Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—C.D. Cal.: Former homeowner did have any claim to alleged surplus from foreclosure sale, (Feb 5, 2015)

By Dan Selcke, J.D.

A U.S. Bank customer who lost her home in a foreclosure sale, did not have standing to bring a claim against U.S. Bank under California’s unfair competition law, the federal district court in Los Angeles has held, because the customer could not show that she had suffered any economic injury. The court granted U.S. Bank’s motion to dismiss (Collins v. U.S. Bank, February 3, 2015, Wright, O.).

Background. Novice Collins formerly owned property encumbered by a mortgage serviced by U.S. Bank. Under the terms of U.S. Bank’s standard deed of trust, U.S. Bank could—assuming its customers did not do so themselves—purchase lender-placed insurance (LPI) for its borrowers to insure their mortgage-secured properties against potential hazards like fires and floods. U.S. Bank hired third-party LPI vendors to provide this insurance and then shifted the cost to its customers.

U.S. Bank purchased LPI insurance for Collins, who alleged that the premium was higher than was necessary to protect U.S. Bank’s interest in the property. She also alleged that U.S. Bank misrepresented to her the true cost of the insurance. She brought suit under Cal. Bus. & Prof. Code Section 17200 (UCL) on behalf of herself and all other U.S. Bank borrowers who had paid the inflated premiums over the previous four years, and alleged that she had suffered a financial injury for which she required restitution. U.S. Bank filed a motion to dismiss.

Standard for standing. U.S. Bank presented a number of arguments in its motion, but the court focused on the notion that Collins could not bring her claim because she lacked standing. To have standing to make a UCL claim, plaintiffs had to “establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e. economic injury, and show that the economic injury was the result of, i.e. caused by, the unfair business practice…that is the gravamen of the claim.” Kwitset Corp. v. Superior Court, 246 P.3d 877, 885 (Cal. 2011).

Economic injury. First, the court turned to the question of whether Collins had actually suffered an economic injury. U.S. Bank argued that she had not, and pointed out that Collins had never made a single payment on her mortgage that included LPI premiums, using numerous bank documents and foreclosure notices to back up its assertion. Collins admitted as much, and responded in what the court called “the most unusual way.” She argued that she had effectively paid the bank everything it was owed, including the LPI premiums, with the proceeds on the foreclosure sale of her home. Her home was sold for $139,436.35, more than the $85,606.00 she had borrowed on the mortgage, and if she had not been overcharged on the LPI premiums, she argued, some of that surplus would have been owed to her.

Effectively, Collins was claiming that she had been deprived of money to which she had a cognizable claim—in this case, a restitutionary interest. This was vaguely consistent with one of the ways outlined in Kwitset that a plaintiff could show economic injury, but it did not establish an economic injury under these circumstances. In order for Collins’ theory to work, a third-party purchaser would have needed to pay U.S. Bank $139,436.35 for the home at the foreclosure sale. In that case, U.S. Bank would have been unjustly enriched by receiving payment for the unlawful LPI premiums. However, U.S. Bank itself made a full credit bid of $139,436.35 at the sale, which made it both the buyer and the seller of the home. In exchange for taking back title to a home with a significantly lesser value, U.S. Bank also released Collins from her six-figure debt. In this situation, U.S. Bank was not unjustly enriched by paying itself no matter how great the unlawful debt. There was no surplus from which Collins could claim that she was owed restitution, meaning that she had not suffered any recognized kind of economic injury.

Before wrapping up, the court noted that litigation over unlawful LPI tactics was nothing new, and that no case yet supported a theory of economic loss based on foreclosure surpluses. Collins also argued that she had suffered an economic loss because she had lost her home in the foreclosure sale, but did not allege that this loss was in any way related to U.S. Bank imposing LPI premiums.

The case number is: 2:14-cv-07726

Attorneys: Barron Edward Ramos (Law Offices of Barron Ramos APC) for Novice M. Collins. John S. Baker (Dorsey and Whitney LLP) for U.S. Bank, National Assn.

Companies: U.S. Bank, National Assn.

Cases: StateUnfairTradePractices CaliforniaNews