Perryman v. Litton Loan Servicing, LP

Citations: 81 F. Supp. 3d 893; 2015 U.S. Dist. LEXIS 24296; 2015 WL 895638Docket: Case No. 14-cv-02261-JST

Court: District Court, N.D. California; February 25, 2015; Federal District Court

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Motions to dismiss filed by Defendants Southwest Business Corporation and Beltline Road Insurance Agency have been granted, along with motions to stay from Defendants Ocwen Loan Servicing LLC and American Security Insurance Company. The case involves a proposed class action concerning lender-placed insurance (LPI) practices. 

Plaintiff Margo Perryman alleges that in March 2014, Ocwen established a new force-placed insurance program with Southwest and Alti-source after its prior agreement with Assurant expired. Southwest serves as Ocwen's managing general agent, handling negotiations and management of the insurance program, while Beltline receives commissions for minimal services rendered. The Plaintiff's allegations also include that ASIC notified her about the renewal of her flood insurance policy in August 2014.

The procedural history includes a May 2014 class action filing, previous dismissals of some claims against Southwest, and the partial denial of motions to dismiss from Ocwen and ASIC regarding specific claims. A related nationwide class action is ongoing in Florida, where Perryman is a class member. A settlement in that case has been preliminarily approved, prohibiting class members from pursuing similar claims in other lawsuits.

Jurisdiction is established under the Class Action Fairness Act of 2005, as the Plaintiff's claims exceed $5 million and there is diversity of citizenship between at least one class member and the Defendants. Regarding motions to dismiss, a district court may dismiss a case for failure to state a claim if there is no cognizable legal theory or insufficient facts supporting a claim. Courts accept factual allegations as true but disregard conclusory statements without supporting facts. To survive dismissal, a plaintiff must present sufficient factual allegations that plausibly suggest entitlement to relief. 

Southwest's motion argues that the Plaintiff's claim under California’s Unfair Competition Law (UCL) should be dismissed because the Plaintiff has not sufficiently alleged injury caused by Southwest. The Plaintiff's allegations pertain to a force-placed insurance policy instituted by Ocwen prior to Southwest's involvement, as Southwest only became the managing general agent in March 2014. Although the Plaintiff contends that Southwest managed the policy from June 2014 and received unearned commissions, this argument is not clearly articulated in the First Amended Complaint (FAC), which primarily describes Southwest's functions as related to policy initiation rather than management during the policy's active period.

Plaintiff's Sixth Claim for Relief against Southwest lacks specific allegations naming the defendant and primarily makes generalized claims against "all Defendants." The First Amended Complaint (FAC) fails to provide sufficient facts linking Southwest to the management of the insurance policy under a Section 17200 claim for "unfair" practices. In responding to Southwest's motion, the Plaintiff cites facts from Defendant Ocwen's interrogatory responses, which were submitted after the FAC was filed. While the Complaint mentions a notice received from ASIC regarding the automatic renewal of the flood insurance policy starting November 1, 2014, there are no allegations that a new policy was enacted on the property or that any charges exceeded the costs incurred for replacement insurance. The Plaintiff acknowledged not receiving notice of charges for the policy as of December 1, 2014. Although the Court suggests the Plaintiff may wish to amend the complaint to include more details about the policy, Southwest contends that even if an amended complaint included claims regarding their involvement in obtaining a new policy, such placement cannot be deemed "unfair" under Section 17200, given that the Plaintiff could have avoided the harm by purchasing insurance independently. The Court recognizes the argument that the harm claimed by the Plaintiff stems from the expectation of only being charged actual costs for replacement insurance, a harm that could not be avoided without knowledge of the alleged conspiracy to set LPI rates. However, since the Plaintiff was aware of the implications of not securing her own flood insurance by the time of the November 1, 2014 policy, it argues that this claim does not meet the criteria of being "unfair" under the UCL, as prior rulings emphasize the necessity for the alleged injury to be unavoidable.

Competing tests exist for defining "unfair" under the Unfair Competition Law (UCL), but none have been definitively adopted by the California Supreme Court or the Ninth Circuit regarding consumer fraud. The Ninth Circuit has refrained from using a test that requires proof that harm was unavoidable until the California Supreme Court provides clarity. Instead, the Pirozzi case employs the balancing test from South Bay Chevrolet, which assesses the impact of a business practice on the victim against the defendant's justifications for that practice. The court must weigh the utility of the defendant's conduct against the harm suffered by the victim. 

In prior cases, including Davis v. HSBC Bank Nevada, the Ninth Circuit acknowledged divisions among California appellate courts on the definition of "unfair," ultimately finding that the plaintiff had not sufficiently stated a claim regardless of the test applied. The Davis court noted the plaintiff's failure to read terms before agreeing and his inaction in canceling a card, which were relevant to the harm's gravity but not determinative of the balancing test. The court found that the defendant’s justifications weakened the claim.

In the current case, even if the plaintiff could have avoided harm by securing her own insurance, Southwest did not provide sufficient justification for its practices under the LPI scheme. This lack of justification could lead a factfinder to conclude that Southwest violated the UCL’s "unfair" prong. If the plaintiff were to plead that Southwest enforced an unfair policy starting in November 2014, that claim would not be barred despite the injury being avoidable. However, the current allegations in the First Amended Complaint (FAC) are insufficiently articulated. The court will dismiss these claims but allow the plaintiff the opportunity to amend and include more detailed allegations.

Beltline seeks to dismiss the First Amended Complaint (FAC), arguing it was not involved in the force-placed insurance policies challenged, as its engagement with Ocwen began in March 2014, while the latest policy was instituted in November 2013. The plaintiff counters that new information from interrogatories suggests Beltline's involvement as early as August 2013, although this allegation is absent from the FAC. Additionally, Beltline contends that the FAC does not mention a force-placed policy for the plaintiff in November 2014; however, the plaintiff asserts that Ocwen's interrogatories confirm such a policy existed. The court will grant Beltline’s motion to dismiss the plaintiff's Section 17200 claim, allowing her to amend the complaint to include the new allegations.

Regarding motions to stay, Ocwen and ASIC have requested a stay pending approval of a class action settlement in the Lee case. The plaintiff previously acknowledged the inefficiency of continuing litigation against these parties until the Lee settlement's status is determined and did not oppose the stay. However, she argues for limited discovery to assess whether she should support or object to the Lee settlement, emphasizing the nature of the claims-made settlement and the potential for direct payment of claims without requiring claim forms. The court notes that while discovery from one case can typically be utilized in another, the plaintiff has not provided authority for conducting discovery in one class action for use in another. The judge overseeing the Lee case has already imposed restrictions on class members regarding participation in other lawsuits related to the released claims.

Plaintiff, as a Settlement Class Member in the Lee case, is barred from pursuing claims against Defendants Ocwen and ASIC related to the Lee settlement. Any discovery needed for objections to the Lee settlement must be sought within that litigation. The Court grants motions to stay the current litigation against Ocwen and ASIC, mandating these Defendants file a notice within 7 days of the final approval of the Lee settlement, including their intentions for further motions.

The Court grants motions to dismiss filed by Defendants Southwest and Beltline but allows Plaintiff to amend her complaint to provide additional factual support for her claims. The litigation against Ocwen and ASIC is stayed. Plaintiff previously alleged that Southwest was involved in force-placing insurance on her property in 2011, but this was dismissed due to evidence showing that American Modern issued the policy. The First Amended Complaint (FAC) lacks sufficient allegations of Southwest's involvement, merely suggesting possible monitoring of insurance coverage without concrete claims. If Plaintiff wishes to continue against Southwest regarding the 2011 policy, she must include more specific allegations in her amended complaint.

Beltline contends that a force-placed policy instituted in November 2014 was avoidable and that it should not be implicated in the claims. Although Beltline joined the motions to stay, Plaintiff opposes the stay for Beltline, arguing it is not a defendant in the Lee case. The Court denies the stay for Beltline as it has not submitted a proper motion for the stay.