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Casey v. Citibank, N.A.

United States District Court, N.D. New York

January 2, 2013

Gordon CASEY and Duane Skinner, individually and on behalf of all others similarly situated, Plaintiffs,
v.
CITIBANK, N.A.; CitiMortgage, Inc.; Midfirst Bank, N.A., doing business as Midland Mortgage; FirstInsure, Inc.; and Citigroup, Inc., Defendants.

Page 256

[Copyrighted Material Omitted]

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Nichols Kaster, PLLP, Donald H. Nichols, Esq., E. Michelle Drake, Esq.,

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Kai H. Richter, Esq., Minneapolis, MN, Matthew C. Helland, Esq., San Francisco, CA, of Counsel, Berger & Montague, P.C., Patrick F. Madden, Esq., Sarah R. Schalman-Bergen, Esq., Shanon J. Carson, Esq., Philadelphia, PA, of Counsel, for Plaintiffs.

Ballard Spahr, LLP, Christopher J. Willis, Esq., Sarah T. Reise, Esq., Stefanie H. Jackman, Esq., Atlanta, GA, of Counsel, for Defendants Citibank, N.A.; CitiMortgage, Inc.; and Citigroup, Inc.

Menter, Rudin & Trivelpiece, P.C., Mitchell J. Katz, Esq., Teresa M. Bennett, Esq., Syracuse, NY, of Counsel, for Defendants Citibank, N.A.; CitiMortgage, Inc.; and Citigroup, Inc.

Goodwin Procter LLP, David S. Kantrowitz, Esq., John C. Englander, Esq., Matthew G. Lindenbaum, Esq., Boston, MA, of Counsel, for Defendants MidFirst Bank, N.A. and FirstInsure, Inc.

Costello, Cooney & Fearon, PLLC, Edward G. Melvin, Esq., Robert J. Smith, Esq., Syracuse, NY, of Counsel, for Defendants MidFirst Bank, N.A. and FirstInsure, Inc.

MEMORANDUM— DECISION AND ORDER

DAVID N. HURD, District Judge.

I. INTRODUCTION

On May 17, 2012, plaintiffs Gordon Casey (" Casey" ) and Duane Skinner (" Skinner" ) (collectively " plaintiffs" ), individually and on behalf of others similarly situated, filed this class action lawsuit against defendants Citibank, N.A. (" Citibank" ); CitiMortgage, Inc. (" CitiMortgage" ); and Citigroup, Inc. (collectively " the Citi defendants" ) [1]; MidFirst Bank, N.A. (" MidFirst" ) [2]; and FirstInsure, Inc. (" FirstInsure" ). On July 26, 2012, plaintiffs filed an amended complaint asserting a total of twelve causes of action— two federal claims for alleged violations of the Truth In Lending Act, 15 U.S.C. §§ 1601-1667f (2006) (" TILA" ) and pendent state claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, breach of fiduciary duty and trust, conversion, and violations of the New York Deceptive Practices Act, N.Y. Gen. Bus. Law § 349 (" NYDPA" ).

Generally, plaintiffs allege that: (1) defendants forced them to purchase and maintain flood insurance not contemplated in their mortgage agreements and in greater amounts than required by federal law; and (2) defendants profited from commissions and/or kickbacks related to the flood insurance they forced on plaintiffs.

The Citi defendants have moved to dismiss the amended complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). MidFirst and FirstInsure have filed a similar motion to dismiss. Plaintiffs oppose both motions, and defendants have replied. Oral argument was heard on December 21, 2012, in Utica, New York. Decision was reserved.

II. FACTUAL BACKGROUND

The following facts, taken from the amended complaint and documents attached thereto and incorporated by reference therein, are assumed true for purposes of the motions to dismiss.

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A. Casey's Mortgage

On July 16, 2002, Casey, a resident of Syracuse, New York, obtained a $25,000 loan from HCI Mortgage using a standard Federal Housing Administration form deed of trust. Shortly thereafter Citibank acquired this loan, which is secured by a mortgage on Casey's home. CitiMortgage serviced this loan from 2002 until late 2011. Casey is required to maintain flood insurance as his property is located in a designated flood zone. HCI Mortgage and, initially, the Citi defendants accepted $25,000 worth of flood insurance. Casey voluntarily increased this coverage to $30,300 for the year between July 2009 and July 2010. On June 23, 2010, however, CitiMortgage sent Casey a letter advising, for the first time, that his flood insurance was deficient and demanding that he increase his coverage by $107,780— the difference between his existing coverage and the acceptable minimum limit required by the Citi defendants.

In August 2010 CitiMortgage " force-placed" one year of additional flood insurance on Casey's property through American Security Insurance Company (" ASIC" ) in the amount of $107,780. This resulted in an annual premium of $970, which was taken out of Casey's escrow account. In July 2011, Casey obtained flood insurance coverage in the total amount of $188,300 to satisfy the Citi defendants' demand and avoid further force-placed coverage through ASIC.

In late 2011 Casey's loan was transferred to MidFirst, which has owned and serviced it ever since. In December 2011 and January 2012 MidFirst sent Casey two " Notices of Insufficient Flood Insurance Coverage" in which it demanded that he increase his total flood insurance coverage to $237,349— the full replacement value of his property. On February 9, 2012, MidFirst sent Casey a third letter advising that it had force-placed $49,049 of additional flood insurance on his property, bringing the total coverage up to $237,349. The annual premium for all of the increased flood insurance coverage on Casey's property is $1478.12, which is taken out of his escrow account. The current principal balance on his loan is less than $17,000.

B. Skinner's Mortgage

On October 5, 2011, Skinner, a Maryland resident, obtained a $142,000 mortgage from Real Estate Mortgage Network, Inc. using a standard Fannie Mae/Freddie Mac deed instrument. As a requirement for the closing of this mortgage, a private company performed an inspection and determined that flood insurance was not required for this particular property, which was located in flood zone " C." Real Estate Mortgage Network, Inc. allowed this mortgage to be processed and closed without Skinner obtaining any flood insurance.

This mortgage was subsequently sold to Fannie Mae and serviced by CitiMortgage. On January 9, 2012, CitiMortgage sent Skinner a letter in which it noted that his property was located in flood zone " A9," which required flood insurance. CitiMortgage sent Skinner a " Notice of Flood Insurance" on January 21, 2012, in which it demanded that he obtain $250,000 worth of flood insurance coverage. When Skinner failed to do so, CitiMortgage force-placed flood insurance on his property through ASIC in the amount of $250,000. This resulted in an annual premium of $2250, charged to Skinner. Although he has made regular monthly mortgage payments, the Citi defendants have threatened to foreclose on Skinner's property due to outstanding payments related to the force-placed flood insurance. The current principal balance of his loan is $142,000.

Finally, plaintiffs allege that the Citi defendants receive kickbacks and/or commissions

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from ASIC for the flood insurance coverage they force mortgagees to obtain. Plaintiffs similarly claim that MidFirst and FirstInsure, an affiliate of MidFirst, receive a commission on premiums from force-placed flood insurance policies like the one placed on Casey's property. Such payments were not disclosed to plaintiffs.[3]

III. DISCUSSION

A. Motion to Dismiss— Legal Standard

To survive a Rule 12(b)(6) motion to dismiss, the " [f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly,550 U.S. 544, 555, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007). A complaint need only contain " a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). However, more than mere conclusions are required. Indeed, " [w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). Dismissal is appropriate only where plaintiffs have failed to provide some basis for the ...


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