Despite repeated bludgeoning by the courts for its conduct, Wells Fargo Home Mortgage, Inc., has tenaciously and relentlessly fought against accepting responsibility for misapplying mortgage payments and charging unapproved fees. Now the district court for the Eastern District of Louisiana, has upheld a punitive damages award of over $3 million against Wells Fargo. Jones v. Wells Fargo, No. 12-1362 (E.D. La. March 19, 2013).
The court began by dispensing with Wells Fargo’s argument that the debtor waived his right to punitive damages by not arguing for them in previous appeals, noting as an aside, that the argument could have been deemed a “frivolous obstruction that needlessly delays and shockingly harasses the ends of justice.” The court reasoned that, in those earlier appeals, all parties were acting on Wells Fargo’s initial agreement to change the practices and procedures that led to the misapplied funds in lieu of being assessed punitive damages. It was only after WF reneged on that promise that the issue of punitive damages arose again.
In assessing the amount of punitive damages award, the court, relying on State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003), and BMW of North America, Inc. v. Gore, 517 U.S. 559, 568 (1996), considered three factors: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.”
The court found that the record supported the bankruptcy court’s finding that WF, a sophisticated lender, knew of the bankruptcy, was familiar with automatic stays in bankruptcy, assessed postpetition charges while withholding that fact from the debtor and the court, and did so as part of its normal course of conduct. The court further agreed with the lower court’s opinion that such conduct was willful, egregious and exhibited a reckless disregard for the stay.
In the Fifth Circuit, courts may consider potential damage to similarly situated third parties, the magnitude of such potential harm if the behavior persists, the size of the entity being sanctioned, and what amount may be necessary to deter future violations. The court quoted from the bankruptcy court’s opinion detailing the egregious nature of Wells Fargo’s conduct and its effect on debtors:
In [the Bankruptcy Court’s] experience, it takes 4 to 6 months for Wells Fargo to produce a simple accounting of a loan’s history and over 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. Well Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed. . .[it relies] 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. . .[W]hen exposed, it revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault to 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 relief.
Based on this record of persistent and systemic misconduct, a punitive award of over $3 million was deemed appropriate.