Court Opinion

ID: 4545572
Source: CourtListenerOpinion
Date Created: 2020-07-01 17:00:14.85545+00
Date Added: 2024-06-11T09:23:40.322161
License: Public Domain

PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT
                _____________

                     No. 19-3111
                    _____________

                   EDWARD LEO,
       as executor of the Estate of Dawn L. Leo;
              CLIFFORD J. MARCHION;
                DONNA MARCHION,
on behalf of themselves and all others similarly situated,
                                 Appellants

                            v.

NATIONSTAR MORTGAGE LLC OF DELAWARE,
        d/b/a Champion Mortgage Co Inc;
     GREAT AMERICAN ASSURANCE CO;
WILLIS OF OHIO INC, d/b/a Loan Protector Insurance
                    Services
                 _____________

    On Appeal from the United States District Court
              for the District of New Jersey
            District Court No. 3-17-cv-05839
   District Judge: The Honorable Anne E. Thompson
     Submitted Under Third Circuit L.A.R. 34.1(a)
                   June 19, 2020

    Before: SMITH, Chief Judge, CHAGARES, and
              PORTER, Circuit Judges

                  (Filed: July 1, 2020)

Lawrence E. Bathgate, II
Kyle R. Tognan
Bathgate Wegener & Wolf
One Airport Road
P.O. Box 2043
Lakewood, NJ 08701

Howard M. Bushman
Joseph M. Kaye
Adam M. Moskowitz
Adam A. Schwartzbaum
Moskowitz Law Firm
2 Alhambra Plaza
Suite 601
Coral Gables, FL 33134
       Counsel for Appellants

Jan T. Chilton
Erik W. Kemp
Severson & Werson
One Embarcadero Center
                           2
Suite 2600
San Francisco, CA 94111

Kevin M. Haas
Clyde & Co US
200 Campus Drive
Suite 300
Florham Park, NJ 07932

Alexander E. Potente
Clyde & Co US
101 Second Street
24th Floor
San Francisco, CA 94105

Edward J. Fanning, Jr.
Gregory J. Hindy
Robert A. Mintz
Scott M. Weingart
McCarter & English
100 Mulberry Street
Four Gateway Center, 14th Floor
Newark, NJ 07102
      Counsel for Appellees

                  ________________
                          3
               OPINION OF THE COURT
                  ________________

SMITH, Chief Judge.

    This case is about force-placed insurance, sometimes
called lender-placed insurance. When a property owner
takes out a mortgage—or, as here, a reverse mortgage—
that person conveys an interest in real property as security
for a loan. To safeguard that security, lenders often require
borrowers to maintain hazard insurance that protects the
property against natural disasters. If the borrower fails to
maintain adequate coverage, the lender may itself buy
insurance and then force the borrower to cover the cost.
That’s what is meant by “force-placed” insurance.

     This case is also about the filed-rate doctrine. States
regulate the insurance market to see that insurers don’t
charge too much (lest they earn exorbitant profits), nor too
little (lest they be rendered insolvent because of
unanticipated claims), nor discriminate unfairly against
certain consumers. So states generally require insurers
issuing policies in their states to file rates they will charge
with an administrative agency. And the filed-rate doctrine
“forbids” an insurer from “charg[ing] rates . . . other than
those properly filed with the appropriate . . . regulatory
authority.” Ark. La. Gas Co. v. Hall, 453 U.S. 571, 577
(1981).
                              4
    The flipside of the filed-rate doctrine “provides that a
rate filed with . . . a governing regulatory agency is
unassailable in judicial proceedings brought by
ratepayers.” Alston v. Countrywide Fin. Corp., 585 F.3d
753, 763 (3d Cir. 2009); see also McCray v. Fid. Nat’l
Title Ins. Co., 682 F.3d 229, 236-41 (3d Cir. 2012). And
that’s true even when the insurance company “defraud[s]
an administrative agency to obtain approval of a filed
rate.” Taffet v. Southern Co., 967 F.2d 1483, 1494-95
(11th Cir. 1992) (en banc); see also Square D Co. v.
Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 415-
17 (1986) (holding the filed-rate doctrine bars antitrust
claims); Mont.-Dakota Utils. Co. v. Nw. Pub. Serv. Co.,
341 U.S. 246, 250-52 (1951) (applying the filed-rate
doctrine when one party allegedly defrauded the other in a
rate agreement filed with regulatory authorities); Keogh v.
Chi. & Nw. Ry., 260 U.S. 156, 161-65 (1922) (holding the
filed-rate doctrine foreclosed damages for fraudulently
inflated shipping rates since the shipper had filed the
inflated rates). The point is that “courts are ill-equipped to
engage in the rate making process.” In re N.J. Title Ins.
Litig., 683 F.3d 451, 457 (3d Cir. 2012). Any court that
attempted to do so would inevitably introduce price
discrimination into the market, since “victorious plaintiffs
would wind up paying less than non-suing ratepayers.” Id.
at 456 (quoting Wegoland Ltd. v. NYNEX Corp., 27 F.3d
17, 21 (2d Cir. 1994)). In deference, then, to a state’s

                              5
delegation of rate-approval authority to an administrative
agency, we stay out of the rate-reviewing business.

   In the matter before us, borrowers from New Jersey and
North Carolina ask us to review the force-placed-
insurance rate charged by their reverse-mortgage lender,
Nationstar Mortgage LLC. They allege Nationstar
colluded with a hazard insurance company, Great
American Assurance Company, and a hazard insurance
agent, Willis of Ohio, Inc., to pocket kickbacks on force-
placed insurance policies. Specifically, the borrowers say
Great American inflated the rate filed with state regulators
so it and Willis could return a portion of the profits to
Nationstar to induce Nationstar’s continued business. The
upshot is that even though the borrowers concede they
paid the rate on file with the appropriate state regulatory
authorities, they claim they paid Nationstar more than
Nationstar paid Great American and Willis. That, the
borrowers contend, violates

     • the terms of their mortgages (or in the alternative,
       New Jersey law prohibiting unjust enrichment);
     • New Jersey’s implied covenant of good faith and
       fair dealing;
     • the New Jersey Consumer Fraud Act, N.J. Stat.
       Ann. §§ 56:8-1–56:8-20;
     • New Jersey law preventing tortious interference
       with a business relationship;

                             6
     • the federal Truth in Lending Act, 15 U.S.C.
       §§ 1601–1665 (TILA); and
     • the federal Racketeer Influenced and Corrupt
       Organizations Act, 18 U.S.C. §§ 1961–1968
       (RICO).

   We must decide whether the filed-rate doctrine blocks
these claims. 1 The District Court held that it did, and
dismissed the suit.2 The borrowers timely appealed. After
reviewing de novo, see 28 U.S.C. § 1291; Fed. Trade
Comm’n v. Shire ViroPharma, Inc., 917 F.3d 147, 154
n.12 (3d Cir. 2019), we will affirm. Because the borrowers
seek damages tied to an alleged overcharge baked-into a

1
   The borrowers do not dispute that New Jersey law
apprehends the filed-rate doctrine to the same extent as
federal law. See also In re N.J. Title Ins. Litig., 683 F.3d
at 459-60. So if the filed-rate doctrine thwarts their federal
claims, it thwarts their state-law claims as well.
2
   The District Court had jurisdiction over the federal
claims under 28 U.S.C. § 1331, and could exercise
supplemental jurisdiction over the state-law claims under
§ 1367. Because the borrowers styled this as a putative
class action for over $5 million in damages, and because
at least one borrower is a citizen of a state different from a
defendant’s, the District Court also had jurisdiction over
the state-law claims under § 1332(d)(2)(A).
                              7
rate filed with regulatory authorities, the filed-rate
doctrine precludes their claims.

                        *     *    *

   The borrowers argue our decision in Alston v.
Countrywide Financial Corporation distinguished
between “challenge[s]” to a lender’s “allegedly wrongful
conduct” and challenges to “the reasonableness or
propriety of the rate that triggered that conduct,” further
concluding that “[i]t is absolutely clear that the filed rate
doctrine simply does not apply” to the former. 585 F.3d at
765.

    But Alston held no such thing. The Alston plaintiffs
sought statutory damages for violations of a statutory
right; unlike these borrowers, granting the Alston plaintiffs
relief didn’t involve “pars[ing] or second guess[ing]
rates.” Id. at 764. That’s why the filed-rate doctrine did not
apply.

   Alston was a case about mortgage insurance, a type of
policy that low-down-payment borrowers must
traditionally buy to protect lenders from the increased risk
of default associated with a smaller down payment. The
Alston plaintiffs bought mortgage insurance from
companies their lender referred, only to realize the lender
backchanneled with those companies to assume some of
the risk in exchange for some of the plaintiffs’ premiums.
                              8
See id. at 756-57. That, the plaintiffs alleged, violated their
“statutory right” under the Real Estate Settlement
Procedures Act to “a real estate settlement free from
unlawful kickbacks and unearned fees.” Id. at 755. And
that, they claimed, entitled them to statutory treble
damages under that Act. See id. (citing 12 U.S.C. §
2607(d)(2)).

   That focus on statutory damages allowed the Alston
plaintiffs to dodge the filed-rate doctrine. See also Patel v.
Specialized Loan Servicing, LLC, 904 F.3d 1314, 1327 n.8
(11th Cir. 2018) (“Alston seems to be making the rather
unremarkable point that the reach of the filed-rate doctrine
can be circumscribed by legislation that confers to
individuals a private right of action.”). Simply put, the
Alston plaintiffs weren’t seeking damages tied to the
amount of an alleged overcharge.

   In contrast, these borrowers do seek damages tied to the
amount of an alleged overcharge: they seek damages
caused by “unreasonably high force-placed insurance
premiums.” Am. Compl. ¶¶ 187, 193; accord id. ¶¶ 6, 105,
117, 130, 141, 148, 168. By extension, they functionally
challenge the reasonableness of rates filed with state
regulators. 3

3
  Perhaps recognizing this point, the borrowers argue that
even if the filed-rate doctrine derails their RICO and state-
law claims, we should spare their TILA claim since that
                               9
    Today, we reiterate that the filed-rate doctrine brooks
no distinction between, on one hand, challenging a filed
rate as unreasonable and, on the other hand, challenging
an overcharge fraudulently included in a filed rate. We
noted as much in In re New Jersey Title Insurance
Litigation and its companion, McCray v. Fidelity National
Title Insurance Co., and in AT&T Corporation v. JMC
Telecommunications, LLC. In the first two cases, the filed-
rate doctrine stymied allegations that insurance companies
“collectively set and charge[d] uniform and supra-
competitive rates,” and “embed[ded] within th[o]se . . .
rates payoffs, kickbacks, and other charges that are
unrelated to the issuance of [] insurance.” In re N.J. Title
Ins. Litig., 683 F.3d at 454; see also McCray, 682 F.3d at
234-35 (alleging insurance companies hoodwinked state
regulators into approving rates “consist[ing] of costs
unrelated to the issuance of title insurance, including
kickbacks and other financial inducements title insurers

statute contemplates “remedies that can be awarded
without the need to assess the reasonableness of any filed
rate.” Appellants’ Br. 33-37 (emphasis omitted). But they
never made that argument to the District Court—despite
filing a 120-page opposition to Nationstar, Great
American, and Willis’ motions to dismiss based on the
filed-rate doctrine. So they forfeited the argument; we will
not consider it now. See United States v. EME Homer City
Generation, L.P., 727 F.3d 274, 300 (3d Cir. 2013).
                            10
provide to title agents”). In AT&T, the filed-rate doctrine
prevented a prepaid-telephone-card seller from bringing
breach-of-contract and state-law fraud claims against
AT&T after AT&T allegedly overcharged the seller based
on a service agreement filed with regulators. See 470 F.3d
525, 531-32, 534-35 (3d Cir. 2006). At bottom, each case
stands for the proposition that “there is no fraud exception
to the filed rate doctrine.” Id. at 535.

    These facts show why. The filed-rate doctrine seeks to
“preserv[e] the exclusive role of . . . agencies in approving
rates . . . by keeping courts out of the rate-making
process.” In re N.J. Title Ins. Litig., 683 F.3d at 455-56
(omissions in original) (quoting Marcus v. AT&T Corp.,
138 F.3d 46, 58 (2d Cir. 1998)) (calling this the filed-rate
doctrine’s “nonjusticiability strand”). Yet if we ruled for
the borrowers, calculating damages would require
determining how much we think they should have been
charged for hazard insurance—a new, lower-than-filed-
rate price tethered only to our conception of an appropriate
kickback-free rate. 4 See also id. at 457 (denying plaintiffs’

4
   That is true even though Nationstar—not the
borrowers—pays         the      premium,       since     this
“nonjusticiability principle does not rest on the plaintiff’s
identity.” Patel, 904 F.3d at 1322 (noting “[e]ven non-
customers, for instance, cannot directly challenge a filed
rate”); see also Rothstein v. Balboa Ins. Co., 794 F.3d 256,
259 (2d Cir. 2015) (holding “a claim challenging a
                              11
claims since calculating damages “require[d] the District
Court to determine the reasonable rate absent the alleged
conspiracy—‘a function that . . . regulatory agencies are
more competent to perform’” (omission in original)
(quoting Marcus, 138 F.3d at 58)).

    And the borrowers’ suit confronts an even more
formidable obstacle in the filed-rate doctrine’s other goal:
“preventing” insurers “from engaging in price
discrimination as between ratepayers.” Id. at 455-56
(quoting Marcus, 138 F.3d at 58) (calling this the filed-
rate doctrine’s “nondiscrimination strand”). If we forced
Nationstar to pay damages, we would be giving these
borrowers a better price for force-placed insurance than
other New Jersey and North Carolina borrowers using a
different lender but still obtaining force-placed insurance
from Great American. See also Keogh, 260 U.S. at 163
(observing that allowing “damages resulting from the
exaction of a[n inflated filed] rate” would, “like a rebate,
operate to give [a plaintiff] a preference over his . . .
competitors”). 5

regulator-approved rate is subject to the filed rate doctrine
whether or not the rate is passed through an
intermediary”).
5
  Considering this nondiscrimination principle further
distinguishes this case from Alston: granting the Alston
plaintiffs statutory damages didn’t precipitate any
                           12
    Just as the In re New Jersey Title Insurance
Litigation/McCray court refused to “subvert the authority
of rate-setting bodies and undermine the regulatory
regime” or to countenance “victorious plaintiffs . . . paying
less than non-suing ratepayers,” we will not consider these
borrowers’ claims. In re N.J. Title Ins. Litig., 683 F.3d at
456 (first quoting Sun City Taxpayers’ Ass’n v. Citizens
Utils. Co., 45 F.3d 58, 62 (2d Cir. 1995), then quoting
Wegoland Ltd., 27 F.3d at 21). And other circuits agree.

    The Eleventh Circuit affirmed the dismissal of a
materially identical complaint—filed by the same
attorneys who represent the borrowers here—because of
the filed-rate doctrine. See Patel, 904 F.3d at 1326 (“The
plain language of the complaint[] therefore shows that the
plaintiffs are challenging the reasonableness of [their
insurer]’s premiums; and since these premiums are based
upon rates filed with state regulators, plaintiffs are directly
attacking those rates as being unreasonable as well.”). The
Second Circuit similarly applied the doctrine to strike a
RICO claim alleging borrowers “were fraudulently
overbilled” for force-placed insurance “because the [filed]
rates they were charged did not reflect secret ‘rebates’ and
‘kickbacks.’” Rothstein, 794 F.3d at 259; see also id. at
262 (noting “it is squarely for the regulators to say what

discrimination, since the relief didn’t impact the price they
paid for mortgage insurance. See 585 F.3d at 764.
                              13
should or should not be included in a filed rate”). And the
Eighth Circuit likewise held that the filed-rate doctrine
prevents a RICO suit for damages relating to a fraudulent
rate. See H.J. Inc. v. Nw. Bell Tel. Co., 954 F.2d 485, 492
(8th Cir. 1992). 6

                        *    *    *

6
  Contrary to what the borrowers say, the Sixth Circuit
does not disagree. In Williams v. Duke Energy
International, Inc., that court confronted fraud allegations
extrinsic to an agency-approved rate: A power company
wanted state regulators to approve a proposed rate plan.
But objections from several large customers threatened to
sink the proposal. So the power company allegedly bribed
the customers to drop their objections. See 681 F.3d 788,
792-93 (6th Cir. 2012). The Sixth Circuit held that the
filed-rate doctrine didn’t shield the power company from
federal and state-law fraud claims since those claims
“d[id] not concern the particular rate . . . but rather
payments made outside of the rate scheme.” Id. at 797. In
contrast, when the Sixth Circuit confronts fraud
allegations intrinsic to a filed rate—like the borrowers’
allegations here—they apply the filed-rate doctrine. See,
e.g., Brown v. Cassens Transp. Co., 675 F.3d 946, 955 (6th
Cir. 2012), overruled on other grounds by Jackson v.
Sedgwick Claims Mgmt. Servs., Inc., 731 F.3d 556 (6th
Cir. 2013) (en banc).
                            14
    Once an insurance rate is filed with the appropriate
regulatory body, we have no ability to effectively reduce
it by awarding damages for an alleged overcharge: the
filed-rate doctrine prevents courts from deciding whether
the rate is unreasonable or fraudulently inflated. Because
Great American filed this force-placed hazard insurance
rate with the appropriate state agencies, the District Court
properly dismissed claims alleging the rate was
fraudulently inflated and seeking damages tied to the
purported overcharge. We will affirm.

                            15