Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_12-cv-00420/USCOURTS-caed-2_12-cv-00420-6/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

ELIZABETH PASSANTINO-MILLER,

individually and as trustee of

the Miller Family Trust, JAMES

R. MILLER, individually and as

trustee of the Miller Family

Trust, and the MILLER FAMILY

TRUST, on behalf of themselves,

on behalf of the Classes, and on

behalf of the general public,

 Plaintiffs,

 v.

Wells Fargo Bank, N.A., 

 Defendant.

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2:12-cv-00420-GEB-DAD

ORDER GRANTING AND DENYING IN

PART DEFENDANT’S MOTION TO

DISMISS

Defendant seeks dismissal of Plaintiffs’ Second Amended Class

Action Complaint (“Complaint”) under Federal Rule of Civil Procedure

(“Rule”) 12(b)(6). The Complaint is comprised of a Truth-In-Lending Act

(“TILA”) claim and state law breach of contract, breach of the covenant

of good faith and fair dealing, and California Business & Professions

Code section 17200 claims. In essence, this putative class action

concerns Plaintiffs’ allegations that they obtained a home equity line

of credit (“HELOC”) secured by their residential property and were

charged for lender-placed flood insurance in an amount exceeding their

line of credit in violation of TILA and the terms of the Flood Insurance

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Agreement that was executed in connection with the closing of their

HELOC. (Second Am. Compl. ¶¶ 1-4, 18, 25, ECF No. 38.)

I. FACTUAL ALLEGATIONS

Plaintiffs allege in relevant part as follows: 

16. On August 11, 2005, Plaintiffs obtained a

HELOC from WFFB, secured by an Open-End Deed of

Trust (“Deed of Trust”) on their residential

property. The total available credit limit on this

HELOC was $80,000. The HELOC further provided that

the outstanding principal on the loan could never

exceed $96,000. Wells Fargo is now the

lender-in-interest to this HELOC as successor in

interest to WFFB. Wells Fargo also services

Plaintiffs’ HELOC. The current principal balance of

Plaintiffs’ HELOC is approximately $78,000.

. . . .

18. In conjunction with the closing of their

HELOC with WFFB, Plaintiffs executed an Agreement

to Provide Property/Flood Insurance (“Flood

Insurance Agreement”).

(Id. at ¶¶ 16-18.)

The Flood Insurance Agreement is an exhibit to the Complaint.1

It states in relevant part: 

I understand that to provide protection from

serious financial loss, should a loss occur, [Wells

Fargo] requires the property securing my line of

credit to be continuously covered at all times

during the term of the line of credit as follows:

. . . . 

* with special flood insurance if [Wells Fargo]

notifies me . . . that the Federal Emergency

Management Agency (FEMA) has determined that

such property is located in a flood hazard

area. Special flood insurance must meet FEMA

coverage requirements, and it must be in an

amount equal to the lesser of the amount of

Material attached to the Second Amended Complaint may be 1

considered in deciding this Rule 12(b)(6) dismissal motion. Hal Roach

Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19

(9th Cir. 1990). 

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the line of credit or the maximum insurance

available under the National Flood Insurance

Program.

. . . .

. . . . I understand that even if my property is

not located in a special flood hazard area at this

time or even if my community does not currently

participate in the federal flood insurance program,

that this may change. If my community later

participates or FEMA determines that my property is

in a special flood hazard area, I agree upon

receipt of notice from Wells Fargo Financial Bank

to obtain flood insurance within 45 days of notice. 

Failure to obtain required insurance is an event of

default under the [HELOC]. I understand that

failure to provide such insurance gives [Wells

Fargo] the right . . . to purchase coverage for

[Wells Fargo] only and to add the premium to the

principal balance on which interest will be

charged. Insurance coverage obtained by [Wells

Fargo] will be much more expensive than coverage I

can obtain on my own. The coverage may also be less

as it will not include contents coverage or

liability coverage.

(Id., Ex. 2.)

Plaintiffs further allege: 

19. WFFB did not require Plaintiffs to obtain

flood insurance when they closed their loan, and

WFFB Bank did not tell Plaintiffs that their

property was located in a flood zone.

20. On July 31, 2011, Wells Fargo sent

Plaintiffs a form letter entitled Notice of Flood

Insurance Requirement (“Requirement Notice”). The

Requirement Notice asserted that Plaintiffs were

required to purchase flood insurance on their

residential property and must provide Wells Fargo

with proof of such insurance within 45 days. The

Requirement Notice further mandated that Plaintiffs

were required to purchase a policy with coverage in

an amount at least equal to the lesser of:

• the replacement value of the building(s)

on [the] property, or

• the total of all liens on [the] property

(including the limit on a line of credit) or

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• the maximum coverage available under the

National Flood Insurance Program.

The Requirement Notice was the first time Wells

Fargo informed Plaintiffs that they were allegedly

in a flood zone. The Requirement Notice also

asserted that Plaintiffs were required to purchase

more flood insurance than was required in the Flood

Insurance Agreement.

21. The Requirement Notice further informed

Plaintiffs that: (1) if they did not provide proof

of insurance in 45 days, Wells Fargo would purchase

a flood insurance policy on their behalf; (2) the

policy may be more expensive than a policy that

Plaintiffs might obtain on their own; (3) the

policy would not protect Plaintiffs’ personal

property; and (4) Wells Fargo would be the named

insured.

22. On August 8, 2011, Plaintiffs sent Wells

Fargo a letter asserting that their property was

not in a flood zone. Plaintiffs attached previous

flood hazard determination reports from 1991 and

2000, each of which concluded that Plaintiffs’

property was not in a Special Flood Hazard Area

(“SFHA”).

. . . . 

25. On September 15, 2011, in spite of this

correspondence from Plaintiffs and in spite of

Wells Fargo’s failure to previously assert that

Plaintiffs property was in a flood zone, Defendant

sent Plaintiffs a “Notice That Flood Insurance Has

Been Purchased” (“Purchase Notice”), and attached a

declarations page for the lender-placed flood

insurance policy (“Lender-Placed Policy”) that had

been purchased. Despite the fact that the

outstanding balance on Plaintiffs’ HELOC was only

approximately $77,885 at the time, Defendant

purchased a policy with a face value of $250,000.

The annual premium for this Lender-Placed Policy

was $2,250, and after purchasing this policy,

Defendant added $2,250.00 to Plaintiffs’ principal

balance on the HELOC.

. . . .

27. Plaintiffs did not want this insurance

and would not have purchased it on their own

accord. On October 2, 2011, Plaintiffs sent Wells

Fargo a certified letter demanding that Wells Fargo

remove the $2,250 flood insurance charge from their

line of credit. However, Wells Fargo refused to do

so.

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28. Wells Fargo charged Plaintiffs interest

in the increased indebtedness caused by the flood

insurance charge on their line of credit.

(Id. at ¶¶ 19-22, 25, 27-28 (citations omitted).)

II. LEGAL STANDARD

Decision on Defendant’s Rule 12(b)(6) dismissal motion

requires determination of “whether the [C]omplaint’s factual

allegations, together with all reasonable inferences, state a plausible

claim for relief.” Cafasso, United States ex rel. v. Gen. Dynamics C4

Sys., Inc., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v.

Iqbal, 556 U.S. 662, 678-79 (2009)). “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.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550

U.S. 544, 556 (2007)).

When determining the sufficiency of a claim, “[w]e accept

factual allegations in the [C]omplaint as true and construe the

pleadings in the light most favorable to the non-moving party[; however,

this tenet does not apply to] . . . legal conclusions . . . cast in the

form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th

Cir. 2011) (citation and internal quotation marks omitted). “Therefore,

conclusory allegations of law and unwarranted inferences are

insufficient to defeat a motion to dismiss.” Id. (citation and internal

quotation marks omitted); see also Iqbal, 556 U.S. at 678 (“A pleading

that offers ‘labels and conclusions’ or ‘a formulaic recitation of the

elements of a cause of action will not do.’”(quoting Twombly, 550 U.S.

at 555)).

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III. DISCUSSION

A. TILA Claim

Defendant seeks dismissal of Plaintiffs’ TILA claim, which is

premised upon three alleged violations of the statute’s applicable

regulations concerning open-ended credit transactions. Plaintiffs allege

Defendant violated 12 C.F.R. § 226.5(c) “by misrepresenting to

Plaintiffs . . . that they were required to purchase . . . flood

insurance coverage in amounts greater than required upon origination of

their HELOC[][,]” “12 C.F.R. § 226.5b(f)(3) by adversely changing the

terms of the HELOC after origination without consent, and . . . 12

C.F.R. 226.9(c) by failing to provide proper notice . . . that Wells

Fargo was amending the terms of [the] HELOC . . . agreement[].” (Second.

Am. Compl. ¶¶ 45-47.) 

The gravamen of Defendant’s motion seeking dismissal of

Plaintiffs’ TILA claim is its argument that it “did not change the terms

of [the Flood Insurance Agreement, r]ather, [the Federal Emergency

Management Agency (“FEMA”)’s] changing regulatory implementations

themselves modified the language of that agreement[, and Defendant]

cannot be sued for obeying the law.” (Def.’s Mot. 12:6-8.) Specifically,

Defendant argues: 

At the time Plaintiffs’ loan was originated,

FEMA mandated that secondary liens require

insurance only to the amount of the lien itself,

without taking senior loans into account. The

current [National Flood Insurance Plan (“NFIP”)]

Standard Flood Insurance Policy, however, requires

that all flood insurance losses are to be paid in

the order of precedence of the mortgages on the

property. As a result, FEMA’s flood insurance

requirements have changed. . . .

As a result of this change in guidance, FEMA

now requires that junior liens . . . obtain flood

insurance at a level at least equal to the lesser

of (a) the sum of all liens against the

property, . . . or (c) the maximum amount of

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coverage available under the NFIP for the

particular type of building on the property

(currently $250,000 for residential buildings).

Plaintiffs currently have two liens against

their property. They have the [HELOC loan] for

$80,000. Plaintiffs also have a loan that they took

out to refinance their property in 2003, the

principal sum of which is $347,894.51.

Because the sum of all liens on Plaintiffs’

property exceeds $250,000—the maximum amount of

coverage available under the NFIP . . . , the

lowest amount of the flood insurance on Plaintiffs’

property allowable by FEMA is $250,000 . . . .

[T]hat is the amount of flood insurance [Defendant]

placed for them.

Plaintiffs’ construction of their Flood

Insurance Agreement essentially asks this Court to

interpret that Agreement in such a way as to render

its terms unlawful: it would require noncompliance

with FEMA and the [National Flood Insurance Act

(“NFIA”)].

(Id. at 10:23-11:27.) In support of this argument, Defendant relies upon

the Mandatory Purchase of Flood Insurance Guidelines published by FEMA

in 2007 and Interagency Questions and Answers Regarding Flood Insurance

published in 2008 and 2009. (Id. at 10:27-11:12.)

Plaintiffs dispute that federal law requires $250,000 in flood

insurance coverage be maintained on the property securing their HELOC.

(Pls.’ Opp’n 4:23-5:3.) Plaintiffs contend, inter alia: 

The legally relevant statement on the amount of

insurance is the regulation issued by the [Office

of the Comptroller of the Currency (“OCC”)], which

requires insurance in an amount “at least equal to

the lesser of the outstanding principal balance of

the designated loan or the maximum limit of

coverage available for the particular type of

property under the Act.” 12 C.F.R. § 22.3 (emphasis

added). Wells Fargo’s argument that the “law”

modified the Flood Insurance Agreement fails

because no statement of law supports Wells Fargo’s

increased flood insurance requirements. 

(Id. at 13:13-19.) Plaintiffs further argue: “FEMA does not have any

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responsibility for establishing the amount of flood insurance required

under the NFIA[,]” and the referenced 2007 FEMA flood insurance

guidelines and Interagency Questions and Answers “are not regulations

and do not have the force or effect of law.” (Id. at 5:4-10, 13:12-13.) 

Defendant has shown neither that FEMA is authorized to

promulgate guidelines concerning the amount of flood insurance coverage

required under the NFIA, nor the weight required to be given to FEMA’s

2007 guidelines or the referenced interagency Questions and Answers.

Therefore Plaintiffs have stated a plausible claim under TILA. See

Hofstetter v. Chase Home Fin., LLC, 751 F. Supp. 2d 1116, 1123-28 (N.D.

Cal. 2010)(indicating a lender’s decision to impose flood insurance in

an amount greater than that required by the terms of the parties’ loan

agreement and that required by federal law “forms a plausible basis for

[TILA] liability under 12 C.F.R. [§] 226.5b(f)(3)” and 12 C.F.R. [§]

226.9(c)); see also Gooden v. Suntrust Mortg., Inc., No. 2:11-cv-02595-

JAM-DAD, 2012 WL 996513, at *7 (E.D. Cal. Mar. 23, 2012)(indicating

allegations that Defendant force-placed flood insurance coverage in an

amount that “exceeded coverage required under the NFIA and the

[parties’] loan agreement” states a TILA claim). 

For the stated reasons, Defendant’s motion seeking dismissal

of Plaintiffs’ TILA claim is denied. 

B. Breach of Contract / Breach of the Covenant of Good Faith &

Fair Dealing Claims

Defendant seeks dismissal of Plaintiffs’ breach of contract

and breach of the covenant of good faith and dealing claims, arguing,

inter alia, that Plaintiffs have not alleged their performance of the

Flood Insurance Agreement, which Defendant contends is an essential

element of these claims. (Def.’s Mot. 12:18-22, 17:11-14.) Specifically,

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Defendant argues: 

[The Flood Insurance Agreement required Plaintiffs]

to purchase [flood] insurance if FEMA determined

they were in a Flood Zone. FEMA determined they

were in a Flood Zone[;] Plaintiffs did not purchase

insurance. Therefore, Plaintiffs breached the

agreement. Plaintiffs are not in a position to

enforce the provisions of a contract that they

themselves have already breached.

(Id. at 14:18-22.) 

Plaintiffs counter that “Wells Fargo cannot make an

unreasonable demand for flood insurance in the amount of $250,000, and

then argue that Plaintiffs breached the contract by failing to meet this

requirement . . . .” (Pls.’ Opp’n 11:21-23.) Plaintiffs further argue

that they “fulfilled their obligations by paying for the force-placed

insurance,” and by “accepting payment from them, Wells Fargo elected to

treat the contract as still alive and viable and . . . has therefore

waived any claim of breach by Plaintiffs.” (Id. at 12:1-12.)

“It is hornbook law that the essential elements to be pleaded

in an action for breach of contract are: (1) the contract; (2)

plaintiff’s performance of the contract or excuse for nonperformance;

(3) defendants’ breach; and (4) the resulting damage to plaintiff.”

Lortz v. Connell, 273 Cal. App. 2d 286, 290 (1969). 

A claim for breach of the implied covenant of good

faith and fair dealing requires the same elements,

except that instead of showing that defendant

breached a contractual duty, the plaintiff must

show, in essence, that defendant deprived the

plaintiff of a benefit conferred by the contract in

violation of the parties’ expectations at the time

of contracting.

Boland, Inc. v. Rolf C. Hagen (USA) Corp., 685 F. Supp. 2d 1094, 1101

(E.D. Cal. 2010).

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Plaintiffs allege in support of their breach of contract claim

that “at all relevant times, [they] complied with the terms of their

contract with Defendant.” (Second Am. Compl. ¶ 58.) However, this

conclusory statement lacks sufficient factual content to be entitled “to

the presumption of truth.” Chavez v. U.S., 683 F.3d 1102, 1108 (9th Cir.

2012)(“[A] court discounts conclusory statements, which are not entitled

to the presumption of truth, before determining whether a claim is

plausible.”). For example, in response to Defendant’s alleged

notification that FEMA determined their property was in a flood zone,

Plaintiffs allege only that they contacted Defendant to dispute whether

the property was in fact in a flood zone. (Id. at ¶¶ 20-22.) Plaintiffs

do not allege that they undertook any efforts to obtain flood insurance

in any amount. Further, although Plaintiffs appear to argue in their

Opposition that they were excused from obtaining flood insurance, they

do not allege excuse in the Complaint. (Id. at ¶¶ 12-63.) 

Since Plaintiffs’ allegations are insufficient to state a

breach of contract and/or breach of the covenant of good faith and fair

dealing claim, these claims are dismissed. 

C. California Business & Professions Code Section 17200

Defendant also seeks dismissal of Plaintiffs’ California

Business & Professions Code section 17200 claim arguing that this claim

is derivative of Plaintiffs’ other claims, and “[b]ecause Plaintiffs

other claims . . . all fail, . . . their derivative [section 17200]

claim must fail as well.” (Def.’s Mot. 19:9-12.)

Since Defendant has not prevailed on its motion to dismiss

Plaintiffs’ TILA claim, and Plaintiffs’ section 17200 claim is premised

in part on Defendant’s alleged violation of TILA, Defendant has not

shown that dismissal of Plaintiffs’ section 17200 claim is warranted.

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Therefore, this portion of Defendant’s dismissal motion is denied.

IV. CONCLUSION 

For the stated reasons, Defendant’s dismissal motion is

granted and denied in part. The motion is granted as to Plaintiffs’

breach of contract and breach of the covenant of good faith and fair

dealing claims; the motion is denied as to Plaintiffs’ TILA and section

17200 claims. Plaintiffs are granted fourteen (14) days from the date on

which this order is filed to file a Third-Amended Complaint addressing

the deficiencies of any dismissed claim.

Dated: January 3, 2013

 

GARLAND E. BURRELL, JR.

Senior United States District Judge

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