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Cannon v. Wells Fargo Bank, N.A.

United States District Court, District of Columbia

March 1, 2013

Andrea CANNON, on behalf of herself and all other similarly situated, Plaintiff,
WELLS FARGO BANK, N.A., et al., Defendants.

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Harry T. Spikes, Washington, DC, for Plaintiff.

Russell J. Pope, Treanor, Pope & Hughes, P.A., Towson, MD, Jennifer A. Slagle-Peck, Robyn Cort Quattrone, Buckley Sandler, LLP, Washington, DC, for Defendants.



Plaintiff Andrea Cannon filed a proposed class action suit against Defendants Wells Fargo Bank, N.A. and Wells Fargo Insurance, Inc., (collectively the " Wells Fargo Defendants" ), as well as QBE Specialty Insurance Co. and Sterling National Insurance Agency, Inc., now known as QBE First Insurance Agency, Inc., (collectively the " QBE Defendants" ) in the Superior Court for the District of Columbia. The Defendants removed the action to this Court, and the Court subsequently denied the Plaintiff's motion to remand. Presently before the Court are the Defendants' motions to dismiss.[1] Upon consideration of the pleadings, the relevant legal authorities, and the record for purposes of a motion to dismiss, the Court finds that it lacks personal jurisdiction over QBE Specialty, and the Plaintiff fails to state a claim with respect to either QBE Defendant. The Court further finds that the Plaintiff has adequately pled a breach of the covenant of good faith and fair dealing, but otherwise fails to state a claim against the Wells Fargo Defendants. Accordingly, for the reasons stated below, the QBE Defendants' Amended Motion to Dismiss is GRANTED and the Wells Fargo Defendants' Motion to Dismiss is GRANTED IN PART and DENIED IN PART.


A. Factual Allegations

For purposes of the Defendants' motions to dismiss for failure to state a claim, the Court presumes the following facts pled in the Complaint are true. The Plaintiff obtained a mortgage from Wachovia Bank, predecessor in interest to Defendant Wells Fargo Bank, on property located at 1235

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Queen Street, Northeast, Washington, D.C., 20002, in December 2007. Pl.'s Ex. 10 (Deed of Trust) at 1. The Deed of Trust indicates that if the borrower fails to maintain sufficient insurance coverage on the mortgaged property, the lender " may obtain insurance coverage, at Lender's option and Borrower's expense," and " the cost of the insurance coverage so obtained might significantly exceed the cost of insurance" that the borrower might have obtained. Id. at 4. Between July 16, 2005, and July 16, 2008, the Plaintiff maintained property and liability insurance on the Queen Street property through Scottsdale Insurance Company. Pl.'s Ex. 1 (2/16/12 Ltr. Old Dominion Ins. Agency to Pl.). From July 16, 2008 through at least February 16, 2012, Great American Insurance Company provided commercial property and liability insurance coverage for the Queen Street property. Id.; see also Pl.'s Ex. 9-A (Great Am. Ins. Co. Policy Decl.) (reflecting coverage of Queen Street Property from July 16, 2011 until July 16, 2012).

1. Correspondence from the Wells Fargo Defendants

According to the Exhibits attached to her Complaint, on August 1, 2011, August 31, 2011, January 10, 2012, and February 9, 2012, the Plaintiff received letters from Defendant Wells Fargo Insurance indicating that the Plaintiff " may qualify for a unique homeowners insurance program offered through Wells Fargo Insurance." Pl.'s Exs. 2-5. The letters provided a toll-free number for the Plaintiff to call to see if she qualified, and indicated that if she did qualify, she would receive " a no-obligation quote within minutes that may even save you money." Id. The letters further indicated that she might be eligible for " [q]uotes from multiple insurance companies," " [i]mproved coverage compared to your current homeowners or property insurance," and " [d]iscounts for smoke alarms, security systems and recently constructed homes." Id. The Plaintiff does not allege that she responded to any of the letters or otherwise sought insurance from Wells Fargo Insurance. In fact, elsewhere in her Complaint, the Plaintiff indicates that she did not respond to the solicitations from Wells Fargo Insurance. Id. at ¶ 75, p. 35.

On August 31, 2011, the Plaintiff received a separate letter from Wells Fargo Bank, which stated in relevant part:

Previously we wrote to inform you that we did not have evidence of homeowners/hazard insurance coverage to protect your property per the terms of your [Deed of Trust]. We requested that you provide current evidence of homeowners/hazard insurance coverage to us. We have not received a homeowners/hazard policy covering your dwelling.
Therefore, Wells Fargo Bank N.A., has secured temporary insurance coverage in the form of a binder effective as of [July 16, 2011]. This insurance is provided by QBE Insurance Corporation. This binder cannot be renewed.

Pl.'s Ex. 6 (8/31/11 Ltr. Wells Fargo Bank to Pl.) at 1. The letter indicated that the Plaintiff had the right to purchase insurance from the company of her choice, and that if she already had coverage on the property, she could submit that information to Wells Fargo Bank. Id. Moreover, " [u]pon prompt receipt of your policy, this binder will be cancelled. There is no charge to you if there has been no lapse in coverage." Id. With respect to the temporary insurance coverage Wells Fargo had obtained on the property, the letter stated that " [t]he full year premium for this policy is shown on the enclosed binder. This premium will be advanced by Wells Fargo Bank, N.A. and will be added as a fee to your account." Id. The Plaintiff implies

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but does not explicitly state that a copy of the binder was not attached to the August 31, 2011 letter. Compl. ¶ 21. The Plaintiff alleges that, in light of the letter from Wells Fargo Insurance stating the Plaintiff may be eligible for " [i]mproved coverage compared to your current homeowners or property insurance," Wells Fargo Bank had actual knowledge that the Plaintiff's insurance coverage on the Queen Street property had not lapsed. Id. at ¶ 36.

The letter went on to indicate that " [i]n nearly all instances, the insurance coverage we obtain may be more expensive than a policy you could obtain from an agent or insurance company of your choice." Pl.'s Ex. 6 at 2. The letter further disclosed that " [t]he insurance we obtain will be arranged by Wells Fargo Insurance, Inc., a licensed insurance agency and an affiliate of Wells Fargo Bank, N.A. Wells Fargo Insurance, Inc. will receive a commission on the insurance we obtain. Wells Fargo bank, N.A., is not affiliated with the insurance company." Id. The Plaintiff's Complaint does not indicate how she responded to the August 31, 2011 letter, if at all.

The Plaintiff received a substantively identical letter from Wells Fargo Bank on February 9, 2012. Pl.'s Ex. 7 (2/9/12 Ltr. Wells Fargo Bank to Pl.). Attached to the letter was a 90-day binder from QBE Insurance Corporation, disclosing a premium of $3,064.32. Pl.'s Ex. 8. The document indicated the " policy term" ran from July 16, 2011, until July 16, 2012. The binder stated that

[W]e have secured temporary coverage in the form of a 90-day binder through the Company shown above and you will be charged for the policy premium. This binder covers the described property for risks of direct loss subject to the terms, conditions, and limitations of the policy in current use by the company. If evidence of acceptable coverage is received during this binder period, you will be charged only for any lapse in coverage. This coverage will be cancelled back to the original effective date, with no premium charge applying, if you provide coverage effective on or before the effective date of this binder.

Id. The Plaintiff notes that the premium for the 90-day binder from QBE Insurance Corp., if applied to a 12-month policy, exceeded the premium charged by Great American Insurance by $6,487.28. Compl. ¶ 23; cf. Pl.'s Ex. 8 with Pl.'s Ex. 9-A. The Defendants contend that despite the " 90-day" moniker, $3,064.32 represented the yearly premium for the policy. Wells Fargo Defs.' Reply at 3, n.2; QBE Defs.' Reply at 5-6. The parties (and the Court) generally refer to the policy reflected in the 90-day binder as the " force-placed," " lender-placed," or " LPI" policy.

The Complaint does not indicate whether or not the Plaintiff responded to the February 9, 2012 letter. She does not specifically allege that her mortgage account was actually charged the premium stated on the 90-day binder (or any portion thereof), though at various points in her Complaint the Plaintiff alleges she paid the premium associated with the LPI policy. Elsewhere, the Plaintiff generally alleges that

If Defendants believes that the Homeowner cannot afford the premium; the premium is scrumptiously attached to the monthly mortgage payments in small increments so as to not alarm the homeowner of the actual premium cost. Or, Defendants will attach the cost of the premium to the principal of the mortgage or alternate the payments between the principal and the monthly payment. This practice misleads the homeowner as to the amount attributed to the principal and interest on the

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mortgage. Such is the case with Plaintiff in another matter.

Compl. ¶ 41 (emphasis added). The Plaintiff does not allege which approach Wells Fargo Bank took with respect to her account for the Queen Street property.

2. The QBE Defendants and the " Kickback" Scheme

Apart from describing QBE Specialty as a " surplus line insurance provider doing business through Wells Fargo and independently in the District of Columbia," the Complaint does not contain any specific factual allegations against QBE Specialty. Compl. ¶ 5. The Plaintiff alleges that Wells Fargo Insurance is a " captive insurance agent for Wells Fargo [Bank]," and " does nothing to assist in obtaining the force-place insurance policy and exists only so that Wells Fargo [Bank] can collect kickbacks or commissions related to the force-placed insurance policies." Id. at ¶ 4.

Likewise, with respect to QBE First, the Plaintiff asserts that " QBE First does nothing to assist in finding the force-placed insurance policy and exist [sic] only to provide kickbacks and/or collect excessive commissions related to the force-placed policies." Compl. ¶ 6. The Plaintiff claims that " QBE has access to and searches Wells Fargo's database to find lapsed insurance policies, the same database contains homeowner's existing voluntary insurance policies." Id. at ¶ 37. The Plaintiff asserts that QBE First " monitor[s] Wells Fargo's entire portfolio for not only lapses in coverage, but concealing voluntary coverage's so that the Wells Fargo Collateral in the Property can take on the character of uninsured for the imposition of forced-collateral insurance coverage." Id. at ¶ 38 (all errors in original). In terms of the purported " kickback" scheme, the Plaintiff alleges that

Wells Fargo receives kickbacks disguised as commissions from the force-placed companies or the insurance brokers or agents once one of the high-priced, forceplaced, insurance policies is purchased. These kickbacks are directly tied to the cost of the force-placed insurance. The kickback(s) is a percentage of the total cost of the policy. The total cost of the policy is paid by Plaintiff-Class Members. This arrangement provides the mortgage server with an incentive to purchase the highest price force-placed insurance policy on a non-competitive basis that it can-the higher the cost of the insurance policy, the higher their kickbacks disguised as commission.

Id. at ¶¶ 32-33 (all errors in original). The Plaintiff separately charges that QBE First provides a " bundle of services" to Wells Fargo (presumably the Wells Fargo Bank Defendant), including " administering and servicing the mortgages." Id. at ¶ 38.

B. Specific Claims [2]

The Plaintiff purports to bring this action on behalf of a nationwide class of " [a]ll individuals, who, within the applicable statute of limitation, were charged for force-placed insurance policy procedure through Defendants at an excessive premium whether the homeowners' policy had or had not lapsed." Compl. ¶ 47. According to the Complaint, the questions of law and

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fact purportedly common to the class include:

• Whether the premiums charges for force placed insurance were derived from a non-competitive process;
• Weather [sic] Wells Fargo breached the implied covenant of good faith and fair dealing by entering into an arrangement with QBE FIRST which resulted in their charging Plaintiff and Class Members excessive amounts of forceplaced insurance premiums[; ]
• Weather [sic] the Defendants manipulated the force placed in order to maximize the profits to themselves to the detriment of Plaintiff and the Class[; ]
• Whether the provision in the mortgage agreement relating to force-placed insurance is procedurally and substantively unconscionable because it does not contemplate or authorize Defendant to derive hidden financial benefits by force-placing the high cost insurance premiums[; ]
• Whether the premiums charged are illegal and excessive because they include kickbacks and unwarranted " commissions," and include charges for a bundle of administrative services that QBE provides to Wells Fargo that are not chartable to Plaintiff under the mortgage; and
• Whether the premiums charged to Plaintiff and the Class were bona fife [sic] and reasonable under Federal law and the ...

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