Prof. Dan Schechter’s Comments on Sundquist

My post on In re Sundquist is here.  As part of his summary of cases distributed by the California Insolvency Law Committee, Prof. Dan Schechter had the following observations on In re Sundquist:

AUTHOR’S COMMENT: Given the court’s careful discussion of the evidence, I predict that the liability phase of this decision will withstand review. I also predict affirmance of the award of compensatory damages. I am not so sure, however, about the award of punitive damages. The United States Supreme Court has sharply curtailed the allowable ratio of compensatory damages to punitive damages. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003): “The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award.”

Here, the court attempted to avoid the specter of a windfall to the borrowers by channeling or redirecting the bulk of the punitive damage award to a variety of public entities involved in consumer protection activities. I know of no authority for that remedy, well-intentioned though it may be.

Given the current political climate, and given the latest wave of very large verdicts against the lending industry resulting from “mortgage modification charades,” I would not be surprised if Congress were to enact special emergency protections for lending institutions against this new form of lender liability.

Whatever happens in Congress, the underlying message is painfully clear: after years of scorched-earth litigation, and after years of ugly evidence, the courts are thoroughly disgusted with the banking industry’s handling of the loan modification process. We are past the point at which the handwriting is on the wall. The courts are now tattooing the handwriting onto the bankers’ foreheads, using blunt needles and bright red ink.

For a discussion of Oskoui, supra, see 2017-12 Comm. Fin. News. NL 24, When Lender Encourages Borrower to Make Payments in Pursuit of Unavailable Mortgage Modification, Lender Has Engaged in Deceptive Practices.

These materials were written by Professor Dan Schechter of Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw.  Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them. Thank you for your continued support of the Committee.


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