 was acceptable and that
she could ignore a letter mailed to her on July 7, 2013, requesting an additional $100,000 in flood
insurance and 2) the new force-placed policy was cancelled, resulting in a $1,374.06 refund to
Plaintiff‘s equity. However, Plaintiff alleges that, on July 16, 2013, Defendant sent her another
letter informing her that she needed to purchase an additional $100,000 in flood insurance.
Plaintiff further alleges that, by letter dated March 27, 2013, and titled ―Repayment
Agreement,‖ Defendant informed Plaintiff that her reverse mortgage was ―suspended and in
default status.‖ Id. ¶ 35. Plaintiff alleges that the letter further states,
As stated in your reverse mortgage loan documents, you must pay your property
charges timely. Your failure to do so has resulted in Financial Freedom advancing
funds on your behalf, which must be repaid. The totally repayment amount is
$1,369.70. . . . If the default remains unresolved, this may result [sic] the initiation
of proceedings to foreclose and ultimately the loss of your home.
Id. ¶¶ 36-37. Plaintiff states that it is unclear for what reason the referenced funds were advanced
but that she presumes that such advance was for the force-placed flood insurance. The letter further
demands payment of $1,369.70 by April 29, 2013, or suggests a payment plan of $114.15 per
month for one year. Plaintiff states that an identical letter was sent again by Defendant on May 27,
2013.
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Count I alleges breaches of contract by Defendant for 1) force-placing insurance in excess
of what was required under the Deed of Trust and charging the cost of such insurance to Plaintiff,
and 2) charging Plaintiff a monthly $30 servicing fee which was not clearly disclosed to her.
Count II alleges fraud and intentional misrepresentation by Defendant for 1) demanding
that Plaintiff obtain excessive additional flood insurance and force-placing such insurance, 2)
informing Plaintiff that her flood insurance was inadequate and that she had an obligation to carry
flood insurance in excess of the loan balance, 3) failing to adequately explain the monthly $30
servicing fee to Plaintiff, and 4) threatening to foreclose on Plaintiff‘s property for a vague
―property charge‖ of $1,369.70.
Count III alleges violations of the WVCCPA by Defendant for 1) misleading Plaintiff in
multiple letters by stating that her flood insurance was inadequate, 2) implying to Plaintiff that she
was required under company regulations and federal law to purchase additional flood insurance, 3)
failing to adequately disclose to Plaintiff the reasoning for and amount of the monthly servicing fee
and how it would be charged to her account, 4) twice threatening to foreclose on Plaintiff‘s
property if she did not pay the ―property charge‖ of $1,369.70, 5) charging Plaintiff for flood
insurance which was of no practical value to her, 6) requiring flood insurance which was not
reasonably related to the existing hazard or risk of loss or to the terms of credit provided to Plaintiff
by Defendant, and 7) not allowing Plaintiff to choose the flood insurance provider.
Count IV alleges intentional infliction of emotional distress by Defendant for 1)
misleading Plaintiff regarding the amount of flood insurance she needed, 2) force-placing
excessive flood insurance on Plaintiff‘s residence, costing her thousands of dollars in equity, 3)
implying that federal law required Defendant to force-place such excessive insurance, and 4) twice
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threatening to foreclose on Plaintiff‘s property if she did not pay the vague ―property charge‖ of
$1,369.70.
Count V alleges negligence or reckless or negligent misrepresentation by Defendant for 1)
failing to train, supervise, monitor, or otherwise control its employees a) to ensure that they did not
violate the WVCCPA and b) to ensure that their flood insurance policies were in compliance with
the terms of the Deed of Trust and federal law, 2) representing to Plaintiff that she was not in
compliance with federal regulations and her contractual agreement with Defendant because of her
flood insurance policy, and 3) twice threatening Plaintiff with foreclosure for undefined property
charges.
Defendant filed the instant Motion to Dismiss on November 8, 2013. Plaintiff filed her
timely Response, ECF No. 17, and Defendant filed a timely Reply, ECF No. 20. On February 12,
2014, Defendant filed a Supplement to its Reply, ECF No. 29, and Plaintiff filed a concomitant
supplement to her Response, ECF No. 30. This Motion is ripe for resolution.
II.
Standard
When considering a motion to dismiss, 1) a court should ―begin by identifying pleadings
that, because they are no more than conclusions, are not entitled to the assumption of truth,‖ and
then 2) ―[w]hen there are well-pleaded factual allegations, a court should assume their veracity and
then determine whether they plausibly give rise to an entitlement to relief.‖ Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009).
For the first step, the complaint must provide the plaintiff‘s ―grounds of . . . entitlement to
relief‖ in more factual detail than mere ―labels and conclusions.‖ Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007) (internal quotation marks omitted). ―[A] formulaic recitation of the elements
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of a cause of action will not do.‖ Id. at 555. ―While legal conclusions can provide the framework of
a complaint, they must be supported by factual allegations.‖ Iqbal, 556 U.S. at 679.
For the second step, a court must take the factual allegations in the complaint as true, and
the complaint must be viewed in the light most favorable to the plaintiff. See Twombly, 550 U.S. at
555-56. The complaint must contain ―enough facts to state a claim to relief that is plausible on its
face.‖ Id. at 555, 570 (internal quotation marks omitted). Plausibility is established ―when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.‖ Iqbal, 556 U.S. at 678. ―The plausibility standard
. . . asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint
pleads facts that are merely consistent with a defendant‘s liability, it stops short of the line between
possibility and plausibility of entitlement to relief.‖ Id. (internal quotation marks omitted).
III.
Analysis
a. Consideration of Outside Documentation
In support of its instant Motion to Dismiss under Rule 12(b)(6), Defendant attaches a
Home Equity Deed of Trust, dated March 19, 2008, between Plaintiff and Financial Freedom
Senior Funding Corporation. ECF No. 13-2. In her Response, Plaintiff references twenty-two
exhibits of her own. Plaintiff‘s Exhibit 21 is the same Deed of Trust that Defendant attached to its
Motion. ECF No. 17-11. Plaintiff also reattaches Exhibit 22 from her Response to her
Supplemental Response.
Federal Rule of Civil Procedure 12(d) states:
If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are
presented to and not excluded by the court, the motion must be treated as one for
summary judgment under Rule 56. All parties must be given a reasonable
opportunity to present all the material that is pertinent to the motion.
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The Fourth Circuit has clarified that a motion to dismiss under Rule 12(b)(6) will not automatically
convert into a motion for summary judgment under Rule 56 simply because the parties present
materials outside of the pleadings. Finley Lines Joint Protective Bd. Unit 200, Bhd. Ry. Carmen, a
Div. of Transp. Commc'ns Union v. Norfolk S. Corp., 109 F.3d 993, 996-97 (4th Cir. 1997).
Instead, in order to complete such a conversion, ―the district court [must] . . . indicat[e] that it will
not exclude from its consideration of the motion the supporting extraneous materials.‖ Id. at 997.
Without converting a motion to dismiss into a motion for summary judgment, a court may
consider documents attached to the complaint pursuant to Rule 10(c), which states, in pertinent
part, ―A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all
purposes.‖ Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009). Additionally, the
court may consider documents extrinsic to the complaint if they are ―integral to and explicitly
relied on in the complaint‖ and if there is no dispute as to their authenticity. See Robinson v. Am.
Honda Motor Co., 551 F.3d 218, 222–23 (4th Cir. 2009) (analyzing extrinsic evidence presented
by both parties in the context of a motion to dismiss using the same standard); see also Branin v.
TMC Enterprises, LLC, 832 F. Supp. 2d 646, 649 (W.D. Va. 2011); Fisher v. Maryland Dep't of
Pub. Safety & Corr. Servs., No. JFM-10-CV-0206, 2010 WL 2732334, at *2 n.2 (D. Md. July 8,
2010) (noting that ―[t]he same standard applies to documents attached to a plaintiff's response in
opposition‖ (citing Robinson, 551 F.3d at 222–23)). This does not mean that all documents merely
referenced in a complaint can automatically be considered in the context of a motion to dismiss:
[R]ather, . . . the referenced document [must] be central or integral to the claim in
the sense that its very existence, and not the mere information it contains, gives rise
to the legal rights asserted. The cases illustrate this requirement. Thus, where a
complaint in a fraud action references a document containing the alleged material
misrepresentations, the referenced document may be considered part of the
complaint. Similarly, a newspaper article reporting allegedly fraudulent statements
by a corporate officer may be considered part of the complaint in a securities fraud
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action, and an allegedly libelous magazine article referred to in a complaint may be
considered part of the complaint in a libel action based on that article.
Walker v. S.W.I.F.T. SCRL, 517 F. Supp. 2d 801, 806 (E.D. Va. 2007) (footnotes omitted).
When a document is properly considered in the context of a motion to dismiss and it
conflicts with the bare allegations of the complaint, the document prevails. Fare Deals Ltd. v.
World Choice Travel.Com, Inc., 180 F. Supp. 2d 678, 683 (D. Md. 2001); see Fayetteville
Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991).
Here, the Home Equity Deed of Trust which both Defendant and Plaintiff attach to their
briefing is properly considered by the Court in its resolution of the instant Motion to Dismiss
because it is integral to and explicitly relied upon in the Complaint, and there is no dispute as to its
authenticity. Though Plaintiff did not attach the Deed to her Complaint as an exhibit, she quoted it
in paragraph 7 of her Complaint—as the ―First‖ Deed of Trust—, and the Deed gives rise to
Plaintiff‘s breach of contract claim.
The remaining evidentiary exhibits which Plaintiff attaches to her Response and to the
Supplement to her Response are more problematic. Only nine of the exhibits to Plaintiff‘s
Response are explicitly referenced in the Complaint, and none of them were attached to her
Complaint or referenced therein as an exhibit to the Complaint. The Court will examine each of the
nine exhibits explicitly referenced in the Complaint in turn.
Plaintiff‘s Exhibit 5, ECF No. 17-5, is comprised of the first page of a letter from
Defendant to Plaintiff, dated April 26, 2011, reminding her that it may need to force-place
insurance on her property and disclosing various information regarding force-placing insurance.
This letter is referenced in paragraph 19 of the Complaint: ―[Plaintiff] was informed that her
previous insurance was for an inadequate amount, by letter dated April 26, 2011, [sic] the
Defendant informed the Plaintiff that because of her failure to get insurance for the very high and
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unaffordable amount they were demanding, they force placed insurance for $181,000 with a
premium of $1,801.20.‖ The portion of the letter attached as an exhibit does not contain the
information referenced in the Complaint and does not give rise to any of Plaintiff‘s claims. Thus,
Exhibit 5 is not integral to the Complaint.
Plaintiff‘s Exhibit 6, ECF No. 17-6, is comprised of the first two pages of a letter from
Defendant to Plaintiff, dated July 16, 2013, stating, among others things, that Plaintiff‘s mortgage
documents and federal law authorize Defendant to require that adequate flood insurance be
maintained with respect to Plaintiff‘s property. This letter is referenced in paragraph 29 of the
Complaint: ―On July 16, 2013, the Defendant sent [Plaintiff] a new letter informing her that she
needed to purchase an additional $100,000 in additional flood insurance.‖ Though the reference in
the Complaint does not clearly state the importance of this letter, it nonetheless is one of the
communications from Defendant which gives rise to Plaintiff‘s fraud and intentional
misrepresentation, WVCCPA, intentional infliction of emotional distress, and negligence or
reckless or negligent misrepresentation claims. Thus, Exhibit 6 is integral to the Complaint, and
since the authenticity of the exhibit is not contested, the Court may properly consider it in
resolving the instant Motion to Dismiss.
Plaintiff‘s Exhibit 7, ECF No. 17-7, is comprised of a letter from Defendant to Plaintiff,
dated July 7, 2013, also stating, among others things, that Plaintiff‘s mortgage documents and
federal law authorize Defendant to require that adequate flood insurance be maintained with
respect to Plaintiff‘s property. This letter is referenced in paragraph 28 of the Complaint: ―The
Defendant wrote a formal response on July 12, 2013 stating that [Plaintiff‘s] new flood insurance
for $84,000 was acceptable and that she could ignore a letter mailed to her on July 7, 2013
requesting an additional $100,000 in flood insurance.‖ As with Exhibit 6, this letter is one of the
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communications from Defendant which gives rise to Plaintiff‘s fraud and intentional
misrepresentation, WVCCPA, intentional infliction of emotional distress, and negligence or
reckless or negligent misrepresentation claims. Thus, Exhibit 7 is integral to the Complaint, and
since the authenticity of the exhibit is not contested, the Court may properly consider it in
resolving the instant Motion to Dismiss.
Plaintiff‘s Exhibit 22, ECF No. 17-12, is comprised of a letter from Defendant to a
mediator from the Consumer Protection and Antitrust Division of West Virginia‘s Office of the
Attorney General, dated May 5, 2011, addressing multiple concerns Plaintiff brought to the
mediator‘s attention. This letter is referenced in paragraph 23 of the Complaint. Only one section
of the letter refers to the flood insurance dispute that is part of the instant case, and the majority of
that section is solely informational, in that it recounts prior events or explains current or prior
policies, definitions or actions. One portion of this section is more difficult to categorize as
―integral‖ to Plaintiff‘s claims or not:
We recently updated our flood policy to accept coverage for the lesser of the
improved value (i.e., the dwelling(s)) of the property based on the appraisal or the
maximum allowed by the National Flood Insurance program. As such, the
minimum flood coverage amount required is now $91,000 (appraised value of
$111,000 less a site (land) value of $20,000). To reiterate, Ms. Tinsley's policy
coverage through 3/21/11 of $181,000 is acceptable. Since this policy has expired,
Ms. Tinsley needs to obtain a new policy and if she desires she may reduce her
flood coverage to no less than $91,000 for this new policy. The additional flood
coverage Financial Freedom purchased has been cancelled and a refund of $251.78
will be applied to Ms. Tinsley's loan within the next two weeks. As a reminder, Ms.
Tinsley's current flood policy expired on March 21, 2011 and evidence of a new
policy with a coverage amount no less than $91,000 is needed or we must again
force place a policy and charge the premium to her loan balance. This will cause her
loan to be in default and could result in her loan becoming due and payable.
Letter from V. Lyn Niles, Vice President of Loan Admin., Financial Freedom, to Dennis P.
Cunningham, Mediator, Consumer Prot. & Antitrust Div., State of W. Va. Office of the Att‘y
Gen., at *4 (May 5, 2011). Only two of Plaintiff‘s claims come close to implicitly requiring the
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above portion of Exhibit 22. In the second paragraph 17 of the Complaint,5 Plaintiff alleges that
―Defendant violated WVCCPA §46A-3-109(a)(b)(4) by providing misleading and unclear
statements of what [sic] how much flood insurance was required . . .‖ and in the second paragraph
24, Plaintiff alleges that ―Defendant negligently failed to train, supervise, monitor or otherwise
control its employees to ensure that its employees did not violate the WVCCPA . . . .‖ Though the
above portion of Exhibit 22 could potentially be used by Plaintiff as partial evidence in support of
these two claims, this Court does not find that it is integral to the claims in a way which gives rise
to them.
Plaintiff‘s Exhibit 25, ECF No. 17-15, is comprised of a letter from Plaintiff‘s counsel to
Defendant, dated June 18, 2013, and entitled ―Notice of Right to Cure under 46A-6-106 of the
West Virginia Consumer Credit and Protection Act,‖ and a U.S.P.S. certified mail return receipt.
The letter is referenced in paragraph 27 of the Complaint, but it does not give rise to any of
Plaintiff‘s claims. Thus, Exhibit 25 is not integral to the Complaint.
Plaintiff‘s Exhibit 26, ECF No. 17-16, is comprised of a letter from Defendant to Plaintiff‘s
counsel, dated July 12, 2013, the majority of which is solely informational, in that it recounts prior
events or explains current or prior policies, definitions or actions. The letter is referenced in
paragraph 28 of the Complaint. One portion of the letter states,
Ms. Tinsley may disregard our letter dated July 7, 2013 informing her that she
needed to purchase an additional amount of flood coverage for $100,000 (GAP
coverage). We have requested our insurance vendor change the required amount of
flood coverage to $84,000 effective March 21, 2013 and this will result in an
additional credit to the loan for an amount to be determined. Since the National
Flood Insurance Program (NFIP) flood policy was not effective until June 20, 2013
the gap in coverage will still need to be covered by the lender-placed policy at the
$84,000 coverage amount rather than $184,000.
5
The Complaint begins renumbering at paragraph 1 again under Count I.
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Letter from Thea Olson, Customer Experience Analyst, Fin. Freedom, to Benjamin Sheridan, Esq.,
at *2 (July 12, 2013). Like Exhibit 22, this portion of Exhibit 26 could potentially be used by
Plaintiff as partial evidence in support of the two claims outlined above regarding ―misleading and
unclear statements of what how much flood insurance was required.‖ Also like Exhibit 22, the
Court does not find that this portion of Exhibit 26 is integral to these claims in a way which gives
rise to them.
Plaintiff‘s Exhibit 27, ECF No. 17-17, is comprised of a letter from Defendant to Plaintiff,
dated March 27, 2013, and entitled ―Repayment Agreement,‖ which informs Plaintiff that her loan
is suspended and in default status, states what this means and what action Defendant wishes
Plaintiff to take in response, and states that this can ultimately lead to foreclosure of Plaintiff‘s
home. This letter is referenced in paragraphs 35 through 38 of the Complaint, and it is one of the
communications from Defendant which gives rise to Plaintiff‘s fraud and intentional
misrepresentation, WVCCPA, intentional infliction of emotional distress, and negligence or
reckless or negligent misrepresentation claims. Thus, Exhibit 27 is integral to the Complaint, and
since the authenticity of the exhibit is not contested, the Court may properly consider it in
resolving the instant Motion to Dismiss.
Plaintiff‘s Exhibit 28, ECF No. 17-18, is comprised of a letter from Defendant to Plaintiff,
dated May 27, 2013, and entitled ―Repayment Agreement: Final Notice,‖ which duplicates the
content of Exhibit 27. This letter is referenced in paragraph 39 of the Complaint, and it is also one
of the communications from Defendant which gives rise to Plaintiff‘s fraud and intentional
misrepresentation, WVCCPA, intentional infliction of emotional distress, and negligence or
reckless or negligent misrepresentation claims. Thus, Exhibit 28 is integral to the Complaint, and
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since the authenticity of the exhibit is not contested, the Court may properly consider it in
resolving the instant Motion to Dismiss.
In summary, the Court will consider Defendant‘s Exhibit B—the Deed of Trust—and
Plaintiff‘s Exhibits 6, 7, 21—also the Deed—, 27, and 28 in resolving the instant Motion to
Dismiss. The Court will not convert this Motion into a Motion for Summary Judgment before
hardly any discovery has been completed in the case, without a complete collection of exhibits
from both parties, and without the request of either party that this Motion be treated as such. Thus,
all of Plaintiff‘s other exhibits will not be considered by the Court.
b. Preemption
Defendant argues that all of Plaintiff‘s claims are preempted by the Home Owners‘ Loan
Act (―HOLA‖), 12 U.S.C. §§ 1461 et seq., and its implementing regulation, 12 C.F.R. § 560.2.
HOLA granted the Office of Thrift Supervision (―OTS‖) the authority to regulate federal
savings associations, 6 and though HOLA, itself, does not define its preemptive effect, the
implementing regulation promulgated by OTS states that the agency ―occupies the entire field of
lending regulation for federal savings associations.‖7 McCauley v. Home Loan Inv. Bank, F.S.B.,
710 F.3d 551, 554 (4th Cir. 2013); 12 C.F.R. § 560.2(a). Importantly, ―a federal regulation has the
same preemptive effect as a federal statute.‖ McCauley, 710 F.3d at 554.
The implementing regulation, 12 C.F.R. § 560.2, goes on to state that ―federal savings
associations may extend credit . . . without regard to state laws purporting to regulate or otherwise
affect their credit activities, except to the extent provided in paragraph (c) of this section.‖ §
6
Defendant asserts that Plaintiff‘s loan was originated by an operating subsidiary of a federally-chartered savings
association. Def.‘s Mem. Supp. Mot. Dismiss 4 n.3. Plaintiff appears to concede this point by arguing that her state law
claims are not preempted under HOLA, not that HOLA does not apply in the first place.
7
The Dodd–Frank Wall Street Reform and Consumer Protection Act—signed into law in 2010—abolished OTS. 12
U.S.C. §§ 5412, 5413. However, it did not retroactively vacate the regulations issued by OTS. McCauley v. Home
Loan Inv. Bank, F.S.B., 710 F.3d 551, 554 n.2 (4th Cir. 2013). Thus, since the key regulation regarding state law
preemption under HOLA, 12 C.F.R. § 560.2, was in effect when the parties entered into the Deed in 2008, it governs
here. See also id.
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560.2(a). Paragraph (b) of the regulation then specifies that the types of state laws preempted by
HOLA include, ―without limitation,‖ state laws8 ―purporting to impose requirements regarding‖:
(1) Licensing, registration, filings, or reports by creditors;
(2) The ability of a creditor to require or obtain private mortgage insurance,
insurance for other collateral, or other credit enhancements;
(3) Loan-to-value ratios;
(4) The terms of credit, including amortization of loans and the deferral and
capitalization of interest and adjustments to the interest rate, balance, payments
due, or term to maturity of the loan, including the circumstances under which a loan
may be called due and payable upon the passage of time or a specified event
external to the loan;
(5) Loan-related fees, including without limitation, initial charges, late charges,
prepayment penalties, servicing fees, and overlimit fees;
(6) Escrow accounts, impound accounts, and similar accounts;
(7) Security property, including leaseholds;
(8) Access to and use of credit reports;
(9) Disclosure and advertising, including laws requiring specific statements,
information, or other content to be included in credit application forms, credit
solicitations, billing statements, credit contracts, or other credit-related documents
and laws requiring creditors to supply copies of credit reports to borrowers or
applicants;
(10) Processing, origination, servicing, sale or purchase of, or investment or
participation in, mortgages;
(11) Disbursements and repayments;
(12) Usury and interest rate ceilings to the extent provided in 12 U.S.C. 1735f–7a
and part 590 of this chapter and 12 U.S.C. 1463(g) and § 560.110 of this part; and
(13) Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j–3 and part 591
of this chapter.
§ 560.2(b). Finally, paragraph (c) states that certain types of state law—including contract and
commercial law, real property law, and tort law—―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.‖ 9 § 560.2(c). OTS has further
8
For the purposes of § 560.2, ―‗state law‘ includes any state statute, regulation, ruling, order or judicial decision.‖ §
560.2(a).
9
Paragraph (a) states the following purposes: ―to facilitate the safe and sound operation of federal savings
associations, to enable federal savings associations to conduct their operations in accordance with the best practices of
thrift institutions in the United States,‖ ―[t]o enhance safety and soundness and to enable federal savings associations
to conduct their operations . . . by efficiently delivering low-cost credit to the public free from undue regulatory
duplication and burden,‖ ―to give federal savings associations maximum flexibility to exercise their lending powers in
accordance with a uniform federal scheme of regulation,‖ and ―to further other purposes of [] HOLA.‖ 12 C.F.R. §
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clarified that ―the purpose of paragraph (c) is to preserve the traditional infrastructure of basic state
laws that undergird commercial transactions, not to open the door to state regulation of lending by
federal savings associations.‖ Lending & Investment, 61 Fed. Reg. 50951–01, 50966 (Sept. 30,
1996).
OTS has also specified the analysis a court should undergo to determine whether
preemption applies:
When analyzing the status of state laws under § 560.2, the first step will be to
determine whether the type of law in question is listed in paragraph (b). If so, the
analysis will end there; the law is preempted. If the law is not covered by paragraph
(b), the next question is whether the law affects lending. If it does, then, in
accordance with paragraph (a), the presumption arises that the law is preempted.
This presumption can be reversed only if the law can clearly be shown to fit within
the confines of paragraph (c). For these purposes, paragraph (c) is intended to be
interpreted narrowly. Any doubt should be resolved in favor of preemption.
Id. at 50966-67. The Fourth Circuit has clarified that, ―[i]n considering § 560.2(b), . . . [a court]
must look to all the acts alleged in the complaint. . . . [This] requires an examination of each
component of [a] claim to determine if it purports to regulate those aspects of loans enumerated in
§ 560.2(b).‖ McCauley, 710 F.3d at 556 (citation omitted) (internal quotation marks omitted).
Using this framework, the Court will review each of Plaintiff‘s claims in turn.
i. Count I: Breach of Contract
Count I alleges breaches of contract by Defendant for 1) ―requir[ing]‖ Plaintiff to get flood
insurance in excess of what was required under the Deed of Trust,10 force-placing such insurance,
and charging the cost to Plaintiff and 2) charging Plaintiff a monthly $30 servicing fee which was
560.2(a).
10
The issue of whether Defendant‘s flood insurance requirements or the ultimately force-placed insurance is plausibly
alleged to be ―in excess‖ of what is required by the Deed of Trust is dealt with below. Preemption analysis focuses
upon whether each claim, assuming it to be adequately alleged, must be preempted, not whether the Complaint
adequately alleges sufficient facts to plausibly give rise to the claim.
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not clearly disclosed ―on any of the paperwork from the date of closing the loan . . . to [the]
present.‖ Compl. 8 ¶¶ 3-4 (2nd).
Plaintiff‘s first claim properly alleges a breach of contract, in that the claim arises out of the
Deed of Trust and does not attack any of Defendant‘s underlying policies or practices. See Bishop
v. Ocwen Loan Servicing, LLC, No. CIV.A. 3:10-0468, 2010 WL 4115463, at *5 (S.D. W. Va.
Oct. 19, 2010). A breach of contract claim is a prime example of the type of claim which arises
from ―the traditional infrastructure of basic state laws that undergird commercial transactions.‖
Lending & Investment, 61 Fed. Reg. at 50966. As such, the law out of which this claim arises is not
one of the types of law listed under § 560.2(b); instead, it falls within the confines of ―contract and
commercial law‖ under § 560.2(c). Though a breach of contract claim such as this affects the
lending operations of federal savings associations, it does so only incidentally, and the bringing of
such a claim under state law remains consistent with the purposes of § 560.2(a). See Bishop, 2010
WL 4115463, at *5, 7. Thus, Plaintiff‘s 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.
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. Instead, Plaintiff
alleges that Defendant did not clearly disclose the monthly $30 servicing fee to Plaintiff in any
paperwork at any time, from the closing of the loan in 2008 to present day. Such a claim is wholly
unmoored from any terms in the Deed; instead, it attacks Defendant‘s underlying policies and
practices as a federal savings association. See id. at *5. Plaintiff ―in essence asks [this Court] to
impose new, substantive requirements on mortgage lenders.‖ McCauley, 710 F.3d at 556. As such,
this claim is preempted as arising out of state law which purports to impose requirements regarding
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―[d]isclosure and advertising‖ under § 560.2(b)(9). Thus, Plaintiff‘s ―breach of contract‖ claim
that Defendant charged her a monthly $30 servicing fee which was not clearly disclosed is
DISMISSED.
ii. Count II: Common Law Fraud & Intentional Misrepresentation
Count II alleges fraud and intentional misrepresentation by Defendant for 1) demanding
that Plaintiff obtain excessive additional flood insurance and force-placing such insurance, 2)
informing Plaintiff on multiple occasions that her flood insurance was for an inadequate amount
and implying that she had an obligation to carry flood insurance in excess of the loan
balance—which assertions Plaintiff relied upon to her detriment, in that she ―determined that she
could not afford flood insurance at the policy levels required by [] Defendant and became stuck
with [] Defendant‘s forced placed flood insurance‖—, 3) failing to adequately explain the monthly
$30 servicing fee to Plaintiff, and 4) ―fraudulently‖ threatening to foreclose on Plaintiff‘s property
in two separate letters if Plaintiff failed to pay a vague ―property charge‖ of $1,369.70. Compl. 8-9
¶¶ 7-11 (2nd).
Plaintiff‘s first claim arises directly out of the terms of the Deed.11 Though Plaintiff does
not specify whether the ultimately force-placed flood insurance was ―excessive‖ under substantive
law or under the terms of her contract, a review of the factual background within the Complaint
shows that Plaintiff believes the force-placed flood insurance to be excessive according to the
terms of her contract, and as outlined above, such contract-based claims are not preempted under
HOLA.12
11
Whether this claim properly alleges fraud or intentional misrepresentation is dealt with below.
In support of one of her WVCCPA claims, Plaintiff later states that she believes Defendant also misstated the
amount of flood insurance required under federal law and under Defendant‘s own policies. See Compl. 10 ¶ 14(b)
(2nd). However, this assertion is not included in Plaintiff‘s fraud claims, and throughout the factual background
section of the Complaint, federal law and Defendant‘s own policies appear only to be pertinent to the determination of
whether Defendant violated the terms of the Deed.
12
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Plaintiff‘s second claim alleges fraud or intentional misrepresentation by Defendant. As
recently clarified by the Fourth Circuit, fraud claims are not preempted under HOLA because they
allege affirmative deception—not the violation of any state law preempted under § 560.2(b).
McCauley, 710 F.3d at 557; see also OTS Op. Letter, Preemption of State Laws Applicable to
Credit Card Transactions, 1996 WL 767462, at *5 (Dec. 24, 1996) (―State laws prohibiting
deceptive acts and practices in the course of commerce are not included in the illustrative list of
preempted laws in § 560.2(b).‖). Such claims focus upon the particular fraudulent acts at bar; as a
result, they do not change the regulatory landscape. See McCauley, 710 F.3d at 558; see also OTS
Op. Letter, 1996 WL 767462, at *5 (―In fact, because federal [savings associations] are presumed
to interact with their borrowers in a truthful manner[,] [a] general prohibition on deception should
have no measurable impact on their lending operations.‖). Thus, per McCauley, this claim is not
preempted under HOLA.
Plaintiff‘s third ―fraud and intentional misrepresentation‖ claim alleges that Defendant
failed to adequately explain the monthly $30 servicing fee to her. Once again, Plaintiff is actually
alleging that Defendant failed to adequately disclose the $30 fee to her. This claim is preempted as
arising out of state law which purports to impose requirements regarding ―[d]isclosure and
advertising‖ under § 560.2(b)(9). Thus, this claim is DISMISSED.
Plaintiff‘s fourth fraud and intentional misrepresentation claim alleges that Defendant
―fraudulently‖ threatened to foreclose on Plaintiff‘s property in two separate letters if Plaintiff
failed to pay a vague ―property charge‖ of $1,369.70. Plaintiff is again alleging affirmative
deceptions by Defendant, which claims, as explained above, are not preempted by HOLA.
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iii. Count III: Violations of the WVCCPA
Count III alleges violations of the WVCCPA by Defendant for 1) misleading Plaintiff in
multiple letters by stating that her flood insurance was inadequate, 2) implying to Plaintiff that she
was required under company regulations and federal law to purchase additional flood insurance, 3)
failing to adequately disclose to Plaintiff the reasoning for and amount of the monthly servicing fee
and how it would be charged to her account, 4) twice threatening to foreclose on Plaintiff‘s
property if she did not pay the ―property charge‖ of $1,369.70, 5) charging Plaintiff for flood
insurance which was of no practical value to her, 6) requiring flood insurance which was not
reasonably related to the existing hazard or risk of loss or to the terms of credit provided to Plaintiff
by Defendant, and 7) not allowing Plaintiff to choose the flood insurance provider.
Plaintiff alleges her first four WVCCPA claims to be violations of West Virginia Code §§
46A-6-104 and -102(L) and (M). Section 46A-6-104 states, ―Unfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared
unlawful.‖ Section 46A-6-102 clarifies, ―‗Unfair methods of competition and unfair or deceptive
acts or practices‘ means and includes . . . (L) [e]ngaging in any . . . conduct [other than that outlined
in subsections (A) through (K)] which similarly creates a likelihood of confusion or of
misunderstanding; [or] (M) [t]he act, use or employment by any person of any deception, fraud,
false pretense, false promise or misrepresentation, or the 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 goods or services, whether or not any person has
in fact been misled, deceived or damaged thereby . . . .‖
Setting aside the issue of whether Plaintiff‘s claims properly allege violations of these
sections, it is apparent that, for claims one, two, and four, she is merely using the WVCCPA as a
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means of obtaining a remedy for affirmative deceptive behavior. Cf. Bishop, 2010 WL 4115463, at
*6-7 (finding claims under the WVCCPA which merely sought a remedy for breach of contract—a
type of claim not preempted under HOLA when alleged directly—to also not be preempted under
HOLA). As explained above, state laws regulating deceptive behavior are not preempted under
HOLA. Thus, WVCCPA claims one, two, and four are not preempted.
Plaintiff‘s third WVCCPA claim asserts omissions by Defendant in its disclosures to
Plaintiff. The key issue of whether such omissions were in any way wrongful cannot be decided
under state law because § 560.2(b)(9) preempts state laws which purport to impose requirements
regarding ―[d]isclosure and advertising.‖ Thus, Plaintiff‘s WVCCPA claim that Defendant failed
to adequately disclose the reasoning for and amount of the monthly servicing fee and how it would
be charged to her account is DISMISSED.
Plaintiff‘s fifth WVCCPA claim alleges that Defendant charged Plaintiff for flood
insurance which was of no practical value to her in violation of § 46A-3-109(a)(4), which states, in
pertinent part, ―[A] creditor may contract for and receive . . . in connection with a consumer credit
sale or a consumer loan . . . [c]harges for other benefits, including insurance, conferred on the
consumer, if the benefits are of value to him or her . . . .‖ This claim is clearly preempted as arising
out of a state law which purports to impose requirements regarding 1) ―[t]he ability of a creditor to
require or obtain private mortgage insurance, insurance for other collateral, or other credit
enhancements‖ under § 560.2(b)(2) and 2) ―[s]ecurity property‖ under § 560.2(b)(7). Thus,
Plaintiff‘s fifth WVCCPA claim is DISMISSED.
Plaintiff‘s sixth WVCCPA claim alleges that Defendant required flood insurance which
was not reasonably related to the existing hazard or risk of loss or to the terms of credit provided to
her by Defendant in violation of § 46A-3-109(b)(1), which states, in pertinent part,
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The amount, terms and conditions of property insurance shall have a reasonable
relation to the existing hazards or risk of loss, damage or destruction and be
reasonable in relation to the character and value of the property insured or to be
insured; and the term of the insurance shall be reasonable in relation to the terms of
credit.
Again, this claim is clearly preempted as arising out of a state law which purports to impose
requirements regarding 1) ―[t]he ability of a creditor to require or obtain private mortgage
insurance, insurance for other collateral, or other credit enhancements‖ under § 560.2(b)(2) and 2)
―[s]ecurity property‖ under § 560.2(b)(7). Thus, Plaintiff‘s sixth WVCCPA claim is
DISMISSED.
Plaintiff‘s seventh WVCCPA claim alleges that Defendant violated § 46A-3-109(b)(4) by
providing misleading and unclear statements of how much flood insurance was required and by
not allowing Plaintiff to choose the flood insurance provider. Section 46A-3-109(b)(4) states, in
pertinent part,
With respect to insurance against loss of or damage to property or against liability,
the creditor shall furnish a clear and specific statement in writing to the debtor
setting forth the cost of the insurance if obtained from or through the creditor and
stating that the debtor may choose the person through whom the insurance is to be
obtained . . . .
This claim is also clearly preempted as arising out of state law which purports to impose
requirements regarding 1) ―[t]he ability of a creditor to require or obtain private mortgage
insurance, insurance for other collateral, or other credit enhancements‖ under § 560.2(b)(2), 2)
―[s]ecurity property‖ under § 560.2(b)(7), and 3) ―[d]isclosure and advertising‖ under §
560.2(b)(9). Thus, Plaintiff‘s seventh WVCCPA claim is DISMISSED.
iv. Count IV: Intentional Infliction of Emotional Distress
Count IV alleges intentional infliction of emotional distress (IIED) by Defendant for 1)
willfully and intentionally misleading Plaintiff regarding the amount of flood insurance she
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needed, 2) force-placing excessive flood insurance on Plaintiff‘s residence, costing her thousands
of dollars in equity, 3) implying that federal law required Defendant to force-place such excessive
insurance, and 4) twice threatening to foreclose on Plaintiff‘s property if she did not pay the vague
―property charge‖ of $1,369.70.
Plaintiff‘s first, third, and fourth IIED claims allege affirmative deceptions by Defendant.
Plaintiff‘s second IIED claim is based, in essence, on an alleged violation of the terms of the Deed.
As outlined above, both breach of contract claims and claims of affirmative deception are not
preempted under HOLA. Thus, none of Plaintiff‘s IIED claims are preempted.
v. Count V: Negligence & Reckless or Negligent Misrepresentation
Count V alleges negligence or reckless or negligent misrepresentation by Defendant for 1)
failing to train, supervise, monitor, or otherwise control its employees a) to ensure that they did not
violate the WVCCPA and b) to ensure that their flood insurance policies were in compliance with
the terms of the Deed of Trust and federal law; 2) representing to Plaintiff that she was not in
compliance with federal regulations and her contractual agreement with Defendant because of her
flood insurance policy; and 3) recklessly or negligently threatening to foreclose on Plaintiff‘s
property, twice, if she did not pay the vague ―property charge‖ of $1,369.70.
Plaintiff‘s first negligence claim converts what would otherwise be a mere tort claim into a
high-level attack on Defendant‘s internal training policies regarding servicing of a loan and the
placement of flood insurance on collateral. Thus, this claim is preempted as arising out of a state
law which purports to impose requirements regarding 1) ―[t]he ability of a creditor to require or
obtain private mortgage insurance, insurance for other collateral, or other credit enhancements‖
under § 560.2(b)(2), 2) ―[s]ecurity property‖ under § 560.2(b)(7), and 3) ―[p]rocessing,
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origination, servicing, sale or purchase of, or investment or participation in, mortgages‖ under §
560.2(b)(10). Thus, Plaintiff‘s first negligence claim is DISMISSED.
Plaintiff‘s final two negligence claims allege reckless or negligent misrepresentations by
Defendant. Just as a state‘s general prohibition on deception does not fall under any of the
preempted types of laws listed under § 560.2(b), neither does a state‘s general prohibition on
affirmative reckless or negligent misrepresentations. Such law ―relates to the standards to which a
lender dealing with a potential borrower will be held[,] [and] [a]s such, it clearly affects lending,
giving rise to a presumption that it is preempted.‖ McCauley, 710 F.3d at 557. However, ―OTS . . .
does not intend to preempt state laws that establish the basic norms that undergird commercial
transactions[,] [and] [a]ccordingly, in § 560.2(c), [it] has identified certain categories of state law
that are not preempted.‖ OTS Op. Letter, 1996 WL 767462, at *5. ―Tort law‖ is one such category,
and reckless or negligent misrepresentation is a tort claim. Reckless or negligent misrepresentation
claims would only incidentally affect the lending operations of federal savings associations since
lending institutions can easily avoid making affirmative misrepresentations through the simple due
diligence that is expected of all commercial enterprises. Finally, these claims are consistent with
the purposes of § 560.2(a) in that ―[t]here is no indication that the law is aimed at any state
objective in conflict with the safe and sound regulation of federal savings associations, the best
practices of thrift institutions in the United States, or any other federal objective identified in §
560.2(a).‖ OTS Op. Letter, 1996 WL 767462, at *6. Thus, Plaintiff‘s reckless or negligent
misrepresentation claims that Defendant represented to Plaintiff that she was not in compliance
with federal regulations and her contractual agreement with Defendant because of her flood
insurance policy and threatened to foreclose on Plaintiff‘s property, twice, if she did not pay the
vague ―property charge‖ of $1,369.70 are not preempted under HOLA.
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c. Failure to State a Claim
Defendant also argues, in the alternative, that any claims which are not preempted under
HOLA otherwise fail to state a claim under which relief can be granted, pursuant to Federal Rule
of Civil Procedure 12(b)(6). The Court will review each of the remaining claims in turn.
i. Count I: Breach of Contract
Plaintiff‘s remaining breach of contract claim alleges that Defendant required Plaintiff to
get flood insurance in excess of what was required under the Deed,13 force-placed such insurance,
and charged the cost to Plaintiff. Defendant contends that Plaintiff cannot and does not assert
sufficient facts which plausibly give rise to an entitlement to relief because the Deed allows
Defendant to force-place insurance and charge it to Plaintiff in the amounts Defendant did. Thus,
there was no breach. As discussed in detail above, this Court may consider the Deed in its
resolution of the instant Motion to Dismiss, and in the instance of any conflict between the Deed
and the Complaint, the Deed controls.
The Deed of Trust requires Plaintiff to ―pay all property charges consisting of . . . flood . . .
insurance premiums . . . and . . . provide evidence of payment to [Defendant], unless [Defendant]
pays property charges . . . by charging such payments to a line of credit as provided for in the Loan
Agreement.‖ Deed of Trust 2 ¶ 2. The Deed also states that ―if [Plaintiff] fails to make these
payments or the property charges [sic] required by Paragraph 2, . . . [Defendant] may do and pay
whatever is necessary to protect the value of the Property and [Defendant‘s] rights in the Property,
including payment of . . . hazard insurance and other items mentioned in Paragraph 2.‖ Id. at 3 ¶ 5.
Additionally, ―[a]ny amounts disbursed by [Defendant] under this Paragraph shall become an
13
It is apparent from the briefing that when the parties refer to the ―Deed,‖ they are referring to the First Deed of Trust
referenced in the Complaint.
-27-
additional debt of [Plaintiff] as provided for in the Loan Agreement and shall be secured by [the
Deed].‖ Id. at 3 ¶ 5.
The Deed requires Plaintiff to ―insure all improvements on the Property . . . against any
hazards, casualties, and contingencies, including fire . . . in the amounts, to the extent and for the
periods required by [Defendant] or the Secretary of [HUD] (―Secretary‖).‖ Id. at 2 ¶ 3. The
immediately following sentence states, ―[Plaintiff] shall also insure all improvements on the
Property . . . against loss by floods to the extent required by the Secretary.‖ Id. Finally, ―All
insurance shall be carried with companies approved by [Defendant].‖ Id.
The key flood insurance regulation promulgated by HUD, 24 C.F.R. § 203.16a(a), states,
―If the mortgage is to cover property improvements . . . that . . . are located in an area designated by
the Federal Emergency Management Agency (FEMA) as a floodplain area having special flood
hazards, or . . . [a]re otherwise determined by the Commissioner to be subject to a flood hazard,
and if flood insurance under the National Flood Insurance Program (NFIP) is available with
respect to these property improvements, the mortgagor and mortgagee shall be obligated, by a
special condition to be included in the mortgage commitment, to obtain and to maintain NFIP
flood insurance coverage on the property improvements during such time as the mortgage is
insured.‖ Section 203.16a(c) clarifies that this flood insurance ―must be maintained during such
time as the mortgage is insured in an amount at least equal to either the outstanding balance of the
mortgage, less estimated land costs, or the maximum amount of the NFIP insurance available with
respect to the property improvements, whichever is less.‖
Additionally, according to the Complaint, there is a Second Deed of Trust—benefitting
HUD—which states, under the label ―Fire, Flood and Other Hazard Insurance,‖ that Plaintiff
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―shall insure all improvements on the Property, whether now in existence of [sic] subsequently
erected, against loss by floods to the extent required by the lender.‖ Compl. ¶ 8.
Defendant maintains that the Deed 14 and § 203.16a(a) both allow it to set the flood
insurance coverage at any amount, including the amounts actually set by Defendant, and that if
Plaintiff fails to procure flood insurance of at least the amount set by Defendant, it can force-place
the insurance at that amount and charge the cost of that insurance to Plaintiff. Defendant argues
several interrelated points. First, it argues that the controlling line of the contract is the requirement
that Plaintiff ―insure all improvements on the Property . . . against any hazards, casualties, and
contingencies, including fire . . . in the amounts, to the extent and for the periods required by
[Defendant] or the Secretary.‖ Per Defendant, flood insurance is a type of hazard insurance, and
thus, Defendant can require flood insurance coverage in an amount higher than that which would
be required by the Secretary of HUD. Defendant argues that the next sentence in the
Deed—―[Plaintiff] shall also insure all improvements on the Property . . . against loss by floods to
the extent required by the Secretary.‖—merely clarifies that, for flood insurance, the coverage
Plaintiff must carry will be at least that required by HUD, thus setting a lower limit on the amount
of flood insurance which Defendant can require. Further, Defendant points out that, through §
203.16a(c), HUD requires flood insurance ―in an amount at least equal to either the outstanding
balance of the mortgage, less estimated land costs, or the maximum amount of the NFIP insurance
available;‖ thus, HUD‘s requirements allow for Defendant to set the flood insurance coverage
requirement at any amount, merely providing a floor, not a ceiling.
Plaintiff maintains that the Deed does not allow Defendant to set the amount of flood
insurance that Plaintiff must maintain on her property; instead, such amount is set exclusively by
the Secretary of HUD, as detailed in the Deed through the sentence ―[Plaintiff] shall also insure all
14
Oddly enough, both parties ignore the Second Deed of Trust in their briefing.
-29-
improvements on the Property . . . against loss by floods to the extent required by the Secretary.‖
Plaintiff then points out that Defendant‘s interpretation of § 203.16a(c) is flawed in that it ignores
the final three words of the operative sentence. The full sentence reads, ―[F]lood insurance must be
maintained during such time as the mortgage is insured in an amount at least equal to either the
outstanding balance of the mortgage, less estimated land costs, or the maximum amount of the
NFIP insurance available with respect to the property improvements, whichever is less.‖ Thus, the
requirement set by HUD is the lesser of either the maximum amount of the NFIP insurance
available or the outstanding balance of the mortgage, less estimated land costs. In Plaintiff‘s case,
the latter is clearly the lesser of the two options.15 Thus, Defendant has been requiring far more
flood insurance coverage of Plaintiff than that which her Deed allows.
First, it is apparent to the Court that Plaintiff‘s interpretation of § 203.16a(c) is correct. Per
§ 203.16a(c), HUD gives two options for determining the required amount of flood insurance for a
covered property: either the maximum amount of the NFIP insurance available or the outstanding
balance of the mortgage, less estimated land costs; however, the regulation is explicit in that it
requires only the one option which results in the least flood insurance coverage. Defendant is
correct that § 203.16a(c) does not create a ceiling upon the amount of flood insurance which may
be placed on a property to which § 203.16a applies; however, this allowance of higher amounts by
HUD does not translate into a requirement of higher amounts.
The First Deed is less clear. Even the first sentence, standing alone, is ambiguous; if
Plaintiff must carry hazard insurance in an amount as required by Defendant or HUD, in the event
of a difference between the amounts required by each—as here—which controls? The next
sentence, specific to flood insurance, is much clearer and supports Plaintiff‘s claim: ―[Plaintiff]
15
The Complaint quotes an April 6, 2010, letter from Defendant which states that the ―the maximum available
coverage under the National Flood Insurance Program (NFIP) . . . [is] currently $250,000 for residential properties in
participating communities.‖ Compl. ¶ 16.
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shall also insure all improvements on the Property . . . against loss by floods to the extent required
by the Secretary‖—not to the extent required by Defendant.
Seriously compounding the confusion is the Second Deed of Trust, which was ignored by
both parties in their briefing. It appears to be a contract between at least HUD and Plaintiff, and it
is unclear what Defendant‘s rights may be under the Second Deed. Further it is unclear whether the
Secretary of HUD‘s ―requirements‖ under the First Deed are dictated by § 203.16a(c) or by the
Second Deed or by both in combination. It is also unclear how the words ―to the extent required by
the lender‖ in the Second Deed are modified by the First Deed, since the lender presumably drafted
the First Deed. However, the ambiguity in the operative contracts between the parties need not be
fully resolved by the Court at this time. See Subaru Distributors Corp. v. Subaru of Am., Inc., 425
F.3d 119, 122 (2d Cir. 2005) (stating that, at the motion to dismiss stage, a court ―should resolve
any contractual ambiguities in favor of the plaintiff‖).
The Complaint alleges that, in 2008, Plaintiff borrowed $41,818 from Defendant. It further
alleges that, in April 2010, Defendant demanded that Plaintiff procure $149,900 in flood insurance
beyond the coverage she already maintained of $101,000 and that, in March 2010, Defendant had
already force-placed $100,000 in supplemental flood insurance on Plaintiff‘s property and charged
the premium to Plaintiff‘s line of credit. It also alleges that, in April 2011, when Plaintiff‘s
outstanding mortgage balance was $76,126.42, Defendant force-placed $181,000 of insurance on
the property and charged the premium to Plaintiff. The Complaint further alleges that, in March
2012, Defendant force-placed $91,000 of insurance on the property and charged the premium to
Plaintiff and then, in April 2012, Defendant force-placed $182,000 of insurance on the property
and charged the premium to Plaintiff. The Complaint also alleges that, in June 2012, the
outstanding mortgage balance was $78,248.60. It further alleges that, in July 2013, Plaintiff had
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$84,000 in flood insurance and then Defendant informed her that she needed another $100,000 in
flood insurance beyond this amount. The Complaint also alleges that the outstanding balance of
the reverse mortgage as of May 2013 was $83,904.48.
It is clear that, given the facts that Plaintiff alleges and the ambiguity in and between the
Deeds, Plaintiff has alleged sufficient facts to state a claim for relief that is plausible on its face.
Taking the allegations in the Complaint to be true and resolving all contractual ambiguities in
Plaintiff‘s favor, in this instance, the Deeds require flood insurance on Plaintiff‘s property in an
amount equal to the outstanding balance of the mortgage, less estimated land costs. The highest
outstanding balance throughout the period of activity in the Complaint was just under $84,000;
thus, each instance of Defendant force-placing insurance in an amount beyond this limit and
charging the cost of such insurance to Plaintiff was plausibly in breach of the parties‘ contract.
ii. Count II: Fraud & Intentional Misrepresentation
Plaintiff‘s remaining fraud and intentional misrepresentation claims allege that Defendant
1) demanded that Plaintiff obtain excessive additional flood insurance and then force-placed such
insurance, 2) informed Plaintiff on multiple occasions that her flood insurance was for an
inadequate amount, implying that she had an obligation to carry flood insurance in excess of the
loan balance—which assertions Plaintiff relied upon to her detriment, in that she ―determined that
she could not afford flood insurance at the policy levels required by [] Defendant and became stuck
with [] Defendant‘s forced placed flood insurance‖—, and 3) ―fraudulently‖ threatened to
foreclose on Plaintiff‘s property in two separate letters if Plaintiff failed to pay a vague ―property
charge‖ of $1,369.70.
The West Virginia Supreme Court of Appeals treats a claim for ―intentional
misrepresentation‖ as a fraud claim, so this Court will do so as well. See, e.g., Gaddy Eng'g Co. v.
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Bowles Rice McDavid Graff & Love, LLP, 746 S.E.2d 568, 576 (W. Va. 2013) (―Actionable fraud
must ordinarily be predicated upon an intentional misrepresentation of a past or existing fact and
not upon a misrepresentation as to a future occurrence.‖ (emphasis removed) (internal quotation
marks omitted)). Under West Virginia law, the essential elements of a fraud claim are ―(1) that the
act claimed to be fraudulent was the act of the defendant or induced by him; (2) that it was material
and false; (3) that plaintiff relied upon it and was justified under the circumstances in relying upon
it; and (4) that he was damaged because he relied upon it.‖ Bowens v. Allied Warehousing Servs.,
Inc., 729 S.E.2d 845, 852 (W. Va. 2012) (brackets omitted).
There are multiple issues with Plaintiff‘s fraud claims. First, the first and third claims
above do not even attempt to allege reliance—that Plaintiff took action or omitted to act based
upon Defendant‘s ―misrepresentations‖—, let alone damages from such reliance. See Pocahontas
Min. Co. Ltd. P'ship v. Oxy USA, Inc., 503 S.E.2d 258, 264 (1998) (Workman, J., concurring).
Secondly, all of Plaintiff‘s fraud claims are ―simply breach of contract claims masquerading as
fraud claims.‖ Gaddy Engineering, 746 S.E.2d at 577. As the West Virginia Supreme Court of
Appeals recently clarified,
In seeking to prevent the recasting of a contract claim as a tort claim, courts often
apply the ―gist of the action‖ doctrine. Under this doctrine, recovery in tort will be
barred when any of the following factors is demonstrated:
(1) where liability arises solely from the contractual relationship
between the parties; (2) when the alleged duties breached were
grounded in the contract itself; (3) where any liability stems from
the contract; and (4) when the tort claim essentially duplicates the
breach of contract claim or where the success of the tort claim is
dependent on the success of the breach of contract claim.
Id. Here, all of Plaintiff‘s remaining fraud claims clearly fulfill the final three ―gist of the action‖
factors, and in order to dismiss such a claim, only one such factor needs to be demonstrated. Most
obviously, all three fraud claims are dependent upon the success of the breach of contract claim. If
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Defendant prevails upon the contract claim, then none of the representations of which Plaintiff
here complains were ―false.‖ Thus, all of Plaintiff‘s remaining fraud and intentional
misrepresentation claims are DISMISSED for failure to state claims upon which relief can be
granted.
iii. Count III: Violations of the WVCCPA
Plaintiff‘s remaining WVCCPA-violation claims allege that Defendant violated West
Virginia Code §§ 46A-6-104 and -102(L) and (M) by 1) misleading Plaintiff in multiple letters by
stating that her flood insurance was inadequate, 2) implying to Plaintiff that she was required
under company regulations and federal law to purchase additional flood insurance, and 3) twice
threatening to foreclose on Plaintiff‘s property if she did not pay the ―property charge‖ of
$1,369.70. As discussed in detail above, this Court may consider Plaintiff‘s Exhibits 6, 7, 27, and
28 in resolving the instant Motion to Dismiss, and in the instance of any conflict between the
exhibits and the Complaint, the exhibits control. Exhibits 6 and 7 are pertinent to the Court‘s
discussion of WVCCPA claims one and two, and Exhibits 27 and 28 are pertinent to the Court‘s
discussion of remaining WVCCPA claim three.
Section 46A-6-104 states, ―Unfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce are hereby declared unlawful.‖ Section
46A-6-102 clarifies, ―‗Unfair methods of competition and unfair or deceptive acts or practices‘
means and includes . . . (L) [e]ngaging in any . . . conduct [other than that outlined in subsections
(A) through (K)] which similarly creates a likelihood of confusion or of misunderstanding; [or]
(M) [t]he act, use or employment by any person of any deception, fraud, false pretense, false
promise or misrepresentation, or the concealment, suppression or omission of any material fact
with intent that others rely upon such concealment, suppression or omission, in connection with
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the sale or advertisement of any goods or services, whether or not any person has in fact been
misled, deceived or damaged thereby . . . .‖
Section 46A-6-102(M) cannot apply to this case because the actions listed in this section
must be done ―in connection with the sale or advertisement of any goods or services.‖ Defendant‘s
alleged actions could not be categorized as either attempted sales or advertisements. Instead, as
outlined in the Complaint, Defendant was attempting to force Plaintiff to increase her own
insurance coverage, and when she did not do so, Defendant force-placed such additional
insurance. Later, Defendant threatened to foreclose on Plaintiff‘s property if she did not pay a
property charge. Plaintiff nowhere alleges any advertisement or sale of goods or services in
Defendant‘s communications.16 Thus, all claims made under § 46A-6-102(M) are DISMISSED.
Section 46A-6-104, in connection with § 46A-6-102(L), prohibits engaging in any conduct
which creates a likelihood of confusion or of misunderstanding in the conduct of any trade or
commerce.
Plaintiff‘s first WVCCPA claim alleges that Defendant violated these statutes by
misleading Plaintiff, through multiple letters, that her flood insurance was inadequate. Given that
Plaintiff‘s second claim explicitly speaks to Defendant‘s assertions regarding its own regulations
and federal law, this first claim appears to relate solely to Defendant‘s assertions regarding the
meaning of the Deeds. This claim suffers from the same problem as Plaintiff‘s fraud claims: in
order for Plaintiff to prevail in showing that Defendant‘s communications created confusion or
misunderstanding, she must prevail on her breach of contract claim. If Defendant prevails, there
was no confusion or misunderstanding created by its communications with Plaintiff regarding the
16
In fact, in one such communication, a letter from Defendant dated July 16, 2013, Defendant states in all capital
letters: ―Notice: If we must obtain lender-placed flood coverage for you because of your failure to forward evidence of
adequate flood insurance, the cost of this lender-placed flood insurance may be significantly higher than the cost of
insurance purchased through your own agent or company.‖ Pl.‘s Ex. 6 at 2.
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Deed; instead, Defendant was simply correct. This is precisely the duplication of claims which the
―gist of the action‖ doctrine seeks to prevent, and as explained in the HOLA preemption section of
this Opinion, through this claim, Plaintiff is merely gaining a remedy for a tort claim through the
WVCCPA. Most importantly, given the ambiguity in the underlying Deeds, it stretches credulity
to say that Defendant‘s communications with Plaintiff regarding its interpretation of the Deeds
qualify as conduct which creates a likelihood of confusion or misunderstanding; any confusion or
misunderstanding was caused by the underlying Deeds, not Defendant‘s conduct. Thus, the Court
simply cannot find that Plaintiff has alleged sufficient facts in support of her first WVCCPA claim
to plausibly give rise to an entitlement to relief. Plaintiff‘s claim that Defendant violated West
Virginia Code §§ 46A-6-104 and -102(L) by misleading Plaintiff, through multiple letters, that her
flood insurance was inadequate is DISMISSED.
Plaintiff‘s second WVCCPA claim alleges that Defendant violated these statutes by
implying to Plaintiff that she was required under company regulations and federal law to purchase
additional flood insurance. Plaintiff‘s Exhibit 7 is comprised of the first two pages of a letter dated
July 7, 2013, which Defendant addressed to Plaintiff. It states,
Your mortgage documents and federal law authorize us to require that adequate
flood insurance be maintained with respect to all outstanding loans secured by
improved property located in a Special Flood Hazard Area (SFHA) . . . . Your
property is located in an SFHA, so the terms of your mortgage and federal law
require you to purchase adequate flood insurance. Our records show that we have
not received proof that adequate flood insurance is in force on your property. As a
result, . . . we will purchase the additional flood insurance (lender-placed
insurance) required and charge you for the cost of the insurance. To maintain
adequate insurance, we require that your flood insurance coverage is in an amount
at least equal to the lesser of:, [sic] (i) the last known amount of homeowners
insurance (Coverage A) that you purchased or (ii) the maximum available coverage
under the National Flood Insurance Program (NFIP), [sic] (currently $250,000 for
residential properties in participating communities). . . . If we do not hear from you,
we are authorized to obtain the additional flood insurance coverage for you. . . .
[T]his insurance will provide protection for loss of your dwelling up to $100,000.
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Pl.‘s Ex. 7 at 1-2. Plaintiff‘s Exhibit 6, another letter from Defendant to Plaintiff, dated July 13,
2013, also includes, word for word, the above quoted material. Additionally, the Complaint quotes
a letter from Defendant, dated April 6, 2010, which duplicates, word for word, the first four
sentences above and then states:
Coverage must be in an amount that is at least equal to, (i) the last known amount of
homeowners insurance (Coverage A) that you purchased or (ii) the maximum
available coverage under the National Flood Insurance Program (NFIP), (currently
$250,000 for residential properties in participating communities), whichever is
lowest.
Compl. ¶ 16. The Complaint further alleges that this 2010 letter informed Plaintiff that she needed
an additional $149,900 in flood insurance.
As explained above, ―federal law‖—through 24 C.F.R. § 203.16a(a)—requires flood
insurance coverage ―in an amount at least equal to either the outstanding balance of the mortgage,
less estimated land costs, or the maximum amount of the NFIP insurance available with respect to
the property improvements, whichever is less.‖ The highest outstanding balance throughout the
period of activity in the Complaint was just under $84,000; thus, insurance coverage of $100,000
and $149,900 is beyond that which federal law requires. It is plausible to this Court that the above
communications from Defendant would create a likelihood of confusion or of misunderstanding
regarding what amount of flood insurance coverage is required by federal law.
Further, the Complaint alleges that, apparently in 2011 or 2012, in a response letter to the
Attorney General, V. Lyn Niles, Vice President of Loan Administration for Defendant Financial
Freedom, stated:
We recently updated our flood policy to accept coverage for the lesser of the
improved value (i.e., the dwelling(s)) of the property based on the appraisal or the
maximum allowed by the National Flood Insurance program. As such, the
minimum flood coverage amount required is now $91,000 (appraised value of
$111,000 less a site (land) value of $20,000).
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Compl. ¶ 23. The Complaint also alleges that Defendant wrote a response to Plaintiff‘s counsel on
July 12, 2013, stating that Plaintiff‘s flood insurance coverage for $84,000 was acceptable and that
she could ignore the above letter from July 7, 2013, requesting an additional $100,000 in flood
insurance. However, the July 13, 2013, letter—identical to the July 7, 2013, letter—was received
after this July 12, 2013, letter. Thus, it is apparent from Plaintiff‘s allegations and the two July
2013 letters that Defendant engaged in conduct which created a likelihood of confusion or of
misunderstanding regarding whether or not its internal regulations required the amount of flood
insurance Defendant was force-placing on Plaintiff‘s property. Indeed, the Court remains confused
as to what Defendant‘s policies in this regard actually were. Thus, Plaintiff plausibly alleges a
claim for relief under West Virginia Code §§ 46A-6-104 and -102(L) in regard to Defendant‘s
communications to Plaintiff that she was required under company regulations and federal law to
purchase additional flood insurance.
Plaintiff‘s third WVCCPA claim alleges that Defendant violated these statutes by twice
threatening to foreclose on Plaintiff‘s property if she did not pay the ―property charge‖ of
$1,369.70. Plaintiff‘s Exhibit 27 is a letter from Defendant to Plaintiff, dated March 27, 2013, and
entitled ―Repayment Agreement,‖ which states,
Your reverse mortgage loan is suspended and in default status . . . . Failure to cure
the repayment amount set forth below or failure to pay future property taxes,
insurance premiums, and/or homeowner's association dues (known as "property
charges") when they become due could result in Financial Freedom declaring your
reverse mortgage loan due and payable. If the default remains unresolved, this may
result in the initiation of proceedings to foreclose and ultimately the loss of your
home. . . . As stated in your reverse mortgage loan documents, you must pay your
property charges timely. Your failure to do so has resulted in Financial Freedom
advancing funds on your behalf, which must be repaid. The total repayment amount
of $1369.70 is calculated based on the actual disbursement amount of property
charges, less any available line of credit balance at the time of the disbursement(s)
and any repayments received to date. . . . For further guidance, we strongly
encourage you to contact one of the Housing Counseling Agencies on the enclosed
list. One of these counselors may be able to provide you with information about
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agencies in your area that could be of assistance to you in understanding your
liability for these expenses as well as options for repayment. Please provide a copy
of this letter at the time of your counseling session.
Pl.‘s Ex. 27 at 1. Plaintiff‘s Exhibit 28, a letter from Defendant to Plaintiff, dated May 27, 2013, is
nearly identical to Exhibit 27. Considering that the ―property charge‖ ―total repayment amount‖ of
$1369.70 is never itemized or explained in this letter—and the Complaint alleges no further
communications which do, so the Court cannot assume that there were any—, Plaintiff asserts
sufficient facts that, in the conduct of its business, Defendant engaged in conduct which created a
likelihood of confusion or of misunderstanding in violation of §§ 46A-6-104 and -102(L). Thus,
Plaintiff‘s claim that Defendant twice threatened to foreclose on Plaintiff‘s property if she did not
pay the ―property charge‖ of $1,369.70, in contravention of these statutes, plausibly gives rise to
an entitlement to relief.
iv. Count IV: Intentional Infliction of Emotional Distress
Plaintiff‘s IIED claims allege that Defendant 1) willfully and intentionally misled Plaintiff
regarding the amount of flood insurance she needed, 2) force-placed excessive flood insurance on
Plaintiff‘s residence, costing her thousands of dollars in equity, 3) implied that federal law
required Defendant to force-place such excessive insurance, and 4) twice threatened to foreclose
on Plaintiff‘s property if she did not pay the vague ―property charge‖ of $1,369.70.
In order for Plaintiff to prevail on her IIED claim, she must show:
(1) that the defendant‘s conduct was atrocious, intolerable, and so extreme and
outrageous as to exceed the bounds of decency; (2) that the defendant acted with
the intent to inflict emotional distress, or acted recklessly when it was certain or
substantially certain emotional distress would result from his conduct; (3) that the
actions of the defendant caused the plaintiff to suffer emotional distress; and, (4)
that the emotional distress suffered by the plaintiff was so severe that no reasonable
person could be expected to endure it.
Travis v. Alcon Labs., Inc., 504 S.E.2d 419, Syl. Pt. 3 (W. Va. 1998).
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Plaintiff‘s first two IIED claims are simply breach of contract claims masquerading as tort
claims. As a matter of law, no reasonable jury could find that Defendant ―misled‖ Plaintiff or that
its force-placing of insurance was so extreme and outrageous as to exceed the bounds of decency if
Defendant prevails on the underlying breach of contract claim. See id. at 427 (―It is for the court to
determine, in the first instance, whether the defendant's conduct may reasonably be regarded as so
extreme and outrageous as to permit recovery, or whether it is necessarily so.‖ (internal quotation
marks omitted)). Thus, Plaintiff‘s first two IIED claims must be DISMISSED because, for each,
the success of the tort claim is dependent upon the success of the breach of contract claim.
Plaintiff‘s final two IIED claims also fail because no reasonable jury could find
Defendant‘s alleged conduct so extreme and outrageous as to exceed the bounds of decency.
Regarding this element of an IIED claim, the West Virginia Supreme Court of Appeals has
clarified,
The defendant's conduct must be more than unreasonable, unkind or unfair; it must
truly offend community notions of acceptable conduct. . . . It has not been enough
that the defendant has acted with an intent which is tortious or even criminal, or that
he has intended to inflict emotional distress, or even that his conduct has been
characterized by ―malice,‖ or a degree of aggravation which would entitle the
plaintiff to punitive damages for another tort. Liability has been found only where
the conduct has been so outrageous in character, and so extreme in degree, as to go
beyond all possible bounds of decency, and to be regarded as atrocious, and utterly
intolerable in a civilized community. Generally, the case is one in which the
recitation of the facts to an average member of the community would arouse his
resentment against the actor, and lead him to exclaim, ―Outrageous!‖ The liability
clearly does not extend to mere insults, indignities, threats, annoyances, petty
oppressions, or other trivialities. The rough edges of our society are still in need of
a good deal of filing down, and in the meantime plaintiffs must necessarily be
expected and required to be hardened to a certain amount of rough language,, [sic]
and to occasional acts that are definitely inconsiderate and unkind. There is no
occasion for the law to intervene in every case where some one's feelings are hurt.
There must still be freedom to express an unflattering opinion, and some safety
valve must be left through which irascible tempers may blow off relatively
harmless steam.
Id. at 425 (internal quotation marks omitted).
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Plaintiff‘s own wording of her third IIED claim reveals the problem with it: ―Defendant
implied that federal law required them to force place excessively high flood insurance, despite the
Plaintiff having adequate flood insurance.‖ Compl. 11 ¶ 20(c) (2nd) (emphasis added). Whether
Plaintiff in fact had adequate flood insurance is the subject of her as-yet-unresolved breach of
contract claim, thus it is improper subject matter for her IIED claim. Further, no average member
of the community would exclaim, ―Outrageous!‖ at such an implication by Defendant. Thus,
Plaintiff‘s third IIED claim must be DISMISSED.
Regarding Plaintiff‘s fourth IIED claim, though threatening to foreclose upon someone‘s
house may very well be considered extreme and outrageous behavior in certain circumstances,
such circumstances do not exist here. Whether Defendant properly threatened to foreclose upon
Plaintiff‘s house for non-payment of ―property charges‖ is not a proper IIED claim because it is
truly a contract claim pretending to be a tort claim. Thus, Plaintiff is left with a claim that
Defendant merely did not adequately identify the ―property charge‖ for nonpayment of which it
threatened to foreclose upon Plaintiff‘s property. Though it would no doubt be vexing to receive
such a nonspecific letter, again, the Court cannot imagine any average community member
exclaiming, ―Outrageous!‖ upon hearing of this omission. Thus, all of Plaintiff‘s IIED claims must
be DISMISSED for failure to state claims upon which relief can be granted.
v. Count V: Negligence & Reckless or Negligent Misrepresentation
Plaintiff‘s remaining negligence or reckless or negligent misrepresentation claims allege
that Defendant 1) represented to Plaintiff that she was not in compliance with federal regulations
and her contractual agreement with Defendant because of her flood insurance policy and 2)
recklessly or negligently threatened to foreclose on Plaintiff‘s property, twice, if she did not pay
the ―property charge‖ of $1,369.70.
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―To prevail in a negligence suit, the plaintiff must prove by a preponderance of the
evidence that the defendant owed a legal duty to the plaintiff and that by breaching that duty the
defendant proximately caused the injuries of the plaintiff.‖ Strahin v. Cleavenger, 603 S.E.2d 197,
205 (W. Va. 2004).
Plaintiff‘s second negligence claim and the portion of Plaintiff‘s first negligence claim
which alleges that Defendant represented to Plaintiff that she was not in compliance with the
parties‘ contractual agreement because of her flood insurance policy cannot continue because, like
her fraud claims, they are truly contract claims masquerading as tort claims. Thus, they are
DISMISSED.
The remaining portion of Plaintiff‘s first negligence claim—which alleges that Defendant
represented to Plaintiff that she was not in compliance with federal regulations because of her
flood insurance policy—is also improper because Plaintiff has not plausibly alleged a special
relationship between Defendant and her such that Defendant owed her a duty in this instance:
Under West Virginia law, a plaintiff cannot maintain a[] [negligence] action . . . for
an alleged breach of a contractual duty. A legal duty, however, may arise from a
special relationship between the parties. The existence of a special relationship will
be determined largely by the extent to which the particular plaintiff is affected
differently from society in general.
In the lender-borrower context, a special relationship may exist where a lender
performs services not normally provided by a lender to a borrower. The possession
of information unique to the lender can also indicate a special relationship.
O'Brien v. Quicken Loans, Inc., No. 2:12-CV-5138, 2013 WL 2319248, at *10 (S.D. W. Va. May
28, 2013) (citations omitted) (internal quotation marks omitted). Such a duty also must be also
proven to support a reckless or negligent misrepresentation claim. See Folio v. City of Clarksburg,
655 S.E.2d 143, 151 (W. Va. 2007) (―One under a duty to give information to another, who makes
an erroneous statement when he has no knowledge on the subject, and thereby misleads the other
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to his injury, is as much liable in law as if he had intentionally stated a falsehood.‖ (internal
quotation marks omitted)); Kidd v. Mull, 595 S.E.2d 308, 317 (W. Va. 2004) (―[A] successful
claim for negligent misrepresentation would require a finding that [the defendant] maintained a
special relationship or duty to the [plaintiffs].‖). As was the case in O’Brien, the relationship
Plaintiff outlines in the Complaint is that which is customary between a borrower and a lender.
Defendant did not endeavor to perform uncustomary services for Plaintiff, possess information of
unique relevance to Plaintiff in regard to this claim, or participate in any conduct which could
arguably be seen as creating a special relationship with Plaintiff. Thus, all of Plaintiff‘s remaining
negligence or reckless or negligent misrepresentation claims must be DISMISSED for failure to
state claims upon which relief can be granted.
IV.
Conclusion
As explained above, Defendant‘s Motion to Dismiss, ECF No. 12, is GRANTED in part
and DENIED in part. Plaintiff‘s breach of contract claim that Defendant required Plaintiff to get
flood insurance in excess of what was required under the Deed of Trust, force-placed such
insurance, and charged the cost to Plaintiff survives this Motion to Dismiss. Plaintiff‘s WVCCPA
claims that Defendant violated West Virginia Code §§ 46A-6-104 and -102(L) by 1) implying to
Plaintiff that she was required under company regulations and federal law to purchase additional
flood insurance and 2) twice threatening to foreclose on Plaintiff‘s property if she did not pay a
―property charge‖ of $1,369.70 also survive this Motion to Dismiss. All other claims—including
Plaintiff‘s other breach of contract claim, all of Plaintiff‘s fraud and intentional misrepresentation
claims, all of Plaintiff‘s other WVCCPA claims, all of Plaintiff‘s intentional infliction of
emotional distress claims, and all of Plaintiff‘s negligence or reckless or negligent
misrepresentation claims—are DISMISSED.
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Plaintiff‘s Motion Requesting Hearing on Defendant‘s Motion to Dismiss, ECF No. 26, is
DENIED as moot.
The Court DIRECTS the Clerk to send a copy of this written Opinion and Order to counsel
of record and any unrepresented parties.
ENTER:
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March 14, 2014
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