case3:12-cv-02506-lb document26 filed07/23/12 page1 … · northern district of california stephen...

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CLASS ACTION COMPLAINT

Matthew C. Helland, CA State Bar No. 250451 [email protected] NICHOLS KASTER, LLP One Embarcadero Center, Suite 720 San Francisco, CA 94111 Telephone: (415) 277-7235 Facsimile: (415) 277-7238 Rebekah L. Bailey, CA State Bar No. 258551 E. Michelle Drake, MN Bar No. 0387366* Kai H. Richter, MN Bar No. 0296545* Sarah W. Steenhoek, MN Bar No. 0390258* *(appearing pro hac vice) NICHOLS KASTER, PLLP 4600 IDS Center 80 South 8th Street Minneapolis, MN 55402 Telephone: (612) 256-3200 Facsimile: (612) 215-6870 Attorneys for Plaintiff and the Putative Classes

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Stephen Ellsworth, as an individual and as a representative of the classes and on behalf of the general public,

Plaintiff,

vs.

U.S. Bank, N.A. and American Security Insurance Company,

Defendants.

FIRST AMENDED CLASS ACTION COMPLAINT FOR DAMAGES, RESTITUTION AND INJUNCTIVE RELIEF

(1) Breach of Contract

(2) Breach of the Covenant of Good Faith and Fair Dealing

(3) Unjust Enrichment/Restitution

(4) Violation of California’s Unfair Competition Law (Business and Professional Code § 17200 et seq.)

DEMAND FOR JURY TRIAL

Case3:12-cv-02506-LB Document26 Filed07/23/12 Page1 of 22

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-2- CLASS ACTION COMPLAINT

Plaintiff Stephen Ellsworth (“Plaintiff”), on behalf of himself and the putative classes set

forth below, and in the public interest, brings the following First Amended Complaint against

Defendants U.S. Bank, N.A. (“U.S. Bank”) and American Security Insurance Company

(“ASIC”):

PRELIMINARY STATEMENT

1. Plaintiff and the putative class members have mortgages1 secured by residential

property, and were charged for lender-placed (also known as “force-placed”) flood insurance by

U.S. Bank.

2. Although lenders generally have the right to force-place flood insurance where the

property securing the loan falls in a Special Flood Hazard Area (“SFHA”) and is not insured by

the borrower, U.S. Bank abused that right by (1) purchasing backdated policies, (2) charging

borrowers for expired or partially expired coverage, and (3) arranging for kickbacks,

commissions, or other compensation for itself and/or its affiliates in connection with force-placed

flood insurance coverage.

3. ASIC actively participated in this scheme by issuing backdated lender-placed

flood insurance policies for U.S. Bank and by paying kickbacks, commissions, or other

compensation to U.S. Bank in return for the business.

4. Defendants engaged in this conduct in bad faith, knowing that their actions were

not authorized by borrowers’ mortgage contracts or the National Flood Insurance Act, and were

inconsistent with applicable law.

5. Based on this conduct, Plaintiff asserts claims against U.S. Bank for breach of

contract (Count One) and breach of the covenant of good faith and fair dealing (Count Two). In

addition, Plaintiff asserts claims against both Defendants for unjust enrichment/restitution

(Counts Three and Four) and violation of California’s Unfair Competition Law (“UCL”),

Business and Professional Code § 17200 et. seq. (Counts Five and Six).

1 As used herein, the term “mortgages” included deeds of trust and other security instruments.


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6. Plaintiff and the putative classes seek injunctive relief, corresponding declaratory

relief, monetary relief, and other appropriate relief for Defendants’ unlawful conduct, as

described herein.

THE PARTIES

7. Individual and representative Plaintiff Stephen Ellsworth resides in Napa,

California. Plaintiff is a member of each of the Putative Classes as defined below.2

8. Defendant U.S. Bank, N.A. is a national banking association headquartered in

Cincinnati, Ohio. U.S. Bank does business in California and throughout the United States. U.S.

Bank Home Mortgage is a division of U.S. Bank.

9. Defendant American Security Insurance Company (“ASIC”) is a Delaware

corporation with its principal place of business in Atlanta, Georgia. ASIC is a subsidiary of

Assurant, Inc. that does business in California and throughout the United States.

JURISDICTION AND VENUE

10. This Court has original jurisdiction under the Class Action Fairness Act

(“CAFA”), 28 U.S.C. § 1332(d)(2). Plaintiff is a citizen of the State of California, and

Defendants are citizens of different states. The amount in controversy in this action exceeds

$5,000,000.00, and there are more than 100 members of the Putative Classes.

11. Venue is proper in the United States District Court, Northern District of California,

pursuant to 28 U.S.C. § 1391. Plaintiff resides in this District, Defendants regularly conduct

business in this District, and Plaintiff’s property is located in this District.

INTRADISTRICT ASSIGNMENT

12. Pursuant to L.R. 3-2(c) and (d), this action is properly assigned to the San

Francisco Division of the Northern District of California because a substantial portion of the

events giving rise to the dispute occurred in Napa, California.

2 The term “Putative Classes” refers to both the proposed classes and subclasses.


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FACTUAL ALLEGATIONS

Origination of Plaintiff’s Mortgage Loan

13. On or about July 2, 2007, Plaintiff obtained a mortgage loan from U.S. Bank in

the amount of $393,892, secured by a deed of trust on his homestead. See Exhibit 1.

14. U.S. Bank is the lender-in-interest to Plaintiff’s mortgage loan, and it services the

loan through its U.S. Bank Home Mortgage division.

Flood Insurance Requirements for Plaintiff’s Property

15. Under the National Flood Insurance Act (“NFIA” or “Act”), lenders are required

to ensure that any improved property in a Special Flood Hazard Area (“SFHA”) that secures a

loan or line of credit is covered by flood insurance in an amount at least equal to the outstanding

principal balance of the loan or the maximum limit of coverage made available under the Act

($250,000), whichever is less. 42 U.S.C. § 4012a(b)(1).

16. In the event that the required amount of insurance is not maintained, the NFIA

authorizes lenders to purchase flood insurance for the borrower in the required amount. See 42

U.S.C. § 4012a(e)(1)-(2). However, the Act does not authorize lenders to purchase backdated

insurance coverage for periods of time that already have expired, nor does it authorize lenders to

enrich themselves by accepting kickbacks or commissions in connection with force-placed

policies.

17. Similarly, Plaintiff’s deed of trust allows U.S. Bank to force-place flood insurance

coverage if Plaintiff fails to maintain the required amount of coverage (see Exhibit 1, p. 6, ¶ 5),

but only authorizes U.S. Bank to “do and pay for whatever is reasonable and appropriate” to

protect its interest in the property. Id., p.7, ¶ 9.

U.S. Bank Force-Places Backdated Coverage and Improperly Takes a Commission for Itself

18. On or about June 9, 2010, nearly three years after Plaintiff originated his loan, U.S.

Bank sent Plaintiff a “Notice of Temporary Flood Insurance Placed by Lender Due to

Cancellation, Expiration, or Missing Policy Information” (“First Notice”), claiming that


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Plaintiff’s property was located in a SFHA and that he was required to purchase flood insurance.3

See Exhibit 2.

19. The First Notice informed Plaintiff that U.S. Bank already had purchased a forty-

five day flood insurance binder for his property through American Security Insurance Company

(“ASIC”). The effective date of this binder was July 3, 2009 -- almost an entire year before the

notice was sent.

20. The First Notice also stated that “[a]t the end of the forty-five day binder period,

this temporary coverage will convert to a full year policy and the annual premium will be added

to your escrow account.” Additionally, the First Notice stated that “[i]n many instances, the

insurance we purchase for you may be more expensive than you are able to obtain on your own.”

21. On or about August 18, 2010, U.S. Bank sent Plaintiff a second “Notice of Flood

Insurance Placed by Lender Due to Cancellation, Expiration, or Missing Policy Information”

(“Second Notice”). See Exhibit 3. In the Second Notice, U.S. Bank informed Plaintiff that it had

purchased a “full year flood insurance policy” from ASIC. The premium cost for this policy was

$2,250. See Exhibit 4.

22. This force-placed flood insurance coverage was backdated more than a year to

reflect an effective policy period of July 3, 2009 through July 3, 2010, despite the fact that there

was no damage to the property or claims arising out of the property during that period. Id. As a

result, the coverage was expired on the date it was purchased and entirely worthless to Plaintiff.

23. Although not disclosed in either letter, U.S. Bank and/or its affiliates received a

kickback or commission from ASIC on this lender-placed coverage, consistent with ASIC’s

standard business practice. See infra at pgs. 6-8, ¶¶ 27-34. U.S. Bank did not subtract this

commission from the premium cost, which was passed along in full to Plaintiff.

3 U.S. Bank initially did not require Plaintiff to carry flood insurance when he entered into his mortgage, but subsequently claimed that such coverage was required. Plaintiff has since obtained a letter of map amendment from the Federal Emergency Management Agency (“FEMA”) establishing that Plaintiff’s home is not in a SFHA.


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24. The premiums for this force-placed flood insurance coverage were paid by

Plaintiff in full. Plaintiff was never reimbursed for this backdated insurance coverage, and never

made a claim on the backdated policy. This insurance coverage provided no benefit to him, and

he did not want or request this coverage.

25. Plaintiff subsequently purchased a flood insurance policy though State Farm in

2010 to avoid further charges for force-placed flood insurance. See Exhibit 5. Like the policy

U.S. Bank force-placed on Plaintiff, this policy provided $250,000 in flood insurance coverage.

However, this policy only cost $276. Therefore, the lender-placed policy cost approximately

nine times as much as the policy Plaintiff was able to obtain on his own through a third party

insurer.

26. On or about April 9, 2012, Plaintiff sent a letter to U.S. Bank, notifying U.S. Bank

that he believed it had acted in an unfair manner in breach of his deed of trust. See Exhibit 6.

Plaintiff did not receive a response from U.S. Bank.

Kickbacks Are Commonly Paid by ASIC to U.S. Bank and Other Mortgage Lenders

27. The practice of force-placing insurance is a very lucrative business for U.S. Bank

and other mortgage lenders.4 Commonly, the lender selects the insurance provider in accordance

with a pre-arranged agreement whereby the insurance provider pays a percentage of the premiums

back to the lender as an inducement to do business with the insurance provider. Under these

commission arrangements, the provider of the force-placed insurance policy pays a commission

either directly to the mortgage lender or to a subsidiary who poses as an insurance “agent.”

28. Although U.S. Bank has tried to keep its own commission arrangement with ASIC

secret, it is well-known that ASIC pays millions of dollars in commissions each year to lenders

that force-place coverage through ASIC.

29. The commissions that ASIC pays to its lender-clients are the subject of numerous

court opinions. See, e.g., McNeary-Calloway v. JP Morgan Chase Bank, N.A., No. C-11-03058

JCS, 2012 WL 1029502, at *23 (N.D. Cal. Mar. 26, 2012); Hofstetter v. Chase Home Fin. LLC,

4 As used herein, the term “lender” refers generically to both mortgage lenders and servicers.


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No. 10-1313, 2011 WL 1225900 (N.D. Cal. Mar. 31, 2011); Gipson v. Fleet Mortgage Group,

232 F. Supp. 2d 691, 705-06 (S.D. Miss. 2002).

30. These commission arrangements also are the subject of publicly-filed deposition

testimony. For example, in the Hofstetter case, Chase’s representative testified that it is “a

standard industry-wide practice” for a mortgage lender to be paid a commission by the insurance

provider in connection with lender-placed flood insurance. See Exhibit 7 at 67:5-14.5 Like U.S.

Bank, Chase procures its force-placed flood insurance coverage through ASIC. Id. at 68:16-

69:14.

31. In addition, the commission arrangements between major banks and insurance

firms -- including ASIC’s parent company, Assurant -- have been reported in American Banker

magazine. See Exhibit 8.6

32. Moreover, the commissions paid by ASIC to its lender-clients are also the subject

of public regulatory filings. For example, ASIC reported to the California Department of

Insurance that it paid more than $1.8 million dollars in commissions and brokerage expenses in

connection with its flood insurance program in 2010. See Exhibit 9.

33. While significant, this figure represents only a sliver of the total amount of

commissions paid by ASIC nationwide on all force-placed policies (flood, hazard, and wind).

According to a recent article published by American Banker, “a cursory review of force-placed

insurers’ financials suggests that the business brings servicers hundreds of millions of dollars

each year.” See Exhibit 10.

34. In return for the millions of dollars in commissions that are kicked back to U.S.

Bank and other mortgage lenders/servicers, ASIC and its parent company, Assurant, reap billions

5 Shortly after the deposition testimony in Hofstetter became public (in March 2011), Chase entered into a multi-million dollar settlement (in July 2011), under which it agreed to disgorge 100% of the commissions that it received on force-placed flood insurance for eligible class members, and permanently refrain from accepting commissions in connection with force-placed flood insurance for HELOC borrowers. Following notice to the class members, that settlement received final approval from this court (Alsup, J.) on November 14, 2011. 6 After publication, this article received the Society of American Business Editors and Writers award for “best investigative” writing for publications with a circulation of below 25,000.


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of dollars in premiums. For example, in 2010 alone, Assurant collected approximately $2.7

billion in premiums through its specialty insurance division, which is primarily devoted to force-

placed insurance. See Exhibit 10.

The Kickback Arrangements Are Unjust

35. The kickback arrangements between ASIC and its lender-clients (including U.S.

Bank) are unquestionably unjust.

36. Numerous courts have condemned this type of self-dealing in connection with

force-placed insurance. See, e.g., McNeary-Calloway, 2012 WL 1029502, at *23-29; Montanez

v. HSBC Mortg. Corp. (USA), No. 2:11-CV-4074-JD, --- F. Supp. 2d ---, 2012 WL 2899371, at

*6 (E.D. Pa. July 17, 2012); Williams, 2011 WL 4901346, at * 2, 4; Abels v. JPMorgan Chase

Bank, N.A., 678 F. Supp. 2d 1273, 1278–79 (S.D. Fla. 2009); Gipson, 232 F. Supp. 2d. at 707;

Stevens v. Citigroup, Inc., No. CIV.A 00-3815, 2000 WL 1848593, at *1, 3 (E.D. Pa. Dec. 15,

2000).

37. Moreover, the practice of accepting commissions in connection with force-placed

flood insurance is inconsistent with the NFIA, which only allows lenders and servicers to “charge

the borrower for the cost of premiums and fees incurred by the lender or servicer for the loan in

purchasing the insurance.” 42 U.S.C. § 4012(e)(2); see also 12 C.F.R. § 22.3.

38. On March 14, 2012, Fannie Mae issued a Servicing Guide Announcement

(“SGA”) pertaining to lender-paced insurance. See Exhibit 11. In the SGA, Fannie Mae clarified

its requirements relating to reasonable reimbursable expenses for lender-placed insurance, and

stated that “reimbursement of lender-placed insurance premiums must exclude any lender-placed

insurance commission earned on that policy by the servicer or any related entity[.]” Id. at 4

(emphasis in original).7

39. Earlier that same month, on March 6, 2012, Fannie Mae issued a Request for

Proposal (“RFP”) relating to lender-placed insurance. See Exhibit 13.8 In the RFP, Fannie Mae

7 The U.S. Department of Housing and Urban Development has promulgated similar guidance in its Lender Manual. See Exhibit 12. 8 The RFP was labeled “Confidential” by Fannie Mae, but subsequently was published in


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stated that it had conducted an “extensive internal review” of the lender-placed insurance process,

and found that the process “can be improved through unit price reductions and fee transparency to

the benefit of both the taxpayers and homeowners.” Id. at 2. In particular, Fannie Mae made the

following observations:

“Lender Placed Insurers often pay commissions/fees to Servicers for placing business with them. The cost of such commissions/fees is recovered in part or in whole by the Lender Placed Insurer from the premiums[.]”

“The existing system may encourage Servicers to purchase Lender Placed Insurance from Providers that pay high commissions/fees to the Servicers and provide tracking, rather than those that offer the best pricing and terms . . . . Thus, the Lender Placed Insurers and Servicers have little incentive to hold premium costs down.”

“[M]uch of the current lender placed insurance cost borne by Fannie Mae

results from an incentive arrangement between Lender Placed Insurers and Servicers that disadvantages Fannie Mae and the homeowner.”

Id. Accordingly, Fannie Mae stated that it sought to “[r]estructure the business model to align

Servicer incentives with the best interest of Fannie Mae and homeowners.” Id. at 3. Among

other things, Fannie Mae sought to “[e]liminate the ability of Servicers to pass on the cost of

commissions/fees to Fannie Mae” and to “[s]eparate the commissions and fees for Insurance

Tracking Services from the fees for Lender Placed Insurance to ensure transparency and

accountability.” Id. at 2.

40. That same month, on March 14, 2012, the California Department of Insurance

(“CA-DOI”) announced that it had contacted the ten largest lender-placed insurers in California

(including ASIC), and asked them to reduce their rates. See Exhibits 14 and 15. In its

announcement, the California Insurance Commissioner expressed concern about “questionable

financial integration between mortgage lenders and insurers providing ‘forced-placed’ mortgage

insurance.” See Exhibit 14. In addition, the Commissioner noted a “lack of arm’s length

American Banker magazine. See Jeff Horwitz, Fannie Mae Seeks to Break up Force-Placed Market, Document Shows, AMERICAN BANKER, May 24, 2012, available at http://www.americanbanker.com/issues/177_101/fannie-rfp-gse-contracting-document-1049630-1.html.


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transactions between lenders and insurers and, in some cases, a financial relationship between the

lender and the insurer” that results in higher premiums and prejudices homeowners.

41. Two months later, the New York Department of Financial Services (“NYDFS”)

held an extraordinary three-day public hearing in May 2012 regarding the force-placed insurance

practices of several mortgage lenders, servicers, and insurance companies. See

http://www.dfs.ny.gov/insurance/hearing/fp_052012_schedule.htm. On the opening day of the

hearings, NYDFS Superintendent Benjamin Lawsky issued a statement, announcing that “our

initial inquiry into the operation of the force placed insurance market has raised a number of

serious concerns and red flags.” See Exhibit 16 at 2. Among other things, Superintendent

Lawsky noted that:

there . . . appears to be a web of tight relationships between the banks, their subsidiaries and insurers that have the potential to undermine normal market incentives and may contribute to other problematic practices. In some cases this takes the form of large commissions being paid by insurers to the banks for what appears to be very little work.

Id. Superintendent Lawsky further stated that “[t]his perverse incentive, if it exists, would appear

to harm both homeowners and investors while enriching the banks and the insurance companies.”

Id. at 3. Following these hearings, the NYDFS also asked lender-placed insurance companies in

New York (including ASIC) to submit new rate filings.

42. These concerns are by no means limited to regulators in New York and California.

In fact, the National Association of Insurance Commissioners (“NAIC”) recently expressed

similar “regulatory concern”:

A key regulatory concern with the growing use of lender-placed insurance is “reverse competition,” where the lender chooses the coverage provider and amounts, yet the consumer is obligated to pay the cost of coverage. Reverse competition is a market condition that tends to drive up prices to the consumers, as the lender is not motivated to select the lowest price for coverage since the cost is born by the borrower. Normally competitive forces tend to drive down costs for consumers. However, in this case, the lender is motivated to select coverage from an insurer looking out for the lender’s interest rather than the borrower.


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Exhibit 17. As a result, the NAIC announced that it will hold its own public hearing relating to

force-placed insurance on August 9, 2012. Id.

Backdating Insurance Policies Is Also Unjust

43. The practice of backdating insurance also has been condemned by the NAIC.

According to the NAIC, insurance is “prospective in nature” and policies “should not be back-

dated to collect premiums for a time period that has already passed.” See Exhibit 8 at 2. In fact,

the Ohio Department of Insurance has specifically warned that “there’s no such thing as

retroactive flood insurance.” See Exhibit 18.

44. Retroactively placing flood insurance policies also is inconsistent with the advance

notice requirements of the NFIA. See 42 U.S.C. § 4012a(e). As the Office of the Comptroller of

the Currency (“OCC”) has stated:

The ability to impose the costs of force placed flood insurance on a borrower commences 45 days after notification to the borrower of a lack of insurance or of inadequate insurance coverage. Therefore, lenders may not charge borrowers for coverage during the 45-day notice period.

Flood Insurance Questions & Answers, 74 Fed. Reg. at 35,934.9

45. Accordingly, this court and other courts also have upheld claims that backdating

force-placed insurance policies is unfair and/or unlawful. See, e.g., Montanez, 2012 WL

2899371, at *6; McNeary-Calloway, 2012 WL 1029502, at *23-29; Williams v. Wells Fargo

Bank, N.A., No. 11-21233 CIV, 2011 WL 4901346, at *2, 4 (S.D. Fla. Oct. 14, 2011); Am.

Bankers Ins. Co. v. Wells, 819 So.2d 1196 (Miss. 2001).

9 The OCC recently proposed alternative language which would allow lenders to charge borrowers for flood insurance coverage during the 45-day notice period, if the borrower has given the lender “express authority” to do so. See Loans in Areas Having Special Flood Hazards; Interagency Questions & Answers Regarding Flood Insurance, 76 Fed. Reg. 64,175, 64,180-81 (Oct. 17, 2011). However, there is no question that charging a borrower for coverage (or increased coverage) that is “effective” before the 45-day notice period even begins is inappropriate.


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CLASS ACTION ALLEGATIONS

46. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure.

47. Plaintiff asserts his claims in Counts 1-4 on behalf of a proposed Nationwide

Lender-Placed Class, defined as follows:

Proposed Nationwide Lender-Placed Class: All persons who have or had a loan or line

of credit with U.S. Bank secured by their residential property in the United States, and

who were charged for lender-placed flood insurance by U.S. Bank within the applicable

limitations period.

48. To the extent that Plaintiff’s claims in Counts 1-4 are based on allegations of

improper backdating, Plaintiff asserts these claims on behalf of a proposed Nationwide Backdated

Sub-Class, defined as follows:

Proposed Nationwide Backdated Sub-Class: All persons in the Proposed Nationwide

Lender-Placed Class who were charged for backdated lender-placed flood insurance by

U.S. Bank within the applicable limitations period.

49. Plaintiff asserts his claims in Counts 5-6 on behalf of a proposed California

Lender-Placed Class, defined as follows :

Proposed California Lender-Placed Class: All persons who have or had a loan or line

of credit with U.S. Bank secured by their residential property in the State of California,

and who were charged for lender-placed flood insurance by U.S. Bank on or after May 16,

2008.

50. To the extent that Plaintiff’s claims in Counts 5-6 are based on allegations of

improper backdating, Plaintiff asserts these claims on behalf of a proposed California Backdated

Sub-Class, defined as follows:

Proposed California Backdated Sub-Class: All persons who have or had a loan or line

of credit with U.S. Bank secured by their residential property in the State of California,

and who were charged for backdated lender-placed flood insurance by U.S. Bank on or

after May 16, 2008.


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51. Numerosity: The Putative Classes are so numerous that joinder of all class

members is impracticable. Thousands of U.S. Bank’s customers satisfy the definition of the

Putative Classes.

52. Typicality: Plaintiff’s claims are typical of the members of the Putative

Classes. Among other things: (1) Plaintiff’s loan documents are typical of those of other Putative

Class members; (2) the form letters that Plaintiff received are typical of those received by other

Putative Class members; (3) U.S. Bank treated Plaintiff consistent with other Putative Class

members in accordance with U.S. Bank’s uniform policies and practices; (4) it was typical for

U.S. Bank and/or its affiliates to receive kickbacks or commissions in connection with lender-

placed flood insurance; (5) it was typical for U.S. Bank to backdate lender-placed flood insurance

policies; and (6) it was typical for U.S. Bank to force-place flood insurance through ASIC and

engage in the foregoing manipulation of the force-placed insurance process with the assistance of

ASIC.

53. Adequacy: Plaintiff will fairly and adequately protect the interests of the

Putative Classes, and has retained counsel experienced in complex class action litigation,

including flood insurance litigation. See Hofstetter, 2011 WL 1225900, at *9 (finding counsel of

record to be adequate and appointing counsel as class counsel in class action lawsuit asserting

similar claims).

54. Commonality: Common questions of law and fact exist as to all members of the

Putative Classes and predominate over any questions solely affecting individual members of the

Putative Classes, including but not limited to:

a) whether U.S. Bank’s conduct as described herein violates the terms of its

mortgage contracts;

b) whether U.S. Bank owes its customers a duty of good faith and fair dealing,

and if so, whether U.S. Bank breached this duty by, inter alia, (1) accepting

kickbacks or commissions in connection with force-placed insurance, and (2)

purchasing backdated flood insurance coverage for periods of time that already

had elapsed;


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c) whether U.S. Bank was unjustly enriched by its conduct;

d) whether ASIC was unjustly enriched by its conduct;

e) whether U.S. Bank’s conduct as described herein is unfair and violates the

UCL;

f) whether ASIC’s conduct as described herein is unfair and violates the UCL;

g) the appropriateness and proper form of any declaratory or injunctive relief;

h) the appropriateness and proper measure of restitution; and

i) the appropriateness and proper measure of damages and other monetary relief.

55. This case is maintainable as a class action under Fed. R. Civ. P. 23(b)(2) because

Defendants have acted or refused to act on grounds that apply generally to the Putative Classes,

so that final injunctive relief or corresponding declaratory relief is appropriate respecting the

Classes as a whole.

56. Class certification is also appropriate under Fed. R. Civ. P. 23(b)(3) because

questions of law and fact common to the Putative Classes predominate over any questions

affecting only individual members of the Putative Classes, and because a class action is superior

to other available methods for the fair and efficient adjudication of this litigation. Defendants’

conduct as described in this Complaint stems from common and uniform policies and practices,

resulting in unnecessary flood insurance premiums and related charges that are readily calculable

from Defendants’ records and other class-wide evidence. Members of the Putative Classes do not

have an interest in pursuing separate individual actions against Defendants, as the amount of each

class member’s individual claims is relatively small compared to the expense and burden of

individual prosecution. Class certification also will obviate the need for unduly duplicative

litigation that might result in inconsistent judgments concerning Defendants’ practices.

Moreover, management of this action as a class action will not present any likely difficulties. In

the interests of justice and judicial efficiency, it would be desirable to concentrate the litigation of

all Putative Class members’ claims in a single forum.


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57. Plaintiff intends to send notice to all members of the Putative Classes to the extent

required by Rule 23. The names and addresses of the Putative Class members are available from

Defendants’ records.

FIRST CLAIM FOR RELIEF

BREACH OF CONTRACT

(Asserted Against U.S. Bank on behalf of the Nationwide Class and Nationwide Sub-Class)

58. Plaintiff alleges and incorporates by reference the allegations in the preceding

paragraphs.

59. U.S. Bank is the lender-in-interest to Plaintiff’s deed of trust and is bound by the

terms of his deed of trust.

60. Plaintiff’s deed of trust limits the lender’s discretion to force-place insurance and

charge the borrower for force-placed insurance. Pursuant to Paragraph 9 of the deed of trust, U.S.

Bank may only “do and pay for whatever is reasonable and appropriate to protect Lender’s

Interest in the Property and rights under [the] Security Instrument[.]” See Exhibit 1, p. 7, ¶ 9.

61. This language does not allow U.S. Bank to purchase backdated flood insurance, or

to arrange for kickbacks, commissions, or other compensation for U.S. Bank and/or its affiliates.

Purchasing backdated insurance and steering a portion of the premiums to the lender (or the

lender’s affiliate) as commissions are neither appropriate nor necessary to protect the Lender’s

legitimate interests or rights.

62. Nor are such actions otherwise authorized by the deed of trust. This court has

interpreted a similar form mortgage contract, and has recognized that: Nothing in the contract necessarily authorizes charges regardless of amount and regardless of whether Defendants receive a portion of the premiums. Nor does anything in the contract authorize backdating [force-placed insurance] policies to cover periods of time where no loss occurred.

McNeary-Calloway, 2012 WL 1029502, at *23. Moreover, Fannie Mae has recognized that it is

improper for a lender to seek reimbursement of commission expenses that are built in to the cost

of lender-placed policies.


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63. Plaintiff’s deed of trust is a uniform Fannie Mae/Freddie Mac security instrument,

and is typical of the mortgages of other Nationwide Class/Sub-Class members.

64. U.S. Bank breached the mortgage contracts of Plaintiff and other Nationwide

Class/Sub-Class members by charging borrowers for backdated policies and by accepting

commissions in connection with force-placed insurance.

65. These breaches were willful and not the result of mistake or inadvertence. U.S.

Bank systematically and pervasively force-placed backdated policies and accepted commissions

in connection with force-placed insurance.

66. As a direct result of this unlawful conduct, Plaintiff and the Nationwide Class/Sub-

Class have been injured, and have suffered actual damages and monetary losses, in the form of

increased insurance premiums, interest payments, and/or other charges.

67. Plaintiff and the Nationwide Class/Sub-Class are entitled to recover their damages

and other appropriate relief for the foregoing contractual breaches.

SECOND CLAIM FOR RELIEF

BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING



paragraphs.

69. U.S. Bank owed Plaintiff and the Nationwide Class/Sub-Class members a duty of

good faith and fair dealing, by virtue of U.S. Bank’s contractual relationship with them.

70. U.S. Bank breached this duty and abused any discretion it may have had by,

among other things (1) purchasing backdated flood insurance coverage at borrowers’ expense;

and (2) arranging for kickbacks, commissions, or other compensation for itself and/or its affiliates

in connection with lender-placed flood insurance. See McNeary-Calloway, 2012 WL 1029502, at

*25.

71. U.S. Bank willfully engaged in the foregoing conduct in bad faith, for the purpose

of (1) gaining unwarranted contractual and legal advantages; and (2) unfairly and unconscionably

maximizing revenue from Plaintiff and other Nationwide Class/Sub-Class members. These


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practices were not authorized by the mortgage contract, were not within U.S. Bank’s discretion

under the contract, and were outside the reasonable expectations of Plaintiff and the class

members.

72. The foregoing conduct was willful and not the result of mistake or inadvertence.

As set forth above, U.S. Bank systematically and pervasively force-placed backdated policies and

accepted commissions in connection with force-placed insurance.

73. As a direct result of U.S. Bank’s breaches of the implied covenant of good faith

and fair dealing, Plaintiff and other Nationwide Class/Sub-Class members have been injured, and

have suffered actual damages and monetary losses, in the form of increased insurance premiums,

interest payments, and/or other charges.

74. Plaintiff and the Nationwide Class/Sub-Class are entitled to recover their damages

and other appropriate relief for the foregoing breaches of the implied covenant of good faith and

fair dealing.

THIRD CLAIM FOR RELIEF

UNJUST ENRICHMENT/RESTITUTION



paragraphs.

76. U.S. Bank has been unjustly enriched as a result of the conduct described in this

Complaint and other inequitable conduct.

77. U.S. Bank received a benefit from Plaintiff and other Nationwide Class/Sub-Class

members in the form of payment for force-placed flood insurance, and U.S. Bank and/or its

affiliates retained a portion of these payments as commissions or other compensation.

78. Retention of these payments by U.S. Bank would be unjust and inequitable. U.S.

Bank abused any discretion it had by retaining at least a portion of the premium payments as

kickbacks, commissions or other compensation, and by charging borrowers for backdated flood

insurance.

79. The kickbacks, commissions or other compensation that U.S. Bank and/or its


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affiliates received in connection with force-placed flood insurance were not legitimately earned,

and came at the ultimate expense of Plaintiff and other members of the Nationwide Class/Sub-

Class.

80. U.S. Bank is guilty of malice, oppression, and/or fraud through its willful and

conscious disregard for the rights of Plaintiff and other members of the Nationwide Class/Sub-

Class, through its manipulation of the force-placed insurance process, and through its intentional

concealment of the kickbacks that it received. U.S. Bank’s willful and conscious disregard for

the rights of Plaintiff and the Nationwide Class/Sub-Class created an unjust hardship for Plaintiff

and other class members.

81. As a result of U.S. Bank’s unjust enrichment, Plaintiff and the Nationwide

Class/Sub-Class seek restitution and disgorgement of all kickbacks, commissions, or other

compensation that U.S. Bank received in connection with lender-placed flood insurance.

Additionally, Plaintiff and the Nationwide Class/Sub-Class are entitled to exemplary damages in

connection with this cause of action.

FOURTH CLAIM FOR RELIEF

UNJUST ENRICHMENT/RESTITUTION/DISGORGEMENT

(Asserted Against ASIC on behalf of the Nationwide Class and Nationwide Sub-Class)


paragraphs.

83. By scheming with U.S. Bank to manipulate the force-placed insurance process,

ASIC received improper benefits that it otherwise would not have secured, including (1) non-

competitive premiums that ASIC would not have secured absent a kickback to U.S. Bank to do

business with ASIC; and (2) premiums for backdated insurance policies.

84. Retention of these benefits by ASIC would be unjust and inequitable because (1)

ASIC secured these handsome premium payments through improper means by offering U.S.

Bank kickbacks in connection with force-placed insurance coverage; (2) backdated insurance

coverage provides no appreciable value to borrowers where it already is known that the borrower

suffered no loss during the backdated period; and (3) to the extent there was a lapse in coverage,


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ASIC was responsible for tracking borrowers’ insurance coverage so as to prevent a lapse, and

should have taken steps in advance to avoid any purported “need” to backdate coverage.

85. ASIC is guilty of malice, oppression, and/or fraud through its willful and

conscious disregard for the rights of Plaintiff and other members Nationwide Class/Sub-Class and

through its manipulation of the force-placed insurance process as described in this Complaint.

ASIC’s willful and conscious disregard for the rights of Plaintiff and the Nationwide Class/Sub-

Class created an unjust hardship for Plaintiff and other class members.

86. As a result of ASIC’s unjust enrichment, Plaintiff and the Nationwide Class/Sub-

Class seek restitution and disgorgement of all ill-gotten gains that ASIC received in connection

with lender-placed flood insurance as a result of its manipulation of the force-placed insurance

process. Additionally, Plaintiff and the Nationwide Class/Sub-Class are entitled to exemplary

damages in connection with this cause of action.

FIFTH CLAIM FOR RELIEF

CALIFORNIA UNFAIR COMPETITION LAW

California Business & Professional Code § 17200 et seq.

(Asserted Against U.S. Bank on behalf of the California Class and California Sub-Class)


paragraphs.

88. The UCL prohibits, among other things, any unfair business act or practice.

89. U.S. Bank engaged in unfair business practices in violation of the UCL by, among

other things:

a. Manipulating the force-placed insurance process;

b. Arranging for kickbacks, commissions, or other compensation for itself and/or

its affiliates in connection with lender-placed flood insurance;

c. Purchasing backdated flood insurance coverage at borrowers’ expense.

These business practices are inconsistent with the statutory and regulatory authority cited above.

90. U.S. Bank systematically engaged in these unfair business practices to the

detriment of Plaintiff and other California Class/Sub-Class members.


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91. The harm caused by these business practices as outlined above vastly outweighs

any legitimate utility they possibly could have.

92. Plaintiff and other members of the California Class/Sub-Class have been injured

and have suffered a monetary loss as a result of U.S. Bank’s violations of the UCL.

93. Plaintiff and other members of the California Class/Sub-Class are entitled to

restitution and injunctive relief for U.S. Bank’s violations of the UCL.

94. As a result of U.S. Bank’s violations of the UCL, Plaintiff and other members of

the California Class/Sub-Class also are entitled to a recovery of attorney’s fees and costs to be

paid by U.S. Bank, as provided by Code of Civil Procedure section 1021.5 and other applicable

law.

SIXTH CLAIM FOR RELIEF

CALIFORNIA UNFAIR COMPETITION LAW

California Business & Professional Code § 17200 et seq.

(Asserted Against ASIC on behalf of the California Class and California Sub-Class)


paragraphs.

96. The UCL prohibits, among other things, any unfair business act or practice.

97. ASIC engaged in unfair business practices in violation of the UCL by, among

other things:

a. Manipulating the force-placed insurance process;

b. Offering U.S. Bank and other lenders kickbacks in connection with force-

placed insurance coverage in order to gain their business and secure non-

competitive premiums for lender-placed insurance; and

c. Receiving and retaining premiums for backdated insurance.

These business practices are inconsistent with the statutory and regulatory authority cited above.

98. ASIC systematically engaged in these unfair business practices to the detriment of

Plaintiff and other California Class/Sub-Class members.


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99. The harm caused by these business practices as outlined above vastly outweighs

any legitimate utility they possibly could have.

100. Plaintiff and other members of the California Class/Sub-Class have been injured

and have suffered a monetary loss as a result of ASIC’s violations of the UCL.

101. Plaintiff and other members of the California Class/Sub-Class are entitled to

restitution and injunctive relief for ASIC’s violations of the UCL.

102. As a result of ASIC’s violations of the UCL, Plaintiff and other members of the

California Class/Sub-Class also are entitled to a recovery of attorney’s fees and costs to be paid

by ASIC, as provided by Code of Civil Procedure section 1021.5 and other applicable law.

PRAYER FOR RELIEF

103. WHEREFORE, Plaintiff, on behalf of himself and the Putative Classes, prays for

relief as follows:

a) Determining that this action may proceed as a class action under Rules 23(b)

(2) and (3) of the Federal Rules of Civil Procedure;

b) Designating Plaintiff as class representative for the Putative Classes;

c) Designating Plaintiff’s counsel as counsel for the Putative Classes;

d) Issuing proper notice to the Putative Classes at Defendants’ expense;

e) Declaring that U.S. Bank breached its contracts with Plaintiff and the Putative

Class members;

f) Declaring that U.S. Bank breached its duty of good faith and fair dealing to

Plaintiff and the Putative Class members;

g) Declaring that Defendants were unjustly enriched by the conduct described in

this Complaint;

h) Declaring that Defendants’ actions as described above violate the UCL;

i) Declaring that Defendants acted willfully in deliberate or reckless disregard of

applicable law and the rights of Plaintiff and the Putative Classes;

j) Awarding appropriate equitable relief, including but not limited to an

injunction requiring U.S. Bank to reverse all unlawful, unfair, or otherwise


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improper charges for flood insurance coverage, prohibiting U.S. Bank and its

affiliates from earning commissions or other compensation on force-placed

flood insurance policies, prohibiting ASIC from paying such commissions to

U.S. Bank, prohibiting U.S. Bank from purchasing backdated flood insurance

coverage, and ordering U.S. Bank to cease and desist from engaging in further

unlawful conduct in the future;

k) Awarding restitution as provided by the UCL;

l) Awarding actual damages and interest;

m) Awarding punitive or exemplary damages in connection with Plaintiff’s unjust

enrichment claims;

n) Awarding reasonable attorneys’ fees and costs and expenses to the extent

permitted by law; and

o) Granting other and further relief, in law or equity, as this Court may deem

appropriate and just.

DEMAND FOR JURY TRIAL

104. Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff and the

Putative Classes demand a trial by jury.

Dated: July 23, 2012 NICHOLS KASTER, PLLP

By: s/ Kai H. Richter Kai H. Richter

(admitted pro hac vice)

Attorney for Plaintiff and the Putative Classes


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