Court: District Court, D. Connecticut; August 8, 2016; Federal District Court
Plaintiff Jeffrey Navin, now deceased, and pro se plaintiff John O’Reilly have filed a lawsuit against multiple defendants, including HSBC Bank USA, Wells Fargo Bank, and Assurant Inc., alleging they engaged in "forced-placed insurance" practices that unfairly burdened residential borrowers like Navin. The First Amended Complaint (FAC) claims the defendants improperly profited from insurance obtained to protect their interests, seeking damages equivalent to the financial benefits received and a cessation of future charges related to these practices. The plaintiffs assert claims for breach of contract, unjust enrichment, violations of RICO, aiding and abetting breach of fiduciary duty, and violations of Connecticut’s unfair trade and insurance practices laws, as well as seeking declaratory and injunctive relief.
Defendants filed motions to dismiss the FAC under various Federal Rules of Civil Procedure. Following Navin's death, O’Reilly moved to be substituted as the plaintiff. The court denied O’Reilly’s substitution motion and granted all motions to dismiss. The factual background includes details about the property in Guilford, Connecticut, owned by Navin, the $1,313,000 mortgage note executed in 2005, and the recorded mortgage deed in favor of Mortgage Electronic Registration Systems, Inc.
On October 5, 2005, HSBC, acting as trustee for Deutsche ALT-A Securities, Inc., acquired the mortgage and note related to Navin’s property. Following Navin's default on mortgage payments, HSBC initiated foreclosure proceedings, which were upheld by the Connecticut Appellate Court. According to the First Amended Complaint (FAC), mortgage lenders mandate that borrowers maintain hazard insurance as a condition for loan funding. When borrowers like Navin fail to uphold this requirement, lenders can impose "lender-placed insurance" (LPI) or "force-placed hazard insurance" (FPI), which tend to be more expensive and offer less coverage than the borrowers' original policies.
HSBC is identified as the lender, while Assurant, through its Assurant Specialty Property division, provides the LPI/FPI. ASIC, a subsidiary of Assurant, is alleged to function as the FPI vendor for Wells Fargo, managing insurance tracking and customer service related to FPI when borrowers' insurance lapses. Wells Fargo Bank services Navin's mortgage and is suggested to have a division, Wells Fargo Insurance, that primarily collects kickbacks related to these policies without actively assisting in acquiring FPI.
The Open-End Mortgage Deed stipulates that if the borrower fails to maintain hazard insurance, the lender may procure insurance at the borrower’s expense, which may not adequately cover the borrower’s interests. The costs incurred by the lender for this insurance become additional debt secured by the mortgage, accruing interest at the note rate until repaid.
Defendants are accused of obtaining improper financial advantages through forced-place insurance (FPI) on properties and charging excessive fees unrelated to FPI costs. Plaintiffs allege that mortgage lenders and servicers select FPI providers based on undisclosed agreements that benefit the providers, who then share financial gains with the lenders. Two classes are proposed for certification: those affected by the FPI scheme and those harmed by fraudulent foreclosure actions involving falsified documents.
In Count One, Plaintiffs assert that HSBC and Wells Fargo breached their contracts and the implied duty of good faith by force-placing insurance beyond necessary levels, fabricating foreclosure evidence, and failing to maintain borrowers' existing policies while forcing them to pay inflated insurance costs.
Count Two alleges unjust enrichment, claiming Plaintiffs paid for unnecessary and overpriced FPI policies, benefiting the Assurant Defendants. Additionally, HSBC and Wells Fargo are accused of defrauding class members through illegal foreclosures using fraudulent documentation, with Plaintiffs seeking restitution.
Counts Three and Four involve claims under RICO statutes, alleging that Defendants engaged in a pattern of racketeering through mail and wire fraud related to FPI. Plaintiffs contend that Defendants used the postal service and electronic communication to execute their scheme, disseminating misleading notices about FPI authority. Plaintiffs report injuries from high-cost FPI payments and a failure by Assurant to compensate for water damage, resulting in hazardous living conditions and personal injury to a resident.
O’Reilly seeks various forms of relief for personal injuries to himself, his wife, and son, along with health risks linked to mold and structural issues. Plaintiffs allege harm from Defendants' actions, including document forgery, perjury, and fabrication of documents for illegal foreclosures. In Count Five, they sue the Assurant Defendants for aiding HSBC and Wells Fargo in breaching fiduciary duties, alleging Assurant induced these breaches by providing tracking services that implemented forced-placed insurance (FPI). Plaintiffs claim damages from excessive escrow charges, fund depletion, and loss of property equity due to increased mortgage obligations.
Count Six involves claims against all Defendants for violating the Connecticut Unfair Trade Practices Act (CUTPA) and the Connecticut Unfair Insurance Practices Act (CUIPA). Allegations include failing to maintain borrowers' existing insurance, placing FPI with higher premiums and less coverage, backdating policies improperly, misrepresenting borrower obligations, and not allowing opt-outs from FPI provided by affiliated insurers.
In Count Seven, Plaintiffs seek declaratory and injunctive relief to compel Defendants to stop FPI and fraudulent foreclosure activities, ensure adequate remedies including refunds, and establish procedures to prevent future misconduct.
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court evaluates whether a plaintiff has presented sufficient factual allegations to support a plausible claim for relief. The court accepts all factual allegations in the complaint as true and interprets them in favor of the non-moving party. If a complaint relies solely on conclusory statements without factual backing, the motion to dismiss may be granted. To survive dismissal, a complaint must contain sufficient well-pleaded factual allegations that advance the claims from mere possibility to plausibility. Courts may only consider the complaint, any attached documents, or matters for which judicial notice is appropriate when assessing a motion to dismiss.
Regarding the motion for substitution, filed by the Wells Fargo Defendants after the death of Navin, Rule 25 governs the procedure for substitution of parties when a claim survives a party's death. The rule mandates that if a motion for substitution is not filed within 90 days of a death notification, the action must be dismissed. O’Reilly filed a motion to substitute as Navin's representative, asserting his relationship to Navin and claiming to be the proper party. However, he did not establish himself as the executor or administrator of Navin’s estate, which is necessary under Connecticut's Survival Statute for him to be considered the "proper party" for substitution. As a result, the court dismissed Navin's claims due to the absence of a timely motion to substitute a proper party after the suggestion of death.
O’Reilly lacks standing to sue the Defendants because he is not a party to Navin’s mortgage, which is central to the claims against them. Standing under Article III requires an injury-in-fact, causation, and redressability. O’Reilly asserts that he suffered injuries from water damage to the Property, exposure to hazardous mold, and a ceiling collapse that allegedly resulted from Defendants’ actions, specifically a fraudulent kick-back scheme. Although the Court recognizes that O’Reilly has alleged "concrete and particularized" injuries that are traceable to the Defendants, he still fails to state a valid claim for relief.
In Count One regarding breach of contract, O’Reilly claims to be a "manager" of the Property but does not demonstrate that he was a party to the mortgage or a beneficiary of the loan agreement. He also does not assert involvement in foreclosure proceedings or any contractual agreements with the Defendants. Consequently, he cannot pursue a breach of contract claim, as established in Tomlinson v. Bd. of Educ. of City of Bristol. Additionally, O’Reilly does not have a valid claim for breach of the covenant of good faith and fair dealing since it applies only to contractual parties, and his allegations do not indicate that the Defendants’ conduct impaired any contractual rights.
Count Two addresses the claim of unjust enrichment against all Defendants, with Plaintiffs asserting they provided a significant benefit to the Assurant Defendants by paying for overpriced and unnecessary force-placed insurance (FPI) policies. Plaintiffs allege that HSBC and Wells Fargo Defendants engaged in fraudulent foreclosures using false documents. They seek restitution and disgorgement for the unjust enrichment. To establish this claim, Plaintiffs must demonstrate (1) the defendants received a benefit, (2) unjustly failed to compensate the plaintiffs, and (3) this failure resulted in detriment to the plaintiffs. However, O’Reilly lacks allegations of being an insured or policyholder of any FPI policy, nor does he claim to have incurred any related financial losses, thus failing to establish a basis for unjust enrichment.
Counts Three and Four involve RICO claims under 18 U.S.C. § 1964(c). A civil RICO claim requires proof of (1) conduct, (2) of an enterprise, (3) through a pattern of (4) racketeering activity, along with demonstrable injury to business or property. The allegations include being forced to pay high-cost, unnecessary FPI and the use of forged documents in illegal foreclosures. However, O’Reilly did not pay FPI premiums or participate in the foreclosure actions, meaning he did not suffer the alleged injuries. Additionally, the RICO claims hinge on mail and wire fraud, necessitating O’Reilly to detail the fraudulent circumstances as per Rule 9(b). The allegations of Defendants' fraudulent actions, including the delivery of false documents and misinformation, are deemed insufficiently specific to meet the requirements of Rule 9(b), thereby failing to substantiate a viable RICO claim.
O'Reilly claims that after submitting a serious water damage claim, Defendant Assurant agreed to compensate him but redirected the total proceeds to HSBC and Wells Fargo, resulting in his family's exposure to hazardous mold for nearly six months and a ceiling collapse that caused personal injury. He asserts that these personal injuries do not qualify as "injuries to business or property" under RICO, referencing case law that excludes personal injuries from RICO claims. Consequently, O'Reilly's RICO claim is deemed insufficient, leading to the dismissal of related RICO conspiracy claims, as they depend on a valid substantive RICO claim.
In relation to the aiding and abetting breach of fiduciary duty, O'Reilly's claim against the Assurant Defendants fails because the FAC does not establish that HSBC and Wells Fargo owed him fiduciary duties. A fiduciary relationship requires a significant degree of trust and expertise, which O'Reilly does not allege, as he is neither a borrower nor a contractual party with the Defendants.
O'Reilly's claim under the Connecticut Unfair Trade Practices Act (CUTPA) and the Connecticut Unfair Insurance Practices Act (CUIPA) also lacks merit. CUTPA prohibits unfair or deceptive practices; to prevail, a plaintiff must demonstrate that the defendant engaged in a prohibited act that proximately caused harm. The necessary analysis involves determining if the harm aligns with the foreseeable risks posed by the defendant's actions, which O'Reilly fails to establish.
O'Reilly claims personal injuries from water damage to his property, alleging that after filing a claim, Defendant Assurant compensated the claim but redirected the funds to HSBC-Wells Fargo, leaving O'Reilly without repairs or remediation for mold exposure and a ceiling collapse. He seeks monetary and other relief but fails to show that Defendants' actions proximately caused his injuries. O'Reilly was not a borrower or insured party, nor did he pay mortgage or insurance premiums, rendering him a stranger to the alleged CUTPA and CUIPA violations, which included improper insurance practices and excessive premiums. These acts were intended to protect the lenders' interests, not the borrowers or non-borrowers like O'Reilly. Additionally, he does not qualify as a consumer or competitor under CUTPA, as established in related case law. Consequently, O'Reilly’s CUTPA claim fails, which also invalidates his CUIPA claim since it does not provide a private right of action. Although CUIPA violations can support a CUTPA claim, the majority of Connecticut courts have ruled that CUIPA does not grant rights to third-party claimants against insurers.
O'Reilly's opposition briefs assert he filed a claim for property damage, but the First Amended Complaint (FAC) lacks allegations indicating he was a policyholder or insured, nor is there evidence that any insurer owed him a duty. The court may only infer that O'Reilly acted as an agent for Navin, potentially creating a duty of care from the Assurant Defendants to Navin, leading to the failure of O'Reilly's CUIPA claim. Consequently, O'Reilly's request for declaratory and injunctive relief is also dismissed due to the deficiencies in Counts One through Six.
After the dismissal motions were fully briefed, O'Reilly sought to substitute a quitclaim deed dated November 13, 2008, which transferred property title from Navin to himself, recorded on December 10, 2015. Under Federal Rule of Civil Procedure 15(a)(2), parties may amend pleadings with consent or court permission, which should be granted liberally when justice requires. Additionally, supplemental pleadings can be permitted for events occurring after the original pleading date under Rule 15(d). The court may allow O'Reilly to amend the FAC to assert ownership based on the quitclaim deed but can deny this if there is undue delay, bad faith, or prejudice to the opposing party.
O'Reilly had not mentioned the quitclaim deed in the FAC, describing himself as a manager rather than an owner, and only raised the deed after the motions to dismiss were fully submitted. His delayed recording of the deed, necessary for legal effectiveness, raises questions about his motives, particularly given the potential for the transfer to be classified as fraudulent under Connecticut law. Allowing O'Reilly to plead ownership at this stage could prejudice the Defendants, who had already responded to the original allegations. The court will allow parties to present further arguments on these matters before making a final determination. Additionally, there are concerns regarding the futility of any amendment asserting O'Reilly’s ownership.
O’Reilly's claim regarding the invalidity of the mortgage agreement is likely barred by res judicata due to a prior state court foreclosure judgment. Res judicata prevents relitigation if the prior decision was a final judgment on the merits by a competent court, involving the same parties or their privies, and concerning the same cause of action. Under Connecticut law, a judgment is final not only for matters presented but also for any admissible matters that could have been raised. O’Reilly's argument that the original lender was not a valid corporation could have been included in the foreclosure case, merging it into that judgment. Although O’Reilly was not a party to the foreclosure, he may be precluded from raising his claim if he was in privity with Navin, his transferor. A successor in interest is bound by res judicata unless specific notification procedures for potential successors were not followed, or the opposing party knew of the transfer and that the successor was unaware of the pending action. O’Reilly is likely bound by res judicata since he was aware of Navin’s involvement in the foreclosure when he received the Property in 2008. The court, however, refrains from making conclusions on O’Reilly's request to amend or supplement his claims due to insufficient briefing on these issues. The action is dismissed because O’Reilly cannot substitute for Navin, and no proper party has moved to substitute within 90 days of Navin's death. If O’Reilly wishes to amend or supplement the First Amended Complaint (FAC), he must file a motion within 30 days of the order.
O’Reilly must submit a statement, no longer than 20 pages, outlining reasons for the Court to allow him to amend or supplement the First Amended Complaint (FAC) within 30 days, addressing potential concerns of futility, bad faith, and prejudice. He is also required to provide a proposed supplement or amended pleading that contains plausible claims in compliance with Rule 11. The Defendants have the right to file a single joint response brief, also limited to 20 pages, within 30 days of O’Reilly's filing, with no option for replies. Failure to file the required pleadings within 30 days will result in dismissal of the case with prejudice.
The document references Connecticut General Statutes (C.G.S.) regarding unfair trade practices and allows the Court to consider documents appended to the complaint, matters of judicial notice, and public records. Although O’Reilly did not claim ownership of the Property in the FAC, he later requested judicial notice of a quitclaim deed transferring title from Navin to himself, dated November 13, 2008. The validity of the mortgage and assignment is challenged by the Plaintiffs, who assert that American Brokers Conduit, the lender, is a fictitious entity. Although Count Two of the FAC suggests an unjust enrichment claim against the Assurant Defendants, the language implies it may be intended against all Defendants.
The relevant statutes cited include 18 U.S.C. 1964(c) and 1962(c), which outline rights for individuals injured by violations of racketeering laws, asserting claims related to mail and wire fraud. The FAC does not allege that premiums were paid, and the Plaintiffs' subsequent claims regarding the void nature of the mortgage agreements due to the lender's non-existence contradict earlier claims asserting a valid mortgage contract. The Defendants contest the legitimacy of the quitclaim deed as evidence of a true transfer.
