U.S. Court of Appeals for the Third Circuit Chief Judge D. Brooks Smith/photo by Diego Radzinschi

The U.S. Court of Appeals for the Third Circuit has nixed a class action challenge to rates charged for force-placed insurance coverage by a reverse mortgage company. Under the so-called filed-rate doctrine, ratepayers may not bring suits to challenge insurance fees that have been registered with state insurance regulators, the appeals court said.

Although the plaintiff-borrowers claim that an alleged kickback scheme involving their mortgage company violates the New Jersey Consumer Fraud Act, as well as the federal Truth in Lending Act and Racketeer Influenced and Corrupt Organizations Act, the ruling effectively shuts down present and future court challenges to insurance rates if they were filed with the appropriate regulatory agency.

In so ruling, the appeals court upheld the lower court's dismissal of a suit lodged on behalf of holders of reverse mortgages with Nationstar Mortgage of Delaware, doing business as Champion Mortgage Co., who allowed their property insurance to lapse and were required to pay for coverage obtained by the mortgage company.

The plaintiffs claimed that a 2009 Third Circuit decision in Alston v. Countrywide Financial distinguished challenges to a lender's allegedly wrongful conduct from challenges to the reasonableness of a rate that triggered the conduct. They contended that the court in Alston found that the filed-rate doctrine did not apply to the former.

But Chief Circuit Judge D. Brooks Smith, writing for the panel, said the plaintiffs misread Alston.

The filed-rate doctrine did not apply in that case, which concerned mortgage insurance, a type of policy that some mortgage borrowers with a low down payment are required to buy. The plaintiffs in Alston claimed that their mortgage company was getting a cut of the insurance premiums, and claimed they were entitled to statutory damages under the Real Estate Settlement Procedures Act.

"That focus on statutory damages allowed the Alston plaintiffs to dodge the filed-rate doctrine," Smith wrote, joined by Circuit Judges Michael Chagares and David Porter.

Alston holds that the filed-rate doctrine's reach can be circumscribed by legislation that gives individuals a private right of action, and the plaintiffs in that case weren't seeking damages tied to the amount of an alleged overcharge, Smith wrote.

"In  contrast, these borrowers do seek damages tied to the amount of an alleged overcharge: they seek damages caused by 'unreasonably high force-placed insurance premiums.' … By extension, they functionally challenge the reasonableness of rates filed with state regulators," Smith wrote.

"Today, we reiterate that the filed-rate doctrine brooks no distinction between, on one hand, challenging a filed rate as unreasonable and, on the other hand, challenging an overcharge fraudulently included in a filed rate," Smith said.

There is no fraud exception to the filed-rate doctrine, which seeks to preserve the exclusive role of agencies in approving rates by keeping courts out of the rate-making process, Smith added.

The plaintiffs contended on appeal that, even if the filed-rate doctrine derails their claims under RICO and state laws, their TILA claims should be spared from dismissal because that statute provides remedies that can be awarded without the need to assess the reasonableness of any filed rate. But they never made that argument in the District Court, so they forfeited the point before the Third Circuit, Smith wrote.

The Third Circuit upheld a decision by Senior U.S. District Judge Anne Thompson, who found that the plaintiffs' claims were blocked by the filed-rate doctrine.

The plaintiffs were represented by Bathgate, Wegener & Wolf in Lakewood and the Moskowitz Law Firm of Coral Gables, Florida.

"The order gives us even more appreciation that we were able to obtain final approval in 31 separate, nationwide force placed class action settlements, making available almost $2.2 billion [] for 3.2 million homeowners, all across the country. We certainly knew this appeal would be an uphill battle, but we thought we owed it to our clients and all of the Nation[s]tar homeowners," Adam Moskowitz, of the Moskowitz Law Firm, lead counsel for the plaintiffs, said in an email.

Nationstar was represented by Clyde & Co. Lawyers for Nationstar didn't respond to requests for comment.

Correction: This story has been updated to correctly name Nationstar's counsel.