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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 1 of 17 Page ID #:740

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

ANDREW J. GUILFORD

Present: The
Honorable

Lisa Bredahl
Deputy Clerk

Attorneys Present for Plaintiffs:

Not Present

Court Reporter / Recorder

Tape No.
Attorneys Present for Defendants:

Proceedings:

[IN CHAMBERS] ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’ MOTIONS TO
DISMISS

Plaintiff Timothy Martin Smith filed this putative class action against Defendants
SunTrust Mortgage, Inc., QBE Insurance Corporation, and QBE FIRST Insurance. He
alleges that Defendants illegally colluded to make money from borrowers by abusing the
discretion granted to Defendants under force-placed insurance clauses.

Defendant SunTrust Mortgage, Inc. (“SunTrust”) has filed a motion to dismiss the
Complaint for failure to state a claim upon which relief can be granted (“SunTrust’s
Motion”). (Dkt. No. 34.) Defendants QBE Insurance Corporation and QBE FIRST
Insurance (collectively, “QBE”) have filed a motion to dismiss the Complaint for a lack
of subject-matter jurisdiction and for failure to state a claim upon which relief can be
granted (“QBE’s Motion”). (Dkt. No. 37.)

The Court GRANTS IN PART and DENIES IN PART both SunTrust’s Motion and
QBE’s Motion, and gives Smith leave to amend his Complaint.

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 2 of 17 Page ID #:741

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

PRELIMINARY MATTER

SunTrust requests that “the Court take judicial notice of the following matters or
materials”:

(1) Smith’s publically recorded deed of trust,
(2) Smith’s “Hazard Insurance Binder Acknowledgment,”
(3) Smith’s “Oregon Insurance Notice,” and
(4) “QBE’s filed rate approval by the Oregon Insurance Division.”

(Dkt. No. 35, at 1, 3.) Smith filed a partial opposition. (Dkt. No. 48.) The Court
GRANTS the request as to items (1) and (4). See Lee v. City of L.A., 250 F.3d 668, 690
(9th Cir. 2001) (noting that a court may take judicial notice of “undisputed matters of
public record” but generally cannot take judicial notice of “disputed facts stated in public
records”). SunTrust hasn’t shown that items (2) and (3) are the proper subject of judicial
notice under Federal Rule of Evidence 201(b), or that the Court should consider those
documents at this stage. See Fields v. Legacy Health Sys., 413 F.3d 943, 958 n.13 (9th
Cir. 2005) (A court ruling on a 12(b)(6) motion “can consider an extrinsic document if it
is integral to the plaintiff’s claims and its authenticity is undisputed” (emphasis added)).
The Court DENIES SunTrust’s request as to items (2) and (3).

BACKGROUND

Because the Court is considering Defendants’ motions to dismiss, it accepts all of the
factual allegations in the Complaint as true and construes them in the light most favorable
to Smith, the nonmoving party. See Skilstaf, Inc., v. CVS Caremark Corp., 669 F.3d
1005, 1014 (9th Cir. 2012).

Smith used a loan issued by SunTrust to buy his home in Albany, Oregon, on July 17,
2007. (Compl. ¶ 36.) SunTrust secured its interest on the property through a deed of
trust. Smith filed a copy of this deed of trust with his Complaint. (See id. Ex. 1.) That
deed of trust requires the homeowner to buy hazard insurance. If the homeowner doesn’t,
the deed of trust provides that the lender may do so and pass that expense along to the

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 3 of 17 Page ID #:742

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

borrower. This insurance is called lender-placed or force-placed insurance (“FPI”). (Id. ¶
5.) Specifically, the fifth section (“Section Five”) of the deed of trust states the following
in relevant part.

Borrower shall keep the improvements now existing or hereafter erected on
the Property insured against loss by fire, hazards included within the term
“extended coverage,” and any other hazards including, but not limited to,
earthquakes and floods, for which the Lender requires insurance. This
insurance shall be maintained in the amounts (including deductible levels)
and for the period that Lender requires. What Lender requires pursuant to
the preceding sentences can change during the term of the Loan. The
insurance carrier providing the insurance shall be chosen by Borrower
subject to Lender’s right to disapprove Borrower’s choice, which right shall
not be exercised unreasonably.

If Borrower fails to maintain any of the coverages described above, 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 . . . . 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.

(Id. Ex. 1 § 5.) The ninth section (“Section Nine”) contains the following provision.

If . . . Borrower fails to perform the covenants and agreements contained in
this Security Instrument . . . then Lender may do and pay for whatever is
reasonable or appropriate to protect Lender’s interest in the Property and
rights under this Security Instrument.

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 4 of 17 Page ID #:743

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

(Id. Ex. 1 § 9.)

Smith initially bought and maintained hazard insurance for his home. He last renewed his
policy on July 18, 2008. (Id. ¶ 85.) That policy covered, from July 17, 2008 through July
17, 2009, Smith’s residence for $247,000 and other related items for $247,000. (Id.)
This policy had an annual premium of $478. (Id.)

But when that insurance policy expired, Smith’s coverage lapsed. On September 9, 2009,
SunTrust exercised its right under the contract to purchase FPI and bought a one-year
insurance policy from QBE. (Id. ¶ 86.) The policy was backdated to July 17, 2009, and
insured Smith’s residence in the amount of $254,000. (Id. ¶¶ 86, 87.) The policy had an
annual premium of about $3,200. (Id. ¶ 86.)

On March 4, 2010, Smith himself bought a policy that covered his residence in the
amount of $167,000. (Id. ¶¶ 88–89.) This policy had an annual premium of $353.24.
(Id. Ex. 16.) SunTrust approved this insurance coverage and cancelled the FPI. (Id.
¶ 90.) SunTrust charged Smith a prorated premium of about $1,991 for the period
between the two policies he bought. (Id. ¶ 91.)

Smith alleges that SunTrust and QBE colluded to overcharge him for FPI. The Complaint
describes at least three mechanisms by which SunTrust and QBE accomplish their
scheme.

First, QBE paid SunTrust a kickback for every FPI policy that QBE issued to a SunTrust-
serviced homeowner. (Id. ¶¶ 10, 56–57, 73.) SunTrust pays QBE to monitor whether
SunTrust-serviced homeowners have purchased adequate hazard insurance. (Id. ¶¶ 10,
61.) QBE charges SunTrust a below-market rate for this, which creates one part of the
kickback. (Id. ¶¶ 62, 83.) In addition, when a homeowner’s hazard insurance does lapse,
QBE issues a grossly overpriced FPI that carries a hefty premium for generally
diminished coverage. (Id. ¶¶ 7, 146(a).) Smith alleges that his experience serves as a
good example—when his hazard insurance lapsed, QBE issued him FPI that carried an
annual premium over six-and-a-half times more expensive than Smith’s previous annual
premium. (Id. ¶ 87.) That price bought coverage that was either similar or inferior. (Id.)

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 5 of 17 Page ID #:744

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

QBE pays a percentage of this inflated premium to SunTrust. (Id. ¶¶ 54, 56–57.) For its
part, SunTrust simply passes that premium cost along to homeowners by diverting their
monthly loan payments or debiting their escrow accounts. (Id. ¶¶ 6, 132.) Under this
scheme, neither SunTrust nor QBE have an economic interest in keeping the cost of the
FPI down.

Second, SunTrust and QBE worked together to provide homeowners with excessive FPI.
Smith alleges that his story illustrates this claim. Smith initially purchased hazard
insurance that was better than it needed to be to satisfy Section 5—in addition to covering
his home for up to $247,000, the policy provided an additional $247,000 worth of
coverage for other items related to the property. (Id. ¶ 85.) When it lapsed, SunTrust and
QBE provided FPI that covered Smith’s home for up to $254,000—an amount similar to
what Smith originally had. (Id. ¶¶ 86–87.) But when Smith later purchased a policy that
only covered the home for up to $167,000, it was enough to satisfy Section 5 in
SunTrust’s eyes. (Id. ¶¶ 88–90.) In other words, the FPI policy insuring the home for up
to $254,000 was more than what was necessary to satisfy Section 5. (Id. ¶ 89.) On this
basis, Smith says that SunTrust and QBE sold him at least $87,000 worth of unnecessary
coverage. (Id.)

Third, SunTrust and QBE conspired to backdate FPI policies unnecessarily. Specifically,
they’d provide retroactive coverage for SunTrust-serviced properties, even if this sort of
coverage wasn’t needed. (Id. ¶ 26(e).) For example, when SunTrust purchased FPI for
Smith in September 2009, it backdated the policy to July 2009, even though SunTrust
presumably knew nothing had happened to the property since July 2009. (Id. ¶ 86.)

Smith asserts seven claims on behalf of the purported class: (1) breach of the implied
covenant of good faith and fair dealing against SunTrust; (2) breach of contract against
SunTrust; (3) breach of fiduciary duty/misappropriation of funds held in trust against
SunTrust, (4) aiding and abetting a breach of fiduciary duty against QBE, (5) violation of
California’s Unfair Competition Law against both SunTrust and QBE; (6) violation of
Oregon’s Unlawful Debt Collection Practices Act against SunTrust; and (7) unjust
enrichment/disgorgement against QBE.

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 6 of 17 Page ID #:745

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

LEGAL STANDARD

A court should dismiss a complaint when its allegations fail to state a claim upon which
relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint need only include “a short
and plain statement of the claim showing that the pleader is entitled to relief.” Id. 8(a)(2).
“[D]etailed factual allegations” are not required. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quotation marks and citation omitted). Further, a court ruling on a motion to
dismiss “accept[s] all factual allegations in the complaint as true and constru[es] them in
the light most favorable to the nonmoving party.” Skilstaf, Inc., 669 F.3d at 1014.

But the complaint must allege “sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 554, 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.” Id. (citing Twombly, 550 U.S. at 556). A
court should not accept “threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements,” id., or “allegations that are merely conclusory,
unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “[A]nalyzing the sufficiency of a
complaint’s allegations is a ‘context-specific task that requires the reviewing court to
draw on its judicial experience and common sense.’” Sheppard v. David Evans &
Assocs., 694 F.3d 1045, 1051 (9th Cir. 2012). The Ninth Circuit also addressed post-
Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202, 1204 (9th Cir. 2011). The Starr
court held that allegations “must contain sufficient allegations of underlying facts to give
fair notice and to enable the opposing party to defend itself effectively . . . [and] plausibly
suggest an entitlement to relief, such that it is not unfair to require the opposing party to
be subjected to the expense of discovery and continued litigation.” Id. at 1216.

If court decides to dismiss a complaint, it must also decide whether to grant leave to
amend. “A district court may deny a plaintiff leave to amend if it determines that
allegation of other facts consistent with the challenged pleading could not possibly cure

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

the deficiency . . . or if the plaintiff had several opportunities to amend its complaint and
repeatedly failed to cure deficiencies.” Telesaurus VPC, LLC v. Power, 623 F.3d 998,
1003 (9th Cir. 2010); see also Steckman v. Hart Brewing, 143 F.3d 1293, 1298 (9th Cir.
1998) (holding that pleadings may be dismissed without leave to amend if amendment
“would be an exercise in futility”).

ANALYSIS

1.

SUNTRUST’S MOTION

SunTrust argues that the filed rate doctrine bars Smith’s entire suit against SunTrust. In
addition, SunTrust argues that Smith has failed to adequately plead each individual claim.
The Court addresses these arguments in turn.

1.1

The Filed Rate Doctrine

The filed rate doctrine bars suits that challenge the rates charged by some regulated
companies. The court-created doctrine “holds that any ‘filed rate’—that is, one approved
by [a] governing regulatory agency—is per se reasonable and unassailable in judicial
proceedings brought by ratepayers.” Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d
Cir. 1994). The Court concludes that whether the filed rate doctrine applies hinges on
how Oregon law treats the doctrine. This determination is based on, among other things,
the choice of law provision in the deed of trust. (See Compl. Ex. 1 ¶ 16.)

SunTrust argues that the filed rate doctrine bars Smith’s suit because of the nature of
Smith’s claims. According to SunTrust, Smith’s claims are “predicated on allegations
that he was charged an unreasonably excessive rate for [FPI].” (SunTrust’s Mot.
4:17–18.) And, because the filed rate doctrine “prohibits suits alleging an authorized
insurance rate is unreasonable, . . . the entire complaint [is] subject to dismissal.”

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

(SunTrust’s Mot. 4:20–21.) SunTrust also argues that the doctrine’s “focus is on the
substance of the claim—whether a filed rate is being challenged—not on the identity of
the defendant.” (SunTrust’s Mot. 5:15–16.) Under this argument, it doesn’t matter then
that SunTrust itself isn’t an insurance company and isn’t filing rates.

It’s unclear whether Oregon law even recognizes the filed rate doctrine. “No Oregon
court has expressly decided whether Oregon accepts the filed-rate doctrine.” Dreyer v.
Portland Gen. Elec. Co., 341 Or. 262, 270 n.10 (2006). If Oregon doesn’t recognize the
doctrine, it can’t shield SunTrust.

But even if Oregon law recognizes the filed rate doctrine, the doctrine wouldn’t shield
SunTrust here. SunTrust’s arguments mischaracterize Smith’s claims. At least the
backdating and excessive coverage allegations involve the appropriateness of the policy
and its timing, and not the rate of the policy. In the backdating claims Smith doesn’t
complain about how much SunTrust charged him because of any issue with the rate or the
premium calculated from it. Smith instead argues that the premium was charged over an
excessively long time period. SunTrust hasn’t provided any authority that shows that
courts—particularly Oregon courts—have expanded the filed rate doctrine to cover not
only the rate charged, but the time period over which that rate is charged. Similarly, the
excessive coverage claims don’t focus on the rate, but rather how much coverage QBE
provided Smith through SunTrust. The filed rate doctrine does not bar Smith’s claims.

Further, the conclusion that the filed rate doctrine doesn’t bar the asserted claims is
consistent with the weight of relevant case law. See Simpkins v. Wells Fargo Bank, N.A.,
No. 12–cv–00768–DRH–PMF, 2013 WL 4510166, at *13–14 (S.D. Ill. Aug. 26, 2013);
Leghorn v. Wells Fargo Bank, N.A., No. C–13–00708 JCS, 2013 WL 3064548, at *19–21
(N.D. Cal. June 19, 2013); Gustafson v. BAC Home Loans Servicing, LP, No. SACV
11–915–JST (ANx), 2012 WL 7071469, at *13 (C.D. Cal. Dec. 20, 2012) (“Gustafson
Order II”); Ellsworth v. U.S. Bank, N.A., 908 F. Supp. 2d 1063, 1081–83 (N.D. Cal.
2012); see also Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11–cv–81373–DMM, 2013

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 9 of 17 Page ID #:748

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

WL 139913, at *11 (S.D. Fla. Jan. 10, 2013) (noting that similar kickback claims were
enough to defeat a filed rate doctrine argument at the motion to dismiss stage).

In contrast, SunTrust points to only one case where a district court applied the filed rate
doctrine in a context similar to this case. See Steven v. Union Planters Corp., No. Civ.A.
00–CV–1695, 2000 WL 33128256, at *3 (E.D. Pa. Aug. 22, 2000). But the Court finds
that case insufficient to offset the weight of more recent authority.

Finally, the Court notes that, despite SunTrust’s arguments to the contrary, it’s not clear
that the filed rate doctrine should protect SunTrust given that SunTrust itself doesn’t
submit its rates to any regulatory body. SunTrust has presented no authority
demonstrating that the protections of the filed rate doctrine extend this far.

For all of these reasons, the filed rate doctrine does not bar Smith’s claims against
SunTrust. The Court now examines whether each of Smith’s claims against SunTrust are
adequately pleaded such that they state a claim for relief.

1.2

The Claims Against SunTrust

Smith asserts five claims against SunTrust: (1) breach of the implied covenant of good
faith and fair dealing; (2) breach of contract; (3) breach of fiduciary
duty/misappropriation of funds held in trust; (4) violation of California’s Unfair
Competition Law; and (5) violation of Oregon’s Unlawful Debt Collection Practices Act.

1.2.1 The Contract Claims

Smith’s first and second claims against SunTrust arise under contract law. The first claim
alleges that SunTrust breached the implied covenant of good faith and fair dealing by

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

exercising its discretion to buy FPI “capriciously and in bad faith.” (Compl. ¶ 118.) The
second claim alleges that SunTrust breached an express term of the contract—namely,
Section 9’s “reasonable or appropriate” language. Both parties agree that Oregon
contract law applies. SunTrust makes three arguments—two that apply to both claims,
and a third that applies to the breach of contract claim. For the following reasons, the
Court rejects those arguments.

First, SunTrust argues that both claims are “precluded by . . . Smith’s admitted contract
breach.” (SunTrust’s Mot. 8:15–16.) But SunTrust hasn’t shown that dismissal is
appropriate at this time given the apparent dispute between the parties concerning both
the materiality of Smith’s failure to purchase hazard insurance and the contingent nature
of the FPI provision. (Opp’n to SunTrust’s Mot. 15:16–18); see Wasserburger v. Am. Sci.
Chem., Inc., 267 Or. 77, 82 (1973) (“[A] breach or nonperformance of a promise by one
party to a bilateral contract so material as to justify a refusal of the other party to perform
a contractual duty, discharges that duty.”). Other courts addressing similar claims also
haven’t held that this kind of conduct by a plaintiff necessarily bars contract claims. See
Leghorn, 2013 WL 3064548, at *22–25 (applying California law); Gustafson v. BAC
Home Loans Servicing, LP, No. SACV 11–915–JST (ANx), 2012 WL 4761733, at *3–5
(C.D. Cal. April 12, 2012) (“Gustafson Order I”) (applying Illinois law); Ellsworth, 908
F. Supp. 2d at 1084–85 (applying California law); McNeary-Calloway v. JP Morgan
Chase Bank, N.A., 863 F. Supp. 2d 928, 955–56 (N.D. Cal. 2012) (applying California
and New Jersey law). SunTrust hasn’t provided contrary case law. For these reasons,
SunTrust hasn’t shown that Smith’s conduct bars his contract claims.

Second, SunTrust argues that, because it had an undisputed right to buy FPI under the
deed of trust, Smith’s contract claims must fail. Under this argument, the breach of
contract claim is barred because SunTrust “had the right to obtain hazard insurance under
the unambiguous terms of the deed of trust,” such that “there is no express breach of any
contract provision.” (SunTrust’s Mot. 11:22–23, 12:3.) And the breach of the covenant
of good faith and fair dealing claim is barred because Smith “seeks to contradict an
express contract term or requests a remedy for an act that is permitted expressly by

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

contract.” (SunTrust’s Mot. 10:2–3 (citations omitted).) SunTrust misses the point on
both claims. Smith doesn’t dispute SunTrust’s ability to buy FPI. The fight is over how
it went about exercising its discretion to do so. An abuse of that discretion may violate
both the implied covenant of good faith and fair dealing, as well as Section 9’s
“reasonable or appropriate” language.

Third, SunTrust argues that the breach of contract claim should be dismissed because
“Smith does not adequately allege any detriment, harm, or damages resulting from
SunTrust’s purported breach of the deed of trust.” (SunTrust’s Mot. 11:16–17.) But
Smith does allege these things. For example, he says SunTrust made him pay for
excessive or unnecessary retroactive insurance. (Compl. ¶ 125.) This satisfies Smith’s
pleading requirements. Once again, this conclusion is in line with the other cases
mentioned earlier in this section, where similar allegations supported similar contract
claims. See Leghorn, 2013 WL 3064548, at *22–25; Ellsworth, 908 F. Supp. 2d at
1084–85; Gustafson Order I, 2012 WL 4761733, at *3–5; McNeary, 863 F. Supp. 2d at
955–56.

The Court DENIES SunTrust’s Motion on both the breach of the implied duty of good
faith and fair dealing claim and the breach of contract claim.

1.2.2 Breach of Fiduciary Duty/Misappropriation of Funds Held in Trust

Smith’s third claim against SunTrust asserts a breach of fiduciary duty. Smith didn’t
oppose SunTrust’s Motion as it related to this claim. (See Opp’n to SunTrust’s Motion at
i.) For this reason, the Court GRANTS SunTrust’s Motion on the claim for breach of
fiduciary duty/misappropriation of funds held in trust.

1.2.3 California’s Unfair Competition Law

Smith’s fourth claim against SunTrust arises under California’s Unfair Competition Law
(“UCL”). The UCL prohibits “any unlawful, unfair or fraudulent business act[s] or

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

practice[s].” Cal. Bus. & Prof. Code § 17200. SunTrust makes three arguments
supporting dismissal of this claim. First, SunTrust argues that, under the deed of trust’s
choice-of-law provision, Oregon law controls and California’s UCL does not apply to the
trust of deed. Second, SunTrust argues that because the UCL doesn’t apply to conduct
outside of California, it shouldn’t provide a basis for Smith’s claims. Finally, SunTrust
argues that, as a matter of substantive law, Smith hasn’t stated a claim under the UCL.
Because the second argument is dispositive of SunTrust’s Motion as it relates to this
claim, the Court doesn’t address the others.

The UCL cannot protect Smith here. “[W]hile the UCL reaches claims made by out-of-
state residents harmed by unlawful conduct occurring inside California, it does not apply
to wrongful conduct occurring outside of California.” Gustafson Order I, 2012 WL
4761733, at *5 (citations omitted) (citing California Supreme Court and state appellate
decisions). Smith’s ability to file suit under the UCL thus depends on whether his
“proposed application of the UCL would cause it to operate, impermissibly, with respect
to occurrences outside the state.” Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207
(2011). Smith resides in Oregon. (Compl. ¶¶ 35–36.) Smith’s house is in Oregon. (Id.)
The Defendants are all incorporated outside of California. (Id. ¶¶ 39–41.) None of the
Defendants have their principal place of business or headquarters in California. (Id.)
These facts weigh heavily against application of the UCL in this case.

The only allegations Smith provides to counter this weight are reproduced below.

Defendants’ scheme was devised, implemented and directed from Suntrust
and QBE’s offices in California and the nerve center of the conduct alleged
occurred in California. In connection with the force-placed practices at
issue in this lawsuit, it was Suntrust Mortgage, Inc., an entity with a place
of business in Irvine, CA., that directed the form and substance of the
communications with Plaintiff and members of the class . . . .

(Id. ¶ 145.)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

To support his contention that these allegations are sufficient, Smith relies heavily on
Gustafson v. BAC Home Loans Servicing, LP. There, the court initially dismissed the
plaintiff’s UCL claim, reasoning that “[t]he mere possibility that certain decisions related
to the [defendants’] policies and practices regarding force-placed insurance may have
been made in California does not, standing alone, justify application of the UCL to [the
plaintiff’s] claims.” Gustafson Order I, 2012 WL 4761733, at *6. But the court did grant
the plaintiff leave to amend his complaint. Id. The plaintiff filed a third amended
complaint (“TAC”), and the court denied the defendants’ subsequent motion to dismiss
the UCL claim. Gustafson Order II, 2012 WL 7071469, at *8. Smith argues that his
pleadings are sufficiently similar to the Gustafson TAC and so should survive dismissal.

But Smith’s pleadings don’t stack up. For example, the Gustafson TAC alleged that all of
the defendants regularly conducted business throughout California, and that many of them
had their principal place of business or headquarters in California. Gustafson Order II,
2012 WL 7071469, at *8. Here, Smith has merely alleged that both SunTrust and QBE
have offices somewhere in California, including one SunTrust “place of business” and
one QBE “regional office” in Irvine. (Compl. ¶¶ 43, 145.) Smith says this one SunTrust
office mailed out notices regarding hazard insurance and FPI, but this does not mean that
the “unlawful conduct occur[ed] in California.” Gustafson Order I, 2012 WL 4761733, at
*5. And by itself, Smith’s conclusory allegation that the “scheme was devised,
implemented and directed from [SunTrust] and QBE’s offices in California” lacks
sufficient specificity.

For at least this reason, the Court GRANTS SunTrust’s Motion on the claim brought
under California’s Unfair Competition Law.

1.2.4 Oregon’s Unlawful Debt Collection Practices Act

Smith’s fifth claim against SunTrust arises under Oregon’s Unlawful Debt Collection
Practices Act. Smith didn’t oppose SunTrust’s Motion as it related to this claim. (See
Opp’n to SunTrust’s Mot. at i.) For this reason, the Court GRANTS SunTrust’s Motion

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 14 of 17 Page ID #:753

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

as to this claim.


1.2.5 Summary of Rulings

In summary, the Court DENIES SunTrust’s Motion on both of Smith’s contract claims
and GRANTS SunTrust’s Motion as to the remaining claims.

2.

QBE’S MOTION

Smith asserts three claims against QBE: aiding and abetting a breach of fiduciary duty,
violation of California’s Unfair Competition Law, and unjust enrichment/disgorgement.
QBE argues the filed rate doctrine shields QBE from liability for any of these claims.
Further, QBE argues that Smith hasn’t sufficiently pleaded any of these claims.

2.1

The Filed Rate Doctrine

The filed rate doctrine doesn’t bar Smith’s claims against QBE for essentially the same
reasons it doesn’t bar Smith’s claims against SunTrust. Simply put, Smith isn’t
questioning the reasonableness of the rates, but the reasonableness of Defendants’
conduct and choices to buy certain plans. Any distinction between QBE’s and SunTrust’s
roles does not warrant a different result. See Leghorn, 2013 WL 3064548, at *21 (further
discussing why the filed rate doctrine doesn’t shield an insurer in this situation).

For these reasons, and those discussed earlier, the filed rate doctrine does not shield QBE
from liability for Smith’s claims. The Court now examines whether each of Smith’s
claims against QBE are adequately pleaded such that they state a claim for relief.

2.2

The Claims Against QBE

Smith asserts three claims against QBE: aiding and abetting a breach of fiduciary duty,
violation of California’s Unfair Competition Law, and unjust enrichment/disgorgement.

CIVIL MINUTES - GENERAL

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 15 of 17 Page ID #:754

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

2.2.1 Aiding and abetting a breach of fiduciary duty

Smith’s first claim against QBE is for aiding and abetting a breach of fiduciary duty.
Smith withdrew this claim in his opposition to QBE’s Motion. (Opp’n to QBE’s Mot. 7:2
n.4.) For this reason, the Court DENIES as moot QBE’s Motion on the claim for aiding
and abetting a breach of fiduciary duty.

2.2.2 Violating California’s Unfair Competition Law

For essentially the same reasons as discussed in section 1.2.3, Smith cannot sustain his
claim under California’s UCL against QBE. The Court GRANTS QBE’s Motion on
Smith’s claim under California’s Unfair Competition Law.

2.2.3 Unjust enrichment/disgorgement

Smith’s third claim against QBE is for unjust enrichment/disgorgement. QBE cogently
argues that Oregon law applies to this claim. (See QBE’s Mot. 20:5 – 21:3.) Smith cites
to both California and Oregon tort law, but doesn’t contest the applicability of Oregon
law here. (See Opp’n to QBE’s Mot. 13:20–14:6.) The Court thus analyzes under
Oregon law.

As generally formulated, under Oregon law, a claim for unjust enrichment has three
elements. “[A] plaintiff must establish that (1) the plaintiff conferred a benefit on the
defendant; (2) the defendant was aware that it had received a benefit; and (3) under the
circumstances, it would be unjust for the defendant to retain the benefit without paying
for it.” Winters v. Cnty. of Clatsop, 210 Or. App. 417, 421 (2007). The core of the
parties’ dispute appears to be whether the Complaint sufficiently alleges that QBE
retained any benefit, or that retaining this benefit was unjust.

The Complaint does not contain sufficient allegations that QBE retained a benefit, or that
doing so was unjust. Much of the Complaint details how QBE benefitted SunTrust, (see,

CIVIL MINUTES - GENERAL

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 16 of 17 Page ID #:755

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

e.g., id. ¶¶ 26, 57, 61, 62, 74, 79, 83), but the Complaint doesn’t allege with specificity
enough about how QBE itself benefitted, (see, e.g., id. ¶ 7 (referring to “perverse
incentives and lucrative financial benefits that are shared between Suntrust and QBE”); ¶
54 (“The force-placement of insurance policies is a very lucrative business for servicers
and insurance carriers.”)). Smith’s generalized allegations are insufficient, and he has not
adequately pleaded how QBE was unjustly benefitted.

Other courts have ruled on similar issues applying similar law, and sustained claims for
unjust enrichment. See Leghorn, 2013 WL 3064548, at *27–28; Gustafson Order II,
2012 WL 7071469, at *12; Ellsworth, 908 F. Supp. 2d at 1087; McNeary, 863 F. Supp.
2d at 964. But those orders don’t sufficiently indicate what each plaintiff pleaded to
support his unjust enrichment claim to be helpful in deciding whether Smith has
sufficiently alleged unjust enrichment.

The Court GRANTS QBE’s Motion on Smith’s unjust enrichment/disgorgement claim.

DISPOSITION

The Court GRANTS IN PART and DENIES IN PART both SunTrust’s and QBE’s
Motions. The Court DENIES SunTrust’s Motion on both of Smith’s contract claims and
GRANTS SunTrust’s Motion as to the remaining claims against SunTrust. The Court
DENIES as moot QBE’s Motion on Smith’s aiding and abetting a breach of fiduciary
duty claim and GRANTS QBE’s Motion as to the remaining claims against QBE.

Leave to amend is appropriate because the Court has not determined that the deficiencies
in the Complaint are incurable or that amendment would be futile. See Telesaurus, 623
F.3d at 1003. Any amended complaint must be filed within thirty days of this Order.


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CIVIL MINUTES - GENERAL

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Case 8:13-cv-00739-AG-JPR Document 60 Filed 09/16/13 Page 17 of 17 Page ID #:756

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No.

SACV 13-0739 AG (JPRx)

Date

September 16, 2013

Title

TIMOTHY MARTIN SMITH v. SUNTRUST MORTGAGE INC., et al.

Initials of
Preparer

lmb

CIVIL MINUTES - GENERAL

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