The 8th Circuit Court of Appeals Affirms Borrower’s $500,000 Judgment for Actual and Punitive Damage
In March 2017 the 8th Circuit Court of Appeals affirmed a borrower’s $500,000 judgment against a loan servicer-- $400,000 of the judgment was for punitive damages. See May v. Nationstar Mortgage, LLC, ____ F.3d _____ (8th Cir. 2017). The case arises from a 2007 loan that the borrower used to purchase a home in Missouri. Soon after the entering the 2007 loan, the borrower filed a Chapter 13 Bankruptcy. The borrower entered into a 5-year payment plan to pay down the loan’s arrears. The servicer assumed servicing rights to the loan in 2010 and the servicer started sending the borrower loan statements soon after the bankruptcy concluded in 2013. The loan statements incorrectly stated that the borrower owed $5,000 more than what was actually owed and the servicer initiated collection efforts on that incorrect amount. The borrower, and her counsel, tried repeatedly to inform the servicer that its loan statements were incorrect but they were unsuccessful and the servicer continued to try to collect the debt, it noticed a foreclosure sale and it conducted frequent inspections of the borrower’s home. The borrower filed a lawsuit to enjoin the foreclosure and sought compensatory and punitive damages for, among other counts, invasion of privacy and violations of the Fair Credit Reporting Act.
The borrower prevailed at trial and a jury awarded her $50,000 in compensatory damages and $400,000 in punitive damages for the invasion of privacy claim and an additional $50,000 in damages for violations of the Fair Credit Reporting Act.
On appeal, the servicer challenged the amount of the $400,000 punitive damages award. The servicer argued that the 8:1 ratio between plaintiff’s compensatory damages amount ($50,000) and the punitive damages amount ($400,000) was too great and that punitive damages should not have exceeded a 1:1 ratio. In affirming the jury’s award, the Court of Appeals surveyed prior punitive damages awards and it compared the servicer’s significant net worth to the size of the punitive damages award. In short, given that servicer’s billion dollar plus net worth, the Court of Appeals concluded that the $400,000 punitive damages award represented about .00033 of the servicer’s net worth was not an alarming amount nor was it unconstitutional. Prior cases addressed by the 8th Circuit had upheld punitive damage awards with ratios of 4.8:1 (for a multi-million dollar compensatory award) and 5:1, 5.7:1 for “smaller compensatory damage awards.”
This case is notable because of the way in which the Court of Appeals evaluates the defendant’s net worth in determining if the punitive damages to actual damages award ratio can be upheld. This decision makes clear that, for the same alleged conduct, a defendant with a high net worth can expect to be subject to a higher punitive damages award than a defendant with a more modest net worth.
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