IN RE: Michael L. Jones
Filing
16
OPINION Affirming the opinion of the Bankruptcy Court. Signed by Judge Ivan L.R. Lemelle on 3/18/2013.(ijg, ) (cc: USBC Clerk, J. Magner, U.S. Trustee)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
MICHEAL L. JONES
CIVIL ACTION
VERSUS
NO. 12-1362
WELLS FARGO HOME MORTGAGE,
INC.
SECTION "B"
OPINION
Before the Court is Appellant Wells Fargo Bank, N.A.'s Appeal
from a decision of the United States Bankruptcy Court for the
Eastern District of Louisiana Adversary Case No. 06-1093 (Adv. R.
Docs. 470 and 471). (Rec. Doc. No. 11). Appellee Michael L. Jones
filed a response brief. (Rec. Doc. No. 12). Appellant filed a reply
brief thereto.
Appellant,
(Rec. Doc. No. 13).
Wells
Fargo
Bank,
N.A.
("Wells
Fargo")
has
submitted the following Statement of Issues on Appeal from the
Judgment of the
Bankruptcy Judge entered on April 5, 2012. (Adv.
R. Docs. 470 and 471):
(1)
Whether the Bankruptcy Court erred in awarding punitive
damages
in
light
of
Jones'
failure
to
appeal
the
Bankruptcy Court's initial August 29, 2007 judgment
denying punitive damages. (Rec. Doc. No. 1-3, at 2).
(2)
Whether the Bankruptcy Court erred in failing to afford
Wells Fargo due process, including:
1
(a)
imposing punitive damages and contempt sanctions
for alleged conduct that occurred not only in this
case but also in other cases after the Bankruptcy
court's August 29, 2007 judgment (Id.);
(b) imposing punitive damages and contempt sanctions
without (i) notice to Wells Fargo that the Court
was contemplating contempt sanctions and (ii) Wells
Fargo both being apprised of all the evidence upon
which the Court would rest its adjudication and
having an opportunity for a hearing appropriate to
the
nature
of
the
case
and
the
damages
and
sanctions the Court contemplated imposing (Id.);
and
(c)
refusing Wells Fargo's request that the Bankruptcy
Court take judicial notice of Wells Fargo's postjudgment
efforts
Bankruptcy
to
Court's
comply
not
only
administrative
with
order
the
that
resulted from its ruling in Jones, but also with
the injunctions in this case and the Stewart case
during the existence of those injunctions?
(Id.).
(3) Whether the Bankruptcy Court erred:
(a)
in
awarding
any
punitive
damages
and,
even
if
punitive damages were awardable, in setting the
amount of those damages (Id.); and
2
(b)
in imposing any contempt sanction and, even if the
Court had the authority to impose such a sanction
and the sanction was justified, in setting the
amount of that sanction. (Id.).
Appellant only substantively addresses issues 1, 2(a), and 3
in its briefs. Thus, the Court will only address those issues.
Accordingly, and for the reasons articulated below, IT IS ORDERED
that the opinion of the Bankruptcy Court is AFFIRMED.
Cause of Action and Facts of the Case:
This matter was on remand to the United States Bankruptcy
Court in the Eastern District of Louisiana from the Fifth Circuit
and the District Court. (Rec. Doc. No. 1-2, at 1). The mandate
required reconsideration of monetary sanctions in light of In re
Stewart, 647 F.3d 553 (5th Cir. 2011).
This adversary proceeding was originally filed by Michael L.
Jones,
debtor
("Jones"
or
"Debtor")
in
an
effort
to
recoup
overpayments made to Wells Fargo on his home mortgage loan. (Rec.
Doc.
No.
1-2,
at
2).
The
complaint
requested
return
of
the
overpayments, reimbursement of actual damages, and punitive damages
for violation of the automatic stay. (Id.). At trial, the parties
severed Debtor's request for compensatory and punitive damages from
the merits of Debtor's claim for return of overpayments. (Id., at
3).
3
On April 13, 2007, the Bankruptcy Court entered an Opinion and
Partial Judgment awarding Jones $24,441.65, plus legal interest for
amounts
overcharged
by
Wells
Fargo.
(Id.).
Additionally,
the
Opinion found Wells Fargo to be in violation of the automatic stay
because it applied post-petition payments made by Jones and his
trustee to undisclosed post-petition fees and costs not authorized
by
the
Court,
noticed
to
Debtor
or
his
trustee,
and
in
contravention of Debtor's confirmed plan of reorganization and the
Confirmation Order. (Id.). Wells Fargo was found to be willful and
egregious in its conduct. (Id.).
A second hearing on sanctions, damages, and punitive relief
was held on May 29, 2007. (Id.). At the hearing, Wells Fargo
offered to implement several remedial measures designed to correct
systemic problems with its accounting of home mortgage loans
("Accounting Procedures"). The new Accounting Procedures were
negotiated
between
representative.
Supplemental
the
(Id.).
Memorandum
Bankruptcy
They
were
Opinion,
Court
and
embodied
in
Amended
Wells
a
Fargo's
subsequent
Judgment,
and
Administrative Order 2008-1. (Id., at 3-4). The Amended Judgment
also
awarded
Jones
$67,202.45
in
compensatory
sanctions
for
attorney's fees and costs. (Id., at 4). It also ordered that the
agreed upon new Accounting Procedures be instituted in lieu of
punitive damages. (See Jones v. Wells Fargo, CV 09-07635, Rec. Doc.
No. 11, at 2). Following the agreement and issuance of a judgment
4
and order, Wells Fargo reversed its legal position and appealed the
Amended Judgment to the District Court. (Id.). On appeal, the
District Court affirmed the findings of the bankruptcy court and
increased the compensatory civil award to $170,824,96. (Id.).
However,
because
Wells
Fargo
withdrew
its
consent
to
the
nonmonetary relief ordered, the issue of punitive damages was
remanded for further findings and consideration. (Id.). Wells Fargo
appealed the District Court remand, but the Fifth Circuit dismissed
the appeal for lack of jurisdiction. (Id.).
On October 1, 2009, the Bankruptcy Court imposed the original
sanctions ordered (the Accounting Procedures) in lieu of punitive
damages. Jones v. Wells Fargo Home Mortgage, Inc., 418 B.R. 687
(Bankr. E.D.La. 2009). Based on the findings of the District Court,
the
Bankruptcy
Court
also
entertained
Jones'
request
for
an
increase in compensatory sanctions. (Id.). Wells Fargo opposed the
request, but settled the matter for an undisclosed stipulated
amount. (Id.). Jones appealed the denial of punitive damages.
(Id.). On August 24, 2010, the District Court affirmed the Partial
Judgment on Remand. (Id., at 5). Again, Jones appealed the denial
of punitive relief to the Fifth Circuit. (Id.).
The Stewart Case: On August 23, 2007, more than four months
after the Bankruptcy Court entered its initial opinion in the Jones
case, Ms. Dorothy Stewart filed an Objection to the Proof of Claim
of Wells Fargo in her (separate) bankruptcy case also pending in
5
this district. (Id.). The Objection alleged in part that the amount
claimed by Wells Fargo in its proof of claim was incorrect because
prepetition
payments
had
been
improperly
applied.
(Id.).
The
Memorandum Opinion issued in the Stewart case found that Wells
Fargo misapplied her payments in a fashion identical to Jones. See
In re Stewart, 391 B.R. 327 (Bankr. E.D.La. 2008). As with the
Jones decision, Wells Fargo's actions resulted in an incorrect
amortization
of
Ms.Stewart's
debt
and
the
imposition
of
unauthorized or unwarranted fees and costs. (Rec. Doc. No. 1-2, at
5). Because Wells Fargo's failure was a breach of its obligations
under the Partial Judgment on Remand, it was ordered to audit every
borrower with a case pending in this district for compliance with
the Accounting Procedures. (Id.). The Stewart judgment was affirmed
by the District Court after Wells Fargo appealed. Wells Fargo then
appealed the Stewart judgment to the Fifth Circuit. (Id.). The
Fifth
Circuit
affirmed
the
findings
and
compensatory
award
contained in the Stewart Judgment. In re Stewart, 647 F.3d 553 (5th
Cir. 2011). However, the Fifth Circuit also found that the order
requiring audits of debtor accounts was beyond the Bankruptcy
Court's jurisdiction. (Rec. Doc. No. 1-2, at 5). As a result, that
portion of the relief was vacated. (Id.). The Stewart
appeal
preceded hearing on the Jones appeal. (Id.). In light of Stewart,
the Fifth Circuit remanded the Partial Judgment on Remand for
consideration of alternative, punitive monetary sanctions. (Id.).
6
In the 2012 Bankruptcy court judgment appealed from here (
Jones v. Wells Fargo Home Mortg., Inc., 06-1094 (Bankr. E.D.La.
Apr.5, 2012)), found that Wells Fargo willfully violated the
automatic stay imposed by 11 U.S.C. § 362 when it:
charged Debtor's account with unreasonable fees and
costs; failed to notify Debtor that any of these postpetition chargers were being added to his account; failed
to seek Court approval for same; and paid itself out of
estate funds delivered to it for payment of other debt.
(Rec. Doc. No. 1-2, at 6).
The Bankruptcy Court imposed $3,171,154.00 in punitive damages
on Wells Fargo in connection with its violation of the automatic
stay in Jones' bankruptcy case. (Rec. Doc. No.1-2, at 21). The
issues in this appeal concern only the propriety of the $3.171
million punitive damage award in Jones VIII.
Law and Analysis
A. Standard of Review
"A bankruptcy court's findings of fact are subject to clearly
erroneous review, while its conclusions of law are reviewed de
novo." Pro-Snax Distributors, Inc. v. Family Snacks, Inc., 157 F.3d
414, 420 (5th Cir. 1998).
B. Jones Did Not Waive His Claim for Punitive Damages and thus, the
Claim is not Barred
The waiver doctrine arises as a result of a party's inaction.
It holds that "an issue that could have been but was not raised on
7
appeal" is prevented from being considered on a second appeal.
Lindquist v. City of Pasadena Texas, 669 F.3d 225, 239 (5th Cir.
2012). "The doctrine promotes procedural efficiency and prevents
the bizarre result that a party who has chosen not to argue a point
on a first appeal should stand better as regards the law of the
case than one who had argued and lost." Id., at 239-240 (internal
citation omitted). However, an issue is not waived if there was no
reason to raise it on first appeal or if it could not have been
raised on first appeal. U.S. v. Lee, 358 F.3d 315, 323-24 (5th Cir.
2004).
This case fits under Lee's articulation of a situation in
which there was no reason to raise the issue on first appeal.
Before the issuance of the Jones II decision (Jones v. Wells Fargo
Home Mortgage, Inc., 2007 WL 2480494 (Bankr.E.D.La. 2007), Wells
Fargo offered to implement several remedial measures designed to
correct systemic problems with its accounting of home mortgage
loans. (Rec. Doc. No. 1-2, at 3). The new Accounting Procedures
were negotiated between the bankruptcy court and Wells Fargo's
representative and were embodied in the Jones II opinion. (Id.).
Following the issuance of that opinion, Wells Fargo reversed its
legal position and appealed the Judgment to the District Court.
(Id.). On appeal, the District court held that because Wells Fargo
withdrew its consent to the nonmonetary relief ordered, the issue
of what remedy should be imposed was remanded for further findings
8
and consideration. (Id.). Thus, as Appellee Jones has pointed out,
the District Court order in Jones III (Jones v. Wells Fargo Home
Mortgage, Inc., 319 B.R. 577 (E.D.La. 2008)) nullified the earlier
ruling on punitive damages. In this matter, the district court
specifically ordered that a remedy be reconsidered because of the
particular circumstances that Wells Fargo itself created. There was
no reason for Jones to appeal a ruling that was subsequently
nullified. Thus, the Bankruptcy Court was correct in considering
Jones' claim for punitive damages. We resisted the inclination to
consider Wells Fargo's rationale here as a frivolous obstruction
that needlessly delays and shockingly harasses the ends of justice.
C. The Bankruptcy Court Did Not Err in Awarding and Calculating
Punitive Damages
The Bankruptcy Court's finding that Wells Fargo willfully
violated the automatic stay imposed by 11 U.S.C. § 362 is not at
issue. (Rec. Doc. No. 1-2, at 10). Section 362 allows for the award
of actual damages, including costs and attorneys' fees, as a result
of
a
stay
violation,
and
punitive
damages
"in
appropriate
circumstances." 11 U.S.C. § 362(k). Cases interpreting the standard
for
"appropriate
circumstances"
have
indicated
that
punitive
damages can be supported when the conduct at issue is intentional
and egregious, In re Ketelsen, 880 F.2d 990, 993 (8th Cir. 1989),
or
when
the
defendant
acted
in
9
"bad
faith,"
or
with
actual
knowledge that he was violating the federally protected right or
with reckless disregard of whether he was doing so." In re Sanchez,
372 B.R. 289, 315 (Bankr. S.D. Tex. 2007).
We accept the Bankruptcy Court's findings of fact as true and
substantially supported by the record. Wells Fargo knew of Debtor's
pending bankruptcy and Wells Fargo is a sophisticated lender with
thousands of claims in bankruptcy cases pending throughout the
country. It is familiar with the provisions of the Bankruptcy Code,
particularly those regarding automatic stay. (Rec. Doc. No. 1-2, at
11). Wells Fargo assessed postpetition charges on this loan while
in bankruptcy. (Id.). Despite assessing postpetition charges, Wells
Fargo withheld this fact from its borrower and diverted payments
made by the trustee and Debtor to satisfy claims not authorized by
the plan or Court. (Id.). Wells Fargo admitted that these actions
were part of its normal course of conduct, practiced in perhaps
thousands of cases. (Id.). Considering these facts, the Bankruptcy
Court found that Wells Fargo's conduct was willful, egregious and
exhibited a reckless disregard for the stay it violated. (Id.).
Punitive damages serve a function broader than compensatory
damages - "they are aimed at deterrence and retribution." State
Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003)
(citing Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532
U.S. 424, 432 (2001)). "Punitive damages may
properly be imposed
to further a State's legitimate interests in punishing unlawful
10
conduct and deterring its repetition." BMW of North America, Inc.
v. Gore, 517 U.S. 559, 568 (1996). However, although the State
possesses "discretion over the imposition of punitive damages, it
is well established that there are procedural and substantive
constitutional limitations on these awards." State Farm, 538 U.S.,
at 416. "The Due Process Clause of the Fourteenth Amendment
prohibits imposition of grossly excessive or arbitrary punishments
on a tortfeasor." Id. In light of these concerns, the Supreme Court
has established three factors for courts to consider when reviewing
punitive
damages:
(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. Id., at 418 (citing Gore, 517 U.S., at 575).
(i) Degree of reprehensibility
The Supreme Court has stated that "the most important indicum
of the reasonableness of a punitive damages award is the degree of
reprehensibility of the defendant's conduct." State Farm, 538 U.S.,
at 419 (quoting Gore, 517 U.S., at 575). "[I]nfliction of economic
injury, especially when done intentionally through affirmative acts
of misconduct, or when the target is financially vulnerable, can
warrant a substantial penalty." Gore, 517 U.S., at 576. The Court
11
in Gore further stated that:
"evidence that a defendant has repeatedly engaged in
prohibited conduct while knowing or suspecting that it was
unlawful would provide relevant support for an argument that
strong medicine is required to cure the defendant's disrespect
for the law. Our holdings that a recidivist may be punished
more severely than a first offender recognize that repeated
misconduct is more reprehensible than an individual instance
of malfeasance."
Id., at 576-77.
In Philip Morris USA v. Williams, 549 U.S. 346, 355 (2007),
the Supreme Court clarified that evidence of harm to non-parties to
the litigation is relevant to the reprehensibility factor in
assessing punitive damages. Further, "heavier punitive awards have
been thought to be justifiable when wrongdoing is hard to detect
(increased chances of getting away with it), or when the value of
the injury and the corresponding compensatory award are small
(providing low incentives to sue)." Exxon Shipping Co. v. Baker,
554 U.S. 471, 494 (2008).
Appellant Wells Fargo argues that the Bankruptcy Court's
Punitive damages award in Jones VIII was made regarding conduct
that was dissimilar to and independent of the Jones stay violation
and that under Philip Morris, punitive damages may not be imposed
for harm to third parties. (Rec. Doc. No. 11, at 39). However, as
noted earlier, the Supreme Court has said that damage to third
parties may be taken into consideration in an assessment of
reprehensibility. The Bankruptcy Court decision below considered
12
Wells Fargo's practice of violating 362(k) stays, assessing fees
against debtors without notice and the difficulty of any one debtor
uncovering Wells Fargo's actions. The Bankruptcy Court made the
following findings of fact and assessments regarding the degree of
reprehensibility of Wells Fargo's Actions:
Wells Fargo did not adjust Jones' loan as current on the
petition date and instead continued to carry the past due
amounts contained in the its proof of claim in Jones'
balance. It also misapplied funds regardless of source or
intended application, to pre and post-petition charges,
interest and non-interest bearing debt in contravention
of the note, mortgage, plan, and confirmation order.
Wells Fargo assessed and paid itself post-petition fees
and charges without approval from the Court or notice to
Jones. The net effect of Wells Fargo's actions was an
overcharge in excess of $24,000. When Jones questioned
the amounts owed, Wells Fargo refused to explain its
calculations or provide an amortization schedule. When
Jones sued Wells Fargo, it again failed to properly
account for its calculations. After judgment was awarded,
Wells Fargo fought the compensatory portion of the award
despite never challenging the calculations of the
overpayment. In fact, Wells Fargo's initial legal
position both before this Court and in its first appeal
denied any responsibility to refused payments demanded in
error. The cost to Jones was hundreds of thousands of
dollars in legal fees and five years of litigation.
(Rec. Doc. No. 1-2, at 13).
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
13
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 post-petition 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.
(Id., at 15-16)(emphasis added).
Over eighty percent of chapter 13 debtors in this
district have incomes of less than $40,000 per year. The
burden of extensive discovery and delay is particularly
overwhelming. 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.
(Id., at 16).
Based upon the factual record before it, the Bankruptcy Court
was correct in deeming Wells Fargo's behavior reprehensible and
finding that an award of punitive damages was appropriate.
(ii) The ratio between the punitive damages and the actual harm
inflicted on the plaintiff was not excessive.
14
Exemplary damages must bear a "reasonable relationship" to
compensatory damages. Gore, 517 U.S., at 580. The proper inquiry
for this factor is "whether there is a reasonable relationship
between the punitive damages award and the harm likely to result
from the defendant's conduct as well as the harm that actually has
occurred." Id., at 581 (internal citation omitted). The Supreme
Court has reiterated that it has "consistently rejected the notion
that the constitutional line [between acceptable and unacceptable
punitive damages] is marked by a simple mathematical formula, even
one that compares actual and potential damages to the punitive
award." Id. Low awards of compensatory damages may support a higher
ratio
than
high
compensatory
awards,
if,
for
example,
a
particularly egregious act has resulted in only a small amount of
economic damages. Id. Higher ratios may also be justified in cases
in which the injury is hard to detect. Id., at 582.
The Fifth Circuit has interpreted Gore to suggested that "a
court should aggregate the actual and threatened harm suffered not
only by the plaintiff but also by individuals similarly situated."
Watson v. Johnson Mobile Homes, et al., 284 F.3d 568, 573 (5th Cir.
2002). Furthermore, the Supreme Court has stated that "[i]t is
appropriate to consider the magnitude of the potential harm that
the defendant's conduct would have caused to its intended victim if
the wrongful plan had succeeded, as well as the possible harm to
other victims that might have resulted if similar future behavior
15
were not deterred." TXO Production Corp. v. Alliance Resources
Corp., 509 U.S. 443, 460 (1993).
Additionally, the Fifth Circuit has noted that the size of a
corporation is a factor that is indicative of the reasonableness of
a damages award. Eichenseer v. Reserve Life Ins. Co., 934 F.2d
1377, 1383 (5th Cir. 1991). In that case, the Fifth Circuit held
that an award that was close in proportion with the plaintiff's
compensatory damages would have had little deterrent effect against
a massive corporation. Id. As one of the fundamental purposes of
punitive damages is to deter a wrongdoer from future misconduct, it
is proper to consider the deterrent effect of an award. Id., at
1384.
The Supreme Court has deemed a variety of ratios between
compensatory and punitive damages permissible, demonstrating that
there is no absolute rule on the proper ratio to apply. See TXO,
509 U.S., at 443 (the relevant ratio was not more than 10 to 1);
Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 23-24 (1991) (4
times the amount of compensatory damages might be "close to the
line" but did not "cross the line into the area of constitutional
impropriety"); Gore, 517 U.S., at 583 (a ratio of punitive damages
that was over 500 times the amount of actual harm as determined by
a jury justified the "rais[ing of] a judicial eyebrow"). Thus, the
Bankruptcy Court was not required to maintain a strict ceiling on
the ratio of compensatory to punitive damages.
16
The Bankruptcy Court considered the following in making its
determination on punitive damages:
Norwest Mortgage, Inc., n/k/a Wells Fargo was assessed
$2,000,000 in exemplary damages for charging postpetition
attorneys fees to debtors' accounts without disclosing
the fees to anyone. Slick v. Norwest Mortgage, Inc., 2002
Bankr. Lexis 722 (Bankr.S.D.Ala.2002). Four years after
the ruling in Slick, Jones found that Wells Fargo
continued to charge undisclosed postpetition fees despite
that multi-million dollar damage assessment. Following
Jones, Wells Fargo was involved in at least two
additional challenges to the calculation of its claims in
[Bankruptcy] court. In both cases, the evidence revealed
that Wells Fargo continued to improperly amortize loans
by employing the same practices prohibited by Jones. (See
In re Stewart, 391 B.R. 327 (Bankr.E.D.La. 2008); In re
Fitch, 390 B.R. 834 (Bankr. E.D.La. 2008)). In short,
Wells Fargo has shown no inclination to change its
conduct.
When necessary to deter reprehensible conduct, courts
often award punitive damages in an amount multiple times
greater than actual damages....Wells Fargo is the second
largest loan servicer in the United States...Previous
sanctions in Slick, Stewart, Fitch and even this case
have not deterred Wells Fargo. As recognized in
Eichenseer, if previous awards do not deter sanctionable
conduct, larger awards may be necessary.
(Rec. Doc. No. 1-2, at 18-19).
Under the circumstances, a ratio of 1:10 - compensatory to
punitive damages is reasonable to deter reprehensible conduct.
(iii) The Bankruptcy's Court calculation of the base amount of
damages was acceptable and Wells Fargo was sufficiently on notice
that a severe punishment could be imposed to warrant the Bankruptcy
Court's assessment of punitive damages.
Wells Fargo argues that in Jones II, the court awarded Jones
17
and his counsel a total of $91,665.67 in actual damages for pursing
Wells Fargo's violation of the automatic stay. This award, they
assert, was composed of compensatory damages, amounts that were
voluntarily returned pre-judgment, sanctions, attorneys' fees and
court costs, and interest on the voluntarily repaid sums. (Rec.
Doc. No. 11, at 42). Wells Fargo argues that the $91,665.67 in
actual damages, established in August 2007 before any appeals were
taken or litigated, is the proper maximum "base" amount for any
punitive
damages
award.
(Id.).
Instead,
the
Bankruptcy
Court
granted an additional $224,449.73 in attorneys' fees Jones incurred
after the Jones II judgment - resulting in a base amount of $317,
115.40. Wells Fargo argues that the effect of including those fees
as part of the baseline to which the punitive ratio was applied was
to punish Wells Fargo for appealing. (Rec. Doc. No. 13, at 27).
Wells Fargo submits that adding the appellate attorneys' fees to
the baseline in calculating punitive damages punished Wells Fargo
for exercising its First Amendment right to appeals. (Id., at 29).
Wells Fargo submits that the "Ninth Circuit ruled in Landsberg v.
Scrabble Crossword Game Players, Inc., 802 F.2d 1193, 1199 (9th
Cir. 1986) that punitive damages may not be doubled on remand on
account of intervening appellate litigation and that the Court held
that
increasing
punitive
damages
after
a
appealed the prior judgment posed a 'chilling
party
successfully
impediment to the
right to appeal' and it vacated the punitive damages award on that
18
ground. (Id., at 43).
In Landsberg, however, the defendants were not challenging the
district court's award of attorney's fees for work done upon
remand, they were challenging the direct doubling of a punitive
award. 802 F.2d, at 1199. In fact, the Court in that case concluded
that "the [district] court did not abuse its discretion in awarding
fees for the work upon remand." Id. The Landsberg Court did not
discuss whether the award of attorney's fees affected the award of
punitive damages. Additionally, in Landsberg, the
had
already
issued
a
decision
on
punitive
district court
damages
and
then
increased those damages on remand. In this case, the bankruptcy
court issued a decision on punitive damages for the first time in
the appealed decision at issue here. Furthermore, various courts
have held that "the costs of litigation to vindicate rights is an
appropriate element to consider in justifying a punitive damages
award." Continental Trend Resources, Inc. v. OXY USA, Inc., 101
F.3d 634, 642 (10th Cir. 1996). This is particularly relevant in
light of the fact that "[a] rich defendant may act oppressively and
force or prolong litigation simply because it can afford to do so
and a plaintiff may not be able to bear the costs and delay." Id.
Thus, the Bankruptcy Court's calculation of the base award was
reasonable.
As the Bankruptcy Court noted, fairness requires that a person
receive "fair notice not only of the conduct that will subject him
19
to punishment, but also the severity of the penalty." Gore, 517
U.S., at 574. This implicates comparisons between the punitive
damages awarded and the civil penalties authorized in comparable
cases. In bankruptcy cases, this comparison can be difficult.
"[T]here is not a complex statutory scheme designed to respond to
violations of the automatic stay other than the Bankruptcy code
itself. Significantly, § 362(h) (now 362 (k))specifically provides
for the award of punitive damages. Thus, creditors must be presumed
to be on notice that if they violate the automatic stay, they will
be liable for punitive damages." In re Johnson, Bankr. No. 0602537-BGC-13, 2007 WL 2274715, *15 (Bankr.N.D.Ala. 2007)(citing In
re Ocasio, 272 B.R. 815,827 (1 st Cir. BAP 2002)). "Bankruptcy
court decisions are far from uniform with respect to when and under
what circumstances punitive damages are awarded." Id. "How a stay
violator is treated in bankruptcy cases varies because of the many
different circumstances that can arise." In re Johnson, 2007 WL
2274715, *16.
In this case, the Bankruptcy Court reasoned that:
Wells Fargo is a sophisticated lender and a regular
participant in bankruptcy proceedings throughout the
country. It is represented by able counsel and wellversed in the Bankruptcy Code and the provisions of
automatic stay. Wells Fargo was on notice by the language
of 362(k) that it could be subject to punitive damages,
and it was on notice through jurisprudence that those
damages could be severe."
(Rec. Doc. No. 1-2, 20), see also In re Swilling, Adv. No. 0820
1016-WRS, 2008 WL 4999090, at *3 (Bankr. M.D.Ala 2008).
Furthermore, other courts have reasoned that "sophisticated
commercial enterprises have a clear obligation to adjust their
programming and procedures...to handle complex matters correctly."
In re McCormack, 203 B.R. 521, 525 (Bankr. N.H. 1996).
Thus,
Wells
Fargo
was
on
notice
that
its
actions
were
impermissible and could incur significant penalties and assessing
punitive damages at ten times the amount of compensatory damages is
within the constitutional limits.
Accordingly, for the reasons articulated above, IT IS
ORDERED that the Bankruptcy Court's opinion is AFFIRMED.
New Orleans, Louisiana, this 18th day of March, 2013.
____________________________
UNITED STATES DISTRICT JUDGE
21
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