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Paul F. Gibson v. Chase Home Finance

December 16, 2011


The opinion of the court was delivered by: Steven D. Merryday United States District Judge


Paul F. Gibson alleges (Doc. 34) that Chase Home Finance, LLC, (now merged into JPMorgan Chase Bank, N.A.) wrongfully forced Gibson, a condominium mortgagor, to pay a couple thousand dollars for excessive and duplicative insurance against flood damage. For himself and on behalf of a putative class, Gibson sues Chase Home Finance and JPMorgan Chase Bank and asserts common law claims for breach of contract, for breach of the duty of good faith and fair dealing, for unconscionability, for conversion, and for unjust enrichment, as well as statutory claims for violation of the Florida Deceptive and Unfair Trade Practices Act, the Real Estate Settlement Procedures Act, and the Bank Holding Company Act.

The complaint is littered with conclusory accusations and legal claims, to which Chase gamely responds with a motion to dismiss (Doc. 38) that rushes through arguments, many of which are relegated entirely to one of the motion's twenty-four footnotes. This order aims primarily to coax the parties to trim and focus the issues.

Central to this action is the purpose and application of the National Flood Insurance Act (NFIA), 42 U.S.C. §§ 4001 -- 29. Under the NFIA, a federally regulated lender cannot lend for the purchase of a condominium unit in a "special flood hazard" area unless the unit is covered by flood insurance "in an amount at least equal to" the lesser of "the outstanding principal balance of the loan or the maximum limit of coverage [] available under the [NFIA]," which for a condominium unit is $250,000. 42 U.S.C. §§ 4012a(b)(1), 4013(b)(2); 44 C.F.R. § 61.6(b); see Audler v. CBC Innovis Inc., 519 F.3d 239, 245 (5th Cir. 2008). No one claims that Gibson's condominium unit was outside a special flood hazard area when the disputed force-placing of flood insurance began.

Although the complaint is at points vague, repetitive, and circuitous, the basic facts alleged are these. In 2007, Gibson purchased a condominium unit with a mortgage that JPMorgan Chase held and that Chase Home Finance serviced. (Henceforth the defendants are referred to collectively as "Chase." The distinction between the two is not material at this stage of the litigation.) Section 5 of the mortgage (Doc. 34, Ex. 1), which is attached to the complaint, requires Gibson to maintain flood insurance for the unit and states:

This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. What Lender requires . . . can change during the term of the Loan. The insurance carrier providing the insurance shall be chosen by Borrower subject to the Lender's right to disapprove Borrower's choice, which right shall not be exercised unreasonably. . . .

If Borrower fails to maintain any of the coverage described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. . . . Borrower acknowledges that the cost of insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained.

Also attached to the complaint, a rider to the mortgage (Doc. 34, Ex. 3), Section B, provides that Gibson may satisfy the flood insurance requirement with an owners' association policy "satisfactory to the Lender," although only "to the extent" that an owners' association policy provides the coverage that the Lender requires.

Each year Chase requested proof of sufficient flood insurance on Gibson's unit. In 2007, 2008, and 2009, Gibson sent Chase a copy of his building's flood insurance policy, which Chase accepted as proof of sufficient coverage. In March, 2010, Chase rejected the building's flood insurance as insufficient, and a few weeks later Chase forced on Gibson a $250,000 flood insurance policy that in Chase's view raised the coverage on Gibson's unit to a sufficient amount. The annual cost of the policy, $7,680, was charged to an escrow account that Gibson kept with Chase. After the force-placement, Gibson quickly sent Chase another copy of his building's flood insurance policy, and Chase cancelled the additional insurance and removed the charge from the escrow account. Less than two weeks later -- the end of April, 2010 -- Chase again charged Gibson for $250,000 in flood insurance, this time for $7,800. In July, 2010, Gibson obtained $147,000 in coverage (cost, $2,015). Chase again cancelled the additional insurance, only to charge Gibson for extra insurance a third time in August, 2010, in this instance for $152,913 in coverage at a cost of $4,697. In early 2011, Chase cancelled the third force-placement but on several occasions asked Gibson for proof of sufficient flood insurance. Chase claimed that Gibson's coverage remained insufficient. The force-placement cycle occurred a final time; Chase listed a $4,742 charge in Gibson's escrow account for flood insurance, removed the charge, and in April, 2011, informed Gibson that his flood insurance was insufficient by $152,913.

In sum, if Gibson's factual allegations are true, Chase repeatedly placed but always removed from Gibson's account a charge for flood insurance, Gibson paid a $2,015 charge for third-party flood insurance, and Chase gained a small sum of interest on money temporarily in Gibson's escrow account. (Doc. 34, ¶ 231) (The claim that Chase gained interest is confusing because Gibson never alleges that he paid a flood insurance charge listed in the escrow account.)

Chase moves to dismiss most claims for lack of jurisdiction on the ground that Chase's reversal of each charge for additional flood insurance leaves Gibson without a redressable injury-in-fact. The argument is unconvincing. Gibson suffers a redressable injury for all but two of the claims if he was and is wrongfully forced to pay the $2,015 annual charge for flood insurance from a third-party. The two exceptions are the conversion and unjust enrichment claims, which seek the disgorgement of money that Chase wrongfully gained. Nominal damages and interest compensate for a temporary conversion or unjust enrichment. Montage Group, Ltd. v. Athle-Tech Computer Sys., Inc., 889 So.2d 180, 199 (Fla. 2d DCA 2004); 12 Fla. Jur. 2d Conversion and Replevin § 33; 18 Am. Jur. 2d Conversion §§ 132, 134. Dismissal of a claim for lack of jurisdiction is not yet warranted.

Gibson orients the complaint around the allegation that Chase repeatedly forced Gibson to purchase more than the NFIA's $250,000 coverage limit in flood insurance. This seems misguided. Because the NFIA's main purpose is "to reduce . . . the massive burden on the federal fisc of [] ever-increasing federal flood disaster assistance," Till v. Unifirst Fed. Sav. and Loan Ass'n, 653 F.2d 152, 159 (5th Cir. Aug. 7, 1981), "every single federal court to consider whether a federal private right of action arises under section 4012a has concluded that the federal treasury, not individual mortgagors [], is the class the statute intends to protect." Wentwood Woodside I, LP v. GMAC Commercial Mortg. Corp., 419 F.3d 310, 323 (5th Cir. 2005) (citing the Fourth, Fifth, Seventh, and Eighth Circuits); Custer v. Homeside Lending, Inc., 858 So.2d 233, 244-46 (Ala. 2003). The NFIA, which aims in part to protect development in a flood-prone area, should not deter a lender from operating in a flood-prone area by exposing the lender to a unique private cause of action from which a lender operating only outside a flood-prone area is free. See Till, 653 F.2d at 160-61.

Hence, the NFIA mandates only a minimum amount of flood coverage (the lender must ensure the borrower is insured "at least equal to . . ."). A lender is free to establish by contract a right to require that a borrower hold a larger amount of flood insurance, exactly as the mortgage in this action allows ("insurance shall be maintained in the amounts . . . that Lender requires"). Dept. of the Treasury, et. al, Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, 74 Fed.Reg. 35914, 35936 (2009) ("Lenders are permitted to require more flood insurance coverage than required by the [NFIA]. . . . Each lender has the responsibility . . . to protect its ongoing interest in the collateral"); Custer, 858 So.2d at 244 ("Congress would not be adverse to the contractual procurement of force-placed insurance covering the full value of the property") (emphasis in original).

Gibson asserts that Chase wronged him under the NFIA, but, because the NFIA provides no right to sue, Gibson must rummage through (mainly) state laws searching for one that provides a cause of action. The problem for Gibson is that he suffered no "wrong" under the NFIA. When viewed for what they are -- attempts to gain relief ...

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