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Keywords

contractbreach of contractpleamotioncorporationclass actiongood faithunjust enrichmentmotion to dismiss

contractbreach of contractplaintiffdefendantjurisdictionmotionclass actiongood faithunjust enrichmentmotion to dismiss

Related Cases

Gallo v. PHH Mortg. Corp., 916 F.Supp.2d 537

Facts

Patrick Gallo refinanced a loan with PHH Mortgage in 2006, securing it with a mortgage on his property. He was required to maintain hazard insurance, which he initially did through a policy that was later canceled due to nonpayment. PHH Mortgage subsequently placed a force-placed insurance policy on Gallo's property with a significantly higher premium and a retroactive start date, which Gallo alleged was part of a scheme to profit from kickbacks from the insurance provider. Gallo filed a class action complaint against PHH Mortgage, claiming various breaches and fraud.

On May 22, 2006, Plaintiff obtained a refinance loan in the amount of $126,000 from PHH Mortgage, and the obligation to repay that loan was secured by a mortgage recorded on Plaintiff's residential property located at 233 Leon Avenue in Norwood, Pennsylvania.

Issue

The main legal issues were whether the filed rate doctrine barred Gallo's claims, whether Gallo had sufficiently alleged a breach of contract, and whether he could pursue claims for unjust enrichment and violations of the New Jersey Consumer Fraud Act.

The filed rate doctrine did not apply to mortgagor's action; mortgagor failed to point to a specific duty in the mortgage that would serve as a basis for breach of contract action; mortgagor's allegations were sufficient to state a claim for breach of the covenant of good faith and fair dealing; and mortgagor could not bring claim for unjust enrichment.

Rule

The court applied the principle that the filed rate doctrine does not bar claims that challenge the conduct of a mortgagee rather than the reasonableness of the rates charged. Additionally, the court evaluated whether Gallo's allegations met the pleading standards for breach of contract and other claims.

The filed rate doctrine provides that a rate filed with and approved by a governing regulatory agency is unassailable in judicial proceedings brought by ratepayers.

Analysis

The court found that Gallo's claims were not merely a challenge to the rates charged for force-placed insurance but rather a challenge to the alleged improper conduct of PHH Mortgage in securing those policies. The court noted that Gallo's allegations regarding kickbacks and inflated costs were sufficient to state a claim for breach of the covenant of good faith and fair dealing, while failing to identify a specific contractual duty that was breached.

The court, after reviewing the facts alleged in the plaintiff's complaint, determined that “plaintiff d[id] not challenge the mortgagee purchased, hazard insurance as excessive. Rather, plaintiff allege[d] that [Citigroup's] decision to purchase mortgagee purchased hazard insurance at a rate that far exceeded the mortgagor purchased hazard insurance without notice to the plaintiff was a breach of the mortgage contract, and was an action taken in violation of defendants' obligation to proceed with good faith and fair dealing.”

Conclusion

The court granted PHH Mortgage's motion to dismiss in part, allowing Gallo's claims for breach of the covenant of good faith and fair dealing to proceed while dismissing the breach of contract and unjust enrichment claims.

The court exercises jurisdiction in this matter pursuant to 28 U.S.C. § 1332(d)(2), the Class Action Fairness Act, because the Plaintiff is a citizen of a state different than Defendant, the matter in controversy exceeds $5,000,000, and there are more than 100 members in the proposed class.

Who won?

The prevailing party was PHH Mortgage Corporation in part, as the court dismissed Gallo's breach of contract and unjust enrichment claims, but Gallo was allowed to proceed with his claim for breach of the covenant of good faith and fair dealing.

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