june-30-194815 U.S.C. § 1012(a). The purchasing of lender-placed insurance ("LPI") does not constitute engaging in "the business of insurance." See
Moore v. Fidelity Financial Servs., 884 F. Supp. 288, 291-92 (N.D. Ill. 1995);
Bermudez v. First of America Bank Champion, N.A., 860 F. Supp. 580, 589 (N.D. Ill. 1994), withdrawn pursuant to settlement,
886 F. Supp. 643 (N.D. Ill. 1995); see also 3 COUCH ON INSURANCE § 40.20
(3d ed. 2010) (explaining that a policy purchased by a mortgagee is legally separate from a policy purchased by the mortgagor). Wachovia was a purchaser of LPI, not a principal or an agent engaged in the business of insurance, as made clear by the facts alleged in Plaintiff's proposed complaint and attached documentation (
e.g., the mortgage contract, the letters sent by Wachovia to Plaintiff notifying Plaintiff of the purchase of the LPI, and the insurance policy itself).
Second, even if Wachovia were engaged in the business of insurance, neither Act would save Plaintiff's proposed state law claims. The general rule under the Gramm-Leach-Bliley Act is that state insurance laws concerning depository institutions are preempted. See 15 U.S.C. § 6701(d)(2)(A). Wachovia is a depository institution. Therefore, state insurance laws are preempted under the Act. Id. There are some exceptions to the Act's general rule of preemption. See 15 U.S.C. § 6701(d)(3). For example, depository institutions that engage in selling, soliciting, or cross-marketing insurance and persons that are not depository institutions are subject to state insurance laws. See 15 U.S.C. § 6701(d)(3)(B)-(C). However, neither of these exceptions applies to Wachovia.
And although the McCarran-Ferguson Act, if it applied, would resurrect the applicability of state law, the alleged conduct at issue here falls within the scope of Wachovia's rights under the Illinois Collateral Protection Act ("CPA"), 815 ILCS § 180/1 et seq. — a statute that Plaintiff has not addressed notwithstanding Wachovia's discussion of it in its initial motion to dismiss. The CPA establishes that an LPI transaction "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 agreement." 815 ILCS § 180/45. As such, even if the McCarran-Ferguson Act saved Plaintiff's claims against Wachovia from federal preemption, applicable state law would preclude liability.
For the same reason, Plaintiff's claim that Wachovia is liable for breach of fiduciary duty — a claim that Plaintiff asserts for the first time in the reply brief in support of her motions and omitted from the proposed amendment itself — must fail. Because the CPA clearly provides that Wachovia, as a purchaser of insurance, does not owe Plaintiff a duty as a fiduciary, Wachovia cannot be held liable for breaching such a duty. See 815 ILCS § 180/45.
In sum, the new allegations and claims in Plaintiff's proposed second amended complaint, considered on the merits, would be preempted by OTS regulations under HOLA. Furthermore, Plaintiff's new arguments in her reply briefs that the Gramm-Leach-Bliley and McCarran-Ferguson Acts except Plaintiff's claims from preemption are unpersuasive. Neither Act saves Plaintiff's state law claims against Wachovia from preemption. Considering the proposed arguments and allegations on the merits, the Court thus finds that Plaintiff's proposed state and common law claims are futile and do not provide grounds for granting Plaintiff leave to amend or for reconsidering the Court's Opinion.
2. Plaintiff's Claims Against ASI
Plaintiff's proposed second amended complaint asserts a new breach of contract claim against ASI. Plaintiff alleges that she "was an intended third-party beneficiary to any contract between ASI and Wachovia, and hence ASI also breached its contract with Plaintiff by also engaging in bad faith." [Ex. A to 54 at ¶ 159] That allegation is nonsensical. More importantly, it reveals a number of fundamental flaws in Plaintiff's breach of contract claim. First, to the extent that Plaintiff's proposed claim is based on a contract between ASI and Wachovia, it must fail because Plaintiff identifies neither the pertinent contract nor the provision that she alleges was breached. Second, to the extent that the proposed claim is based on Plaintiff's insurance contract with ASI, Plaintiff does not identify any provision that was breached. Third, for the reasons stated in the Court's Opinion, any claim for damages — including the proposed breach of contract claim — is barred by the filed rate doctrine. See Hill v. BellSouth Telecommunications, Inc., 364 F.3d 1308, 1316 (11th Cir. 2004); Bryan v. BellSouth Communications, Inc., 377 F.3d 424, 429 (4th Cir. 2004); Arsberry v. Illinois, 244 F.3d 558, 562 (7th Cir. 2001).
Plaintiff also argues for the first time in her reply brief that ASI can be held liable for colluding with Wachovia to commit a breach of fiduciary duty owed to Plaintiff. As noted above, Plaintiff's proposed second amended complaint does not assert a breach of fiduciary duty claim. Therefore, the relevance of Plaintiff's assertion is not clear. In any event, the argument does not provide a basis for reconsidering the dismissal of Plaintiff's claims because Plaintiff did not raise it in her motion for reconsideration. Finally, even if Plaintiff had raised the argument, it would fail because, as discussed above, under the CPA, Wachovia does not owe Plaintiff a fiduciary duty. See 815 ILCS § 180/45.
In sum, the Court finds that the new claims that Plaintiff asserts in the proposed second amended complaint would be futile and could not survive a motion to dismiss. The Court therefore denies Plaintiff's motion for leave to amend the complaint without prejudice. See Foster, 545 F.3d at 584 (quoting Crestview Vill. Apartments v. United States HUD, 383 F.3d 552, 558 (7th Cir. 2004)); see also Airborne Beepers, 499 F.3d at 666 (noting that leave to amend may be denied on the basis of, inter alia, "futility of amendment"). Additionally, because the Court has determined that the proposed claims and arguments are futile, the motion to amend and proposed amendment do not describe a manifest error of law in the Court's Opinion that would support reconsideration of that decision.
B. Motions to Alter, Amend, or Vacate the Judgment
Plaintiff's two pending motions — the Rule 60(b) motion to vacate the judgment [54] and the Rule 59(e) motion to alter or amend the judgment [56] — are identical in large part. Each requests that the Court vacate its Opinion and grant Plaintiff leave to file the proposed second amended complaint. For the reasons discussed above, the proposed amendments to Plaintiff's complaint would be futile. To the extent that Plaintiff's motions for reconsideration are based on the new claims asserted in the proposed second amendment, the Court denies the motions. To the extent that the motions for reconsideration allege other grounds for altering, amending, or vacating the judgment, the Court considers the motions below.
Plaintiff argues in her motions for reconsideration that the Court erred in dismissing certain of her claims against Wachovia in light of new authority issued since the completion of briefing on Wachovia's motions to dismiss. In particular, Plaintiff points to Deming v. First Franklin, 2010 WL 891009 (W.D. Wash. Mar. 9, 2010), and Cuomo v. Clearing House Ass'n, L.L. C., 129 S.ct. 2710 (2009). The cases that Plaintiff cites do not aid her cause. First, neither case involved preemption under HOLA by OTS's implementing regulations. Rather, each was decided under the National Bank Act ("NBA"). Plaintiff fails to explain how the preemptive scope of the NBA is germane to this case. Second, even assuming, arguendo, that the scope of preemption under the NBA were relevant to that under HOLA, the Cuomo "opinion does not [even] address the NBA's preemptive scope." Green v. Charter One Bank, N.A., 2010 WL 1031907, at *3 n. 4 (N.D. Ill. Mar. 16, 2010). Third, the Deming decision is not binding on this Court, and, moreover, has since been vacated. See Deming v. First Franklin, 2010 WL 2194830 (W.D. Wash. Apr. 23, 2010), appeal and stay granted, 2010 WL 2326170 (W.D. Wash. Jun. 7, 2010).
In Deming, the district court concluded upon reconsideration that the NBA and its implementing regulations preempted Plaintiff's Washington Consumer Protection Act claim but not his state common law claims for fraud, negligence, breach of contract, and injunctive relief. Deming, 2010 WL 2194830, at *3. The court subsequently certified for immediate appeal the question of whether the remaining state common law claims likewise are preempted. Deming, 2010 WL 2326170, at *1-*2.
Plaintiff also contends that new authority — the Third Circuit's decision in Alston v. Countrywide Fin. Corp., 585 F.3d 753 (3rd Cir. 2009) — justifies granting Plaintiff relief from the operation of the judgment as it pertained to her claims against ASI. It does not. In Alston, the plaintiffs brought suit under the Real Estate Settlement Procedures Act of 1974 ("RESPA") alleging that the defendants had engaged in conduct that violated the statute's anti-kickback provision. 585 F.3d at 763-64. The Third Circuit concluded that the filed rate doctrine did not bar the plaintiffs' claim under the provision. Id. The court found that the plaintiffs "challenge only the commission of conduct proscribed by statute, such that the existence of a filed rate, or pecuniary harm, is irrelevant." Id. at 764. The court further noted that a finding that the filed rate doctrine barred the claims "would effectively [exclude] [private mortgage insurance] from the reach of RESPA, a result plainly unintended by Congress." Id. Here, Plaintiff is not suing under RESPA or any other federal law stemming from Congressional intent to circumvent the filed rate doctrine. Therefore, Alston does not demonstrate the type of intervening change in the controlling law that would justify granting Plaintiff relief from the operation of the judgment as to ASI.
Plaintiff also seeks reconsideration of the Court's dismissal of her claims against ASI on the ground that the Court committed a manifest error of law in concluding that her claims were barred by the filed rate doctrine. Under the Illinois Administrative Code, insurance rates must be filed with the Illinois Department of Insurance ("DOI"). The Court's Opinion dismissed Plaintiff's first amended complaint on the grounds that (1) ASI had filed the insurance premium rate at issue with the DOI, as it is legally required to do; (2) ASI was legally required to charge that filed rate; and (3) under Illinois' comprehensive insurance regulatory scheme, the State's Director of Insurance is empowered to investigate the use of unfair business methods. Given the state's comprehensive regulatory scheme for filing insurance rates, the Court held that all of Plaintiff's claims for money damages were barred by the filed rate doctrine.
Plaintiff now submits that the Court erred in its application of the filed rate doctrine for several reasons. First, Plaintiff contends that the filed rate doctrine does not apply here because the Illinois Director of Insurance does not have the power to set or disapprove the rates at issue. But, as explained in the Court's Opinion, whether the DOI has the authority to set property insurance rates is irrelevant so long as it has the power to disapprove such rates. See Horwitz ex rel. Gilbert v. Bankers Life Cas. Co., 745 N.E. 2d 591, 605 (Ill. App. Ct. 1st Dist. 2001) (the "distinction between `the power to establish and fix rates and * * * the power to disapprove the rate'" is not relevant for purposes of the filed rate doctrine). And, although Plaintiff is correct that the power to disapprove rates is not listed among the general powers of the DOI ( 215 ILCS 5/401(a)-(d)), other provisions of the Insurance Code empower the DOI to investigate, order the cessation of, and impose penalties for the use of any unfair or deceptive act or practice by those engaged in the business of insurance ( 215 ILCS §§ 5/423- 5/427, 5/429, 5/431). Those provisions encompass and provide for DOI authority to disapprove rates, and thus are covered by the filed rate doctrine. Because the DOI has extensive regulatory power, any award of damages to Plaintiff — which in effect would require the Court to conclude that the filed rate was unreasonable — would interfere with the authority of the agency and thus would contravene the principle of nonjusticiability that underlies the filed rate doctrine.
Plaintiff also submits that the Court in determining that DOI had authority to set or disapprove rates relied on state statutes pertaining to fire, marine, and inland marine rates (215 ILCS §§ 5/472.1, 5/488.2) that were repealed in 1998. The source and relevance of this submission is unclear, as the Court's Opinion never relied on the repealed statutes for this or any purpose.
Second, Plaintiff contends that the filed rate doctrine cannot apply because ASI was not required to file the premium rates at issue for the "force placement of collateral protection insurance" with the DOI under the homeowner's insurance provider provision. See 50 Ill. Adm. Code § 754.10. In its motion to dismiss, ASI contended that it was required to file the premium rate charged with the DOI pursuant to § 754.10, which provides that all companies that write homeowner's insurance must file "[a]ll rates applied to the writing of [such] insurance." Plaintiff did not dispute the applicability of § 754.10's filing requirement at that time. The Court concluded that § 754.10 required ASI to file its rates. Now, for the first time, Plaintiff contends that ASI was not required to file the insurance premium rate at issue. Because Plaintiff could and should have raised this argument at the motion to dismiss stage, it is not an appropriate basis for a motion for reconsideration. However, even if Plaintiff had timely raised the argument, it would fail. Section 754.10 mandates rate filing for homeowner's insurance policy providers. This provision thus covers ASI, and, as discussed at length in its Opinion, the Court has concluded that ASI complied with the rate filing such that Plaintiff' claim is barred by the filed rate doctrine.
Plaintiff's alternative arguments — that ASI was required and failed to file rates as a commercial property or collateral protection insurance provider instead of as a provider of homeowner insurance — also fail. The policy that ASI provided Plaintiff was for residential, not commercial, property. And the statute explicitly states that mortgage protection insurance is not included in the definition of collateral protection insurance. 815 ILCS § 180/5. Read plainly, the relevant provisions required ASI to file rates as a homeowner's insurance provider. As discussed in the Court's Opinion, ASI complied with the applicable regulatory requirements, and the filed rate doctrine thus bars this Court's interference with the regulatory scheme.
Third, Plaintiff argues that the filed rate doctrine does not apply here because ASI failed to disclose the fees it paid to Wachovia as required by 215 ILCS 5/500-80. However, Plaintiff admits that § 5/500-80 prohibits kickbacks to "unlicensed insurance agents or brokers." Wachovia is not an unlicensed insurance agent or broker, but rather a savings institution that engaged in an LPI transaction. In any event, § 500-80(e) of the Insurance Code mandates the disclosure of commissions to consumers, not the filing of insurance rates with the State. Therefore, whether or not ASI complied with § 500-80(e) does not alter the filed rate doctrine analysis.
Fourth, Plaintiff argues that the filed rate doctrine cannot apply because the payments to Wachovia were kickbacks, which, according to Plaintiff, are illegal under Illinois law. Although Plaintiff argued that kickbacks are illegal at the motion to dismiss stage, she did not do so in relation to the applicability of the filed rate doctrine. But even if Plaintiff is correct, that does not affect the applicability of the filed rate doctrine. The "[a]pplication of the filed rate doctrine in any particular case is not determined by the culpability of the defendant's conduct or the possibility of inequitable results." Marcus v. AT T Corp., 138 F.3d 46, 58 (2d Cir. 1998).
In her reply briefs, Plaintiff argues that the "kickbacks" are not commissions but in fact "illegal rebates." Plaintiff cites a case defining "rebating" as when the insurer offers the insured a refund of the premium as an inducement to purchase the policy. See Ins. Comm'r for the State. v. Engelman, 692 A.2d 474, 480 (Md. 1997). But that is not what Plaintiff claims happened here, since Plaintiff, the insured, never received a refund from ASI. Whatever the intended significance of redefining the term "kickbacks" as "rebates," it is irrelevant to the Court's determination in its previous Opinion and here that ASI was obligated to and did comply with state regulations by disclosing its insurance rates with DOI, thus triggering application of the filed rate doctrine.
Fifth, Plaintiff argues that the Court misconstrued her ICFA claim and overlooked allegations that ASI engaged in unfair trade practices. Plaintiff's first amended complaint contained allegations of unfairness, which the Court interpreted as asserting that ASI acted unfairly by not disclosing to Plaintiff that a portion of the insurance premium went to Wachovia. The Court concluded that Plaintiff did not plausibly allege proximate cause because the fee that ASI paid to Wachovia had been disclosed to Plaintiff: she received a letter from Wachovia stating that the cost of the ASI policy "may include compensation to the Insurer and Wachovia Mortgage." In her proposed second amended complaint, Plaintiff expands the allegations of unfair conduct in support of her ICFA claim against ASI, and Plaintiff's motion for reconsideration makes clear that Plaintiff was alleging even in her first amended complaint that any payment of commissions or kickbacks from ASI to Wachovia constitutes an unfair trade practice under the ICFA, regardless of whether the payments to Wachovia were disclosed. Although the filed rate doctrine bars Plaintiff's ICFA claim for money damages against ASI, Plaintiff may have a viable cause of action for injunctive relief. The Court therefore grants Plaintiff's motion to alter or amend the judgment pursuant to Rule 59(e) [56] and vacates its prior judgment [52] based on a manifest error of law, thereby reinstating Plaintiff's claim for injunctive relief against ASI under the ICFA. See Cosgrove v. Bartolotta, 150 F.3d 729, 732 (7th Cir. 1998) (holding that Rule 59(e) permits a court to alter or amend a judgment on the basis of a manifest error of law).
* * * * *
In a footnote in one of her reply briefs, Plaintiff requests that, in the event that the Court were to grant relief on the motion for leave to amend, she be permitted to withdraw the proposed second amended complaint and submit a third proposed amended complaint with additional counts. As stated above, Plaintiff's request for leave to file a second amended complaint is denied. Moreover, the Court declines to consider relief sought in a footnote in a reply brief. To the extent that Plaintiff believes that she can cure the deficiencies noted in this opinion (and the Court's prior Opinion), Plaintiff is given thirty days in which to file a motion for leave to file another proposed amended complaint. The Court cautions Plaintiff to bear in mind the Court's prior rulings in crafting any further proposed amendments to her complaint so as to avoid unnecessary motion practice. The Court also hastens to add that any additional requests for leave to amend in an effort to cure the same preemption and filed rate deficiencies that have been identified from the outset of this case will be scrutinized very closely. See, e.g., Airborne Beepers Video, Inc. v. AT T Mobility LLC, 499 F.3d 663, 666 (7th Cir. 2007) (upholding denial of leave to amend and dismissal of claim with prejudice where the plaintiff "repeatedly failed to remedy the same deficiency").
Although the Court's grant of reconsideration on Plaintiff's claim seeking injunctive relief against ASI under the ICFA essentially reinstates that claim, the Court will stay the time for ASI's responsive pleading as to that claim in view of Plaintiff's suggestion that she may wish to seek leave to file another amended complaint. If Plaintiff has not filed a motion for leave to file another proposed amended complaint within thirty days of the date of this decision, ASI's responsive pleading will be due fourteen days thereafter. If Plaintiff does seek leave to file another amended complaint, the stay will remain in place until further court order. Finally, if no motion for leave to file another proposed amended complaint is timely filed — or if the proposed third amended complaint does not include any proposed claims against Defendant Wachovia — nothing in this opinion is meant to foreclose Wachovia from filing an appropriate motion for entry of judgment.
IV. Conclusion
For the reasons stated above, Plaintiff's motion for leave to file a second amended complaint pursuant to Federal Rule of Civil Procedure 15(a)(2) and to vacate the judgment pursuant to Rule 60(b)(6) [54] is denied. Plaintiff's motion to alter or amend the judgment pursuant to Rule 59(e) [56] is granted. The judgment entered on March 30, 2010 [52] is vacated and Plaintiff's claim for injunctive relief against ASI under the ICFA is reinstated. Subject to the caveats stated above, to the extent that Plaintiff believes that she can cure the deficiencies noted in this opinion (and the Court's prior Opinion), Plaintiff is given thirty days in which to file a motion for leave to file another proposed amended complaint. In view of the possibility that Plaintiff may seek leave to file another amended complaint, the time within which ASI must file a responsive pleading to the ICFA claim for injunctive relief is stayed.