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Navin v. Wells Fargo Bank, N.A.

United States District Court, D. Connecticut

August 8, 2016

JEFFREY NAVIN AND JOHN O’REILLY, on behalf of themselves and of all others similarly situated, Plaintiffs,
v.
WELLS FARGO BANK, N.A., WELLS FARGO INSURANCE, INC., ASSURANT INC., AMERICAN SECURITY INSURANCE COMPANY, AMERICA’S SERVICING COMPANY and HSBC BANK USA, Defendants.

          MEMORANDUM AND ORDER

          Michael P. Shea, U.S.D.J.

         Plaintiff Jeffrey Navin-who recently died-and pro se plaintiff John O’Reilly (collectively, “Plaintiffs”) have brought this lawsuit against the following Defendants: HSBC Bank USA, N.A. (“HSBC”); Wells Fargo Bank, N.A., America’s Servicing Company, and Wells Fargo Insurance, Inc. (collectively, the “Wells Fargo Defendants”); and Assurant Inc. (“Assurant”) and its subsidiary American Security Insurance Company (“ASIC”), (collectively, the “Assurant Defendants”). (First Amended Complaint (“FAC”), ECF No. 8 at 1.) The First Amended Complaint (“FAC”) alleges that Defendants forced residential borrowers, such as Navin, to pay for homeowners’ insurance obtained by lenders to protect the lenders’ interests, and derived improper financial benefits from such “forced-placed insurance.” (Id. at 2.) “Plaintiffs seek[] to recover damages equal to the amount of the improper and inequitable financial benefit received by Defendants and/or their affiliates as a result of this anti-consumer practice, and to rescind the future collection of amounts charged against the mortgage accounts of residential borrowers but not yet collected.” (Id. at 2.)

         Plaintiffs, who seek to represent classes of similarly situated individuals, assert the following claims against Defendants: breach of contract (Count One); unjust enrichment (Count Two); violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §1962(c) (Count Three); RICO conspiracy (Count Four); aiding and abetting breach of fiduciary duty (Count Five); and violation of the Connecticut Unfair Trade Practices Act, C.G.S. § 42-110a et seq. (“CUTPA”)[1] and the Connecticut Unfair Insurance Practices Act, C.G.S. § 38a-815 et seq. (“CUIPA”)[2] (Count Six). Plaintiffs also seek declaratory and injunctive relief (Count Seven).

         The Assurant Defendants move to dismiss the FAC under Rules 9(b), 12(b)(1), 12(b)(2), and 12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 50.) The Wells Fargo Defendants move to dismiss the FAC under Rule 12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 66.) HSBC moves to dismiss the FAC under Rules 9(b), 12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 87.) Finally, following Navin’s death, O’Reilly moved “for an order of substitution as successor, manager, and father-in-law” of Navin. (ECF No. 101.) For the reasons set forth below, the Court DENIES O’Reilly’s motion to substitute for Navin, and GRANTS Defendants’ motions to dismiss.

         I. FACTUAL BACKGROUND

         The following facts are taken from the FAC and from documents outside of the pleadings that the Court may consider in resolving a motion to dismiss under Rule 12(b)(6), including the order issued by the Appellate Court for the State of Connecticut on June 28, 2011, in HSBC Bank, N.A. v. Navin, 129 Conn.App. 707, 708, 22 A.3d 647, 648 (2011) affirming the judgment of strict foreclosure on Navin’s property rendered on February 22, 2010 (ECF No. 68, Exhibit C), and the “Open-End Mortgage Deed” securing the loan Navin obtained from American Brokers Conduit for the Property.[3] (Open-End Mortgage Deed, ECF No. 54 at 4-18 and ECF No. 68-2 at 8-21 (hereafter “Open-End Mortgage Deed”).)

         A. The Property and the Mortgage

         At all times relevant to the FAC, Navin and O’Reilly resided at 7 Hart Landing in Guilford, Connecticut (the “Property”). (FAC ¶ 20.) According to the FAC, Navin owned the Property and O’Reilly “is the manager.”[4] (Id.) On October 5, 2005, Navin, as the borrower and mortgagor, executed a promissory note in the amount of $1, 313, 000 to the lender, American Brokers Conduit. (Open-End Mortgage Deed; HSBC Bank, N.A. v. Navin, 129 Conn.App. 707, 709, 22 A.3d 647, 648 (2011).) As security for the note, Navin conveyed an interest in the Property by executing a mortgage deed in favor of Mortgage Electronic Registration Systems, Inc., a nominee of American Brokers Conduit. (Open-End Mortgage Deed; Navin v. HSBC Bank USA, Nat. Ass’n, No. 3:12-CV-00752 SRU, 2013 WL 3965123, at *1 (D. Conn. Aug. 2, 2013).) Navin’s mortgage was recorded in volume 706 of the official records of New Haven County at pages 598 through 612. (Open-End Mortgage Deed.) On October 5, 2005, the mortgage and note were assigned to HSBC, as trustee for Deutsche ALT-A Securities, Inc.[5] (Plaintiffs’ Request for Judicial Notice, Ex. A, ECF No. 102-1 at 2.) After Navin fell behind on his mortgage payments, HSBC brought a foreclosure action against Navin, and the Connecticut Appellate Court affirmed judgment of strict foreclosure in favor of HSBC. See Navin, 129 Conn.App. at 709.

         B. Forced-Placed Insurance

         According to the FAC, “Mortgage Lenders require borrowers to purchase and agree to maintain hazard insurance coverage on the secured property as a condition to funding home loans.” (FAC ¶ 3.) Navin and members of the proposed class “were required to obtain and maintain hazard insurance as a condition of their mortgages.” (Id.) When borrowers fail to maintain hazard insurance policies for their properties, mortgage agreements generally allow lenders to require borrowers to pay for insurance policies to protect the lenders’ interests in the mortgaged properties. Such polices-known as “lender-placed insurance” (“LPI”) or “force-placed hazard insurance” (“FPI”) policies-often provide less coverage and are more expensive than the borrowers’ original insurance policies. (Id. ¶ 4.)

         C. The Parties

         HSBC is a lender (FAC ¶ 21), and Assurant is a provider of LPI or FPI through its Assurant Specialty Property business. (Id. at ¶ 24.) ASIC, a wholly owned subsidiary of Interfinancial, Inc., which is a wholly owned subsidiary of Assurant, provided FPI for the Property. (Id. ¶ 25.) The FAC alleges, upon information and belief, that ASIC acts as the FPI vendor for Wells Fargo, and its duties include “tracking loans in Wells Fargo’s mortgage portfolio, handling all customer service duties related to [FPI], and securing [FPI] policies on properties when a borrower’s insurance has lapsed.” (Id.) Wells Fargo Bank, N.A., (through its division, America’s Servicing Company) services Navin’s mortgage. (Wells Fargo Defendants’ Memorandum in Support of their Motion to Dismiss, ECF No. 67 at 13, p. 5; see also Pooling and Servicing Agreement between Deutsche Alt-A Securities, Inc. as Depositor, Wells Fargo Bank, N.A. as Master Servicer and Securities Administrator, and HSBC Bank USA, N.A. as trustee, dated November 1, 2005, ECF No. 90-1 at 7, 32.) The FAC alleges, upon information and belief, that Wells Fargo Insurance, a division of Wells Fargo Bank, N.A., “does nothing to assist in obtaining [FPI policies] and exists only so Wells Fargo [Bank, N.A.] can collect kickbacks or commissions related to the [FPI policies].” (FAC ¶ 23.)

         D. The Claims

         The Open-End Mortgage Deed contains a provision allowing the lender to obtain FPI on the Property if the borrower fails to maintain his own hazard insurance. (FAC ¶ 26.) It provides, in relevant part:

If Borrower fails to maintain any [hazard insurance], Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

(Open-End Mortgage Deed, ECF No. 54 at 9 §5.) Generally, the FAC alleges that Defendants derived improper financial benefits by imposing FPI on properties and charging improper fees unrelated to the cost of FPI. (FAC ¶¶ 2-5.) Plaintiffs allege that mortgage lenders and servicers select FPI providers according to secret, pre-arranged agreements that provide financial benefits to the FPI providers, who kickback some of those financial benefits to the mortgage lenders or servicers. (Id. ¶¶ 30-32.) Plaintiffs seek to certify two classes: (1) individuals who have been victimized by Defendants in the FPI “illegal enterprise, ” and (2) individuals who have been “victims of illegal foreclosure actions” brought about by false, ROBO-signed, or perjured documents. (Id. ¶ 109.)

         In Count One, Plaintiffs sue HSBC and the Wells-Fargo Defendants for breach of contract, including breach of the implied covenant of good faith and fair dealing. (Id. ¶¶ 110-23.) Plaintiffs allege that HSBC and the Wells Fargo Defendants “were contractually obligated to service” their loans “pursuant to the terms of their mortgage agreements” and in good faith. (Id. ¶¶ 113-14.) Plaintiffs allege, however, that HSBC and the Wells Fargo Defendants breached their contractual obligations “[b]y force-placing insurance that goes well beyond the pale of what is required to protect their interests” (Id. ¶ 119), and by fabricating evidence and assignments related to mortgage foreclosures. (Id. ¶¶ 120-21.) Plaintiffs allege that HSBC and the Wells Fargo Defendants breached their duties of good faith and fair dealing by, among other things: “receiv[ing] kick-backs for claim damages without ever attempting to repair” the damaged properties, leaving occupants in danger; failing to maintain borrowers’ existing insurance policies; forcing borrowers to pay high prices for insurance; and backdating FPI policies to cover time periods that had already passed and for which there was no risk of loss. (Id. ¶ 116.)

         In Count Two, Plaintiffs sue all Defendants[6] for unjust enrichment, alleging that Plaintiffs “conferred a substantial benefit upon the Assurant Defendants” by paying FPI premiums for “unnecessary and exorbitantly priced FPI policies” on their properties. (Id. ¶¶ 125-26.) Further, Plaintiffs allege that HSBC and the Wells Fargo Defendants defrauded Navin and class members by conducting illegal foreclosures with fraudulent documents. (Id. ¶¶ 128-29.) Plaintiffs seek restitution and disgorgement. (Id. ¶¶ 129-30.)

         In Counts Three and Four, Plaintiffs bring claims against all Defendants for violation RICO, 18 U.S.C. § 1964(c)[7] and for conspiracy to violate RICO, 18 U.S.C. § 1962(d). Plaintiffs allege that Defendants violated 18 U.S.C. § 1962(c)[8] and caused injury to their business or property by conducting or participating in the “FPI enterprise” and “through a pattern of racketeering acts” including mail fraud and wire fraud.[9] (FAC ¶¶ 134-35; 84-89.) “For the purpose of executing and/or attempting to execute the above described scheme to obtain money by means of false or fraudulent pretenses, representations or promises, ” Defendants allegedly caused loan documents, applications, correspondence, agreements, notices, and checks related to FPI to be delivered by the Postal Service or transmitted by wire (or knew and agreed to such delivery or transmission). (Id. ¶¶ 85-87.) Such notices included “cycle letters” that informed Plaintiffs of Defendants’ authority to place FPI policies, and that contained “half-truths” and “misinformation.” (Id. ¶ 88.) Plaintiffs also allege that HSBC and the Wells Fargo Defendants “forge[d] and falsif[ied] documents in their attempt to illegally foreclose” on properties. (Id. ¶ 78.)

         Plaintiffs allege that they were injured by Defendants’ conduct. First, they were forced to pay for high-cost, unnecessary, and duplicative FPI. (Id. ¶ 91) Second, “[w]hen a claim was put in for serious water damage, Defendant Assurant, after agreeing to compensate the claim, took the total proceeds and kicked them back” to HSBC and the Wells-Fargo Defendants. (Id.) Plaintiffs were left with water damage and no money to repair the damage. (Id.) The inhabitants of the Property-O’Reilly, his wife, and his son-were exposed to hazardous mold for nearly six months. (Id.) Finally, the kitchen ceiling collapsed on O’Reilly, injuring him. (Id.; see ECF No. 72 at 24 (explaining that “O’Reilly does in fact seek monetary, declaratory, injunctive, and other relief for his personal injuries, his wife’s injuries, and his son’s injuries and the continuing health dangers associated with exposure to the mold, open ceilings and the like.”).) Plaintiffs also allege that they were harmed by Defendants’ conduct in forging documents, perjuring themselves, swearing falsely, and “fabricat[ing] false documents to be used in illegal foreclosure actions against” them. (FAC ¶ 92.)

         In Count Five, Plaintiffs sue the Assurant Defendants for aiding and abetting HSBC and the Wells Fargo Defendants in breaching alleged fiduciary duties owed to Navin and the class. Navin alleges that Assurant “actively induced and/or participated” in the breach of fiduciary duties by “providing tracking services that identified and implemented” FPI. (Id. ¶¶ 140-43.) As a result, Plaintiffs allege that they “suffered damages in the form of unnecessary and excessive escrow charges, unnecessary and improper depletion of escrow funds intended for and properly allocated to other Escrow Items, a loss of funds from their escrow accounts, and/or loss of equity in the property due to increases in the amounts due under the mortgage to cover escrow shortfalls.” (Id. ¶ 144.)

         In Count Six, Plaintiffs bring claims against all Defendants for violation of the Connecticut Unfair Trade Practices Act, C.G.S. § 42-110a et seq. (“CUTPA”) and the Connecticut Unfair Insurance Practices Act, C.G.S. § 38a-815 et seq. (“CUIPA”). (Id. ¶¶ 146-51.) Plaintiffs allege that Defendants engaged in the following deceptive acts and practices: failing to maintain borrowers’ existing insurance policies and seeking to maximize their own financial gain by placing FPI (according to pre-arranged secret deals) with greater premiums and less coverage than borrowers’ existing policies “in bad faith and in contravention of the parties’ reasonable expectations”; assessing excessive, unreasonable, and unnecessary premiums and misrepresenting the reasons for the policies’ costs; backdating FPI policies to cover time periods that had already passed (for which there was no risk of loss), or for which borrowers were already covered; misrepresenting borrowers’ obligations; and failing to provide borrowers with opportunities to opt-out of FPI policies that were provided by insurers with whom Defendants had commission or affiliate relationships. (Id. ¶ 148.)

         In Count Seven, Plaintiffs seek declaratory and injunctive relief against all Defendants. (Id. ¶¶ 152-57.) Plaintiffs seek a judgment declaring that Defendants must cease the FPI and “fraudulent foreclosure” activities described in the FAC, provide adequate remedies (including refunds and credits), and provide adequate procedures to ensure that Defendants’ conduct ceases. (Id. ¶¶ 154-55.)

         II. LEGAL STANDARD

         Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must determine whether the plaintiff has alleged “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Court accepts all of the complaint’s factual allegations as true when evaluating a motion to dismiss. Id. at 572. The Court must “draw all reasonable inferences in favor of the non-moving party.” Vietnam Ass’n for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104, 115 (2d Cir. 2008) (citation omitted). “When a complaint is based solely on wholly conclusory allegations and provides no factual support for such claims, it is appropriate to grant defendants[’] motion to dismiss.” Scott v. Town of Monroe, 306 F.Supp.2d 191, 198 (D. Conn. 2004) (internal quotation marks and citation omitted). For a complaint to survive a motion to dismiss, “[a]fter the court strips away conclusory allegations, there must remain sufficient well-pleaded factual allegations to nudge plaintiff’s claims across the line from conceivable to plausible.” In re Fosamax Products Liab. Litig., 2010 WL 1654156, at *1 (S.D.N.Y. Apr. 9, 2010) ...


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