Seventh Circuit reduces 3 million dollar punitive damage against servicer by eighty percent

As you know, last year a jury in Saccameno v. Servicer Loan Servicing, LLC, No. 1:1-15-cv-1164 (June 21, 2018) tagged a mortgage loan servicer for $500,000 in compensatory damages under the FDCPA, RESPA and breach of contract claims and for a UDAP claim, $82,000 in compensatory and $3 million in punitive damages. Last week, the Seventh Circuit reversed the punitive damage award to $582,000, reflecting a 1:1 ratio to the total compensatory damages awarded. Saccameno v. U.S. Bank N.A., No. 19-1569 (Nov. 27, 2019).

In the underlying action, the servicer had mistakenly coded a borrower’s discharge in bankruptcy as a dismissal in its records. The account therefore continued to show in default. The servicer fixed part of the error after the borrower complained, but it failed to fully correct the account because it continue to falsely report that the borrower failed to make two payments under the bankruptcy plan. As a consequence, the servicer filed a foreclosure action, which was later dismissed, but it persisted in claiming the borrower was in default under the mortgage until the second day of trial in the federal case, when the servicer’s witness realized the error.

The servicer appealed only the punitive damage award arguing that the ratio of punitive damages to actual damages was so disproportionate that it constituted a deprivation of property without due process of law. The Court affirmed that punitive damages were warranted because the servicer’s conduct evidenced a “conscious and deliberate disregard” for the borrower’s rights. It rejected the servicer’s argument that the dispute was an isolated mistake by its employee and human error caused the servicer to miscount the number of mortgage payments. The Court admonished the servicer’s shifting blame to an employee and ruled that the evidence sustained the servicer’s managerial involvement by its complicity in and affirmation of the internal investigation of borrower’s account, its unfounded insistence that borrower was two payments in arrearage, its inability to explain why the incident occurred, its clear failure to remedy the dispute and to recognize what action would have prevented this type of incident from occurring in the future.

The Seventh Circuit analyzed the award against 3 factors: the degree of reprehensibility, the disparity between the harm suffered and the damges awarded and the difference between the award and comparable civil penalties. The evidence sustained a finding of reprehensibility because the servicer exploited borrower’s financial vulnerability, having recently been discharged in bankruptcy. The conduct was indicative of the servicer’s past repeated behavior towards borrowers despite being admonished by governmental regulatory agencies and although not malicious, the behavior showed a reckless disregard for the borrower’s rights.

In considering the ratio between compensatory and punitive damages, the Court focused on the purpose of punitive damages, the servicer’s conduct at issue and employed a single digit ratio between the two types of awards. The Court determined that the total award of $582,000 for compensatory damages was “substantial” and a 1:1 ratio is appropriate in these circumstances. Applying that ratio, the Seventh Circuit reduced the 3 million dollar award to $582,000 in punitive damages.

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