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Dolegiewicz v. U.S. Bank Trust, N.A.

United States District Court, N.D. Illinois, Eastern Division

February 8, 2018

MARIUSZ DOLEGIEWICZ, Individually and on behalf of all others similarly situated, Plaintiff,
U.S. BANK TRUST, N.A., as Trustee for LSF9 Master Participation Trust; and CALIBER HOME LOANS, INC., a Delaware Corporation, Defendants.


          Harry D. Leinenweber, Judge United States District Court.

         I. BACKGROUND

         The Plaintiff, Mariusz Dolegiewicz (“Plaintiff”), defaulted on his mortgage loan by failing to make the required payments and failing to maintain casualty insurance coverage. The loan is owned by U.S. Bank Trust, N.A. (“Trustee”) and serviced by Caliber Home Loans, Inc. (“Caliber”) (collectively, the “Defendants”). Caliber, as it was authorized to do under the mortgage and note, purchased “lender placed insurance” and ordered periodic property inspections. “Lender placed insurance is exactly what it sounds like: insurance purchased by the lender to provide protection for the mortgaged property. Plaintiff acknowledges that Defendants were within their rights to obtain insurance and make inspections, but contends that Defendants overcharged him for insurance which he says amounts to an illegal “kickback.” The kickbacks, according to the Complaint, were in the form of unearned commissions, false expense reimbursements, payment of reinsurance premiums with no transfer of risk, and performance of services at no charge. Plaintiff also alleges that the Defendants charged him fees for unnecessary inspections, and fees for inspections that did not occur. Based on the forgoing, Plaintiff has filed a five-count putative class action Complaint charging: (1) breach of contract (Count I); (2) implied covenant of good faith and fair dealing (Count II); (3) unjust enrichment (Count III); (4) truth in lending (Count IV); and (5) Federal Debt Collection Practices Act (Count V).


         A. Count I - Breach of Contract

         Defendant has filed a Motion to Dismiss based in large part on the Seventh Circuit case of Cohen v. American Security Insurance Co., 735 F.3d 601 (7th Cir. 2015). In this case, the plaintiff, like the Plaintiff here, did not make his mortgage payments and did not maintain casualty insurance on his mortgaged property. The defendant, as the Defendants did here, obtained lender placed insurance with an affiliate, and charged him for the premiums. As is the case here, the premiums charged were substantially higher than what the plaintiff had been paying. The plaintiff, as does the Plaintiff here, contended that the excessive premium amounted to an illegal kickback. (One difference between Cohen and this case is that Cohen charged the defendants with statutory consumer, common law fraud, and breach of contract, while the Plaintiff in this case did not charge the Defendants with either type of fraud but only with breach of contract. As we shall see, it doesn't make any difference.)

         The Seventh Circuit affirmed the trial court's dismissal for the reason that “[the plaintiff] failed to state any viable claim for relief” which included both fraud and breach of contract. With regard to the plaintiff's allegation that the excessive premium constituted an illegal kickback, the court had this to say:

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 Morgtagee Clause to 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.” (Emphasis 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 would be much more expensive than her own insurance coverage. 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. The commission for the lender-placed insurance was not a kick back in any meaningful sense.

         This proved to be important to the Seventh Circuit when it ruled on the claim for breach of contract. First the court noted that plaintiff based his claim of breach by asserting “that there was no prevision in the mortgage agreement allowing Wachovia [the lender] to receive kickbacks.” Then it noted that plaintiff's claim “might loosely be read to allege . . . bad faith, but it does not do so plausibly, ” which put the claim in violation of the plausibility standard explained in Iqbal and Twombly, See, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         Here, as in Cohen, Defendants had a contractual right to obtain insurance in the event the mortgagor failed to do so. The Plaintiff, the mortgagor here, did not do so after multiple notices, which included the warning, similar to those Cohen received, that the cost of insurance would be considerably higher than Plaintiff could himself purchase and he would not receive the same coverage. He was further advised that Defendants would receive (or pay) a commission which would be chargeable to him. He failed to heed the warnings so Defendants purchased insurance to protect their interest in the property.

         While Plaintiff argues that this is notice pleading so it is not necessary for him to go into great detail as to the kickback allegations, nevertheless the Seventh Circuit noted, to satisfy Iqbal and Twombly, it is necessary to state facts that are more than consistent with a defendant's liability. Here the sum and substance of the Plaintiff's kickback allegations are:

1. The “forced-placed” insurance is not individually under written and is placed without regard to the borrower's ability to afford the coverage (Paragraph 13);
2. The borrowers have no say in selection of policies or insurers (Paragraph 14);
3. The insurance charges are exorbitant, higher than what a borrower would expect to pay and are less ...

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