First, I want to say, nearly every form promissory note provides for the payment of the note in the order of interest, principal, and escrow before other “junk” or default charges. But they never do this….this is not a “one off” situation.
This opinion is a beauty. The bankruptcy judge chastises Wells Fargo for its Rambo litigation, refusal to rectify past errors in its payment applications going forward, and other nefarious practices that some of us have seen more than once, and by more servicers than Wells Fargo. Far more. At the expense of Chapter 13 debtors who cannot afford to litigate, as Wells Fargo seems to calculate into its business practices. Sadly, it’s going to take a lot more punitive awards like this one for any of the TBTF banks to even care. Their hubris runs so deep, and they seem to fool judges with the thin veneer of respectability gleaned by using white shoe law firms in droves, and throwing money (taxpayer) at the problem. Not so here.
I love this:
While every litigant has a right to pursue appeal, Wells Fargo’s style of litigation was
particularly vexing. After agreeing at trial to the initial injunctive relief in order to escape a punitive
damage award, Wells Fargo changed its position and appealed. This resulted in:
1. A total of seven (7) days spent in the original trial, status conferences, and
hearings before this Court;
2. Eighteen (18) post-trial, pre-remand motions or responsive pleadings filed
by Wells Fargo, requiring nine (9) memoranda and nine (9) objections or
3. Eight (8) appeals or notices of appeal to the District Court by Wells Fargo,
with fifteen (15) assignments of error and fifty-seven (57) sub-assignments
of error, requiring 261 pages in briefing, and resulting in a delay of 493 days
from the date the Amended Judgment was entered to the date the Fifth
Circuit dismissed Wells Fargo’s appeal for lack of jurisdiction;47 and
4. Twenty-two (22) issues raised by Wells Fargo for remand, requiring 161
pages of briefing from the parties in the District Court and 269 additional
days since the Fifth Circuit dismissed Wells Fargo’s appeal.
The above was only the first round of litigation contained in this case. After the District
Court remanded based on Wells Fargo’s change of heart, Wells Fargo appealed the decision to
remand. When that was denied, it took the legal position that the remand did not afford this Court
the right to impose punitive damages in lieu of the Accounting Procedures it had both proposed and
consented to undertake. That position if valid, would have allowed Wells Fargo to propose
alternative relief to escape punitive damages; when the offer was accepted, challenge the relief it
proposed; and avoid any punitive award, a position as untenable as it was illogical.
Wells Fargo has taken the position that every debtor in the district should be made to
challenge, by separate suit, the proofs of claim or motions for relief from the automatic stay it files.
It has steadfastly refused to audit its pleadings or proofs of claim for errors and has refused to
voluntarily correct any errors that come to light except through threat of litigation. Although its own
representatives have admitted that it routinely misapplied payments on loans and improperly charged
fees, they have refused to correct past errors. They stubbornly insist on limiting any change in their
conduct prospectively, even as they seek to collect on loans in other cases for amounts owed in error.
Wells Fargo’s conduct is clandestine. Rather than provide Jones with a complete history
of his debt on an ongoing basis, Wells Fargo simply stopped communicating with Jones once it
deemed him in default. At that point in time, fees and costs were assessed against his account and
satisfied with postpetition payments intended for other debt without notice. Only through litigation
was this practice discovered. Wells Fargo admitted to the same practices for all other loans in
bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems
with their accounts without extensive discovery.
Unfortunately, the threat of future litigation is a poor motivator for honesty in practice.
Because litigation with Wells Fargo has already cost this and other plaintiffs considerable time and
expense, the Court can only assume that others who challenge Wells Fargo’s claims will meet a
Over eighty (80%) of the chapter 13 debtors in this district have incomes of less than
$40,000.00 per year. The burden of extensive discovery and delay is particularly overwhelming.
In this Court’s experience, it takes four (4) to six (6) months for Wells Fargo to produce a simple
accounting of a loan’s history and over four (4) court hearings. Most debtors simply do not have the
personal resources to demand the production of a simple accounting for their loans, much less verify
its accuracy, through a litigation process.
Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments
and calculate the amounts owed. But perhaps more disturbing is Wells Fargo’s refusal to voluntarily
correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a
challenge to its demands, rather than voluntarily relinquish gains obtained through improper
accounting methods. Wells Fargo’s conduct was a breach of its contractual obligations to its
borrowers. More importantly, when exposed, it revealed its true corporate character by denying any
obligation to correct its past transgressions and mounting a legal assault ensure it never had to.
Society requires that those in business conduct themselves with honestly and fair dealing. Thus,
there is a strong societal interest in deterring such future conduct through the imposition of punitive
After considering the compensatory damages
of $24,441.65 awarded in this case, along with the litigation costs of $292,673.84; awards against
Wells Fargo in other cases for the same behavior which did not deter its conduct; and the previous
judgments in this case none of which deterred its actions; the Court finds that a punitive damage
award of $3,171,154.00 is warranted to deter Wells Fargo from similar conduct in the future.
I wish we had more like Judge Elizabeth Magner here in Arizona.