Dollens v. Wells Fargo Bank, N.A.
| Decision Date | 06 April 2020 |
| Docket Number | No. A-1-CA-37194,A-1-CA-37194 |
| 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., Defendant-Appellant. |
| Court | Court of Appeals of New Mexico |
The Duhigg Law Firm, David L. Duhigg, Albuquerque, NM, Treinen Law Office, PC, Rob Treinen, Albuquerque, NM, Michael B. Browde, Albuquerque, NM, for Appellee
Holland & Hart LLP, Larry J. Montaño, Julia Broggi, Santa Fe, NM, Snell & Wilmer L.L.P., Andrew M. Jacobs, Phoenix, AZ, for Appellant
{1} Defendant Wells Fargo Bank, N.A. (Wells Fargo) appeals, on constitutional grounds, the district court's order awarding punitive damages to Plaintiffs in the amount of $2,500,000. Wells Fargo also appeals the district court's order awarding post-judgment interest to run from the date of the original judgment, entered February 14, 2014. We reverse and remand.
{2} This litigation commenced in 2012, when Christopher Dollens (Dollens), individually and on behalf of the Estate of his father, James Dollens (Decedent), and Sandra Evans (collectively, Plaintiffs) brought suit against Wells Fargo and Minnesota Life Insurance Company (Minnesota Life) (collectively, Defendants) in connection with a mortgage accidental death insurance policy, and Wells Fargo's related misapplication of payments and foreclosure on the insured mortgage. Following a bench trial, the district court found for Plaintiffs, and Wells Fargo appealed. We affirmed in part, vacated in part, and reversed and remanded for the reasons set forth in Dollens v. Wells Fargo Bank, N.A. (Dollens I ), 2015-NMCA-096, ¶¶ 2-8, 26-42, 356 P.3d 531. On remand, the district court conducted further proceedings and entered new judgments on attorney fees and punitive damages. Wells Fargo now appeals those judgments. Dollens I contains a detailed factual background, but for purposes of explaining the issues in this second appeal, we provide an updated summary of the facts and procedural history.
{3} Decedent took out a mortgage to buy a home in 2003. Id. ¶ 2. The mortgage was serviced by Wells Fargo, which later marketed and sold to Decedent the mortgage accidental death insurance policy (policy), underwritten by Minnesota Life. Id. The purpose of the policy was to "reduce or extinguish" the mortgage, through benefits paid to Wells Fargo, in the event of Decedent's accidental death. Id. Decedent died in August 2010. Id. ¶ 3. Dollens, as personal representative of the Estate, notified Wells Fargo that he would not be able to make the monthly mortgage payments and would have to sell the home in order to cover the Estate's debts. Id. Dollens then learned of the accidental death policy and submitted a claim on behalf of the Estate. Id. ¶ 4. Although the Estate, and later Minnesota Life, notified Wells Fargo that a claim was pending under the policy, and although both parties requested that Wells Fargo delay or suspend any adverse action on Decedent's mortgage account, Wells Fargo commenced foreclosure proceedings in February 2011. Id. ¶¶ 3-5. Minnesota Life initially denied the claim under the policy, but then reversed its determination, paying Wells Fargo the benefits under the policy on October 5, 2011. Id. ¶ 5.
{4} Meanwhile, Wells Fargo charged various costs and fees to Decedent's mortgage account, including late fees, attorney fees for the foreclosure, and charges for inspecting and preserving the property. Id. ¶ 6. Upon receiving the policy benefits from Minnesota Life, Wells Fargo paid some of the principal and interest on the note, and brought the loan current, but then—rather than paying off the remainder of the mortgage—paid itself for the above-mentioned fees and costs. Id. Wells Fargo then reinstated the mortgage with a reduced balance but did not dismiss the foreclosure action for several months. Id. The Estate made another payment on the mortgage, but was soon in default again, and made no further payments. Id. ¶ 7.
{5} Plaintiffs brought claims against Defendants for breach of the mortgage contract, wrongful foreclosure, breach of the covenant of good faith and fair dealing, violations of the Unfair Practices Act (UPA), violations of the Home Loan Protection Act (HLPA), and for attorney fees and punitive damages. Id. ¶ 8. Plaintiffs settled with Minnesota Life but went to trial on the claims against Wells Fargo.1 Id. Following a bench trial, the district court found in favor of Plaintiffs on all claims except the HLPA claim. Id. On February 14, 2014, the court awarded general damages to Plaintiffs in the amount of $15,633.42, attorney fees of $390,654.34, costs of $48,397.10, and punitive damages of $2,728,109.16. Id. With respect to punitive damages, the district court reached its figure by adding the compensatory damages and attorney fees and costs and multiplying the total times six. Wells Fargo appealed.
{6} We first reviewed Plaintiffs’ UPA claim and upheld the district court's finding that Wells Fargo had violated NMSA 1978, Section 57-12-3 (1971), of the UPA through knowingly creating the perception that, in the event of a claim under a mortgage accidental death insurance policy, Wells Fargo would coordinate in some manner with Minnesota Life, and would not foreclose on an insured mortgage during the pendency of such a claim. Dollens I , 2015-NMCA-096, ¶¶ 13-18, 356 P.3d 531.
{7} Second, we reversed the award of attorney fees holding that the district court had not afforded Wells Fargo a meaningful opportunity to litigate that issue. Id. ¶¶ 22-25. We noted that, while the UPA authorizes an award of attorney fees, the district court also cited (in its initial letter decision) NMSA 1978, Section 48-7-24 (1983) as a basis for its fee award. Dollens I , 2015-NMCA-096, ¶¶ 22, 25, 356 P.3d 531. That section was inapplicable to Plaintiffs’ claims, and did not authorize attorney fees. Id. ¶ 25. Moreover, no fees should have been awarded for the work allocated to Plaintiffs’ common law breach of contract claims. Id. ¶ 23. We directed that, on remand, the district court should give Wells Fargo an opportunity to contest the reasonableness of the fee affidavit and should ensure, to the extent possible, that only fees related to the UPA claim were awarded. Id. ¶¶ 24, 45.
{8} We then turned to the punitive damages award and discussed our concern that the district court had based its award of nearly $3,000,000 almost entirely on the uncontested attorney fee affidavit. Id. ¶ 24. We explained that punitive damages awards are subject to both procedural and substantive limitations. Id. (citing Aken v. Plains Elec. Generation & Transmission Coop., Inc. , 2002-NMSC-021, ¶¶ 11-12, 132 N.M. 401, 49 P.3d 662 ). Without deciding any substantive issues (including whether the attorney fees may properly be considered compensatory, for purposes of considering the ratio of compensatory to punitive damages), we held that, because Wells Fargo had been given no real opportunity to contest the bulk of the purported compensatory damages, the procedures used to reach the punitive damages award were lacking. Id.
{9} We also addressed the parties’ arguments regarding whether all, or only some, of Plaintiffs’ claims should have formed the basis for the district court's punitive damages award. We affirmed the district court's finding that Wells Fargo breached the terms of the mortgage by charging unreasonable and unfounded property inspection and preservation fees. Id. ¶¶ 32–33. We held that punitive damages were available to deter Wells Fargo's demonstrated pattern of continued misconduct in charging such fees. Id. We also affirmed the district court's finding that Wells Fargo breached the terms of the mortgage and note. Id. ¶ 34. Specifically, Wells Fargo violated the express terms of those contracts by paying its own fees and costs before paying all interest and principal due as of the date the payments were received. Id. ¶¶ 34–41. This resulted in a default on the account after the insurance proceeds were received by Wells Fargo, when the insurance proceeds should instead have extinguished the mortgage. Id. ¶¶ 34, 37. Moreover, we held that there was substantial evidence that Wells Fargo acted in bad faith, such that punitive damages were available in connection with this claim. Id. ¶¶ 37, 41. Wells Fargo not only inappropriately prioritized its own fees and costs, but it also inexplicably delayed payments on the principal and interest in the mortgage account, allowing further interest and fees to accrue. Id. ¶¶ 38–40. Wells Fargo then maintained the foreclosure action for several months, even after the account was brought current, and made unjustified demands for payment from the Estate. Id. ¶ 40. There was testimony that such handling of a mortgage account was customary and not isolated or accidental, and thus it was reasonable to conclude that Wells Fargo acted systematically to increase its profits in reckless disregard of the impact on Plaintiffs. Id.
{10} However, we reversed the district court's finding that Wells Fargo was a third-party beneficiary under the policy, and its finding that Wells Fargo had breached the covenant of good faith and fair dealing with respect to the policy. Id. ¶¶ 27–31. Accordingly, we held that no common law punitive damages could be imposed in connection with those claims. Id. ¶ 31. We also held that the UPA claim could not form the basis for the punitive damages award, as the UPA is a separate remedial scheme with its own treble damages provision. Id. ¶ 26 ().
{11} For the...
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