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Collins v. U.S. Bank, National Association

United States District Court, C.D. California

February 3, 2015

NOVICE M. COLLINS, individually and on behalf of herself and all others similarly situated, Plaintiff,
U.S. BANK, NATIONAL ASSOCIATION; DOES 1-25, inclusive, Defendants.


OTIS D. WRIGHT, II, District Judge.



Plaintiff Novice M. Collins filed this one-count putative class action Complaint against Defendant U.S. Bank, National Association ("U.S. Bank") alleging a violation of California's unfair competition law, Cal. Bus. & Prof. Code § 17200 ("UCL"). (ECF No. 3 ["Compl."].) Pending before the Court is U.S. Bank's Motion to Dismiss the Complaint. (ECF No. 21.) Collins, a former mortgagor, claims that U.S. Bank's lender-placed insurance ("LPI") is deceptive and unlawful because the LPI premiums charged to her escrow account were more than necessary to insure her property. The Court, having considered the record, applicable law, oral argument, and the parties' briefs, hereby GRANTS U.S. Bank's Motion to Dismiss. (ECF No. 21.)


Collins formerly owned real property in Bakersfield, California encumbered by a mortgage serviced by U.S. Bank. (Compl. ¶ 3.) Collins alleges that U.S. Bank uses a standard deed of trust for all mortgage loan contracts it services and the standard form contains the same or substantially similar provision regarding LPI. (Id. ¶ 8.) The U.S. Code defines LPI as "hazard insurance coverage obtained by a servicer of a federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as required of the borrower under the terms of the mortgage." 12 U.S.C. § 2605(k)(2). The LPI provision in Collins' deed of trust reads as follows:

4. Fire, Flood and Other Hazard Insurance. Borrower shall insure all improvements on the Property... against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance[.] Borrower shall also insure all improvements on the Property... against loss by floods[.]
7. If Borrower fails to perform any other covenants and agreements contained in this Security Instrument... then Lender may do and pay whatever is necessary to protect the value of the Property and lender's rights in the Property, including payment of... hazard insurance [.] Any amounts disbursed by lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument.

(Compl. ¶ 8 [emphasis added].) U.S. Bank hires third-party LPI vendors to provide this hazard insurance and then shifts the cost to its customers accordingly. (Id. ¶ 14.) Collins does not identify the third-party vendor that provided her LPI nor does she allege when the LPI was first imposed.

Collins alleges that U.S. Bank's LPI practice violates the UCL for two reasons. The first reason is that "the premium charged by Defendant to Class Members was higher than the amount that was necessary' to protect Defendant's interest in the collateral." (Id. ¶ 10.) The second reason is that U.S. Bank "misrepresented to Plaintiff and other Class Members the true cost of the replacement hazard insurance." (Id. ) According to Collins, the LPI premiums are higher than necessary because: (1) U.S. Bank charges its customers for the LPI vendors' administrative overhead costs even though U.S. Bank's customers already pay U.S. Bank for these exact services and the deed of trust prohibits such fee shifting ( id. ¶¶ 11, 14-15); (2) U.S. Bank allows LPI vendors to charge its customers higher-than-market rates because U.S. Bank receives cash payments and incentives from the LPI vendors ( id. ¶¶ 15-16); and (3) U.S. Bank could continue paying the defaulting customers' existing insurance premium at a fraction of the cost ( id. ¶ 24).

Collins argues that U.S. Bank is not concerned with the lowest cost to its consumers but rather its own financial rewards from LPI vendors in the form of kickbacks. (Id. ¶ 16.) Collins alleges that U.S. Bank required her and other class members to pay for unlawful and deceptive LPI premiums "since 2008, or earlier." (Id. ¶ 9.) Collins specifically alleges that she "paid these charges and thereby suffered a financial injury for which restitution from U.S. Bank is required." (Id. ¶ 3.) U.S. Bank allegedly charged Collins LPI premiums between $967.00 and $1, 440.00 annually while comparable market rates were one-third the cost. (Id. ¶ 23.f.)

Collins seeks to certify a class of "All California mortgage borrowers who paid U.S. Bank for force placed hazard insurance during the four years preceding the filing of the Complaint (the Class Period') and who did not receive a full refund." (Id. ¶ 27.)


Pursuant to Rule 12(b)(6), a defendant may move to dismiss an action for failure to allege "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). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). For purposes of ruling on a Rule 12(b)(6) motion, the Court "accept[s] factual allegations in the complaint as true and construe[s] the pleading in the light most favorable to the non-moving party." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

The Court is not required to "assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (internal quotation marks and citations omitted). Mere "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004) (internal quotation marks and citations omitted). "If a complaint is accompanied by attached documents, the court is not limited by the allegations contained in the complaint. These documents are part of the complaint and may be considered in determining whether the plaintiff can prove any set of facts in support of the claim." Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987) (internal citations omitted). The Court may consider contracts incorporated in a complaint without converting a motion to dismiss into a summary judgment hearing. United States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003).

If the Court grants a motion to dismiss, it must determine whether to allow the plaintiff leave to amend. Although leave to amend "shall be freely given when justice so requires, " Fed.R.Civ.P. 15(a), leave to amend may be denied if the moving party has acted in bad faith, or if allowing amendment would unduly prejudice the opposing party, cause undue delay, or be futile. Leadsinger, Inc. v. BMG Music Publ'g, 512 F.3d 522, 532 (9th Cir. 2008). Amendment would be futile if "the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (en banc) (internal quotation marks and citations omitted).


U.S. Bank's Motion to Dismiss raises multiple arguments as to why Collins' one-count Complaint should be dismissed. (ECF No. 21 ["Def. Br."].) Collins filed an Opposition Brief (ECF No. 23 ["Opp. Br."]) and U.S. Bank a Reply (ECF No. 28 ["Rep. Br."]). The Court heard arguments on February 2, 2015. The Court will only address U.S. Bank's first argument as it is dispositive of the entire case-Collins lacks standing under the UCL and therefore failed to state a claim upon which relief can be granted.

A. UCL Standing

While offering several alternative theories of liability, Collins' Complaint raises only one cause of action-a violation of the UCL. Standing to bring a claim under the UCL is limited to a person "who has suffered injury in fact and has lost money or property as a result of the unfair competition." Cal. Bus. & Prof. Code § 17204. To establish standing under the UCL a plaintiff must "(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice... that is the gravamen of the claim." Kwikset Corp. v. Superior Court, 246 P.3d 877, 885 (Cal. 2011) (original emphasis); see also Rubio v. Capital One Bank, 613 F.3d 1195, 1203-04 (9th Cir. 2010). The California Supreme Court instructs that the two prongs of injury-"injury in fact" and "lost property or money"-will often overlap. Kwikset, 246 P.3d at 885-86. When the two overlap, a plaintiff must "demonstrate some form of economic injury, " which is "substantially narrower than federal standing under article III, section 2 of the United States Constitution[.]" Id. at 886.

At issue here is Collins' standing to bring her UCL cause of action. Collins' Complaint is quite clear in alleging that she personally paid LPI premiums to U.S. Bank. Collins first alleges that she " paid [LPI] charges and thereby suffered a financial injury for which restitution from U.S. Bank is required." (Compl. ¶ 2 [emphasis added].) She later alleges that she "was injured and lost money by the acts of U.S. Bank[.]" (Id. ¶ 30 [emphasis added].) Collins proposed a class comprising of "All California mortgage borrowers who paid U.S. Bank for force placed hazard insurance...." (Id. ¶ 27 [emphasis added].)

U.S. Bank responds that Collins never made a single payment on her mortgage that included LPI premiums. (Def. Br. at 1.) According to U.S. Bank, "Collins has not made any Property-related payments since February 2009" and "U.S. Bank first lender-placed a hazard insurance premium on [Collins' property] in July 2009[.]" (Id. at 3, 7.) U.S. Bank directs the Court's attention to numerous bank documents and foreclosure notices that support its claim that Collins never made any monthly mortgage payments that included LPI premiums.[1] (Id. at 4.) Collins responds in the most unusual way: "U.S. bank disputes that Collins never paid the LPI premiums, even though her home was sold in foreclosure and all monies owed to U.S. Bank, including all LPI premiums, were satisfied at the foreclosure sale." (Opp. Br. at 2 [original emphasis].) She argues that "LPI is hazard insurance and is therefore paid out of the net proceeds of the foreclosure sale... [and] had Collins not been overcharged for LPI, the sale of the property for $139, 436.35 would have exceeded the total sum due U.S. Bank and would have resulted in net sums due Collins." (Id. at 3.) Collins alleges that "[b]ut for the overcharging for LPI, there would plainly be proceeds payable to the Plaintiff after the sale of her home." (Id. at 4.)

Collins' Complaint unequivocally alleges that she "paid" for the LPI charges, yet when U.S. Bank challenges this allegation with judicially-noticeable evidence, Collins appears to abandon her original position. Her Opposition Brief never once argues that Collins made a monthly payment that included LPI premiums. Collins' counsel admitted at the February 2, 2015 hearing that Collins never made a single monthly payment that included LPI premiums. Instead, Collins raises a new theory of "paid" based on a foreclosure surplus-the foreclosure sale price was artificially high because it included LPI charges, and thus she is entitled to a surplus. Because Collins' understanding of "paid" does not include the actual transfer of money to U.S. Bank, the Court must decide whether Collins' foreclosure-surplus theory constitutes "lost money" to satisfy UCL standing.

There "are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary." Kwikset, 246 P.3d at 885-86. Collins' foreclosure-surplus theory does not fit neatly into any of the categories of economic injury from Kwikset. Collins' theory appears closest to option 3-"be deprived of money or property to which he or she has a cognizable claim." Id. There is no dispute that Collins did not pay money to U.S. Bank for LPI premiums. By claiming that "[b]ut for the overcharging for LPI, there would plainly be proceeds payable to the Plaintiff after the sale of her home" (Opp. Br. at 4), Collins is necessarily asserting that she has a restitutionary interest-a cognizable claim-to U.S. Bank's unjust enrichment following the foreclosure sale. This theory, however, does not establish economic injury. At the foreclosure sale, U.S. bank made a full credit bid of $139, 436.35 which was the exact amount of Collins' unpaid debt. (RJN Ex. 9.) Collins' original mortgage was for $85, 606. (RJN Ex. 3.) "Under the full credit bid rule, a foreclosing lender that has purchased the real property security for such a bid is precluded form pursing further claims to recoup its debt because the bid has established that the foreclosed security is equal in value to the debt, which therefore has been satisfied." Countrywide Home Loans, Inc. v. Tutungi, 78 Cal.Rptr.2d 203, 205 (Cal.Ct.App. 1998). U.S. Bank's full credit bid of $139, 436.35 was a transfer of funds from U.S. Bank to U.S. Bank. U.S. Bank did not profit from the foreclosure sale as it was the seller and purchaser at the auction-it paid itself for the home. U.S. Bank's full credit bid also extinguished its ability to recoup any further debt from Collins. U.S. Bank released Collins from her six-figure debt in exchange for taking title to a home with a significantly lesser value-there are no "proceeds" and no money actually changed hands.

For Collins' theory to work, a third-party purchaser needed to pay U.S. Bank $139, 436.35 at the foreclosure sale. The $139, 436.35 would not only extinguish the true value of Collins' debt but would also unjustly enrich U.S. Bank because U.S. Bank would profit by receiving payment from the third-party for the unlawful LPI premiums. U.S. Bank would recover its true losses and then some. Collins would have a "cognizable claim" to that unjust profit if it was not returned to her as a surplus. See Kwikset, 246 P.3d at 886. The situation at hand does not involve a third-party, but instead U.S. Bank acting as the buyer and seller in relinquishing all debt, whether lawful or unlawful. U.S. Bank is not unjustly enriched by paying itself no matter how great the unlawful debt. Collins did not suffer any economic injury as a result. While Collins' foreclosure-surplus theory is clever, it is also wrong. Collins failed to show that she suffered any economic injury to satisfy UCL standing.

Litigation over allegedly unlawful LPI tactics is nothing new for U.S. Bank or federal courts across the country. See Feaz v. Wells Fargo Bank, N.A., 745 F.3d 1098 (11th Cir. 2014); Coehn v. Am. Security Ins. Co., 735 F.3d 601 (7th Cir. 2013); Leghorn v. Wells Fargo Bank, N.A., 950 F.Supp.2d 1093 (N.D. Cal. 2013); Cannon v. Wells Fargo Bank N.A., 917 F.Supp.2d 1025 (N.D. Cal. 2013); Ellsworth v. U.S. Bank, N.A., No. 12-02506, 2014 WL 1218833 (N.D. Cal. March 21, 2014); Jackson v. U.S. Bank, N.A., No. 14-21252, 2014 WL 4179867 (S.D. Fl. Aug. 22, 2014); Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261, 2014 WL 4954674 (N.D. Cal. Oct. 1, 2014). Despite the breadth of recent case law, not a single case purports a theory of economic loss based on foreclosure surpluses. The relevant precedent involves plaintiffs who actually transferred money to lending institutions for the purposes of paying LPI premiums. Collins engaged in no such conduct.

Lost property is also an economic injury that satisfies UCL standing. Kwikset, 246 P.3d at 885. There is no question that a home foreclosure constitutes lost property. See Jenkins v. JP Morgan Chase Bank, N.A., 156 Cal.Rptr.2d 912, 933 (Cal.Ct.App. 2013). However, the loss-of-home theory for economic loss still requires the plaintiff to allege and prove that the "economic injury [occurred] as a result of the unfair competition." Kwikset, 246 P.3d at 885 (internal quotation marks omitted). Collins does not allege that the foreclosure of her home was in any way related to U.S. Bank imposing LPI premiums. Her initial default on the mortgage occurred before U.S. Bank charged her for any LPI premiums. Collins' default and subsequent foreclosure lacks any causation tied to U.S. Bank's allegedly unlawful conduct, and therefore this theory of UCL standing is also rejected.


The Court concludes that Collins does not have standing to bring a cause of action under the UCL because she did not suffer any economic loss. Without standing to bring her UCL cause of action, Collins failed to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). For the reasons discussed above, the Court hereby GRANTS Defendant U.S. Bank's Motion to Dismiss. (ECF No. 21.) Collins provided no indication that amending the Complaint is possible, and without an injury the Court concludes that granting Collins leave to amend would be futile. See Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). This action is DISMISSED WITH PREJUDICE.


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