Court Opinion

ID: 2819107
Source: CourtListenerOpinion
Date Created: 2015-07-22 15:00:39.671808+00
Date Added: 2024-06-11T11:30:50.682804
License: Public Domain

14-2250-cv
Rothstein v. Balboa Insurance Co.

                             UNITED STATES COURT OF APPEALS

                                     FOR THE SECOND CIRCUIT

                                              August Term, 2014

                          (Argued: May 1, 2015                Decided: July 22, 2015)

                                            Docket No. 14-2250-cv

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LANDON ROTHSTEIN, individually and on
behalf of all others similarly situated, ROBERT
DAVIDSON, IHOR KOBRYN, individually and
on behalf of all others similarly situated,
JENNIFER DAVIDSON,

                            Plaintiffs-Appellees,

                  - v.-

BALBOA INSURANCE COMPANY, NEWPORT
MANAGEMENT CORPORATION, MERITPLAN
INSURANCE COMPANY,

                            Defendants-Appellants,

GMAC MORTGAGE, LLC, f/k/a GMAC
MORTGAGE CORPORATION, GMAC
INSURANCE MARKETING, INC., d/b/a GMAC
AGENCY MARKETING, JOHN DOES 1-20,
ALLY FINANCIAL, INC., f/k/a GMAC, INC.,
ALLY BANK, f/k/a GMAC BANK, JOHN DOE
CORPORATION, PRAETORIAN INSURANCE
COMPANY, QBE FIRST INSURANCE AGENCY,
INC., QBE INSURANCE CORPORATION, QBE
SPECIALTY INSURANCE COMPANY,

                            Defendants.

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         Before:                     JACOBS, HALL, and LYNCH, Circuit Judges.

         Defendants Balboa Insurance Company, Newport Management

Corporation, and MeritPlan Insurance Company appeal from the order of the

United States District Court for the Southern District of New York (Nathan, J.),

denying in part their motion to dismiss. The plaintiffs, borrowers who failed to

maintain hazard insurance on their mortgaged properties, claim that they were

overcharged by their loan servicer for lender-placed insurance sold by the

defendants. We conclude that the claims are barred by the filed rate doctrine.

         Reversed and remanded.

                                                        ROSS E. MORRISON (Robyn C. Quattrone
                                                        and Katherine L. Halliday, BuckleySandler
                                                        LLP, Washington, D.C., John C. Englander,
                                                        Goodwin Procter LLP, Boston,
                                                        Massachusetts, Brian T. Burgess, Goodwin
                                                        Procter LLP, Washington, D.C., on the
                                                        brief), BuckleySandler LLP, New York,
                                                        New York, for Defendants-Appellants.

                                                            2
                                      MARK A. STRAUSS (Thomas W. Elrod, on
                                      the brief), Kirby McInerney LLP, New
                                      York, New York, for Plaintiffs-Appellees.

                                      Frank G. Burt, Denise A. Fee, W. Glenn
                                      Merten, and Brian P. Perryman, Carlton
                                      Fields Jorden Burt, P.A., Washington, D.C.,
                                      for Amicus Curiae American Security
                                      Insurance Company.

DENNIS JACOBS, Circuit Judge:

      Plaintiffs are borrowers who failed to purchase hazard insurance on their

mortgaged properties, as required by the terms of their loan agreements. Their

loan servicer, GMAC Mortgage LLC (“GMAC”), bought lender-placed insurance

(“LPI”) from Balboa Insurance Company and MeritPlan Insurance Company

(together, “Balboa”) at rates that were approved by regulators. GMAC then

sought reimbursement from Plaintiffs at those same rates.

      Plaintiffs allege that they were fraudulently overbilled because the rates

they were charged did not reflect secret “rebates” and “kickbacks” that GMAC

received from Balboa through Balboa’s affiliate, Newport Management

Corporation (“Newport”). They sued GMAC and various affiliates, Balboa, and

Newport in the United States District Court for the Southern District of New

York (Nathan, J.), alleging, inter alia, claims under the Racketeer Influenced and

                                         3
Corrupt Organizations Act (“RICO”) and the Real Estate Settlement Procedures

Act (“RESPA”). The claims against all defendants except Balboa and Newport

were settled.

      Balboa and Newport moved to dismiss under the filed rate doctrine,

arguing that Plaintiffs could not sue to challenge LPI rates approved by

regulators. The district court denied the motion in relevant part, reasoning that

although Balboa received regulatory approval for the LPI rates it charged to

GMAC, that approval did not necessarily extend to the borrowers’

reimbursement to GMAC. Noting a conflict of authority on this issue, the court

certified its decision for interlocutory appeal.

      We hold that a claim challenging a regulator-approved rate is subject to the

filed rate doctrine whether or not the rate is passed through an intermediary.

The claim is therefore barred if it would undermine the regulator’s rate-setting

authority or operate to give the suing ratepayer a preferential rate. Applying this

analysis, we conclude that Plaintiffs’ claims are barred and, accordingly, reverse

and remand for dismissal of the case.

                                          4
                                  BACKGROUND

      The purchase of residential property is often financed through a mortgage

loan secured by the subject property. Until repayment of the loan, the lender

holds a security interest in the property (i.e., the mortgage) in the unpaid

amount. To mitigate the risk that the mortgaged property will be damaged or

destroyed before the loan is repaid, the lender can require the borrower to

maintain hazard insurance sufficient to cover the lender’s interest.

      In a typical mortgage loan arrangement, if the borrower fails to maintain

adequate hazard insurance, the lender can purchase insurance on the borrower’s

behalf and then seek reimbursement from the borrower. Such lender-placed

insurance, or LPI, can be more expensive than ordinary hazard insurance and

does not necessarily cover the borrower’s interest in the property.

      Lenders seldom hold or manage individual mortgage loans. Such loans

are typically securitized through the transfer of title to a trust that pools the loans

together and issues securities backed by the mortgages in the pool (“residential

mortgage-backed securities”). The trust also contracts with a loan servicer, such

as GMAC, to service the loans on a day-to-day basis. Among other

responsibilities, the servicer must ensure that borrowers maintain contractually

                                           5
required hazard insurance and, if necessary, the servicer must purchase LPI from

an insurer, such as Balboa.

      Plaintiffs’ residential properties in Texas, New Hampshire, and New York

were financed with mortgage loans serviced by GMAC. Plaintiffs each signed a

loan agreement requiring hazard insurance on the mortgaged property and

warning that the lender would be entitled to purchase LPI if hazard insurance

was not maintained. Plaintiff Landon Rothstein’s agreement was typical:

            Borrower shall keep . . . the Property insured against loss by
            fire, hazards included within the term “extended coverage,”
            and any other hazards . . . for which Lender requires
            insurance. . . .

            If Borrower fails to maintain any of the coverages described
            above, Lender may obtain insurance coverage, at Lender’s
            option and Borrower’s expense. . . . [S]uch coverage shall
            cover Lender, but might or might not protect Borrower,
            Borrower’s equity in the Property, or the contents of the
            Property, against any risk, hazard or liability and might
            provide greater or lesser coverage than was previously in
            effect. . . .

Second Am. Compl. ¶ 48 (emphasis omitted).

      Plaintiffs failed to maintain adequate hazard insurance. Consequently,

GMAC acquired LPI from Balboa. Before and after the acquisition of LPI,

Plaintiffs were advised in writing that they would be required to reimburse

                                        6
GMAC for the cost of LPI. GMAC bought LPI from Balboa at rates approved by

state insurance regulators.1 See Tex. Ins. Code § 2251.152; N.H. Rev. Stat.

§ 412:16(XII); N.Y. Ins. Law. § 2314. GMAC then sought reimbursement from

Plaintiffs at those same rates.

       Plaintiffs allege that the amounts billed by GMAC were inflated because

they did not reflect hidden “rebates” that GMAC received from Balboa through a

“kickback scheme.” Second Am. Compl. ¶¶ 67-72. The alleged scheme is that

GMAC agreed to buy LPI exclusively from Balboa and, in return, Balboa agreed

to provide GMAC with loan tracking services through an affiliate, Newport. The

services performed by Newport--including the identification of borrowers who

defaulted on the duty to obtain hazard insurance--offset GMAC’s expenses by

relieving GMAC of the obligation to do those things itself. Because Balboa

provided Newport’s services as a quid pro quo for GMAC’s LPI business,

Plaintiffs characterize Newport’s services as, in effect, a discount on LPI from the

filed rates approved by regulators. Since GMAC still billed Plaintiffs at the filed

rates, it retained for itself the entire benefit of that discount.

   1
      Those regulators are the Texas Department of Insurance, the New
Hampshire Insurance Department, and the New York State Department of
Financial Services.

                                            7
      In April 2012, Plaintiffs filed a complaint against GMAC and affiliated

entities, Balboa, and Newport, on behalf of a putative class of mortgage loan

borrowers who were charged for LPI by GMAC. When GMAC filed for Chapter

11 bankruptcy a month later, Plaintiffs withdrew their suit as to GMAC and filed

claims in bankruptcy. Plaintiffs and GMAC later reached a settlement in

principle resolving claims against GMAC (and certain affiliates) in exchange for a

$13 million unsecured claim in favor of Plaintiffs and the putative class in the

bankruptcy. Only the claims against Balboa and Newport are at issue in this

appeal.

      The relevant complaint--the Second Amended Complaint filed in January

2013--alleges substantive and conspiracy claims under RICO based on predicate

acts of wire fraud, mail fraud, and extortion, as well as a RESPA claim.2 Balboa

and Newport moved to dismiss, arguing that the claims were barred by the filed

rate doctrine and, moreover, inadequately pleaded.

      The district court granted the motion in part and denied it in part. The

court: (1) rejected the argument that the filed rate doctrine barred the claims,

  2
       Plaintiffs have since filed a Third Amended Complaint not materially
different from the Second Amended Complaint.

                                          8
(2) concluded that the RICO claims were adequately pleaded, and (3) dismissed

the RESPA claim as inadequately pleaded. Rothstein v. GMAC Mortg., LLC, No.

12 Civ. 3412 (AJN), 2013 WL 5437648, at *20 (S.D.N.Y. Sept. 30, 2013). The court

concluded that the filed rate doctrine did not apply because Plaintiffs were not

direct customers of the rate filer, Balboa. Id. at *6-9. It observed, however, that

the issue was a close call and that there was no direct case law in this circuit and

conflicting authority elsewhere. Id.; see also Rothstein v. GMAC Mortg., LLC,

No. 12 Civ. 3412 (AJN), 2014 WL 1329132, at *2 (S.D.N.Y. Apr. 3, 2014).

         Balboa and Newport’s motion for interlocutory appeal was granted.3 The

principal issue on appeal--and the only issue we decide--is whether the filed rate

doctrine bars Plaintiffs’ claims.

                                    DISCUSSION

         We review de novo the denial of a motion to dismiss under Rule 12(b)(6).

Woods v. Rondout Valley Cent. Sch. Dist. Bd. of Educ., 466 F.3d 232, 235 (2d Cir.

2006).

   3
      American Security Insurance Co. filed an amicus curiae brief in support of
Balboa and Newport.

                                          9
                                          I

      Under the filed rate doctrine, “any ‘filed rate’--that is, one approved by the

governing regulatory agency--is per se reasonable and unassailable in judicial

proceedings brought by ratepayers.” Wegoland Ltd. v. NYNEX Corp., 27 F.3d

17, 18 (2d Cir. 1994). The doctrine is grounded on two rationales: first, that courts

should not “undermine[] agency rate-making authority” by upsetting approved

rates (the principle of “nonjusticiability”); and, second, that litigation should not

become a means for certain ratepayers to obtain preferential rates (the principle

of “nondiscrimination”). Marcus v. AT&T Corp., 138 F.3d 46, 58, 61 (2d Cir.

1998); see generally Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156 (1922).

      The doctrine reaches both federal and state causes of action and protects

rates approved by federal or state regulators. Wegoland, 27 F.3d at 20. Its

application does not “depend on the nature of the cause of action the plaintiff

seeks to bring” or “the culpability of the defendant’s conduct or the possibility of

inequitable results.” Marcus, 138 F.3d at 58. Whenever a ratepayer’s claim

against a rate filer would implicate either the nonjusticiability principle or the

nondiscrimination principle, it is barred. Id. at 59.

                                          10
                                         II

      It is undisputed that Balboa’s LPI rates were filed with regulators and that

Plaintiffs were billed at those same rates by GMAC. We therefore ask whether

Plaintiffs’ claims would offend either the nonjusticiability principle or the

nondiscrimination principle. Marcus, 138 F.3d at 59. We conclude that both

principles bar the claims.

                                         A

      The nonjusticiability principle arises out of the recognition that--unlike

regulators, who “employ their peculiar expertise to consider the whole picture

regarding the reasonableness of a proposed rate”--courts are “simply ill-suited”

to decide whether a rate is appropriate. Wegoland, 27 F.3d at 21. Accordingly,

courts must not “systematically second guess the regulators’ decisions and

overlay their own resolution.” Id. The doctrine “prevents more than judicial

rate-setting; it precludes any judicial action which undermines agency

rate-making authority.” Marcus, 138 F.3d at 61. Thus, a claim may be barred

even if it can be characterized as challenging something other than the rate itself.

Id.; see also Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479, 489 (2d Cir.

1998) (rejecting plaintiff’s “attempts to recharacterize its argument in order to

                                         11
avoid the harsh inequities occasioned by application of the filed rate doctrine”);

Wegoland, 27 F.3d at 21 (“The fact that the remedy sought can be characterized

as damages for fraud does not negate the fact that the court would be

determining the reasonableness of rates.” (emphasis and internal quotation

marks omitted)).

      Plainly, Plaintiffs’ claims would undermine the rate-making authority of

the state insurance regulators who approved Balboa’s LPI rates. The theory

behind the claims is that Plaintiffs were overbilled when they were charged the

full LPI rates (which were approved by regulators), instead of lower rates net of

the value of loan tracking services provided by Newport.4 That theory can

succeed only if the arrangement with Newport should have been treated as part

and parcel of the LPI transaction and reflected in the LPI rates. But, under the

nonjusticiability principle, it is squarely for the regulators to say what should or

should not be included in a filed rate. Wegoland, 27 F.3d at 21.

  4
      Notwithstanding their use of the pejorative “kickback,” Plaintiffs do not
appear to argue that it was illegal for Balboa to render services without charge to
GMAC. It is hardly uncommon for insurers to render policyholders free services,
such as inspections, appraisals, and so forth.

                                         12
      The parallel with Wegoland is instructive. The Wegoland plaintiffs alleged

that the rate filers bought certain products and services from their own

subsidiaries at artificially inflated prices, and then relied on the inflated prices to

obtain regulatory approval of higher rates to consumers. 27 F.3d at 18. As in this

case, the plaintiffs argued that the filed rate doctrine did not bar their claims

because they were attacking the fraudulent scheme, not the rates themselves. Id.

at 21. We rejected that argument: “‘[A]ny attempt to determine what part of the

rate previously deemed reasonable was a result of the fraudulent acts would

require determining what rate would have been deemed reasonable absent the

fraudulent acts, and then finding the difference between the two.’” Id. (quoting

Wegoland, Ltd. v. NYNEX Corp., 806 F. Supp. 1112, 1121 (S.D.N.Y. 1992)).

      Plaintiffs’ claims in this appeal likewise rest on the premise that the rates

approved by regulators were too high. After all, if Balboa was willing to offer a

“discount” from the filed rates (through the free services it provided via

Newport), those rates must have been inflated in the first place. But whether

insurer-provided services should have been reflected in the calculation of LPI is

not for us to say; under the nonjusticiability principle, the question is reserved

exclusively to the regulators. Cf. Ark. La. Gas Co. v. Hall, 453 U.S. 571, 578-79

                                          13
(1981) (“[T]he award of a retroactive rate [adjustment] based on speculation

about what the [regulator] might have done had it been faced with the facts of

this case . . . is precisely what the filed rate doctrine forbids.”); Wegoland, 27 F.3d

at 21 (“Apart from participating in the political process and filing complaints

with the regulatory agencies, individual ratepayers simply have no role in

attacking the reasonableness of filed rates. Nor is there room for judicial

intervention in such a case.”).

      Indeed, one of the regulators cited in Plaintiffs’ complaint--the New York

State Department of Financial Services--has already investigated the provision of

loan tracking services by LPI insurers, and adopted a regulation restricting the

practice. N.Y. Comp. Codes R. & Regs. tit. 11 § 227.0(c) (2015) (“The

department’s investigation found that insurers offered financial incentives to

mortgage servicers and their affiliates . . . . In addition, one insurer provided

force-placed insurance on mortgages serviced by an affiliate of the insurer. . . .

Section 227.6 of this Part prohibits these practices.”). Other regulators may wish

to follow suit, or not. Either way, judicial endorsement of Plaintiffs’ claims

would displace and distort the regulatory process.

                                          14
       Thus Plaintiffs’ claims invite judicial meddling in issues of insurance

policy. Because that is forbidden under the principle of nonjusticiability, the

claims are barred.

                                          B

       Plaintiffs’ claims also offend the nondiscrimination principle, under which

challenges to filed rates are barred if “allowing individual ratepayers to attack

the filed rate would undermine the . . . scheme of uniform rate regulation.”

Wegoland, 27 F.3d at 19 (internal quotation marks omitted). The

nondiscrimination principle, like the principle of nonjusticiability, applies even to

claims that purport to seek relief other than a lower rate. See Keogh, 260 U.S. at

163.

       Any damages recovered by these Plaintiffs would operate “like a rebate . . .

to give [them] a preference” over other borrowers who were charged for LPI.

Keogh, 260 U.S. at 163. While non-suing borrowers serviced by GMAC would be

billed at the filed LPI rates, Plaintiffs would enjoy the discount that Newport

allegedly provided to GMAC. The problem is not obviated simply because

Plaintiffs have brought their claims on behalf of a putative class. Sun City

Taxpayers’ Ass’n v. Citizens Utils. Co., 45 F.3d 58, 62 (2d Cir. 1995) (“[T]he filed

                                         15
rate doctrine applies whether or not the plaintiffs are suing for a class.” (internal

quotation marks omitted)); see also Marcus, 138 F.3d at 61 (“[N]ondiscrimination

concerns remain viable even in the context of a class action lawsuit.”).

        Accordingly, Plaintiffs’ claims are barred by the filed rate doctrine for the

separate--and independently sufficient--reason that they would result in

Plaintiffs paying preferential rates for LPI.

                                          III

        The district court did not undertake the usual analysis under the principles

of nonjusticiability and nondiscrimination. Instead, the court held that the filed

rate doctrine does not apply at all because the doctrine addresses only “a simple

A-to-B transaction--in which A, the insurer, approved a rate and charged it to B,”

not the “A-to-B-to-C” arrangement at issue here, in which the insurer billed the

lender and the lender in turn billed the borrower. Rothstein, 2013 WL 5437648, at

*8-9.

        We respectfully disagree. The filed rate doctrine is not limited to

transactions in which the ratepayer deals directly with the rate filer. The doctrine

operates notwithstanding an intermediary that passes along the rate.

                                           16
                                          A

      We have applied the filed rate doctrine to claims by ratepayers who pay

the filed rate through an intermediary. Thus the doctrine was held to bar claims

by “a retail consumer of electricity” against “a producer of electricity.” Simon v.

KeySpan Corp., 694 F.3d 196, 198 (2d Cir. 2012). The defendant (the rate filer)

sold electricity to a retail seller, which in turn sold to consumers, including the

plaintiff Simon; Simon alleged that the rate filer colluded with another producer

to manipulate the rate-setting process. Id. at 198-99. We held that the claims

were barred because the rates were determined through a regulator-approved

auction process, and the regulator found no market manipulation. Id. at 208. In

reaching that result, we attributed no significance to Simon’s purchase of the

electricity through an intermediary; it was enough that he sued the rate filer and

sought to challenge the filed rate. Id. at 204-08; accord Wah Chang v. Duke

Energy Trading & Mktg., LLC, 507 F.3d 1222, 1226 (9th Cir. 2007) (“But, argues

[the plaintiff], its actions differ from others we have considered because it did not

directly purchase wholesale power. Rather, it was a retail customer. That is an

                                          17
asthenic [i.e., weak] distinction at best.”).5

       Nor is there some evident reason why the doctrine should be limited to

direct transactions between the ratepayer and the rate filer. The principles of

nonjusticiability and nondiscrimination have undiminished force even when the

rate has passed through an intermediary.

       As discussed, the nonjusticiability principle is motivated by the concern

that “[a]s compared with the expertise of regulating agencies, courts do not

approach the same level of institutional competence to ascertain reasonable

rates.” Wegoland, 27 F.3d at 21. A court is confronted with a single case,

whereas a regulator can “consider the whole picture” and “make hundreds if not

thousands of discretionary decisions” about overall industry regulation. Id. And

in many industries (such as the energy industry in Simon and Wah Chang as well

   5
       Plaintiffs cite a number of cases for the principle that a filed rate governs
only the transaction “covered” by the rate. E.g., FTC v. Verity Int’l, Ltd., 443 F.3d
48, 62 (2d Cir. 2006) (“We hold that the filed-rate doctrine does not apply in this
case because the defendants-appellants point to no tariff that covers the actual
service rendered to users of their billing system.”); Fla. Mun. Power Agency v.
Fla. Power & Light Co., 64 F.3d 614, 616 (11th Cir. 1995) (“If the gravamen of the
Agency's claim that the two services are distinct and there is no filed network
rate is accurate, then it is clear the doctrine would not confer immunity.”). Those
cases stand for the unremarkable proposition that the approved rate for one
product cannot be invoked as to a different (unregulated) product. Here, there is
a single (regulated) product, LPI, that is routed through an intermediary.

                                           18
as the LPI industry here), the rate-regulated product necessarily passes through

intermediaries before the rate is paid by the ultimate consumer. In such

industries, it would make little sense for the doctrine to apply as between the rate

filer and the intermediaries, but not when it comes to the ultimate ratepayers.

      The nondiscrimination principle avoids the risk that litigation over filed

rates would become a means of obtaining preferential rates, as “victorious

plaintiffs would wind up paying less than non-suing ratepayers.” Wegoland, 27

F.3d at 21; see also Keogh, 260 U.S. at 163. That concern is just as valid when the

ratepayer deals with an intermediary. See Simon, 694 F.3d at 201.

                                         B

      The distinction between an “A-to-B” transaction and an “A-to-B-to-C”

transaction is especially immaterial in the LPI context because LPI travels

invariably “A-to-B-to-C.” The purpose of LPI is to enforce the borrower’s

contractual obligation to maintain adequate hazard insurance; the lender acts on

the borrower’s behalf and in the borrower’s place to “force place” a transaction

that the borrower should have entered.6 Second Am. Compl. ¶¶ 46-48 (internal

  6
      However, the risk calculation in the hazard insurance context may differ
from the calculation in the LPI context. For this reason, LPI often costs more than
ordinary hazard insurance.

                                         19
quotation marks omitted). There are three participants in the transaction

(insurer, lender, borrower), but the lender is a go-between that connects the

insurer (the party selling insurance) to the borrower (the party actually paying

for it). Thus LPI is an A-to-B-to-C transaction that implements a two-party

transaction between the insurer and the borrower.

      Plaintiffs postulate that the lender need not act as a pass-through, and

could theoretically decouple its purchase of LPI from its demand of

reimbursement, for example, by charging the borrower twice (or half) the filed

rate. However, Plaintiffs do not explain how any such action by the lender could

result in liability for the insurer, which would (under any such arrangement) still

be legally compelled to charge the filed rate. In any event, no such facts are

alleged here: according to the Second Amended Complaint, Plaintiffs were billed

the “full purported price” of LPI at the rates filed by Balboa. Second Am. Compl.

¶¶ 69, 110.

                                         C

      The district court interpreted Balboa’s insurance filings to suggest that LPI

rates were approved for imposition on lenders, but not on borrowers: “[T]he

lender pays the insurer for all premium and charges back only those parts of the

                                         20
premium which are allowed to be charged to the borrower.” Rothstein, 2013 WL

5437648, at *8 (quoting Balboa’s New Hampshire filing). But the context matters:

             This insurance is to cover real property when it is required by
             the Mortgage Contract between the lender and the borrower.
             That agreement does not allow the lender to require a
             borrower to pay for coverage on items not mortgaged to
             secure the loan or for coverage that exceeds the coverage
             required in amount or peril by the mortgage contract. This
             program is designed so that the lender pays the insurer for all
             premium and charges back only those parts of the premium which
             are allowed to be charged to the borrower.

A. 595 (emphasis added). The word “allowed” references the allowable scope of

coverage (which must exclude “items not mortgaged to secure the loan” and

“coverage that exceeds the coverage required in amount or peril by the mortgage

contract”); it does not, as the district court believed, prevent the lender from

passing on the full LPI rates (on allowed coverage) to the borrower. If anything,

the quoted sentence suggests that the New Hampshire regulators expressly

contemplated that the approved LPI rates would be “charged to the borrower.”

      Similarly, there is no question that Texas and New York insurance

regulators were well aware that approved LPI rates would be fully borne by

borrowers. See Tex. Dep’t of Ins., Consumer Alert: Force Placed Coverage,

available at http://www.tdi.texas.gov/consumer/documents/forceplaced.pdf (“If

                                         21
you cancel or lose these insurance coverages, your lender will buy an insurance

policy--often called forced placed coverage--and add the cost to your loan payment.”

(emphasis added)); N.Y. Comp. Codes R. & Regs. tit. 11 § 227.0(c) (“In addition,

one insurer provided force-placed insurance on mortgages serviced by an

affiliate of the insurer. These practices . . . artificially inflated premiums charged to

homeowners.” (emphasis added)).

      Thus the quintessentially “A-to-B-to-C” character of LPI transactions was

known to the regulators who approved Balboa’s rates.

                                    CONCLUSION

      For the foregoing reasons, we reverse and remand for dismissal of the case.

                                           22