Dollens v. Wells Fargo Bank, N.A.

• Decision Date: 09 June 2015
• Docket Number: 33,669.
• Parties: Christopher J. DOLLENS, individually and as Personal Representative of the Estate of James E. Dollens, Deceased, and Sandra Evans, Plaintiffs–Appellees, v. WELLS FARGO BANK, N.A., Successor by merger to Wells Fargo Home Mortgage, Inc., Defendants–Appellants, and The Duhigg Law Firm and Stewart Butler, Esq., Plaintiffs–Appellees, v. Wells Fargo Bank d/b/a Wells Fargo Home Mortgage d/b/a Wells Fargo Home Mortgage CPI Number 708, Defendant–Appellant.
• Court: Court of Appeals of New Mexico

356 P.3d 531

Christopher J. DOLLENS, individually and as Personal Representative of the Estate of James E. Dollens, Deceased, and Sandra Evans, Plaintiffs–Appellees

v.WELLS FARGO BANK, N.A., Successor by merger to Wells Fargo Home Mortgage, Inc., Defendants–AppellantsandThe Duhigg Law Firm and Stewart Butler, Esq., Plaintiffs–Appellees

v.Wells Fargo Bank d/b/a Wells Fargo Home Mortgage d/b/a Wells Fargo Home Mortgage CPI Number 708, Defendant–Appellant.

33,669.

Court of Appeals of New Mexico.

June 9, 2015.

The Duhigg Law Firm, Katy M. Duhigg, John J. Duhigg, Albuquerque, NM, Treinen Law Office, P.C., Rob Treinen, Albuquerque, NM, for Appellees

Moses, Dunn, Farmer & Tuthill, P.C., Alicia L. Gutierrez, Mark A. Glenn, Albuquerque, NM, Snell and Wilmer, L.L.P., Andrew M. Jacobs, Tucson, AZ, for Appellants.

OPINION

VANZI, Judge.

{1} Wells Fargo appeals from a judgment awarding substantial attorney fees and punitive damages based on a “small disputed amount” of out-of-pocket damages. On appeal from Dollens v. Wells Fargo, No. CV–2011–05295, Wells Fargo contends that the district court erred by finding that Wells Fargo breached its contract with James Dollens (Decedent), that it violated the covenant of good faith and fair dealing and the Unfair Practices Act, and that it engaged in “wrongful foreclosure.” Wells Fargo also contends that the district court erred in awarding attorney fees and punitive damages under the present circumstances and, finally, asks us to address issues that were raised in the separate, but since-consolidated, attorney fee litigation in Duhigg Law Firm v. Wells Fargo, No. CV–2011–10129. We affirm in part and reverse in part. Specifically, we remand for reconsideration of the award of attorney fees and damages as more fully explained in this Opinion.

BACKGROUND

{2} On April 4, 2003, Decedent borrowed $133,700 on a thirty-year note to buy a home. The note was secured by a mortgage, which was serviced by Wells Fargo for the owner/investor Freddie Mac. Wells Fargo later marketed to Decedent a mortgage accidental death insurance policy that was underwritten by the Minnesota Life Insurance Company (Minnesota Life). Decedent purchased the policy and timely paid his monthly premiums and mortgage payments directly to Wells Fargo, which was designated as the policy holder and beneficiary under the certificate of insurance. The certificate provided that the purpose of the policy was to “reduce or extinguish the insured loan” in the event Decedent was to suffer an accidental death, which was defined subject to various exclusions. In short, Minnesota Life would pay out the insurance proceeds upon receipt of proof in writing that Decedent suffered a qualifying death, which Wells Fargo would then apply to pay off or pay down the loan.

{3} Decedent died on August 18, 2010. Wells Fargo was notified of the death by August 24, 2010, by Decedent's widow and also by his son, Christopher Dollens (Dollens), who was the personal representative of the Estate. Dollens told Wells Fargo he would not be able to make payments on the mortgage and that he intended to sell his father's home to cover the Estate's debts. According to evidence later presented at trial, Wells Fargo made no mention in these communications of the existence of the accidental death insurance policy, which, in theory, could have paid off the balance of the loan. The loan became delinquent shortly thereafter, and Wells Fargo began various efforts at collection—sending form letters and notices, leaving telephone messages seeking payment, and eventually, on February 9, 2011, initiating foreclosure proceedings against the home.

{4} Meanwhile, in October and November 2010, Dollens apparently learned of the accidental death policy and submitted a claim on behalf of the Estate to Minnesota Life in the manner prescribed by the certificate of insurance. On January 10, 2011, attorneys for the Estate sent a copy of the death certificate with a letter to Wells Fargo asking it for “a suspension and ... dismissal of the claim[ed] mortgage debt” in light of the pending claim. The death certificate described the cause of death as “[m]ultiple blunt force injuries” and the manner of death as “[u]ndetermined.” A checkbox for “[a]ccident” remained unchecked. For reasons that were never adequately explained at trial, Wells Fargo did not respond to the letter.

{5} On February 3, 2011, Minnesota Life wrote to Wells Fargo, confirming that a claim was pending and requesting that it delay any adverse action on the account. Instead, Wells Fargo completed a Notice of Death form for Minnesota Life—indicating the amount due on the note at the time of Decedent's death—and moved ahead with foreclosure. Minnesota Life denied Decedent's claim in May 2011 but then reversed its denial several months later, eventually paying Wells Fargo the accidental death benefit on October 5, 2011.

{6} In the interim, between Decedent's death and Minnesota Life's payment of the insurance proceeds, delinquency and default gave rise to various costs that Wells Fargo charged to the mortgage account. These included late fees for delinquent months, foreclosure attorney fees, and charges for inspecting and preserving the property. Adding these costs to the amounts on the note, Wells Fargo determined that the insurance proceeds were now insufficient to pay off the loan, and in a highly disputed transaction, it applied the funds to pay all fees, bring the loan current, and reduce the principal and interest on the note, reinstating the mortgage with a remaining principal balance of $4,416.45. Despite bringing the account current, Wells Fargo did not dismiss its foreclosure action for several months.

{7} The Estate did not make another monthly mortgage payment until February 13, 2012, thus accruing additional late fees and property inspection fees. The February payment brought the loan current for a second time, now with a total principal balance of $1,842.71. But the account was soon in default again, and the Estate made no further payments. Fees continued to accrue until Wells Fargo stopped servicing the loan on September 18, 2012.

{8} Dollens, Decedent's daughter (Sandra Evans), and the Estate (collectively, the Estate) filed suit against Wells Fargo and Minnesota Life, alleging numerous violations by Wells Fargo, including breach of contract, “breach of the covenant of good faith and fair dealing and wrongful foreclosure,” violations of the Unfair Practices Act (UPA), violations of the Home Loan Protection Act, and for attorney fees pursuant to NMSA 1978, Section 48–7–24 (1983).¹ All claims against Minnesota Life were settled in a stipulated order dated November 19, 2012, leaving Wells Fargo as the lone defendant in Dollens v. Wells Fargo, No. CV–2011–05295, and in Duhigg Law Firm v. Wells Fargo, No. CV–2011–10129, which was a related action demanding that a portion of the accidental death benefit be paid to the Estate's attorneys as additional attorney fees on theories of unjust enrichment, the common fund doctrine, and equitable attorney's charging lien. The two cases were eventually consolidated, and the district court held a bench trial in which the plaintiffs in Dollens and Duhigg prevailed on all claims except the Home Loan Protection Act. The judgment awarded general damages of $15,633.42,² attorney fees of $390,654.34, costs of $48,397.10, and punitive damages of $2,728,109.16 in Dollens and separate attorney fees of $51,189.08 in Duhigg. This appeal followed.

DISCUSSION

Standard of Review

{9} The district court's factual determinations are reviewed for substantial evidence.

The appellate courts “cannot substitute our judgment of the facts for that of the trial court since only the trier of facts may weigh the evidence, determine the credibility of witnesses, reconcile inconsistent or contradictory statements of witnesses, and decide where the truth lies.” Lewis v. Bloom, 1981–NMSC–051, ¶ 4, 96 N.M. 63, 628 P.2d 308. However, “when the resolution of the issue depends upon the interpretation of documentary evidence, this Court is in as good a position as the trial court to interpret the evidence.” Bank of N.Y. v. Romero, 2014–NMSC–007, ¶ 18, 320 P.3d 1 (alteration, internal quotation marks, and citation omitted).

Liability for Out–of–Pocket Damages

{10} The district court's findings on liability are less than clear. It is difficult to determine which conduct justified the court's findings as to each claim. Our best interpretation is that the various claims can be distilled to three theories ruled on by the district court: (1) Wells Fargo failed to implement any protection from foreclosure for home buyers, including Decedent, who purchased a mortgage accidental death insurance policy that it marketed and sold on behalf of Minnesota Life; (2) it engaged in a widespread, automated practice of charging unreasonable fees, including dubious property inspection and preservation fees; and (3) it misapplied to these spurious fees and costs the insurance proceeds that should have been applied to first pay off the mortgage.

{11} While the second and third theories relate to the substance of particular fees and the specific procedure employed in applying the insurance proceeds when they were finally received, the first theory formed the Estate's primary argument that no fees were valid because Wells Fargo had a duty to protect from default purchasers of the accidental death insurance policies that it markets and sells for that specific purpose. This duty, according to the Estate, would have obligated Wells Fargo to pursue the insurance proceeds, of which it was aware, and to which it would be entitled, on behalf of the mortgage account or to suspend or waive collection of payments while the insurance claim was pending. Along these lines, the Estate argued at trial that the alleged out-of-pocket damages all flowed from Wells Fargo's actions with respect to the accidental death insurance policy, whether or not Wells Fargo later...