Court Opinion

ID: 2709189
Source: CourtListenerOpinion
Date Created: 2014-08-05 15:11:52.367872+00
Date Added: 2024-06-11T10:01:24.235396
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit

No. 11-3422

RANDY COHEN , both individually and
as a representative of all other persons
similarly situated,
                                                    Plaintiff-Appellant,

                                   v.

AMERICAN SECURITY INSURANCE
COMPANY, and WACHOVIA MORTGAGE,
FSB f/k/a WORLD SAVINGS BANK , FSB,
                                                Defendants-Appellees.

            Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
            No. 09 CV 1363 — Robert M . Dow, Jr., Judge.

 ARGUED SEPTEMBER 13, 2012 — DECIDED NOVEMBER 4, 2013

   Before MANION , SYKES, and HAMILTON , Circuit Judges.
   SYKES, Circuit Judge. Home-mortgage lenders often require
the borrower to maintain hazard insurance on the mortgaged
2                                                            No. 11-3422

property to protect the lender’s interest in the collateral. If the
borrower fails to keep the property insured, the lender has the
option to secure the insurance itself and pass the cost on to the
borrower.
    In this proposed class action, Martha Schilke alleges that
Wachovia Mortgage, FSB, her lender and holder of a mortgage
on her home, fraudulently placed insurance on her property
when her homeowner’s policy lapsed. Wachovia secured the
replacement coverage from American Security Insurance
Company (“ASI”) and charged her for it, as specifically
permitted under her loan agreement. The premium was more
than twice what she had paid for her own policy and included
a commission to Wachovia’s insurance-agency affiliate, again
as permitted under the loan agreement. Schilke calls the
commission a “kickback.”
    On behalf of herself and a class, Schilke sued Wachovia and
ASI asserting multiple statutory and common-law claims for
relief, most sounding in fraud or contract.1 The district court
dismissed the complaint in its entirety—and also rejected two
attempted amendments—based on federal preemption and the
filed-rate doctrine.
   We affirm but on different grounds. The complaint and the
proffered amendments do not state any viable claim for relief.
The loan agreement and related disclosures and notices

1
 Schilke assigned her claims to Randy Cohen after this appeal was filed. We
have substituted him in the caption, but because all the allegations pertain
to Schilke’s transaction with Wachovia, we otherwise ignore his presence
in the case.
No. 11-3422                                                                   3

conclusively demonstrate that there was no deception at work.
It was Schilke’s responsibility to maintain hazard insurance on
the property at all times; if she failed to do so, Wachovia had
the right to secure the insurance itself and pass the cost on to
her. Wachovia fully disclosed that lender-placed insurance
may be significantly more expensive than her own policy and
may include a fee or other compensation to the bank and its
insurance-agency affiliate. In short, maintaining property
insurance was Schilke’s contractual obligation and she failed to
fulfill it; because the consequences of that failure were clearly
disclosed to her, none of her claims for relief can succeed.

                              I. Background
   The following facts are from the complaint and its attach-
ments and certain related notices and correspondence
Wachovia submitted to the district court without objection
from Schilke.2 On or about March 22, 2006, Schilke purchased

2
  This case is before us on appeal from orders dism issing the complaint
under Rule 12(b)(6) of the Federal Rules of Civil Procedure and denying
leave to amend. “[A] motion under Rule 12(b)(6) can be based only on the
complaint itself, documents attached to the complaint, documents that are
critical to the complaint and referred to in it, and information that is subject
to proper judicial notice.” Geinosky v. City of Chicago, 675 F.3d 743, 745–46
n.1 (7th Cir. 2012). Several documents relating to Schilke’s loan agreement
were attached to the complaint, and the defendants submitted several more
with their motion to dismiss. Schilke moved to strike the defendants’
motion and accompanying brief on the ground that they improperly
incorporated material extrinsic to the complaint. The district court denied
the motion to strike but allowed Schilke to object to the court’s consider-
                                                                 (continued...)
4                                                              No. 11-3422

a townhouse and mortgaged it to her lender, World Savings
Bank, FSB, which later merged with Wachovia. The loan
agreement requires Schilke to maintain property insurance on
her home:
        5. BORROWER’S OBLIGATION TO MAIN-
           TAIN INSURANCE
            At my sole cost and expense, I will obtain and
        maintain hazard insurance to cover all buildings
        and other improvements that now are or in the
        future will be located on the Property. The
        insurance must cover loss or damage caused by
        fire, hazards normally covered by “extended
        coverage” hazard insurance policies and other
        hazards for which Lender requires coverage. The
        insurance must be in the amounts and for the
        periods of time required by Lender. I may choose
        the insurance company but my choice is subject
        to Lender’s approval. Lender may not refuse to
        approve my choice unless the refusal is reason-
        able. All of these insurance policies and renewals
        of the policies must include what is known as a
        Standard Mortgagee Clause to protect Lender.

2
 (...continued)
ation of the extrinsic material in her briefing on the motion. She did not do
so. Accordingly, she waived any objection to the court’s consideration of
the additional documents. M oreover, the district court held that the
additional documents submitted by the defendants were “referred to in
different versions of [p]laintiff’s complaints and are central to [p]laintiff’s
claims.” There is no challenge to this ruling.
No. 11-3422                                                5

      The form of all policies and renewals must be
      acceptable to Lender. Lender will have the right
      to hold the policies and renewals. If Lender
      requires, I will promptly give Lender all receipts
      of paid premiums and renewal notices that I
      receive.
          ….
          If I am required by Lender to pay premiums
      for mortgage insurance, I will pay the premiums
      until the requirement for mortgage insurance
      ends according to my written agreement with
      Lender or according to law.
The agreement also authorizes the lender to purchase insur-
ance on the property if the borrower fails to do so:
      7. LENDER’S RIGHT TO PROTECT ITS
         RIGHTS IN THE PROPERTY
         If … I do not keep my promises and agree-
      ments made in this Security Instrument … , then
      Lender may do and pay for whatever it deems
      reasonable or appropriate to protect the Lender’s
      rights in the Property. Lender’s actions may,
      without limitation, include … purchasing insur-
      ance required under Paragraph 5 above (such
      insurance may cost more and provide less
      coverage than the insurance I might pur-
      chase) … . Lender must give me notice before
      Lender may take any of these actions. …
6                                                No. 11-3422

          I will pay to Lender any amounts which
      Lender advances under this Paragraph 7 with
      interest … . I will pay those amounts to Lender
      when Lender sends me a notice requesting that
      I do so.
At the closing Schilke also signed a Notice of Fire/Hazard
Insurance Requirements, which states as follows:
      The terms of our loan documents require mainte-
      nance of continuous insurance coverage. If at any
      time during the life of the loan, a policy is
      cancelled or replaced or an insurance agent is
      substituted, we must receive written evidence of
      the insurance and written evidence of the substi-
      tution of the insurance agent. Written evidence
      of insurance is defined as: A COPY OF THE
      REINSTATEMENT NOTICE FOR THE
      CANCELLED POLICY OR A COPY OF THE
      REPLACEMENT POLICY—BINDERS ARE
      ACCEPTABLE IN THE STATES NOTED IN
      ITEM 7 ABOVE.
      NOTE: If we do not receive such evidence prior
      to the termination date of the previous coverage,
      we may at our sole option, obtain an insurance
      policy for our benefit only, which would not
      protect your interest in the property or the
      contents. We would charge the premium due
      under such a policy to your loan and the loan
      payment would increase accordingly.
No. 11-3422                                                    7

       We may assess a processing fee and our affiliated
       insurance agent could collect a commission from
       the insurer. The cost for such insurance could be
       at least two to five times greater and provide you
       with less protection than insurance you could
       purchase directly from an insurer.
    As relevant here, Schilke purchased insurance for her home
in January 2008. On May 9, 2008, Wachovia sent a letter to
Schilke noting that her policy had lapsed on April 8 and
requesting proof of insurance coverage within 14 days. She did
not respond.
    On June 12, 2008, Wachovia sent another letter to Schilke
again requesting proof of insurance and notifying her that it
had acquired temporary insurance coverage—a “binder”—
from ASI. Enclosed with this letter was a form entitled “Illinois
Notice of Placement of Insurance” in which Wachovia de-
scribed the binder and advised Schilke that she was responsi-
ble for the cost. This notice explained that the annual premium
for the binder was $2,034 and that the insurance was backdated
to April 8, the day her own insurance lapsed. Wachovia
advised Schilke that if she provided proof of insurance, it
would cancel the binder and refund any premiums paid by
her. Finally, Wachovia warned Schilke that if she did not
provide proof of insurance coverage within 30 days, it would
replace the binder with a 12-month insurance policy and
charge Schilke for the premium, which would likely be more
expensive than her own coverage:
       The premiums charged for this coverage are
       usually higher than the same coverage
8                                                   No. 11-3422

       purchased directly by the customer. The higher
       rate for lender-placed insurance reflects limited
       insurance coverage and underwriting risk associ-
       ated with this policy. The premium may include
       compensation to the insurer and Wachovia
       Mortgage for tracking customers’ compliance
       with Wachovia Mortgage insurance require-
       ments. The premium for such a policy will be
       $2,034.00 for a twelve-month policy. Your
       monthly mortgage payment will be adjusted to
       collect for the cost of the new coverage. You may
       avoid these costs by obtaining your own insur-
       ance, as required by Wachovia Mortgage, in a
       timely manner. Upon receipt of proof of accept-
       able coverage, this policy will be canceled. You
       will be charged only for the days that this policy
       was needed. Any unearned premium will be
       refunded on a pro-rata basis.
    Schilke did not respond to this letter. On July 18, 2008,
Wachovia again wrote to Schilke, this time informing her that
it had secured a 12-month insurance policy on the mortgaged
property through ASI at a cost of $2,034. Wachovia reiterated
Schilke’s option to secure her own insurance, stating that if she
provided proof of insurance, the ASI premium would be
refunded on a pro rata basis.
    Schilke did not secure her own insurance. Instead, a year
later she filed this class-action suit against Wachovia and ASI
alleging, in substance, that their conduct was deceptive
because they did not disclose that Wachovia was receiving
No. 11-3422                                                     9

“kickbacks” from ASI. The complaint asserted a claim under
the Illinois Consumer Fraud and Deceptive Business Practices
Act and claims for common-law fraud, conversion, and unjust
enrichment.
    Wachovia and ASI moved to dismiss under Rule 12(b)(6)
for failure to state a claim, advancing a number of alternative
grounds for dismissal. The district court granted the motion,
holding that the statutory and common-law claims against
Wachovia were preempted by regulations issued by the bank’s
federal regulator, the Office of Thrift Supervision. The court
also held that the claims against ASI were barred by the filed-
rate doctrine, which precludes challenges to rates charged by
public utilities and other regulated entities when their rates are
required to be filed with and approved by a governmental
agency. To the extent that the claim for injunctive relief against
ASI survived the filed-rate doctrine, the court held that the
complaint did not plausibly allege that the insurer proximately
caused Schilke’s injury.
    Schilke moved to vacate the judgment and also sought
leave to file an amended complaint. She proposed adding
claims for breach of contract against both defendants and
“clarified” that her claim under the Consumer Fraud Act was
based on allegations that the challenged conduct was not only
“deceptive” but also “unfair” within the meaning of the Act.
The district court rejected the proposed amendment, conclud-
ing that federal preemption and the filed-rate doctrine pre-
cluded the new breach-of-contract claims and that Schilke’s
“clarification” did not change the analysis. But the court gave
Schilke one more chance to offer an amended complaint.
10                                                             No. 11-3422

    Schilke accordingly submitted a proposed third amended
complaint. This version departed more substantially from the
earlier iterations. Schilke now proposed to join Assurant, Inc.,
ASI’s parent, as a defendant. She also rearranged the claims so
that one set sought injunctive relief, one set sought damages
for the alleged “kickbacks,” and one set sought damages
arising from the backdating of the lender-placed coverage.
Finally, Schilke proposed to add new derivative claims for
conspiracy, aiding and abetting, acting “in concert,” and
“intentional interference.” None of these modifications
materially changed the core allegations of the complaint. The
judge denied leave to amend the complaint on grounds of
futility and entered final judgment.3 This appeal followed.

                             II. Discussion
   The district court dismissed the complaint and twice denied
leave to amend on grounds of futility. Schilke appears to
challenge all of these rulings, although her briefs are not

3
 The district court also denied Schilke’s request for sanctions against ASI’s
counsel under Rule 11 of the Federal Rules of Civil Procedure. In opposing
Schilke’s proposed third amended complaint, ASI had submitted affidavits
explaining its relationship with Assurant. In her reply brief, Schilke
contended that the affidavits contained false statem ents and asked for
Rule 11 sanctions. After rejecting Schilke’s proposed third amended
complaint, the district court denied her Rule 11 request as moot. On appeal
Schilke argues that the rejection of her third amended complaint did not
moot her request for sanctions. Perhaps the Rule 11 request wasn’t moot,
but it was procedurally improper: It was not made by separate motion, as
required by the rule. See F ED . R. C IV . P. 11(c)(2). The district court was
entitled to disregard the sanctions request.
No. 11-3422                                                     11

entirely clear about which claims remain at issue. She asserted
several dozen claims across three complaints; many are
duplicates or derivative of other claims. For ease of analysis
and to avoid repetition, we review the claims in the original
complaint and the proposed amendments together, combining
closely related and derivative claims and eliminating dupli-
cates. Our review is de novo. Bogie v. Rosenberg, 705 F.3d 603,
608 (7th Cir. 2013) (applying de novo review to district court
order dismissing the plaintiff’s complaint under Rule 12(b)(6)
and denying leave to amend on grounds of futility); see also
Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996)
(“There is no practical difference, in terms of review, between
a denial of a motion to amend based on futility and the grant
of a motion to dismiss for failure to state a claim.”).
    The district court dismissed all of the claims against
Wachovia on preemption grounds and rejected most of the
claims against ASI under the filed-rate doctrine. The preemp-
tion question is intricate; it involves a broad preemption
regulation promulgated by the Office of Thrift Supervision
pursuant to authority granted by the Home Owners’ Loan Act,
12 U.S.C. §§ 1461 et seq., but also a savings clause that preserves
contract, commercial, and tort claims, see 12 C.F.R. § 560.2(c);
see also Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 576–80
(7th Cir. 2012); In re Ocwen Loan Servicing, LLC Mortg. Servicing,
491 F.3d 638, 642 (7th Cir. 2007). As for the filed-rate doctrine,
we question whether it applies. The doctrine protects public
utilities and other regulated entities from civil actions attacking
their rates if the rates must be filed with the governing regula-
tory agency and the agency has the authority to set, approve,
or disapprove them. See Arsberry v. Illinois, 244 F.3d 558, 562
12                                                     No. 11-3422

(7th Cir. 2001); Horwitz v. Bankers Life & Cas. Co., 745 N.E.2d
591, 596 (Ill. App. Ct. 2001). Although ASI is required to file its
insurance rates with the Illinois Department of Insurance, it is
not at all clear that the Department has the authority to
approve or disapprove property-insurance rates. See
Nathaniel S. Shapo, Regulation of Rates and Risk Classification, in
2 NEW APPLEMAN ON INSURANCE § 11.02[4][3], 11–25 (Jeffrey
Thomas ed., Law Library ed. 2012) (identifying Illinois as the
only state in the country in which insurance regulators lack the
express authority to regulate property-insurance rates). At oral
argument ASI conceded that the Department’s authority to set
property-insurance rates is at best implicit.
    We can avoid the nuanced questions of federal preemption
and the filed-rate doctrine here. The district court properly
dismissed the complaint and rejected Schilke’s proposed
amendments for a different and more fundamental reason:
Schilke failed to state any viable claim for relief. The defen-
dants preserved this argument below and raised it in this court
as an alternative basis on which to affirm the judgment. Burns
v. Orthotek, Inc. Emp’rs Pension Plan & Trust, 657 F.3d 571, 575
(7th Cir. 2011) (holding that reviewing court may affirm on any
ground that the record fairly supports and has not been
waived). So we proceed directly to the question of the suffi-
ciency of the complaint, accepting its factual allegations as true,
drawing reasonable inferences in Schilke’s favor, and assessing
whether it plausibly states any claim for relief. Brooks v. Pactiv,
729 F.3d 758, 763 (7th Cir. 2013) (citing Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)).
No. 11-3422                                                    13

   1. Illinois Consumer Fraud Act
     The complaint alleges a violation of the Illinois Consumer
Fraud and Deceptive Business Practices Act, 815 ILL . COMP.
STAT . 505/1 et seq. “The Consumer Fraud Act is a regulatory
and remedial statute intended to protect consumers, borrow-
ers, and business persons against fraud, unfair methods of
competition, and other unfair and deceptive business prac-
tices.” Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951, 960
(Ill. 2002). Prohibited “unfair” and “deceptive” practices
include, but are not limited to, “the use or employment of any
deception, fraud, false pretense, false promise, misrepresenta-
tion or the concealment, suppression or omission of any
material fact, with intent that others rely upon the conceal-
ment, suppression or omission of such material fact … in the
conduct of any trade or commerce … .” 815 ILL. COMP. STAT .
505/2. A person who suffers actual damage as a result of a
violation of the Act has a civil remedy against the violator. See
id. 505/10a(a). The Illinois Supreme Court has explained that
“[t]he elements of a claim under the Act are: (1) a deceptive act
or practice by the defendant; (2) the defendant’s intent that the
plaintiff rely on the deception; and (3) the occurrence of the
deception during a course of conduct involving trade or
commerce.” Robinson, 775 N.E.2d at 960.
    Our first question is whether Schilke has plausibly alleged
an “unfair” or “deceptive” act or practice within the meaning
of the Act. The answer is “no.” The loan agreement and
Wachovia’s disclosures, notices, and correspondence conclu-
sively defeat any claim of fraud, false promise, concealment, or
misrepresentation. First, the notice that Schilke signed in
14                                                No. 11-3422

conjunction with her home-loan transaction clearly described
the consequences of her failure to maintain hazard insurance
on the property as required under the loan agreement:
      If we do not receive [proof of insurance] prior to
      the termination date of the previous coverage,
      we may at our sole option, obtain an insurance
      policy for our benefit only, which would not
      protect your interest in the property or the
      contents. We would charge the premium due
      under such a policy to your loan and the loan
      payment would increase accordingly.
      We may assess a processing fee and our affiliated
      insurance agent could collect a commission from
      the insurer. The cost for such insurance could be
      at least two to five times greater and provide you
      with less protection than insurance you could
      purchase directly from an insurer.
   Thus, from the very beginning, Wachovia warned Schilke
that she may pay a substantially higher premium—even five
times what she had been paying—if lender-placed insurance
became necessary.
    Wachovia’s subsequent communications with Schilke did
not depart from the initial warnings. The bank’s May 9, 2008
letter disclosed the exact cost of the insurance that it would
secure in light of the lapse in Schilke’s homeowner’s insurance
and reiterated that the premium may include compensation to
Wachovia and its insurance-agency affiliate. The June and July
letters contained the same disclosures.
No. 11-3422                                                       15

    Schilke’s complaint characterizes the fee and commission to
Wachovia and its insurance affiliate as “kickbacks.” She seems
to think that merely applying this label converts the bank’s
otherwise clear disclosures into a prohibited deceptive act. Not
so. The substance of the transaction was clearly and fully
disclosed; no material fact was omitted.
     Schilke argues that even if there was no deception, her
allegations are sufficient to state a claim for “unfair” business
practices under the Act. To the extent that “unfair practices”
comprise a broader class of prohibited conduct under the Act,
Schilke’s allegations still fall short of stating a claim for relief.
The Act provides that in “construing this section[,] consider-
ation shall be given to the interpretations of the Federal Trade
Commission and the federal courts relating to Section 5(a) of
the Federal Trade Commission Act.” 815 ILL. COMP. STAT .
505/2. The Federal Trade Commission, the United States
Supreme Court, and the Illinois Supreme Court consider the
following factors as relevant to the inquiry: (1) whether the
practice offends public policy; (2) whether it is immoral,
unethical, oppressive, or unscrupulous; and (3) whether it
causes substantial injury to consumers. Fed. Trade Comm’n v.
Sperry & Hutchinson Co., 405 U.S. 233, 244 n.5 (1972); Robinson,
775 N.E.2d at 960–61 (adopting and applying factors in
Illinois).
   Assessing the complaint against these factors, the closest
Schilke comes to stating a claim is a conclusory allegation of
coercion: She contends that she and the class members were
“coerced into having insurance provided by ASI at a price far
above that which they had previously paid.” It’s not clear
16                                                   No. 11-3422

when this alleged coercion might have taken place. There
cannot have been any coercion when Wachovia presented
Schilke with the choice of maintaining her own insurance or
having Wachovia insure the property and pass the cost along
to her. Putting a counterparty to the choice specified in the
parties’ contract—in other words, insisting that a contract
partner fulfill his contractual duties or face the agreed-upon
consequences—is not coercion. The argument here is stranger
still: Schilke contends that Wachovia placed her on the hook
for more expensive insurance by giving her the option of
buying her own, less-expensive insurance—insurance she had
a duty to maintain under the terms of the mortgage-loan
agreement.
   Indeed, the choice to purchase her own, less-expensive
insurance was available to Schilke at all times, even after
Wachovia purchased the lender-placed insurance. When the
bank put the binder in place, and then again when it secured
the 12-month policy, it sent letters reminding Schilke that she
need only present proof of insurance and the lender-placed
insurance coverage would be cancelled and the premium
refunded on a pro rata basis.
   Schilke points out that her failure to pay the premium for
the lender-placed policy risked a declaration of default on her
loan and the institution of foreclosure proceedings. But if it was
not coercive to demand that Schilke maintain insurance
coverage on the property (and it certainly was not), it cannot
have been coercive for Wachovia to threaten to invoke the
contractual remedies available for breach of that duty. Again,
there is nothing oppressive or unscrupulous about giving a
No. 11-3422                                                     17

counterparty the choice to fulfill his contractual duties or be
declared in default for failing to do so.
    The Illinois Supreme Court’s decision in Robinson is
analogous here. In that case lessees of automobiles sued the
lessor alleging that the lease agreements violated the Con-
sumer Fraud Act by imposing penalties for “excess wear and
tear” to the leased vehicles and also for “excess mileage” on
those vehicles. Robinson, 775 N.E.2d at 961–62. The plaintiffs
alleged that the penalties were duplicative and therefore unfair
in violation of the Act. The Illinois Supreme Court rejected the
claim, agreeing with the lower court that “there was a total
absence of the type of oppressiveness and lack of meaningful
choice necessary to establish unfairness [because] plaintiffs
could have gone elsewhere to lease a car.” Id. at 962.
    Here, as in Robinson, Schilke never lacked a meaningful
choice to avoid expensive lender-placed property insurance.
Wachovia reminded her at every step that she could comply
with her obligation to purchase insurance or have the coverage
placed by Wachovia at a much higher cost. To use the Illinois
Supreme Court’s formulation, there was a “total absence of
oppressiveness” because all along she “could have gone
elsewhere” to buy cheaper insurance. Id.
     To illustrate its point, the Robinson court compared the auto
lessees’ circumstances to those confronting the plaintiff in Ekl v.
Knecht, 585 N.E.2d 156, 162 (Ill. App. Ct. 1991), in which a
plumber extracted an unreasonable fee from a customer by
threatening to undo all of the repairs he had just made. The
Illinois Appellate Court held in Ekl that the plumber’s threats
18                                                   No. 11-3422

were coercive, oppressive, and caused substantial harm to the
customer because the plumber
       was not entitled to undo the work merely be-
       cause [the customer] refused to pay rates far in
       excess of what the trial court determined to be
       reasonable. … The threatened actions if carried
       out would have constituted the offense of crimi-
       nal damage to property … . These threats were
       wrongful in both a legal and a moral sense.
Id. at 162–63.
   There are no allegations here of threats to take illegal,
immoral, or otherwise wrongful action against Schilke. To the
contrary, Wachovia simply reminded her of its contractual and
legal remedies if she remained in breach of her obligation to
maintain insurance on the mortgaged property.
    Schilke insists that her allegations are sufficient to state a
claim under the Act because the commission paid to
Wachovia’s insurance-agency affiliate was a kickback and
kickbacks are against public policy, period. We do not doubt
that kickbacks violate public policy. As one Illinois court has
explained:
       Illinois has a clear policy against kickbacks
       regardless of who the players in that kickback
       scheme might be. See 225 ILCS 85/23 (West 2002)
       (making it unlawful for a pharmacist or phar-
       macy to offer a kickback to hospitals, doctors,
       and anyone else authorized to prescribe drugs
       for steering business to that pharmacist or
No. 11-3422                                                   19

       pharmacy); 305 ILCS 5/8A–3 (West 2002)
       (criminalizing any kickback in connection with
       determining one’s eligibility for public aid);
       305 ILCS 5/8A–16(5) (West 2002) (stating that
       “[o]ffering any kickback, bribe, reward, or bene-
       fit to any person as an inducement to select or to
       refrain from selecting any health care service,
       health plan, or health care provider” is a Class A
       misdemeanor); 720 ILCS 5/33E–7 (West 2002)
       (making it a Class 3 felony to offer or solicit a
       kickback during negotiations for public con-
       tracts); 805 ILCS 5/8.70 (West 2002) (imposing
       treble damages and attorney fees upon any
       officer or director of a corporation found to be
       involved in any kickback or bribery scheme) … .
Johnson v. Matrix Fin. Servs. Corp., 820 N.E.2d 1094, 1100 (Ill.
App. Ct. 2004).
    But simply calling the commission a kickback doesn’t make
it one. The examples listed in the foregoing passage from
Johnson all describe the traditional understanding of a kickback:
an agent, charged with acting for the benefit of a principal,
accepts something of value from a third party in return for
steering the principal’s business to the third party. The
defining characteristic of a kickback is divided loyalties. But
Wachovia was not acting on behalf of Schilke or representing
her interests. The loan agreement makes it clear that the
insurance requirement is for the lender’s protection: “All of
these insurance policies and renewals of the policies must
include what is known as a Standard Mortgagee Clause to
20                                                                 No. 11-3422

protect Lender. The form of all policies and renewals must be
acceptable to Lender. Lender will have the right to hold the policies
and renewals.” (Emphases added.) The agreement also gives
the lender broad discretion to act to protect its own interest in
the property: “Lender may do and pay for whatever it deems
reasonable or appropriate to protect the Lender's rights in the
Property.” (Emphasis added.) Wachovia’s correspondence
with Schilke reiterated the point: “Failure to provide [proof of
insurance] may result in a policy being purchased by us at your
expense to protect our interest.” And Wachovia conspicuously
reminded Schilke that lender-placed insurance could be much
more expensive than her own insurance coverage.4 Wachovia
was not subject to divided loyalties; rather, it was subject to an
undivided loyalty to itself, and it made this clear from the start.

4
 Wachovia’s disclosures comport with the Illinois Collateral Protection Act,
which states that “[t]his Act does not impose a fiduciary relationship
between the creditor and the debtor. Placement of collateral protection
insurance is for the sole purpose of protecting the interest of the creditor
when the debtor fails to insure collateral as required by the credit agree-
ment.” 815 I LL . C O M P . S TAT . 180/45. The parties debate whether the Illinois
Collateral Protection Act is preempted by the Office of Thrift Supervision
(“OTS”) Preemption Regulation. As we have explained, because the
complaint fails to state a claim, we do not answer the preemption question
here. We note, however, that section 180/45 appears to provide lenders with
a beneficial safe harbor, while the OTS Preemption Regulation appears to
preempt state laws that impose regulations or restrictions on lenders.
Regardless, we mention the Illinois Collateral Protection Act not for its own
legal force but as evidence that Illinois public policy does not regard
lenders as being subject to divided loyalties when they act to insure their
collateral.
No. 11-3422                                                     21

The commission for the lender-placed insurance was not a
kickback in any meaningful sense.
    Accordingly, Schilke failed to state a claim for violation of
the Consumer Fraud Act. The claims for conspiracy, aiding and
abetting, and acting “in concert” to violate the Act are deriva-
tive and thus necessarily also fail.

   2. Breach of Contract
    The complaint alleges that Wachovia is liable for breach of
contract because “there is no provision in the mortgage
agreement allowing Wachovia to receive kickbacks.” Again,
the use of the pejorative term “kickback” is not meaningful
here. Nothing in the loan agreement and related documents
prohibits Wachovia and its insurance-agency affiliate from
receiving a fee or commission when lender-placed insurance
becomes necessary. To the contrary, the loan agreement and
related notices and disclosures specifically contemplate this,
and warned Schilke accordingly.
   To the extent that Schilke’s breach-of-contract claim rests on
the duty of good faith that is implicit in every contract, it still
misses the mark. The implied duty of good faith has been
helpfully described as follows:
          Contract law does not require parties to
       behave altruistically toward each other; it does
       not proceed on the philosophy that I am my
       brother’s keeper. That philosophy may animate
       the law of fiduciary obligations but parties to a
       contract are not each other’s fiduciaries … .
22                                                   No. 11-3422

       Contract law imposes a duty, not to “be reason-
       able,” but to avoid taking advantage of gaps in a
       contract in order to exploit the vulnerabilities
       that arise when contractual performance is
       sequential rather than simultaneous. Suppose A
       hires B to paint his portrait to his satisfaction,
       and B paints it and A in fact is satisfied but says
       he is not in the hope of chivvying down the
       agreed-upon price because the portrait may be
       unsaleable to anyone else. This … would be bad
       faith, not because any provision of the contract
       was unreasonable and had to be reformed but
       because a provision had been invoked dishonestly to
       achieve a purpose contrary to that for which the
       contract had been made.
Original Great Am. Chocolate Chip Cookie Co. v. River Valley
Cookies Ltd., 970 F.2d 273, 280 (7th Cir. 1992) (emphasis added)
(citations omitted) (applying Illinois law).
    Schilke’s complaint might be loosely read to allege this kind
of bad faith, but it does not do so plausibly, as Iqbal and
Twombly require. Iqbal, 556 U.S. at 680; Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 557 (2007). Under the plausibility
standard explained in Iqbal and Twombly, it’s not enough to
“plead[] facts that are ‘merely consistent with’ a defendant’s
liability.’ ” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at
557)). The complaint must allege “more than a sheer possibility
that a defendant has acted unlawfully.” Id. When the allega-
tions are “not only compatible with, but indeed [are] more
No. 11-3422                                                  23

likely explained by, lawful” conduct, the complaint fails to
state a plausible claim for relief. Id. at 680.
    Wachovia’s various notices and disclosures clearly warned
Schilke that lender-placed insurance could cost up to five times
more than a borrower’s self-purchased policy. The bank
continuously reminded her that she could avoid this expensive
alternative by restoring her own insurance coverage for the
property—even retroactively—and receive a pro rata refund of
the lender-placed insurance premium. On these facts any claim
that Wachovia dealt with Schilke in bad faith is not plausible.
    Schilke’s contract claim is also premised on Wachovia’s
practice of backdating the lender-placed insurance to the date
the borrower’s policy lapsed. Again, nothing in the loan
agreement prohibits this. Indeed, the loan agreement and
related documents required Schilke to maintain continuous
insurance coverage on her home, and reserved to the lender
the right to do “whatever it deems reasonable or appropriate
to protect the [l]ender’s rights in the [p]roperty,” including
purchasing insurance if the borrower’s own coverage lapses.
This broad language includes the purchase of backdated
insurance, which is necessary to maintain continuous hazard
coverage on the property.
    Schilke alleges that the defendants backdated the replace-
ment coverage when they “knew full well” that “no loss …
could have been claimed on the insurance policies.” This
allegation is conclusory and unaccompanied by any factual
content to make it plausible. How could Wachovia or ASI
know—either in Schilke’s case or in the case of any particular
24                                                    No. 11-3422

borrower—whether or not a property loss had occurred during
the lapse period? Schilke doesn’t say.
    Finally, the complaint alleges a related claim against ASI for
intentional interference with contract. A claim for intentional
interference with contract requires that the defendant inten-
tionally and unjustly induced another to breach a contract with
the plaintiff. See Grund v. Donegan, 700 N.E.2d 157, 160 (Ill.
App. Ct. 1998). Because Schilke has not alleged a viable breach-
of-contract claim against Wachovia, her claim for intentional
interference with contract against ASI necessarily fails.

     3. Fraud
    Schilke’s fraud claim alleges that Wachovia “had a duty to
disclose that the ‘insurance premiums’ charged to [p]laintiff
and the [c]lass contained substantial kickbacks, but failed to do
so.” Once again, Schilke’s premise that the commission was a
kickback is faulty; for the sake of argument, we will set that
point aside and take the claim at face value. In Illinois, as
elsewhere, the elements of a common-law fraud claim are:
“(1) a false statement of material fact; (2) defendant’s knowl-
edge that the statement was false; (3) defendant’s intent that
the statement induce the plaintiff to act; (4) plaintiff’s reliance
upon the truth of the statement; and (5) plaintiff’s damages
resulting from reliance on the statement.” Connick v. Suzuki
Motor Co., 675 N.E.2d 584, 591 (Ill. 1996); see also Wigod,
673 F.3d at 569.
    The complaint does not allege that Wachovia made a false
statement of material fact; instead, the fraud claim rests on an
No. 11-3422                                                   25

alleged omission of material fact. In Illinois omissions are
actionable as fraudulent concealment, but only in limited
circumstances. See Wigod, 673 F.3d at 571–72. In place of the
false-representation element of the claim, fraudulent conceal-
ment requires
       that the defendant concealed a material fact
       when he was under a duty to disclose that fact to
       plaintiff. A duty to disclose a material fact may
       arise out of several situations. First, if plaintiff
       and defendant are in a fiduciary or confidential
       relationship, then defendant is under a duty to
       disclose all material facts. Second, a duty to
       disclose material facts may arise out of a situa-
       tion where plaintiff places trust and confidence
       in defendant, thereby placing defendant in a
       position of influence and superiority over plain-
       tiff. This position of superiority may arise by
       reason of friendship, agency, or experience.
Connick, 675 N.E.2d at 593 (citations omitted).
    The complaint alleges no facts or circumstances to support
a finding of a duty to disclose. There are no allegations of any
kind of special relationship between the parties. Neither
Wachovia nor ASI was a fiduciary or agent for Schilke, nor did
they have a relationship of trust with her. The parties operated
at arm’s length.
    Nor has Schilke adequately pleaded causation or damages.
She weaves several theories of causation and damage through-
out the different iterations of the complaint, but are all varia-
tions on the same theme. The following are representative:
26                                                   No. 11-3422

     • “Plaintiff and the [c]lass … relied on the misrep-
       resentations in good faith and to [her] detriment
       and [has] been prejudiced by making payments
       to [d]efendants which consisted of hidden kick-
       backs.”
     • “Plaintiff and the [c]lass were never informed by
       [d]efendants that less than full payment was
       acceptable without incurring above-mentioned
       consequences [declaration of default and institu-
       tion of foreclosure proceedings] and hence the
       [p]aintiff and the [c]ass believed that if the total
       amount was not tendered to [d]efendants, the
       above adverse consequences would result.”
     • Because of the alleged omission, “[p]laintiff
       h[ad] no way to negotiate the terms of any ‘insur-
       ance premiums.’ ”
    The common premise underlying these allegations is that
if Schilke had known of the supposed kickbacks, she would not
have paid the premiums for the lender-placed insurance. But
Wachovia was authorized by the loan agreement to impose
these charges and Schilke was obligated to pay them. Her
theory of damages seems to be that had she known the charges
were really kickbacks, she would have breached her contrac-
tual duty to pay. That is senseless. Losing an opportunity to
breach a contract cannot constitute a cognizable fraud harm.
No. 11-3422                                                    27

   4. Conversion
    The complaint alleges that the defendants are liable for
conversion because they collected insurance premiums that
included kickbacks. In Illinois
       a proper complaint for conversion must allege:
       (1) an unauthorized and wrongful assumption of
       control, dominion, or ownership by defendant
       over plaintiff’s personalty; (2) plaintiff’s right in
       the property; (3) plaintiff’s right to the immedi-
       ate possession of the property, absolutely and
       unconditionally; and (4) a demand for possession
       of the property.
Gen. Motors Corp. v. Douglass, 565 N.E.2d 93, 97 (Ill. App. Ct.
1990). The Illinois Supreme Court has further explained that
       the subject of conversion is required to be an
       identifiable object of property of which the
       plaintiff was wrongfully deprived. Money may
       be the subject of conversion, but it must be
       capable of being described as a specific chattel,
       although it is not necessary for purposes of
       identification that money should be specifically
       earmarked. However, an action for the conver-
       sion of funds may not be maintained to satisfy a
       mere obligation to pay money.
In re Thebus, 483 N.E.2d 1258, 1260 (Ill. 1985). A cause of action
for conversion does not lie where the plaintiff “voluntarily,
albeit mistakenly, transferred money.” Douglass, 565 N.E.2d
at 100.
28                                                   No. 11-3422

    There are many problems with Schilke’s conversion claim.
First, to the extent that her theory of conversion rests on
allegations of deception, it fails for the reasons we have already
explained. There was no hiding the fact that lender-placed
insurance would be more expensive than owner-purchased
insurance and that the premiums could include a commission
or fee to the lender. In addition, Schilke has not alleged a right
to the property, let alone a “right to the immediate possession
of the property, absolutely and unconditionally.” Id. at 97. Nor
has she alleged that she is seeking the return of the kind of
readily identifiable chattel that is the proper subject of a
conversion action. Rather, she simply seeks payment of an
alleged debt. See id. at 97–101 (no action for conversion lies
where the plaintiff seeks return of excess money mistakenly
remitted to defendant by check). Finally, she has not alleged
that she paid the premium involuntarily or that she made a
demand for possession of payments made.

     5. Unjust Enrichment
   Finally, the complaint alleges that Wachovia unjustly
enriched itself by retaining the commission—again, recast as a
kickback—for the lender-placed insurance. We reiterate one
more time that the “kickback” premise doesn’t hold up, but
even if we were to accept it, an unjust-enrichment claim is not
viable here.
   In Illinois recovery for unjust enrichment is unavailable
where the conduct at issue is the subject of an express contract
between the plaintiff and defendant. Guinn v. Hoskins Chevrolet,
836 N.E.2d 681, 704 (Ill. App. Ct. 2005); Nesby v. Country Mut.
No. 11-3422                                                      29

Ins. Co., 805 N.E.2d 241, 243 (Ill. App. Ct. 2004) (“Where there
is a specific contract that governs the relationship of the parties,
the doctrine of unjust enrichment has no application.”). There
are two related reasons for this rule. First, “[t]he theory of
unjust enrichment is an equitable remedy based upon a
contract implied in law.” Nesby, 805 N.E.2d at 243. If an express
contract exists to govern the parties’ conduct, then there is no
room for an implied contract. Second, “[b]ecause it is an
equitable remedy, unjust enrichment is only available when
there is no adequate remedy at law.” Id. The first reason may
be regarded as a specific application of the second reason—no
implied contract can exist where an express one governs
because no equitable remedy can lie where a legal one is
available.
    Of course, “a party may plead claims in the alternative, i.e.,
she may plead a claim for breach of contract as well as unjust
enrichment.” Guinn, 836 N.E.2d at 704. But the inconsistent-
pleading option in this context is limited. A plaintiff may plead
as follows: (1) there is an express contract, and the defendant
is liable for breach of it; and (2) if there is not an express
contract, then the defendant is liable for unjustly enriching
himself at my expense. That’s not what Schilke is alleging here.
She acknowledges throughout that there is an express contract.
She claims that Wachovia is liable for breaching this express
contract but that if it did not breach the contract, then it owes
damages for unjust enriching itself. This manner of pleading
unjust enrichment is impermissible: “ ‘[W]hile [a] plaintiff may
plead breach of contract in one count and unjust enrichment
and promissory estoppel in others, it may not include allega-
tions of an express contract which governs the relationship of
30                                                   No. 11-3422

the parties, in the counts for unjust enrichment and promissory
estoppel.’ ” Id. (quoting The Sharrow Grp. v. Zausa Dev. Corp.,
No. 04 C 6379, 2004 WL 2806193, at *3 (N.D. Ill. Dec. 6, 2004)).
    Because an unjust-enrichment claim against Wachovia is
unavailable, the derivative claims against ASI for conspiracy,
acting “in concert,” and aiding and abetting Wachovia’s unjust
enrichment are also unavailable. To the extent that the com-
plaint asserts a direct unjust-enrichment claim against ASI, it
founders on Schilke’s faulty theory of deception, which is no
stronger in this context than it is in any of her other claims for
relief. If anything, the theory is doubly deficient as a claim
against ASI because the insurer did not communicate with
Schilke until after Wachovia purchased the insurance.

                                                      AFFIRMED .