On December 31, 2012, New Jersey District Court Judge Noel L. Hillman granted in part and denied in part defendant PHH Mortgage Corporation’s (PHH) motion to dismiss the class action suit brought against it, which challenged the practice of a PHH subsidiary of purchasing force-placed hazard insurance from a provider in arrangements where PHH benefits financially. Specifically, Judge Hillman dismissed the plaintiffs’ unjust enrichment claim, but left intact some breach of contract and consumer fraud claims.
Judge Hillman concluded that the unjust enrichment claim is prohibited under Pennsylvania law because the plaintiffs’ relationship with PHH is governed by written contract. According to the judge:
While it is generally true that a plaintiff may allege alternative claims for breach of contract and unjust enrichment, despite the legal impossibility of recovery under both, a plaintiff may plead breach of contract and unjust enrichment claims in the alternative only ‘where an express contract cannot be proven.’
For its part, PHH did not dispute the validity of the mortgage contract and contended that the existence of the mortgage precluded the plaintiff’s unjust enrichment claim. “Despite plaintiff’s argument to the contrary, the substantial weight of case law in both federal and state courts in Pennsylvania demonstrates that plaintiff’s claim for unjust enrichment must be dismissed in light of the express contract between the parties here,” the judge said.
The class action plaintiffs in this case allege that the sort of payments allegedly made to PHH result in unauthorized, unjustified, and unfairly inflated costs to borrowers. They argued that PHH has effectively put together a captive reinsurance scheme in violation of the Real Estate Settlement Procedures Act of 1974.
Judge Hillman also dismissed the plaintiffs’ claim for breach of contract based on an express contractual duty. According to the Judge, under Pennsylvania law, a plaintiff must establish the existence of a contract, including its essential terms, a breach of a duty imposed by the contract and resultant damages. However, the Judge found that the plaintiffs did not sufficiently allege the breach of a specific duty outlined in the mortgage agreement. Not withstanding this finding, Judge Hillman allowed the breach of contract to the extent it alleged breach of the implied covenant of good faith and fair dealing.