FYI: Ill App Ct (1st Dist) Holds Potential Chicago Foreclosure Tenant Ordinance Violation Precluded Eviction

The Appellate Court of Illinois, First District, recently reversed a summary judgment ruling in favor of a mortgagee on its post-foreclosure forcible entry and detainer claim, finding genuine disputes as to materials facts where the tenant presented evidence that she was a qualified tenant under the Chicago Protecting Tenants in Foreclosed Rental Property Ordinance (Ordinance), and that the mortgagee did not pay her the $10,600 relocation assistance fee required by the Ordinance.

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee became the owner of the subject property pursuant to an order approving the judicial sale in a mortgage foreclosure case.  The mortgagee filed its forcible entry and detainer complaint for possession of the property against tenant and other defendants.

 

The tenant answered the complaint and raised as an affirmative defense that she resided in the property pursuant to a valid lease and that she was entitled to a relocation assistance fee because she was a qualified tenant.  The tenant also alleged that the mortgagee's non-compliance with the Ordinance precluded a judgment in the mortgage's favor.

 

As you may recall, the Chicago Protecting Tenants in Foreclosed Rental Property Ordinance provides that:

 

"[T]he owner of a foreclosed rental property shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner offers such tenant the option to renew or extend the tenant's current rental agreement with an annual rental rate."  Chicago Municipal Code § 5-14-050(a)(1) (added June 5, 2013).

 

A "qualified tenant" means a person who: "(1) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenant's principal residence." Chicago Municipal Code § 5-14-020 (added June 5, 2013).

 

The mortgagee filed a motion for summary judgment arguing that the order approving the judicial sale and the underlying deed entitled it to possession. 

 

The tenant responded to the motion by presenting evidence that she had resided in the property for several years prior, during, and after the foreclosure pursuant to a written lease, and was a "qualified tenant" under the Ordinance because she was a tenant in a foreclosure rental property pursuant to a "bona fide rental agreement" before the mortgagee became the owner. 

 

The original annual lease contained provisions that would convert it to a month-to-month lease after it expired.  The tenant averred in an affidavit that she paid $950 a month in rent and continued to reside in the property pursuant to a lease entered into after the borrower lost the property in the foreclosure.  Thus, the tenant argued that she was entitled to the $10,600 relocation fee and that the mortgagee was not entitled to possession of the property until it complied with the Ordinance's relocation provision.

 

In response, the mortgagee argued that the Ordinance did not apply to it because the foreclosure order wiped out the prior owner's rights, and therefore the tenant's post-foreclosure lease with the borrower was not a bona fide lease, as required.

 

The trial court granted the mortgage's motion for summary judgment.  This appeal followed.

 

Initially, the Appellate Court considered the mortgagee's argument that compliance with the Ordinance's relocation provision is not a condition precedent to a forcible entry and detainer action.

 

The mortgagee argued that failure to comply with the Ordinance could not bar this action because the Ordinance states: "The owner shall pay the relocation fee to the qualified tenant no later than seven days after the day of complete vacation of the rental unit by the qualified tenant." Chicago Municipal Code § 5-14050(b) (added June 5, 2013).  Thus, the mortgagee claimed that any obligation to pay the relocation fee is only triggered when a qualified tenant vacates the property.

 

The Appellate Court disagreed, concluding that the mortgagee's alleged failure to comply with the Ordinance's relocation provision is an affirmative defense to a forcible entry and detainer action.

 

Specifically, the Appellate Court noted that the Illinois Forcible Entry and Detainer Act states that "[t]he defendant may under a general denial of the allegations of the complaint offer in evidence any matter in defense of the action" and that "no matters not germane to the distinctive purpose of the proceeding shall be introduced by joinder, counterclaim or otherwise." 735 ILCS 5/9-106.

 

Germane in this context means "closely allied."  Rosewood Corp. v. Fisher, 46 Ill. 2d 249, 256 (1970).  The Appellate Court found that the Ordinance is "closely allied" with or "germane" to the Illinois Forcible Entry and Detainer Act because a "qualified tenant must bring a claim for relocation assistance prior to the entry of a judgment of possession of the rental unit." See Chicago Municipal Code § 5-14-050(e)(2) (added June 5, 2013).

 

Thus, the Court held, "a tenant's claim to a relocation fee from an owner, if not previously asserted in a separate legal action, must be raised during the eviction proceedings." See Chicago Municipal Code § 5-14-070(a) (added June 5, 2013) (allowing a tenant to bring a private cause of action under the Ordinance).

 

The Appellate Court observed that reading the Ordinance as a whole supports its conclusion because it states "the owner of a foreclosed property shall pay a one shall pay a one-time relocation assistance fee of $10,600 to a qualified tenant unless the owner offers such tenant the option to renew or extend the tenant's current rental agreement." Chicago Municipal Code § 5-14-050(a)(1)

 

The Appellate Court next analyzed if a genuine issue of material fact existed regarding whether tenant "was a qualified tenant pursuant to a bona fide rental agreement under the Ordinance." Specifically, the Appellate Court examined whether the initial pre-foreclosure lease constituted a bona fide rental agreement.

 

The Appellate Court observed that the original pre-foreclosure lease contained a valid month-to-month tenancy provision.  In addition, the tenant's affidavit averred that she had resided in the property since before the foreclosure pursuant to a rental agreement that required her to pay $950 a month to the property owner. 

 

Although tenant's affidavit did not also state that she paid the rent each month, the Court held she did not have to prove her case to withstand summary judgment.  In the Court's view, the evidence that tenant had a rental agreement that required her to pay rent every month on the day the mortgagee became the owner of the foreclosed property was sufficient to defeat summary judgment. Chicago Municipal Code § 5-14-020.

 

Viewing the evidence in a light most favorable to the tenant, the Appellate Court held that the trial court erred in granting summary judgment because a genuine issue of material fact exists as to whether tenant was a month-to-month tenant under the original lease when the court approved the judicial sale in favor of the mortgagee.  Thus, the mortgagee's "right to a judgment of possession is not clear and free from doubt."

 

Accordingly, the Appellate Court reversed the trial court's summary judgment order in favor of the mortgagee, and remanded the case for further proceedings consistent with its decision.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Holds Mortgagee's "Sold Out Second" Claim Not Barred by California's 4-Yr Statute of Limitations

The U.S. Court of Appeals for the Ninth Circuit recently reversed a ruling that disallowed an unsecured creditor's claim filed in a California bankruptcy court based on the forum state's statute of limitations. 

 

In so ruling, the Ninth Circuit held that, although courts typically apply the forum state's statute of limitations if the contract is silent on the issue, exceptional circumstances warranted the application of a longer statute of limitations here, because the creditor had no option but to enforce its claim in the forum based on where the bankruptcy petition was filed.  

 

A copy of the opinion is available at:  Link to Opinion

 

In 2007, the plaintiff borrowers ("Borrowers") purchased a condominium in California with two loans secured by liens against the property, of which a bank ("Bank") held the junior lien.

 

Borrowers' promissory note to Bank provided in relevant part that: 

 

"[T]he Bank is a national bank located in Ohio and Bank's decision to make this Loan … was made in Ohio.  Therefore, this Note shall be governed by and construed in accordance with … the laws of Ohio … without regard to conflict of law principles."

 

Borrowers defaulted, the senior lender foreclosed, and Bank was left holding an unsecured claim in the amount of $42,000. 

 

Borrowers filed bankruptcy, and Bank filed a proof of claim based on the 2007 note.  Borrowers objected to the claim on the grounds that the claim was barred by California's applicable four-year statute of limitations.  Cal. Code Civ. Proc. § 337.  Bank argued that its claim was timely because the promissory note's choice of Ohio law incorporated Ohio's six-year statute of limitations period.  Ohio Rev. Code § 1303.16.

 

The bankruptcy court held that the promissory note selected Ohio's six-year statute of limitations period, and overruled Borrowers' objection.  The Bankruptcy Appellate Panel ("BAP") reversed.  Bank appealed from the BAP's decision.

 

As you may recall, when a contract contains a choice of law provision, federal courts will enforce that choice.  See, e.g., Flores v. Am. Seafoods Co., 335 F.3d 904, 916-19 (9th Cir. 2003).  But where a choice of law provision does not expressly include the statute of limitations, the Ninth Circuit construes it as silent on the issue.  See, e.g., Des Brisay v. Goldfield Corp., 637 F.2d 680, 682 (9th Cir. 1981).  Here, the Ninth Circuit determined that the choice of law provision at issue was materially identical to the one in Des Brisay. 

 

In Des Brisay, the Ninth Circuit applied the well-established rule that a federal right of action for which no statute of limitations was provided was subject to the limitations period which the forum state applies to analogous claims.  See, e.g., Wilson v. Garcia, 471 U.S. 261, 266-67 (1985).  However, unlike Des Brisay, this was not a federal securities case premised on an implied right of action.  This case involved a common law action on a promissory note for which both Ohio and California have statutorily prescribed a statute of limitations. 

 

To resolve this conflict of laws, the Ninth Circuit turned to the Restatement (Second) of Conflict of Laws.  See, e.g., Liberty Tool, & Mfg. (In re Vortex Fishing Systems), 277 F.3d 1057, 1069 (9th Cir. 2001). 

 

As you may recall, the 1971 version of the Restate (Second) of Conflict of Laws § 142 provides that:  "(1) An action will not be maintained if it is barred by the statute of limitations of the forum, including a provision borrower the statute of limitations of another state."  The 1988 version of § 142 is similarly worded, except that it provides a limited carve out which states "unless exceptional circumstances of the case make such a result unreasonable … The forum will apply its own statute of limitations barring the claim."

 

Here, the Ninth Circuit held that § 142 compelled the application of the longer statute of limitations under Ohio law based on "exceptional circumstances." 

 

According to the Ninth Circuit, the unique structures of the Bankruptcy Code meant that, through no fault of Bank's, there was no forum for its claim other than the one in which Borrower's bankruptcy was filed.  This was not a case filed voluntarily by Bank in California, in which a dismissal on statute of limitations grounds would be without prejudice to bringing the same claim in Ohio.  Rather, the Court held, once Borrowers declared bankruptcy, Bank was obligated to bring all of its claims in the district where Borrowers filed. 

 

Thus, the Ninth Circuit concluded that disallowing Bank's claim under California's statute of limitations would be wholly unreasonable under the circumstances. 

 

Accordingly, the Ninth Circuit reversed the BAP's judgment and remanded the case to the bankruptcy court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 8th Cir Holds "Citizen" Does Not Equal "Resident" Under CAFA's "Local Controversy" Exception

The U.S. Court of Appeals for the Eighth Circuit recently held that "citizen" is not synonymous with "resident" under the Class Action Fairness Act (CAFA), 28 U.S.C. 1332(d), such that the class action lawsuit at issue could not be remanded to state court under CAFA's "local controversy" exception but rather should remain in federal court.

 

A copy of the opinion is available at:  Link To Opinion

 

The plaintiff was injured in a car accident and received treatment at a hospital which required her to assign her Medicaid beneficiary rights to it. The hospital later contracted with a service provider to pursue any claims the plaintiff may have had against the responsible driver in lieu of collecting a reduced but certain payment from Arkansas Medicaid.

 

The plaintiff sued the hospital and the service provider on behalf of a class of "Arkansas-Medicaid beneficiaries" asserting that their attempt to recover under an assignment of the plaintiff's rights violated Arkansas law and that thousands who  had been treated across the state of Arkansas had been similarly damaged.  

 

The defendants removed the case to federal under CAFA. The plaintiff moved to remand under CAFA's local controversy exception, 28 U.S.C. 1332(d)(4), and the trial court agreed that more than two-thirds of the proposed class were citizens of the state.  The trial court noted that the plaintiff should amend to the complaint to assert that the class consisted of citizens rather than residents.  The plaintiff amended the complaint as instructed and the trial court ordered the case remanded to state court. The defendants sought permission to appeal, which was granted.

 

On appeal, the Eighth Circuit noted that the CAFA issue at hand was novel: how does the "resident" versus "citizen" distinction that appears in 28 U.S.C. 1332 play out in the local controversy exception?

 

The Appellate Court provided its five guiding principles behind its reasoning. First, the Eighth Circuit noted, CAFA provides broad diversity jurisdiction over class actions and the local controversy exception is narrow so that, once the defendant establishes the CAFA jurisdictional requirements, it is the plaintiff's burden to establish the local controversy requirements and any doubt should be resolved against the plaintiff.  

 

Second, the Eight Circuit held, the terms "citizen" and "resident" must be differentiated as citizenship requires permanency and residency does not require "an intent to make a place a home."  A person can be a resident of multiple states but a citizen of only one.  Thus, the Court held, residency is insufficient to establish citizenship for diversity jurisdiction.    

 

Third, the Appellate Court noted, a court must assume that Congress intended to apply the accumulated, settled meanings of terms under common law unless the statute states otherwise.  Here, the Eighth Circuit assumed Congress intended to use the common law meaning of the term "citizen" in CAFA.  

 

Fourth, at least one other ruling in the Seventh Circuit had addressed the issue of the meaning of "citizen" versus "resident" and had reached the same conclusion.  

 

Fifth, the Eighth Circuit noted, citizenship may be established by either defining the class as citizens (as opposed to residents) or by providing sound evidence of citizenship during class discovery, but cannot be based on "guesswork".  The Appellate Court explained that the trial court erred by allowing the plaintiff to amend her class definition, which the Eighth Circuit deemed "guesswork", and wrongly resolved the doubt in plaintiff's favor.  

 

The Appellate Court further pointed out that the trial court did not have the authority to permit the plaintiff to amend the complaint as the class definition prior to removal must include only local citizens in order for the local controversy exception to apply, and cited to section 1332(d)(7) which requires that for the local-controversy exception to apply, "class citizenship must be determined as of the date of the pleading giving federal jurisdiction."  

 

The Eighth Circuit concluded by pointing out that the plaintiff's lack of citizenship allegations did not defeat the district court's jurisdiction because the defendants pled in the notice of removal that the plaintiff was an Arkansas citizen, which was sufficient for federal jurisdiction.

 

Accordingly, the trial court's remand order was reversed and the appeal was returned to the trial court for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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FYI: 8th Cir Upholds Exclusion of "Similar Borrower" Testimony in 8-to-1 Punitive Damages Award Case

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a punitive damages award in an approximately 8-to-1 ratio to compensatory damages to a borrower who sued her mortgage loan servicer for alleged common law invasion of privacy and for allegedly violating the Fair Credit Reporting Act ("FCRA"), the Fair Debt Collection Practices Act ("FDCPA") and the Real Estate Settlement Procedures Act ("RESPA").

 

In so ruling, the Court also held that the trial court properly excluded the testimony of a non-party consumer who was supposedly treated similarly by the servicer to rebut the servicer's assertions of good faith conduct, explaining that the testimony would have been unfairly prejudicial and "would result in 'mini trials' that would needlessly confuse and distract the jury."

 

A copy of the opinion is available at:  Link to Opinion

 

The borrower obtained a loan secured by a $100,000 mortgage in order to purchase her home in Missouri. She defaulted shortly thereafter and filed a Chapter 13 bankruptcy proceeding. The reorganization plan provided for payment of the mortgage arrearage over five years.

 

The borrower received a discharge, and asked the loan servicer to resume sending her monthly mortgage statements. The first statement she received allegedly contained several errors, including that the account was delinquent over $8,500.

 

The servicer allegedly began trying to collect the delinquent amount by placing phone calls to the borrower's personal and work numbers. The borrower claimed she repeatedly tried to explain the problem, but the servicer's employees, relying on incorrect records, supposedly only reiterated what the records showed.

 

After several months, the servicer determined it had made an accounting error and "escalated" the dispute to its research department, requesting that the borrower's account be credited from the servicer's "internal bankruptcy fund." The servicer's "cash department rejected the requested credit, however, because [the borrower] had been discharged from bankruptcy and her account no longer reflected a bankruptcy code."

 

The servicer allegedly continued with its collection efforts, despite the borrower's supposedly repeated attempts to point out the accounting errors. The borrower continued to make her monthly payments, but the servicer stopped accepting them several months after it discovered the accounting error "because its internal policy required it to accept only full payments" and according to its records the account was still delinquent.

 

The borrower's counsel sent a letter to the servicer in an attempt to explain the errors. In response, the servicer "verified the debt and enclosed the note, deed of trust and a payment history." When the borrower's attorney asked for a substantive response, the servicer responded that a foreclosure sale was scheduled and conducted multiple inspections of the home "allegedly in preparation for the foreclosure sale."

 

The borrower sued in Missouri state court and moved for a temporary restraining order stopping the foreclosure sale, alleging that the servicer's conduct (a) violated her right of privacy under Missouri law; (b) willfully and negligently violated the FCRA; (c) violated the FDCPA; and (e) violated RESPA.  The servicer removed the case to federal court and cancelled the foreclosure sale.

 

After several months of investigation, the servicer credited the borrower's account $5,162, but allegedly did not remove the improper 'lender-paid' expenses or correct the rejection of the borrower's monthly payments.  Accordingly, the servicer's records continued to show a delinquency for some 8 months after the lawsuit was filed, at which time the account balance was finally corrected.

 

At trial, the borrower testified about her efforts to get the servicer to correct its errors as well as how her credit score was adversely affected "because [the servicer] reported a delinquent debt that she did not owe." The borrower and her doctor also testified the she "experienced symptoms of severe stress attributable to [the servicer's conduct], including abdominal pain, vomiting, depression and anxiety." Finally, the borrower testified that the servicer ignored her repeated requests to stop calling her, especially at work.

 

The servicer admitted that it made multiple errors regarding the borrower's account, but argued that its mistakes were not "intentional or the product of an institutionalized corporate practice."

 

The jury awarded the borrower $50,000 in compensatory damages and $400,000 in punitive damages on her state law invasion of privacy claim, and $50,000 in compensatory damages for the servicer's negligent credit reporting under FCRA.  The servicer moved to alter or amend the judgment, which was denied by the trial court.

 

The servicer appealed, arguing there was insufficient evidence to support the jury's award of punitive damages "because [the borrower] failed to present clear and convincing evidence that [the servicer] acted with an evil motive or with a reckless indifference to [the borrower's] rights."  Alternatively, the servicer argued that the punitive damages award was "unconstitutionally excessive in violation of the Due Process Clause of the Fourteenth Amendment to the United States Constitution."

 

The borrower cross-appealed as to the trial court's exclusion of testimony at trial and its jury instruction on her RESPA claim.

 

The Eighth Circuit began its analysis by noting that "[u]nder Missouri law, punitive damages may be awarded for invasion of privacy. … Whether the evidence is sufficient to support an award of punitive damages is a question of law, which we review de novo."

 

The Court explained that because punitive damages "are an extraordinary remedy that should be awarded sparingly[,] … [b]efore punitive damages can be awarded, a plaintiff must present clear and convincing evidence of a defendant's culpable mental state. … This standard requires proof that the defendant acted with either an evil motive or a reckless indifference to the plaintiff's rights. … Such proof can be established by direct or circumstantial evidence. … A jury may infer that a defendant has the requisite culpable motive when evidence of the defendant's reckless indifference to the interests and rights of the plaintiff is presented. … Such evidence supporting punitive damages need not be—and often is not—separate from the evidence supporting a substantive claim." Since it is the jury's job "'to evaluate evidence and decide what inferences should be drawn from it'", the jury's verdict will be overturned "only when 'there is a complete absence of probative facts' such that 'no proof beyond speculation [supports] the verdict.'"

 

Concluding that the record "presents no basis to reject the jury's determination[,]" the Eighth Circuit rejected the servicer's argument that insufficient evidence supported the punitive damages award because it believed in good faith that its actions were lawful because the Court had rejected that same argument in a 2008 decision in which it explained that "'[s]imply presenting … evidence of good faith to the jury does not immunize a defendant from punitive damages.'"

 

The Eighth Circuit agreed with the borrower that evidence that the servicer acted with reckless indifference to her rights 'is legally sufficient to establish the requisite mental state to support the punitive damages awarded by the jury…."  In the Court's view, such evidence included the facts that despite the borrower's many attempts to correct the errors and seek assistance, the servicer "aggressively pursued collection," initiated "foreclosure and conducted inspections of her residence" instead of "suspending its efforts."  The Court noted that "it was the jury's responsibility to determine the credibility and weight of the evidence presented … [it] was free to reject [the servicer's] characterization of its conduct and determine these facts and circumstances warranted punitive damages."

 

Turning to the servicer's argument the jury's award of $400,000 in punitive damages was excessive and violated the Due Process Clause, the Eighth Circuit explained that "[a]lthough juries have considerable flexibility in determining the amount of punitive damages, the Due Process Clause serves as a governor and prohibits 'grossly excessive civil punishment.' … Punitive damages are grossly excessive if they 'shock the conscience' of the court' or 'demonstrate passion or prejudice on the part of the trier of fact.'"

 

The Court then addressed the following "three factors when determining whether a punitive damages award shocks the conscience or demonstrates passion or prejudice …[:] '(1) the degree of reprehensibility of the defendant's conduct; (2) the disparity between actual or potential harm suffered and the punitive damages award (often stated as a ratio between the amount of the compensatory damages award and the punitive damages award); and (3) the difference between the punitive damages award and the civil penalties authorized in comparable cases.'"

 

Addressing each factor in turn, the Eighth Circuit first found that the servicer's conduct was sufficiently reprehensible to warrant punitive damages because the borrower suffered physical harm in the form of severe stress that caused "abdominal pain, vomiting, depression and anxiety" rather than just economic harm and "[t]he presence of just one indicium of reprehensibility is sufficient to render conduct reprehensible and support an award of punitive damages." In addition, "the jury specifically determined that [the servicer] acted with a reckless indifference to [the borrower's] substantive rights[,]" which is relevant to a determination of reprehensibility.

 

Moreover, the Court noted that the servicer conceded that the borrower was financially vulnerable, and the conduct in question was not just an isolated incident because the servicer "invaded [the borrower's] privacy over the course of two years through actions including making collection called to [her] at her workplace, conducting home inspections and sending foreclosure letters."

 

Turning to the second factor, the disparity between actual or potential harm suffered and the punitive damages award, the Eighth Circuit rejected the servicer's argument that "the 8-to-1 ratio between [borrower's] $400,000 punitive award and $50,000 compensatory award is too great."

 

The Court explained that under the Supreme Court of the United States' and Eighth Circuit's precedent, while courts "do not apply 'a simple mathematical formula' to determine the constitutionality of a punitive damages award[,] … few awards exceeding a single-digit ratio of punitive to compensatory damages will satisfy due process." However, "[a] higher ratio may be justified when the injury is hard to detect or the monetary damages are difficult to quantify."

 

Relying on its 1999 decision in Morse v. S. Union Co., which approved $70,000 in compensatory damages and $400,000 in punitive damages in a case under the Age Discrimination in Employment Act, a ratio of less than 6-to-1, and where the amount of punitive damages was "less than one one-thousandth" of the employer's net worth, the Eighth Circuit found that the 8-to-1 ratio in the case at bar "does not set off any alarm bells" given that the punitive award "also account for thirty-three-ten-thousandths of one percent (0.00033) of [the servicer's] approximate $1.2 billion net worth."

 

The Eighth Circuit found that the final factor, the "disparity between the punitive damages award and the civil penalties authorized or imposed in comparable cases[,]" did not violate the Due Process Clause of the 14th Amendment. The parties conceded "that there are no comparable civil penalties in this case because there is no civil penalty for invasion of privacy under Missouri law and the civil penalties for [the borrower's] federal claims are nominal." However, the Court noted that because there was "no way discern which conduct the jury considered to be an invasion of [the borrower's] privacy[,]" and in light of the similarities between this case and other in which we have upheld an award of punitive damages," it concluded that "the absence of comparable civil penalties does not render the punitive damages award unconstitutionally excessive."

 

The Court then addressed the borrower's two arguments on cross-appeal.

 

First, the borrower argued that the trial court erred in excluding the testimony of a non-party consumer who was treated similarly by the servicer because such testimony "would have rebutted [the servicer's] claims of good faith and established that [the servicer's] conduct was reckless and reprehensible." The Court affirmed the trial court's exclusion of the testimony because it amounted to "improper, prejudicial propensity evidence" and "admission of such evidence would result in 'mini trials' that would needlessly confuse and distract the jury…."

 

Second, the Eighth Circuit rejected the borrower's argument that the trial court's jury instruction on the RESPA claim was wrong, finding that because the borrower failed to make a detailed objection on the record as required by Federal Rule of Civil Procedure 51, reversal would be proper only if the trial court committed "plain error." "Plain error review is narrow and 'confined to the exceptional case in which error has seriously affected the fairness, integrity, or public reputation of the judicial proceedings."

 

The Court concluded that even assuming the instruction was incorrect, "such an error would not entitle [the borrower] to a reversal under plain-error review" because it did not fundamentally affect the fairness or integrity of the trial, especially in light of the fact that the borrower "recovered $500,000 in damages, a circumstance that undermines any argument that the alleged RESPA error resulted in a miscarriage of justice."

 

The Eighth Circuit affirmed the jury's award of compensatory and punitive damages on all grounds.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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