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May v. Nationstar Mortgage, LLC

United States Court of Appeals, Eighth Circuit

March 29, 2017

Jeannie K. May Plaintiff- Appellee
v.
Nationstar Mortgage, LLC Defendant-Appellant Jeannie K. May Plaintiff- Appellant
v.
Nationstar Mortgage, LLC Defendant-Appellee

          Submitted: December 15, 2016

         Appeals from United States District Court for the Eastern District of Missouri - St. Louis

          Before WOLLMAN and SMITH, [1] Circuit Judges, and WRIGHT, [2] District Judge.

          WRIGHT, District Judge.

         Appellee/Cross-Appellant Jeannie K. May commenced this action to recover damages under state and federal law arising from the debt-collection practices of Appellant/Cross-Appellee Nationstar Mortgage, Inc. A jury found in favor of May on her invasion-of-privacy claim and her claim that Nationstar negligently violated the Fair Credit Reporting Act. The jury awarded May compensatory damages on both claims and punitive damages on her invasion-of-privacy claim.

         On appeal, Nationstar argues that insufficient evidence supports the jury's award of punitive damages because May failed to present clear and convincing evidence that Nationstar acted with an evil motive or with a reckless indifference to May's rights. In the alternative, Nationstar contends that the punitive damages award is unconstitutionally excessive in violation of the Due Process Clause of the Fourteenth Amendment to the United States Constitution. May cross-appeals, challenging the district court's[3] exclusion of testimony at trial and its jury instruction addressing the Real Estate Settlement Practices Act. We affirm.

         May purchased a home in Overland, Missouri, secured by a $100, 000 mortgage in 2007. Shortly thereafter, she stopped making mortgage payments and filed for Chapter 13 bankruptcy. Through the bankruptcy process, May entered a five-year payment plan to pay down her mortgage and arrears. Although Nationstar acquired the servicing rights to May's mortgage in 2010, Nationstar did not communicate directly with May because of the pending bankruptcy. When May's debt was discharged from bankruptcy in January 2013, she requested monthly mortgage statements from Nationstar.

         May received her first mortgage statement in March 2013. The statement erroneously included thousands of dollars in "lender-paid" expenses. Also, rather than applying a $51 credit to May's account, Nationstar improperly debited $5, 162 from the account. Nationstar's errors caused its records to incorrectly reflect a delinquency of $8, 534.94 on May's mortgage. Nationstar initiated collection efforts.

         May received her first collection call from Nationstar in March 2013, the same month that she began receiving mortgage statements. May immediately contacted Nationstar, but Nationstar's employees-acting on erroneous records-informed May that she was delinquent on her mortgage. During the next several months, May regularly received calls from Nationstar at her home, in public and, most often, at work.

         In April 2013, prompted by a call from May, Nationstar submitted May's file to its research department. Nationstar determined on May 15, 2013, that it had made an accounting error in May's account and directed its cash department to credit the account from Nationstar's internal bankruptcy fund. Nationstar's cash department rejected the requested credit, however, because May had been discharged from bankruptcy and her account no longer reflected a bankruptcy code. Nationstar's research department never followed up on this discrepancy, and Nationstar never credited May's account.

         Instead, Nationstar resumed its collection efforts and presented May with two options-vacate her home or accept a loan modification. The proposed loan modification would have added the erroneously calculated arrears to May's principal balance. May refused, and Nationstar initiated the loan modification anyway. May repeatedly attempted to correct the accounting errors by calling and sending written complaints to Nationstar. Although May continued tendering monthly mortgage payments, Nationstar began rejecting the payments in September 2013 because its internal policy required it to accept only full payments. Nationstar deemed May's payments insufficient because of its erroneous determination that her account was in arrears. Nationstar initiated its foreclosure process. May retained counsel.

         In his December 19, 2013 letter, May's attorney attempted to explain May's circumstances to Nationstar. In response, Nationstar's correspondence verified the debt and enclosed the note, deed of trust and a payment history. May's attorney requested a substantive response. Nationstar in turn notified May of the February 24, 2014 foreclosure sale. Thereafter, Nationstar conducted frequent inspections of May's residence, allegedly in preparation for the foreclosure sale.

         May filed this lawsuit together with a motion for a temporary restraining order to stop the foreclosure sale. As relevant here, May alleged that Nationstar's conduct (1) violated her right to privacy under Missouri law, (2) constituted negligent reporting under the Fair Credit Reporting Act, (3) willfully violated the Fair Credit Reporting Act, (4) violated the Fair Debt Collection Practices Act, and (5) violated the Real Estate Settlement Practices Act. Nationstar removed the action to the Eastern District of Missouri and cancelled the foreclosure sale. Nationstar's subsequent investigative and remedial process took several months. On April 28, 2014, Nationstar credited the erroneously deducted $5, 162 to May's account, but Nationstar did not remove the improper "lender-paid" expenses or correct the rejection of May's monthly payments. Nationstar's revised records continued to erroneously indicate that May's account was delinquent. The account balance on May's mortgage was not corrected until October 2014.

         At trial, May recounted her experience with Nationstar. This included May's repeated efforts to remedy her account with Nationstar and stop Nationstar's collection practices. May's credit score was also adversely affected because Nationstar reported a delinquent debt that she did not owe. May and her physician testified that May experienced symptoms of severe stress attributable to Nationstar's conduct, including abdominal pain, vomiting, depression and anxiety. May testified that Nationstar ignored her repeated requests to stop calling her, particularly at work, and that Nationstar's employees spoke to her in a mocking and sarcastic manner on several occasions. May argued that Nationstar's corporate culture unduly focused on collection efforts, which prevented Nationstar from correcting her account sooner.

         Nationstar admitted that it made many mistakes when servicing May's account, but disputed May's allegations that these mistakes were intentional or the product of an institutionalized corporate practice. To counter May's suggestion that Nationstar was motivated by profit when it sought to foreclose on May's home, Nationstar presented evidence that it loses money when it forecloses on a property.

         The jury awarded May $50, 000 in compensatory damages and $400, 000 in punitive damages for Nationstar's invasion of her privacy, in violation of Missouri law, and $50, 000 in compensatory damages for Nationstar's negligent reporting, in violation of the Fair Credit Reporting Act. The district court subsequently denied Nationstar's motion to alter or amend the judgment. Nationstar's appeal and May's cross-appeal follow.

         I.

         Nationstar advances two arguments, in the alternative, that challenge the award of punitive damages. First, Nationstar argues that insufficient evidence supports the jury's award of punitive damages because May failed to present clear and convincing evidence that Nationstar acted with an evil motive or a reckless indifference to May's rights. Alternatively, Nationstar challenges the constitutionality of the punitive damages award, arguing that because it is excessive, the award violates the Due Process Clause of the Fourteenth Amendment to the United States Constitution. We address each argument in turn.

         A.

         Nationstar asserts that insufficient evidence supports the jury's award of $400, 000 in punitive damages because the evidence fails to establish that Nationstar acted with ill-will or malice. Rather, according to Nationstar, the evidence supports the conclusion that Nationstar's errors were made in good faith. May counters that Nationstar was notified of its mistakes and its conduct thereafter demonstrated a "reckless disregard" to May's rights. By concluding that Nationstar acted with a reckless indifference to her rights, May contends, the jury found Nationstar's persistent collection efforts-despite May's payment history and debt protests-were inconsistent with Nationstar's claimed good faith.

         When exercising diversity jurisdiction, as we do here, we apply the forum state's substantive law to any state-law claims. See Bazzi v. Tyco Healthcare Grp., LP, 652 F.3d 943, 946 (8th Cir. 2011). Under Missouri law, punitive damages may be awarded for invasion of privacy. Engman v. Sw. Bell Tel. Co., 591 S.W.2d 78, 81-82 (Mo.Ct.App. 1979). The purpose of punitive damages is not to compensate the plaintiff, but rather to punish and deter the defendant. Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 110 (Mo. 1996). As such, punitive damages are an extraordinary and harsh remedy that should be awarded sparingly. Id. Whether the evidence is sufficient to support an award of punitive damages is a question of law, ...


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