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Gallo v. PHH Mortg. Corp.

United States District Court, D. New Jersey

December 31, 2012

Patrick GALLO, individually and on behalf of all others similarly situated, et al., Plaintiff,

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[Copyrighted Material Omitted]

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Edward W. Ciolko, Esq., Peter Houghton Levan, Jr., Esq., Shannon O. Lack, Esq., Donna Siegel Moffa, Esq., Kessler Topaz Meltzer & Check, LLP, Radnor, PA, and Lisa J. Rodriguez, Esq., Nicole M. Acchione, Esq., Trujillo Rodriguez & Richards, LLC, Haddonfield, NJ, for Plaintiff Patrick Gallo.

Peter J. Leyh, Esq., Braverman Kaskey P.C., Philadelphia, PA, for Defendant PHH Mortgage Corporation.


HILLMAN, District Judge.

This matter comes before the Court by way of Defendant PHH Mortgage Corporation's motion [Doc. No. 20] to dismiss

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Plaintiff's amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court has considered the parties' submissions [1] and decides this matter pursuant to Federal Rule of Civil Procedure 78.

For the reasons expressed below, Defendant's motion to dismiss Plaintiff's First Amended Class Action Complaint is granted in part and denied in part.


The Court exercises jurisdiction in this matter pursuant to 28 U.S.C. § 1332(d)(2), the Class Action Fairness Act, because the Plaintiff is a citizen of a state different than Defendant, the matter in controversy exceeds $5,000,000, and there are more than 100 members in the proposed class. The Court also exercises diversity jurisdiction pursuant to 28 U.S.C. § 1332(a) with respect to Plaintiff's state law claims because this matter is between citizens of different states and the amount in controversy exceeds $75,000.


In this proposed class action, Plaintiff Patrick Gallo brings claims against Defendant PHH Mortgage Corporation (hereinafter, " PHH Mortgage" ) on behalf of himself, and all other similarly situated " homeowners who have or had residential mortgage loans owned and/or serviced by Defendant PHH Mortgage ... and, in connection therewith, were required to pay for lender-placed or ‘ force-placed’ hazard insurance policies." (First Am. Class Action Compl. [Doc. No. 19] (hereinafter, " Am. Compl. " ), ¶ 1.) As described by several Circuit Courts of Appeals, a lender-placed or force-placed insurance policy is a policy " which insures the lender's collateral when the borrower fails to maintain a specific type of insurance [typically one required under the mortgage agreement]. A force-placed policy allows the lender to protect its exposure on a property up to the amount of the mortgage on the date of issuance." Williams v. Certain Underwriters At Lloyd's of London, 398 Fed.Appx. 44, 45 (5th Cir.2010); see also Caplen v. SN Servicing Corp., 343 Fed.Appx. 833, 834 (3d Cir.2009) ( " Under the terms of the note and mortgage, the [homeowners] agreed to carry hazard insurance on the property and to provide evidence of insurance to the bank; if they failed to do so, the bank was authorized to ‘ force place’ insurance on the property-that is, to independently obtain insurance and add the cost of the premiums to the principal due under the note— in order to protect its security interest in the property." )

On May 22, 2006, Plaintiff obtained a refinance loan in the amount of $126,000 from PHH Mortgage,[2] and the obligation to repay that loan was secured by a mortgage recorded on Plaintiff's residential property located at 233 Leon Avenue in Norwood, Pennsylvania. (Am. Compl. ¶ 1; Br. in Supp. Of Def.'s Mot. To Dismiss Pl.'s First Am. Class Action Compl. [Doc.

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No. 20] (hereinafter, " Def.'s Br." ), 3.) [3] Approximately seventeen months later, on October 24, 2007, Plaintiff and PHH Mortgage entered into a Loan Modification Agreement which: (1) provided for a fixed, rather than adjustable, interest rate; and (2) amended and supplemented the mortgage and note for a loan balance in the amount of $138,240.77. (Am. Compl. ¶ 16; Def.'s Br. 3.) Under Plaintiff's mortgage, both before and after the loan modification, Plaintiff was required to maintain hazard insurance coverage for the Leon Avenue property. (Am. Compl. ¶ 17; Def.'s Br. 3.) Pursuant to that requirement, Plaintiff obtained a homeowner's insurance policy underwritten by Lititz Mutual Insurance Company (" the Lititz Policy" ) which provided coverage for the dwelling, other structures, personal property, and loss of use. (Am. Compl. ¶ 17.) The Lititz Policy was renewed annually but. was cancelled effective February 28, 2008 due to nonpayment of the annual renewal premium of $933 by Plaintiff. (Am. Compl. ¶ 17; Def.'s Br. 3.)

Several months after the Lititz Policy was cancelled, Defendant PHH Mortgage secured force-placed hazard insurance for the Leon Avenue property pursuant to the terms of the mortgage. (Def.'s Br. 3.) Defendant PHH Mortgage obtained this forceplaced hazard insurance policy through a provider of its choice— American Security, a subsidiary of Assurant, Inc.[4] The policy had an annual premium of $1,656, nearly twice the annual premium for the Lititz Policy. (Am. Compl. ¶ 17; Def.'s Br. 3.) The amount of the premium for the force-placed policy was charged to the escrow account associated with Plaintiff's loan on May 15, 2008, but the force-placed policy was backdated to have an effective date of February 28, 2008— the date the Lititz Policy was cancelled for nonpayment. (Am. Compl. ¶ 19; Def.'s Br. 3.) According to Plaintiff, the force-placed policy PHH Mortgage procured from American Security provided coverage in the amount of $166,000 for the dwelling only and thus provided " substantially less coverage than" than the Lititz Policy. (Am. Compl. 20.)

The force-placed policy Defendant PHH Mortgage obtained for Plaintiff through American Security was subsequently renewed on February 28, 2009 and again on February 28, 2010, with the $1,656 premium being charged to Plaintiff's escrow account approximately one to two weeks later in each instance. (Am. Compl. ¶¶ 20-21; Def.'s Br. 4.) As permitted under the mortgage, Plaintiff later obtained a new homeowner's insurance policy through Allstate Insurance Company (" the Allstate Policy" ), effective September 8, 2010, with an annual premium of approximately $945.42. (Am. Compl. ¶ 22; Def.'s Br. 4.) Upon Plaintiff obtaining the Allstate Policy, Defendant PHH Mortgage cancelled the forceplaced insurance policy through American Security and later issued Plaintiff a partial refund in the amount of $785.

It is within this factual context that Plaintiff's present claims arise. As set forth in the Amended Complaint, Plaintiff challenges, inter alia, Defendant PHH Mortgage's " practice of purchasing force-placed hazard insurance from a provider pursuant to an agreement that returns a financial benefit to Defendant and/or its affiliates that is unrelated to any contractual

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or other bona fide interest in protecting PHH's interest in the loan, and which results in unauthorized, unjustified and unfairly inflated costs to the borrower for force-placed hazard insurance in violation of law." (Am. Compl. ¶ 4.) Plaintiff alleges that Defendant PHH Mortgage has negotiated and entered into prearranged agreements with force-placed insurance providers, including subsidiaries of Assurant, Inc., such as American Security, whereby Defendant receives fees, payments, commissions, kickbacks, or other things of value from the force-placed insurance providers. (Am. Compl. ¶¶ 5-7.) According to Plaintiff, these pre-arranged agreements result in Defendant purchasing unconscionably high-priced insurance policies in order to maximize its own profits to the detriment of borrowers, and that such actions " constitute a pattern of exploitative profiteering and selfdealing against the interest of Plaintiff and the Class and in violation of the law." ( Id. ¶ 6.)

Accordingly, Plaintiff asserts three claims in this case. Count One is a breach of contract claim which also includes a claim that Defendant breached the implied covenant of good faith and fair dealing. (Am. Compl. ¶¶ 75-85.) Count Two asserts a claim for unjust enrichment and disgorgement. ( Id. ¶¶ 86-90.) Count Three is a claim for violations of the New Jersey Consumer Fraud Act. ( Id. ¶¶ 91-101.)


At this time, Defendant PHH Mortgage moves for the dismissal of Plaintiff's Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In considering Defendant's motion, the Court must accept all well-pleaded allegations in the Amended Complaint as true and view them in the light most favorable to the plaintiff. Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir.2005). It is well settled that a pleading is sufficient if it contains " a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2).

A district court, in weighing a motion to dismiss, asks " ‘ not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims[.]’ " Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 n. 8, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)); see also Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1953, 173 L.Ed.2d 868 (2009) (" Our decision in Twombly expounded the pleading standard for ‘ all civil actions[.]’ " ) (citation omitted). First, under the Twombly / Iqbal standard, a district court " must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009) (citing Iqbal, 129 S.Ct. at 1949).

Second, a district court " must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a ‘ plausible claim for relief.’ " Fowler, 578 F.3d at 211 (citing Iqbal, 129 S.Ct. at 1950). " [A] complaint must do more than allege the plaintiff's entitlement to relief." Fowler, 578 F.3d at 211; see also Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir.2008) (" The Supreme Court's Twombly formulation of the pleading standard can be summed up thus: ‘ stating ... a claim requires a complaint with enough factual matter (taken as true) to suggest’ the required element. This ‘ does not impose a probability requirement at the pleading stage,’ but instead ‘ simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence

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of’ the necessary element." ) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). " The defendant bears the burden of showing that no claim has been presented." Hedges v. U.S., 404 F.3d 744, 750 (3d Cir.2005).


Defendant offers four primary arguments in seeking to dismiss Plaintiff's claims. Initially, PHH Mortgage argues that all of Plaintiff's claims are barred by the filed rate doctrine because the rates Plaintiff was charged for the force-placed insurance policy were filed with, and approved by, the Pennsylvania Department of Insurance making them per se reasonable and unchallengeable in a judicial proceeding. (Def.'s Br. 2.) Second, Defendant asserts that Plaintiff's breach of contract claim fails because he does not identify a specific duty that was breached but rather reads nonexistent terms into the mortgage, and, further, that the claim is barred by the voluntary payment doctrine. ( Id. ) Defendant also contends that because no specific contractual duty was breached, Plaintiff's claim for breach of the implied covenant of good faith and fair dealing, standing alone, must fail. ( Id. at 2, 11.) Defendant's third argument attacks the viability of Plaintiff's cause of action for unjust enrichment. Defendant asserts that this claim cannot be maintained in light of the existence of an express contract between the parties— here, the mortgage agreement. ( Id. at 2.) Defendant similarly contends that the unjust enrichment claim is also barred by the voluntary payment doctrine. ( Id. ) Finally, Defendant argues that Plaintiff's claim under the New Jersey Consumer Fraud Act (" CFA" ) should be dismissed because: (1) choice-of-law rules dictate that Pennsylvania, Plaintiff's home state, has the most significant relationship to this claim; and (2) Plaintiff's CFA claim fails to meet the heightened pleading requirements for such claims. ( Id. ) The Court addresses each of Defendant's arguments in turn.

A. The Filed Rate Doctrine

As explained by the Third Circuit, " [t]he filed rate doctrine provides that a rate filed with and approved by a governing regulatory agency is unassailable in judicial proceedings brought by ratepayers." Alston v. Countrywide Fin. Corp., 585 F.3d 753, 763 (3d Cir.2009) (citing Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir.1994)). The filed rate doctrine applies in circumstances where a plaintiff is challenging the " reasonableness or propriety of the rate[s]" themselves. Alston, 585 F.3d at 765.

Relying primarily on Stevens v. Union Planters Corp., No. 00-CV-1695, 2000 WL 33128256, at *3 (E.D.Pa. Aug. 22, 2000) and Pennsylvania Statute Annotated §§ 710-5(a) and 710-7,[5] Defendant argues that because property insurance rates must be filed with and approved by the Pennsylvania Department of Insurance and because the Department of Insurance may disapprove of those rates it deems excessive, the rates Plaintiff paid for his force-placed insurance policy is per se reasonable and cannot be challenged in this judicial proceeding. (Def.'s Br. 7-8.) Defendant's argument in this regard is premised almost entirely on its own narrow

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classification of Plaintiff's claims in this case. Defendant asserts that Plaintiff's " contention [in this case is] that he was overcharged for lender-placed insurance" and that the Amended Complaint is premised upon " the allegation that PHH charged rates for lender-placed insurance that where ‘ excessive, unreasonable, and unnecessary.’ " (Def.'s Br. 7-8) (citing Am. Compl. ¶¶ 6, 61, 81(d), 96(d).)

Plaintiff counters that he is not in fact challenging the reasonableness of the rates he paid for the force-placed insurance, but rather is challenging PHH Mortgage's alleged improper conduct and the payment of kickbacks, commissions, or other financial benefits paid to Defendant by force-placed insurance providers, such as American Security, pursuant to prearranged agreements between them. (Br. in Opp'n to Def.'s Mot. To Dismiss Pl.'s First Am. Compl. [Doc. No. 25] (hereinafter, " Pl.'s Opp'n" ), 6); ( see also Pl.'s Opp'n 7) (" Plaintiff challenges the manner in which PHH [Mortgage] force-placed his insurance and PHH's manipulation of force-placed insurance process for its own gain, ... rather than the reasonableness of the rate charged[.]" )

Although Alston was decided in the context of a case where the plaintiffs alleged a violation of the Real Estate Settlement Procedures Act and no such claim is made here,[6] the Court still finds this case instructive in resolving the filed rate doctrine issue, notwithstanding this distinction. With respect to the filed rate doctrine, the Third Circuit made clear in Alston that " the filed rate doctrine simply does not apply" in circumstances where plaintiffs " challenge [the ...

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