The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:
An individual borrower obtained a $3 million punitive damage award, on top of almost $600,000 in total compensatory damages, against a loan servicer that falsely declared that her mortgage was delinquent. In calculating the permissible ratio of punitive damages, the court aggregated all of the borrower’s cumulative damage awards, rather than looking solely to her tort claim. [Saccameno vs. Ocwen Loan Servicing, LLC, 2019 Westlaw 1098930 (N.D. Ill.).]
Facts: An individual debtor filed a Chapter 13 petition. During the pendency of her bankruptcy case, she made all of the required mortgage payments. Following her discharge, the loan servicer’s clerical staff mistakenly coded the “discharge” as a “dismissal” of the bankruptcy. The loan was therefore incorrectly sent back to the servicer’s foreclosure department, which began to send her letters falsely stating that she was delinquent.
The borrower continued attempting to make mortgage payments, but the servicer repeatedly returned her checks, falsely stating that she was still delinquent. Eventually, she brought suit under the FDCPA and the state consumer fraud statutes, among other claims. A jury awarded her almost $600,000 in compensatory damages and an additional $3 million in punitive damages.
After trial, the servicer filed a motion for judgment as a matter of law, a motion for a new trial, and a motion to amend the judgment on the ground that the punitive damage award was excessive.
Reasoning: The trial court denied all three of those motions. The court held that the punitive damage award was entirely appropriate because of the reprehensible nature of the servicer’s continuing course of conduct and its effect on the borrower:
[G]iven that [the borrower] was emerging from bankruptcy, she was highly vulnerable financially; [the servicer’s] conduct involved repeated actions (e.g., repeatedly failing to correct [the borrower’s] account; repeatedly seeking payment of funds it was not entitled to; repeatedly returning [the borrower’s] payments); and, as discussed above, there is evidence from which the jury could have concluded that [the servicer’s] conduct was deceptive and, if not malicious, grossly indifferent to [the borrower’s] rights.
The servicer argued that in connection with the borrower’s fraud claim, the ratio of compensatory damages to punitive damages was far beyond the permissible range. However, instead of focusing narrowly on that one claim, the court reasoned that the punitive damage award was not excessive in light of the cumulative compensatory damages awarded on all of the borrower’s claims, which arose from the same conduct:
[T]he court concludes that it is appropriate to combine the compensatory damages awarded on [the borrower’s] [state law fraud] claim with those awarded on her FDCPA, RESPA, and breach of contract claims. The conduct underlying the claims is interrelated (though not, as [she] maintains, “indivisible”) and the resulting harm had a cumulative effect. The relevant comparison, therefore, is between $ 3 million in punitive damages and $ 582,000 in compensatory damages. The resulting ratio of approximately 5:1 is well within the single-digit range suggested by the Supreme Court.
Author’s Comment: I am not sure that the court’s “cumulative damages” approach will survive appellate review. This seems to be a back-door method of awarding punitive damages in connection with contract claims, which is impermissible.
But that is just a doctrinal quibble. The big message is very clear: the courts have lost patience with the loan servicing industry and its multifarious failures to deal competently with consumers. Are mortgage lenders inherently evil? Of course not. As Napoleon supposedly said, “Never attribute to malice that which can be explained by incompetence.” To update the maxim, “Never attribute to malice that which can be explained by poor staffing, poor training, and poor supervision.” (It’s not as catchy as the original, but it’s more precise.)
For discussions of cases dealing with related issues, see:
- 2018-2 Comm. Fin. News. NL 3, Although Loan Servicer’s Demand Letters Contained Legally-Required Disclaimers, Improper Requests for Payment Violated Debtors’ Discharge Injunction, Justifying $119,000 In Compensatory Damages and Possible Punitive Damages.
- 2018-1 Comm. Fin. News. NL 2, Lender That Allegedly Directs Borrower to Default in Order to Qualify for Home Mortgage Modification May Be Liable in Tort for Mishandling Application Because Lender Has Exceeded Role of Conventional Lender.
- 2017-17 Comm. Fin. News. NL 33, After Mortgagee Seeks Foreclosure Based Upon Inaccurate Account Statements, Mortgagee Is Liable for $50,000 in Compensatory Damages and $400,000 in Punitive Damages.
- 2017-16 Comm. Fin. News. NL 32, Lender’s “Mortgage Modification Charade” Violates Automatic Stay, and Lender is Liable for $1 Million in Actual Damages and $45 Million in Punitive Damages.
- 2015-37 Comm. Fin. News. NL 74, Mishandling of Loan Modification Exposes Lender to Possible Liability for Punitive Damages, Since Employees’ Behavior Was Allegedly Ratified by Corporation.
- 2013-15 Comm. Fin. News. NL 31, Mortgage Lender’s Systematic Violations of Automatic Stay Result in Punitive Damage Award In Excess of $3 Million.
These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.