11th Circuit Upholds Punitive Damages for Wrongful Foreclosure

The Eleventh Circuit Court of Appeals recently affirmed a jury’s award of $3 million in punitive damages in a wrongful foreclosure action arising out of an alleged escrow calculation error.

In the underlying suit, the plaintiff alleged wrongful foreclosure, conversion, interference with property, and intentional infliction of emotional distress in connection with the foreclosure of multiple rental properties owned by the plaintiff.  The dispute arose from an increase in the escrow deposit portion of the plaintiff’s monthly mortgage payments, which the plaintiff challenged.  Although the mortgage servicer acknowledged that the escrow analysis could have reflected an escrow error, the servicer failed to otherwise explain the increase and continued to demand payment.  The mortgage servicer also began placing the plaintiff’s ongoing payments into a suspense account from which late fees and expenses were deducted, and eventually foreclosed on the properties.

At trial, a jury found for the plaintiff and awarded $3,506,000 in damages, including $3 million in punitive damages based in part on a finding that the mortgage servicer acted with the specific intent to cause the plaintiff harm.  The mortgage servicer moved for a new trial on the grounds that the punitive damages award was unconstitutionally excessive and that there was insufficient evidence for the jury’s finding of specific intent.  The district court denied the motion, and the mortgage servicer appealed.

The Eleventh Circuit affirmed the district court’s decision and found that the jury’s punitive damages award was not grossly excessive and therefore did not violate the mortgage servicer’s constitutional rights.  In this regard, the court largely focused on the allegations that the mortgage servicer “refused to justify or correct the payment increase and repeatedly demanded payments to which it knew it was not entitled,” and its use of the suspense account to deduct as its own income “even more late fees and expenses that it was aware were based on an unreasonable increase.”  The court also held that the district court did not abuse its discretion by determining that the jury’s finding of specific intent (which was based on the conclusion that the mortgage servicer knew its conduct was substantially certain to cause the plaintiff emotional harm) was not against the weight of the evidence.

The opinion in McGinnis v. Am. Home Mortg. Servicing, Inc. is available here.