Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_12-cv-02506/USCOURTS-cand-3_12-cv-02506-17/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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C 12-02506

ORDER

UNITED 

STATES 

DISTRICT 

COURT

For the Northern District of California

UNITED STATES DISTRICT COURT

Northern District of California

San Francisco Division

STEPHEN ELLSWORTH, as an individual

and as a Representative of the classes and on

behalf of the general public,

Plaintiff,

v.

U.S. BANK, N.A., and AMERICAN

SECURITY INSURANCE COMPANY,

Defendants.

_____________________________________/

No. C 12-02506 LB

ORDER (1) GRANTING PLAINTIFFS’

UNOPPOSED MOTION FOR

PRELIMINARY APPROVAL OF

CLASS-ACTION SETTLEMENT, (2)

APPROVING FORM AND MATTER OF

CLASS NOTICE, AND (3) SETTING

HEARING FOR FINAL APPROVAL.

[ECF No. 291]

INTRODUCTION

In this class action, Plaintiffs challenge U.S. Bank’s practice of force-placing backdated flood

insurance that was underwritten by American Security Insurance Company (“ASIC”). They also

allege that U.S. Bank received kickbacks from ASIC in the form of expense reimbursements and

discounted administrative insurance-tracking services. (Second Amended Class Action Complaint

(“SAC”), ECF No. 169, ¶ 2.)1

 They allege six claims: (1) breach of their form mortgage contracts

by U.S. Bank; (2) breach of the implied covenant of good faith and fair dealing by U.S. Bank under

the laws of California and New Mexico; (3)-(4) unjust enrichment of U.S. Bank and ASIC under the

laws of California and New Mexico; and (5)-(6) violations of California Business and Professions

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Code section 17200 et seq. against U.S. Bank and ASIC.

After the court granted Plaintiffs’ motion for class certification (ECF Nos. 249, 250), the parties

settled the case, and Plaintiffs filed an unopposed motion for preliminary approval of the proposed

class action settlement. (See Motion, ECF No. 291.) The court grants the motion.

STATEMENT

I. THE LAWSUIT TO DATE

Plaintiffs filed the lawsuit in May 2012, an amended complaint in July 2012, and a second

amended complaint in December 2013. (ECF Nos. 1, 26, 80.) The litigation has been protracted and

included U.S. Bank’s motion to compel arbitration, three rounds of motions to dismiss (all denied), a

motion for judgment on the pleadings, class certification, and U.S. Bank’s attempt to seek

interlocutory review of the court’s class-certification order at the Ninth Circuit, which denied the

petition. (See generally docket.) The parties ultimately settled the case after several settlement

conferences and calls with another magistrate judge of this court. 

II. THE PROPOSED SETTLEMENT

The proposed settlement is as follows. The settlement classes are those that the court certified.

(See 8/20/14 Order, ECF No. 261; Settlement Agreement, ECF No. 291-3, ¶ 2(o).) There are 2,859

class members, and the parties anticipate that the number will increase slightly once Defendants

supplement their production of the class data through the date of the settlement agreement.

(Settlement Agreement, ¶ 40; Olsen Decl., ECF No. 291-9, ¶ 10.) The breakdown of the class

members is as follows:

Class # of Members

Multi-State Lender-Placed Flood Insurance Class 2,382

Ellsworth Lender-Placed Sub-Class 1,706

Skelley Lender-Placed Sub-Class 676

Multi-State Qualified Expense Reimbursement (“QER”) Class 1,583

Ellsworth QER Sub-Class 1,219

Skelley QER Sub-Class 364

Multi-State Backdated Flood Insurance Class 860

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ORDER 3

Ellsworth Backdated Sub-Class 655

Skelley Backdated Sub-Class 205

California Lender-Placed Good Faith and Fair Dealing Class 469

California QER Good Faith and Fair Dealing Class 385

California Backdated Good Faith and Fair Dealing Class 151

California Lender-Placed Unjust Enrichment and UCL Class 898

California QER Unjust Enrichment and UCL Class 693

California Backdated Unjust Enrichment and UCL Class 315

New Mexico Lender-Placed Good Faith and Fair Dealing Class 34

New Mexico QER Good Faith and Fair Dealing Class 20

New Mexico Backdated Good Faith and Fair Dealing Class 19

New Mexico Lender-Placed Unjust Enrichment Class 82

New Mexico QER Unjust Enrichment Class 61

New Mexico Backdated Unjust Enrichment Class 26

TOTAL 2,859

Many class members fall within multiple class definitions. (Olsen Decl., ECF No. 291-9, ¶ 10.)

All fall in one or more of the Lender-Placed classes, 1,932 fall within one or more of the QER

classes, and 1,032 members within one or more of the Backdated classes. (Id. ¶11.)

Under the settlement agreement, class members will receive a refund of 12.5 percent of the

amount that they were charged for lender-placed flood insurance (“LPFI”) during the relevant class

periods set forth in the class definitions (excluding any amounts refunded). (Settlement Agreement

¶ 23.) This amounts to $506,728 in relief, given the approximately $4,053,286 in unrefunded LPFI

charges during the applicable class periods. (Id. ¶ 13.) In addition, class members who were

charged for LPFI coverage backdated 120 days or more will receive additional compensation that

depends on how far back the coverage was backdated: (1) $50 if backdated 90 to 180 days; (2) $75

if backdated 181 to 365 days; and (3) $100 if backdated over one year. (Id. ¶ 23.) Class members

will receive refunds automatically by check and do not need to submit claim forms. (Richter Decl.,

ECF No. 291-2, ¶ 4; Settlement Agreement ¶ 25.) The amounts that are attributable to checks not

cashed within 180 days will be redistributed to other class members who cashed their checks (if

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ORDER 4

there is more than $2 per class member remaining net of distribution costs) or alternatively to

Habitat for Humanity as a cy pres award, subject to the court’s approval. (Settlement Agreement ¶

27.)

The settlement agreement provides for prospective relief as follows. 

 First, for three years, U.S. Bank and its affiliates will not accept commissions, qualified expense

reimbursements, administrative payments, reinsurance payments, or compensation in connection

with LPFI on property owned by any class member pursuant to a closed-end residential mortgage

loan secured by a Frannie Mae/Freddie Mac Uniform Instrument, from any insurance vendor or

agent (or affiliate of the same) other than payments on damages claims. (Id. ¶17.)

Second, for three years, ASIC and its affiliates will not give U.S. Bank or its affiliates belowcost or free outsourced services in connection with LPFI on property owned by any class member

and lender-placed on property owned by any class member pursuant to a closed-end residential

mortgage loan secured by a Frannie Mae/Freddie Mac Uniform Instrument, provided however that

outsourced services do not include expenses associated with tracking functions that ASIC or its

affiliates incur for their own benefit to protect themselves from (a) exposure to lost premium and

losses to properties on which no other insurance is in effect or (b) administrative costs associated

with providing and subsequently cancelling LPFI on properties on which LPFI is not required. (Id.

¶18.)

Third, for a three-year period, (a) U.S. Bank will provide the notice required in 42 U.S.C.

§ 4012a(e) to class members at least 45 days before charging them for LPFI and (b) if evidence of

continuous adequate coverage is provided by a class member within that 45-day period, the class

member will not be charged for LPFI for any periods during which such coverage will be in place.

(Id. ¶ 19.) A breach of this provision entitles class members to a refund of the LPFI charges

attributable to periods during which they maintained flood insurance on their own. (Id.) 

In return for the settlement relief, class members who do not opt out of the settlement will

release U.S. Bank and ASIC (and their affiliates, agents, and insurance vendors) from all claims that

were or could have been asserted in the class action in connection with LPFI on a closed-end

residential mortgage secured by a Fannie Mae/Freddie Mac Uniform Instrument serviced by U.S.

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Bank during the relevant class periods. (Id. ¶ 58.)

The settlement administrator will send class members notice of the settlement by first-class mail.

(Id. ¶ 41.) Class members have 60 days to object or opt out of the settlement. (Id. ¶ 2(u-v).) Before

mailing, the settlement administrator will cross-reference the addresses on the class list against the 

U.S. Postal Service National Change of Address databases and update the list. (Id. ¶ 40.) The

administrator will follow up with mail returned undeliverable by either forwarding it to any

forwarding address affixed to the envelope or performing a skip trace. (Id. ¶¶ 40, 42, 43.) A

settlement notice will be published in USA Today, and there will be a settlement website and a tollfree number. (Id. ¶ 43.) Defendants will pay all costs of administration, including the cost of notice,

distributing the payments, and establishing the website and toll-free number, which means that the

expenses will not be deducted from the settlement funds payable to class members. (Id. ¶ 36.) 

Defendants will pay class counsel’s attorney’s fees and expenses up to $625,000 (represented in

the motion as less than the lodestar), which means that payments to the class will not be reduced by

fees and costs. (Id. ¶ 33.) The class representatives will receive awards of $2,500, also paid by

Defendants in addition to payments to class members. (Id. ¶¶ 33-34.)

ANALYSIS

I. JURISDICTION

The court has jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C. §

1332(d)(2).

II. PRELIMINARY APPROVAL OF SETTLEMENT AGREEMENT

The approval of a class action settlement has two stages: (1) the preliminary approval, which

authorizes notice to the class; and (2) a final fairness hearing, where the court determines whether the

parties should be allowed to settle the class action on the agreed-upon terms. In reviewing the

proposed settlement, the court need not address whether the settlement is ideal or the best outcome,

but determines only whether the settlement is fair, free of collusion, and consistent with Plaintiffs’

fiduciary obligations to the class. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1027 (9th Cir.

1998). The Hanlon court identified factors relevant to assessing a settlement proposal: (1) the

strength of the plaintiff's case; (2) the risk, expense, complexity, and likely duration of further

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litigation; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in

settlement; (5) the extent of discovery completed and the stage of the proceeding; (6) the experience

and views of counsel; (7) the presence of a government participant; and (8) the reaction of class

members to the proposed settlement. Id. at 1026 (citation omitted).

The court has evaluated the proposed settlement agreement for overall fairness under the Hanlon

factors and concludes that preliminary settlement is appropriate. 

First, litigation poses risks, and an evaluation of the strengths and weaknesses of Plaintiffs’ case

militates in favor of settlement. Certain courts have dismissed similar claims in other lender-placed

insurance and backdating cases.. (See Motion, ECF No. 291 at 27-28 (collecting cases).) Other courts

have denied class certification or limited it to single-state classes. (Id. at 28 (collecting cases).) The

court is very aware of the strengths and weaknesses of the case, given how intensively it has been

litigated. 

Second, the settlement appears to treat all class members fairly. It provides for a flat refund, and

all class members will receive the same prospective relief. The relief compares favorably to other

lender-placed insurance settlements that have been approved by courts. The settlement classes are coextensive with the classes already certified by the court. There is no reversion to the defendants.

Uncashed settlement funds will be redistributed to class members or to Habitat for Humanity as a cy

pres award. The class-notice process is robust and will be supplemented by published notice and

notice through a settlement website and a telephone hotline. The proposed settlement was the

product of arm’s-length, non-collusive negotiations, with the assistance of a magistrate judge who

conducted several settlement conferences. In addition, Plaintiffs are represented by experienced and

informed counsel. 

In sum, the court finds that viewed as a whole, the proposed settlement is sufficiently “fair,

adequate, and reasonable” such that preliminary approval of the settlement is warranted. See Officers

for Justice v. Civil Serv. Comm’n of the City and County of San Francisco, 688 F.2d 615, 625 (9th

Cir. 1982). The court thus approves the settlement agreement preliminarily.

III. APPROVAL OF CLASS NOTICE AND SETTLEMENT ADMINISTRATOR

The court approves the class notice attached as Exhibit B to the Settlement Agreement and finds

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that the notice and the procedure set forth in the Settlement Agreement for providing notice to the

classes will provide the best notice practicable, satisfies the notice requirements of Rule 23,

adequately advises class members of their rights under the Settlement, and meets the requirements of

due process. The notice fairly, plainly, accurately, and reasonably provides class members with all

required information, including (among other things): (1) a summary of the lawsuit and the claims

asserted; (2) a clear definition of the classes; (3) a description of the material terms of the settlement;

(4) a disclosure of the release of claims should they choose to remain class members; (5) an

explanation of class members’ opt-out rights, a date by which class members must opt out, and

information regarding how to do so; (6) instructions as to how to object to the settlement and a date

by which class members must object; (7) the date, time, and location of the final approval hearing; (8)

the Internet address for the settlement website and the toll-free number from which class members

may obtain additional information about the Settlement; and (9) the identity of Class Counsel and the

Class Representatives, and information regarding the compensation they may receive under the

Settlement. The proposed plan for mailing the class notice by first-class mail to the last known

addresses of the members of the classes is an appropriate method, reasonably designed to reach all

individuals who would be bound by the Settlement. To the extent that any class notices are returned

as undeliverable, this form of mailed notice is also supplemented by a Publication Notice (which will

be published in a nationwide newspaper) and the settlement website, which the court finds to be a

reasonable form of supplemental notice. Accordingly, the court approves the settlement notices and

the manner of distributing the settlement notices to class members.

The court also approves Dahl Administration LLC as the Settlement Administrator and authorizes

and directs the Settlement Administrator to (i) mail the class notice, (ii) publish the Publication

Notice, (iii) establish the Settlement Website, (iv) set up the telephone hotline with recorded

information about the settlement, and (v) carry out such other responsibilities as are provided for in

the Settlement Agreement or as may be agreed to by Plaintiffs and Defendants.

The court also directs the following.

1. The class notice must be mailed, via first-class mail, no more than 28 days after entry of this

Preliminary Approval Order. For purposes of this mailing, the Settlement Administrator must use the

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address information supplied by Defendants, subject to appropriate updating based on the information

available from the United States Post Office’s National Change of Address Database.

 2. No later than one week after the Class Notice Date, the Settlement Administrator must publish

the Publication Notice as provided in the Settlement Agreement.

3. On or before the Class Notice Date, the Settlement Administrator must make active a website

describing the terms of the Settlement and from which class members can download relevant

documents such as the Second Amended Complaint, the class notice, the Settlement Agreement, and

ECF-filed (i.e., publicly available) copies of Plaintiffs’ motion papers in support of approval of the

Settlement and in support of the requested attorneys’ fees, costs, and class representative service

awards (when filed). The name of this website will be www.usbankfloodinsuranceclassaction.com. 

4. On or before the Class Notice Date, the Settlement Administrator also will arrange for a tollfree number and interactive voice response (“IVR”) telephone system with information about the

Settlement. To the extent that class members have questions that are not answered by the IVR, those

questions will be handled by Class Counsel.

5. Class members who wish to exclude themselves from the Settlement (“opt out”) must submit a

written statement to the Settlement Administrator requesting exclusion from the Settlement,

postmarked no later than 60 days after the Class Notice Date. Such written request for exclusion

must contain the name, address, telephone number, and email address of the class member requesting

exclusion, and be personally signed by the class member who seeks to opt out. The opt-out request

must be signed by all account holders and/or co-borrowers on the applicable mortgage account to be

valid. Any member of the classes who requests exclusion from the classes and chooses to opt out of

the Settlement will not be entitled to any compensation in connection with the Settlement and will not

be bound by the Settlement Agreement or have any right to object, appeal, or comment thereon. 

Members of the classes who do not submit a valid and timely request for exclusion will be bound by

all terms of the Settlement Agreement, including the Class Release. No opt-out request may be made

on behalf of a group of class members, and untimely requests to opt out will be deemed invalid and

ineffective.

6. Any member of the classes who wishes to object to the Settlement must mail a written

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statement of objection to the Clerk of Court, Class Counsel, and Defense Counsel postmarked no

later than 60 days after the Class Notice Date. The Notice of Objection must include: (a) the case

name and number; (b) the basis for the objection; (c) the name, address, telephone number, and email

address of the class member making the objection; (d) a statement of whether the class member

intends to appear at the Final Approval Hearing, either with or without counsel; and (e) be personally

signed by the class member. Class Members who fail to make timely objections in the manner

specified above will be deemed to have waived any objections to the Settlement and will be

foreclosed from appearing at the Final Approval Hearing or making any objection (whether by appeal

or otherwise) to the Settlement. 

If the Settlement is finally approved and becomes effective, all class members who have not filed

a timely and proper request for exclusion will release the Released Parties from all Released Claims,

as described in the Settlement Agreement, including, inter alia, all claims related to U.S. Bank’s

flood-insurance requirements; the relationship, whether contractual or otherwise, between U.S. Bank

(and its affiliates) and ASIC (and its affiliates) regarding lender-placed flood insurance, including,

but not limited to, the procuring, underwriting, placement, tracking, or costs of lender-placed flood

insurance; the coverage amount, duration, issue date, alleged “backdating,” or alleged excessiveness

of any of lender-placed flood insurance placed or charged by U.S. Bank; the payment or receipt of

commissions, expense reimbursements, alleged “kickbacks,” or any other compensation under any

lender-placed flood insurance placed or charged by U.S. Bank; any alleged “tying” arrangement

involving U.S. Bank and lender-placed flood insurance; any alleged breach of fiduciary duty by U.S.

Bank concerning lender-placed flood insurance; any alleged tortious interference by ASIC (or its

affiliates) with mortgage loans serviced by U.S. Bank; the disclosure or non-disclosure of any

payment, expenses, fees, charges, or features pertaining to or under any lender-placed flood insurance

or coverage under such lender-placed flood insurance and charges for such coverage placed or

charged by U.S. Bank; the receipt or non-disclosure of any benefit under any lender-placed flood

insurance or coverage under such lender-placed flood insurance and charges for such coverage placed

or charged by U.S. Bank; the content, manner, or accuracy of any communications regarding the

placement of any lender-placed flood insurance by U.S. Bank; or the regulatory approval or nonCase 3:12-cv-02506-LB Document 295 Filed 04/23/15 Page 9 of 11
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approval of any lender-placed flood insurance, or the premium thereon, placed or charged by U.S.

Bank.

IV. COMPLIANCE WITH CLASS ACTION FAIRNESS ACT

Defendants represented at the April 23, 2015, hearing that they already provided the separate

notice to federal and state regulators showing compliance with CAFA, 28 U.S.C. § 1715. That was

their obligation under the Settlement Agreement, which also provides that they will bear the expense

of that notice. (Settlement Agreement, ¶2(g).) They said at the hearing that they will file a

declaration within two weeks establishing that they or the Settlement Administrator mailed notice of

the Agreement to the Attorney General of the United States and the appropriate California state

official. (See id.) Given that they already served the notice, the final settlement approval will be

more than 90 days after service as required by 28 U.S.C. § 1715.

V. SCHEDULE FOR FINAL APPROVAL OF SETTLEMENT

The schedule consists of the deadlines for notice in the previous section and the following:

Event Date

Deadline for Plaintiffs to file motion for 14 days before opt-out deadline

attorney’s fees and class-representative awards

Deadline to file final motion for final approval August 21, 2015

Fairness Hearing (at least 123 days from date of September 10, 2015, 9:30 a.m.

this order)

VI. EFFECT OF THIS ORDER 

1. All members of the classes including named Plaintiffs are hereby preliminarily enjoined from

directly or indirectly: (i) filing, commencing, prosecuting, intervening in, or participating in (as class

members or otherwise), any other lawsuit in any jurisdiction asserting the Released Claims; and (ii)

organizing class members, or soliciting the participation of class members, in a separate class for

purposes of pursuing any other action (including by seeking to amend a pending complaint to include

class allegations, or seeking class certification in a pending action in any jurisdiction) based on or

relating to any of the Released Claims. This injunction applies to all members of the classes as of the

date of this order and will continue in full force and effect until the court issues a Final Approval

Order and Judgment unless a class member properly and timely excludes himself or herself from the

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Settlement, at which time he or she will no longer be considered a class member and will no longer

be subject to the Preliminary Injunction.

2. In the event the Settlement is not finally approved, or otherwise does not become effective in

accordance with the terms of the Settlement Agreement, this Order will be rendered null and void and

will be vacated, and Plaintiffs and Defendants will revert to their respective positions before entering

into the Settlement Agreement.

3. The court authorizes the parties to take all necessary and appropriate steps to implement the

Settlement Agreement in accordance with this Order, and to seek any further orders necessary to

effectuate the preliminary approval of the Settlement.

CONCLUSION

The court grants Plaintiffs’ motion, preliminarily approves the settlement, and orders the

procedures set forth above. This disposes of ECF No. 291.

IT IS SO ORDERED.

Dated: April 23, 2015 _______________________________

LAUREL BEELER

United States Magistrate Judge

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