From Casetext: Smarter Legal Research

Fisher v. Wells Fargo Bank

California Court of Appeals, Fourth District, Second Division
Sep 2, 2009
No. E043771 (Cal. Ct. App. Sep. 2, 2009)

Opinion

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County No. RCV074822, Martin A. Hildreth, Judge. (Retired judge of the former San Bernardino Mun. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)

Theodora Oringher Miller & Richman, Richard J. Decker and Parry G. Cameron for Defendant and Appellant.

Brennan, Wiener & Associates and Robert F. Brennan for Plaintiffs and Respondents.


OPINION

McKinster, J.

Defendant and appellant Wells Fargo Home Mortgage, Inc. (hereafter defendant) appeals from the judgment entered against it and in favor of plaintiffs and respondents Reed Fisher and Maryann Fisher (sometimes referred to hereafter collectively as plaintiffs, or individually by first and last name) on their complaint for damages resulting from violations of the federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.; hereafter FCRA) and the California Consumer Credit Reporting Agencies Act (Civ. Code, § 1785.1 et seq.; hereafter CCRAA). Plaintiffs, who are husband and wife, filed their complaint against defendant and TransUnion, a credit reporting agency, in order to correct Reed Fisher’s TransUnion credit report which incorrectly showed delinquent payments on plaintiffs’ Wells Fargo home mortgage. Plaintiffs notified defendant of the error in July 2001. Defendant in turn instructed the three credit reporting agencies, one of which is TransUnion, to correct the negative information (referred to in the trial court and occasionally hereafter as a derogatory notation). Two of the three agencies made the correction as instructed, but TransUnion corrected the error only as to Maryann Fisher and not as to Reed Fisher. It took two years before TransUnion removed the derogatory notation, despite plaintiffs repeated requests to correct the error. Plaintiffs sued defendant and TransUnion under various theories of recovery including the pertinent state and federal fair credit reporting statutes. Plaintiffs settled with TransUnion and proceeded to trial against defendant only. A jury found in favor of plaintiffs on both statutory theories of recovery, and attributed 100 percent of the responsibility for plaintiffs’ actual damages to defendant. The jury awarded plaintiffs compensatory damages of $15,000 under each theory of recovery, and punitive damages of $750,000 under the FCRA and $120,000 under the CCRAA. After the trial court denied defendant’s motion for judgment notwithstanding the verdict (JNOV) and motion for new trial, it granted plaintiffs’ motion for attorney fees, awarding them a total of $283,594.45 in costs and fees.

Although plaintiffs’ complaint included other theories of recovery, they dismissed those other theories at the start of trial. Therefore, the only theories presented to the jury were the FCRA and CCRAA violations alleged in plaintiffs’ first cause of action.

Plaintiffs also settled with Lonestar Mortgage Services, which plaintiffs added as a doe defendant, after defendant wrongly initiated foreclosure proceedings on plaintiffs’ property.

Plaintiffs elected the larger FCRA verdict, and judgment was entered accordingly.

In this appeal, defendant challenges the trial court’s orders denying its JNOV motion and its motion for new trial, asserting first, as it did in the trial court that the evidence does not support the jury’s verdict because the evidence does not show that defendant continued to report any incorrect information to TransUnion about plaintiff Reed Fisher; that plaintiffs’ attorney engaged in misconduct during closing argument; that plaintiffs were fully compensated in their settlement with TransUnion for any damage they allegedly suffered; and the evidence does not support an award of punitive damages, but even if it does, the award is excessive.

We agree with defendant’s claim that the punitive damage award is excessive and as such violates the due process clause of the United States Constitution. Therefore, we will reduce that award to $150,000 and affirm the judgment as modified.

FACTUAL AND PROCEDURAL BACKGROUND

The parties recount the facts in detail and at length in their respective briefs. As pertinent to this appeal, the facts, which essentially are undisputed, reveal that in March 2001 plaintiffs’ home was declared uninhabitable by the City of San Clemente due to land subsidence. Plaintiffs had financed the purchase of that home with a loan from G.E. Capital which at some point assigned the loan to defendant “for servicing.” After the property became uninhabitable defendant agreed to an initial 90-day forbearance on the loan (April, May, and June of 2001), and later extended the forbearance an additional 90 days. Despite the forbearance agreement, either defendant or G.E. Capital reported to Experian, TransUnion, and Equifax, the three major credit reporting agencies, that plaintiffs were 90 days delinquent on their mortgage payment. Plaintiffs learned about the derogatory notation on their credit reports in July 2001 when their applications to various lenders for a loan to purchase a home in Utah were all denied.

Defendant takes issue with use of the term “agreement” because plaintiffs never signed the written agreement which, as defendant notes, stated among other things, that defendant would not stop reporting delinquency of the debt to the credit reporting agencies. That provision is not relevant in this appeal because defendant did not rely on it at trial, and even though not signed by plaintiffs, defendant honored its agreement to forbear collection on the loan.

Plaintiffs contacted defendant on July 23, 2001, and requested it remove the derogatory notation from their credit reports. Defendant immediately issued a credit stop, a procedure that prevents any additional information from being reported to the credit reporting agencies. On August 8, 2001, defendant sent a Universal Data Form (UDF) to the three major credit reporting agencies directing them to remove the delinquent payment information from plaintiffs’ credit reports. In September, plaintiffs learned that two credit reporting agencies still included the derogatory information in plaintiffs’ credit reports. Plaintiff Maryann Fisher contacted defendant in September to again request that defendant remove the derogatory information. Plaintiffs believed that request was successful and that their credit reports had been corrected by all three credit reporting agencies because shortly after Maryann Fisher made this second request, plaintiffs’ application was approved for a loan to purchase a house in Utah. In March 2002, plaintiffs sent defendant an itemization of the expenses they claimed to have incurred as a result of the derogatory information in their credit reports. That letter also included a demand that defendant refrain from submitting erroneous information about them to the credit reporting agencies. In response, defendant sent plaintiffs a check, which they cashed, even though it covered only about 10 percent of their claimed expenses.

In the meantime, plaintiff’s loan on the San Clemente house was transferred from defendant to Freddie Mac, which agreed to charge off the loan balance, with the result that plaintiffs would no longer make payments on the loan but the obligation would remain a lien on the property. Despite the transfer to Freddie Mac and the charge-off agreement, defendant mistakenly initiated foreclosure proceedings against plaintiffs, a process that was stopped shortly before the scheduled foreclosure sale in March 2002. None of the foreclosure information was reported to the credit reporting agencies, presumably because of the credit stop defendant had issued in July 2001, and therefore plaintiffs did not rely on that error as a basis for recovery at trial.

In May 2003, plaintiffs learned that Reed Fisher’s TransUnion credit report still contained the derogatory notation regarding the delinquent mortgage loan payments. Plaintiffs sent written notice to defendant and also to TransUnion again requesting that the derogatory information be removed. Defendant responded in a letter dated May 23, 2003, that it had not reported any negative payment history information to the credit reporting agencies. TransUnion responded by sending a Consumer Dispute Verification (CDV, also sometimes referred to in the trial court as an ACDV) to defendant notifying it that plaintiffs were disputing the delinquent payment information included in Reed Fisher’s credit report. Plaintiffs sent letters to defendant again on June 2, 2003, and June 16, 2003, informing defendant that the delinquent mortgage payment information was still included in Reed Fisher’s TransUnion credit report and again demanding the error be corrected.

Maryann Fisher testified that in February 2002, in the process of preventing the foreclosure, plaintiffs discovered that TransUnion was still reporting the derogatory information on Reed Fisher’s credit report. Plaintiffs apparently did not contact either TransUnion or defendant at that time to request the information be removed from Reed Fisher’s credit report, although they did note the problem in the above mentioned March 2002 letter documenting their expenses.

On June 23, 2003, and June 26, 2003, in response to plaintiffs’ letters and the CDV from TransUnion, defendant sent UDF’s to all three credit reporting agencies instructing them to report plaintiffs’ account as paid in full as of September 2001, and to remove all reporting on that account (also sometimes referred to in the trial court and hereafter as a trade line) after that date. Defendant notified plaintiffs by letter on June 23, July 9, and July 11, 2003, that it had instructed the credit reporting agencies to report the loan as paid in full as of September 2001 and to remove all other information on the account.

Despite these actions, on August 19, 2003, Reed Fisher’s TransUnion credit report still included the derogatory mortgage payment information from 2001. Plaintiffs contacted TransUnion once again, and TransUnion sent another CDV to defendant. In response, defendant directed TransUnion to delete, or “cloak,” all information about the trade line from Reed Fisher’s credit report. TransUnion complied with that direction on August 21, 2003. On August 27, 2003, plaintiffs filed this lawsuit.

DISCUSSION

In this appeal from the judgment against it, defendant challenges the trial court’s order denying its JNOV motion and the trial court’s order denying its motion for new trial. We first address the order denying the motion for JNOV. Our review of that ruling is governed by the principle that because a JNOV motion challenges the sufficiency of the evidence to support the verdict, on appeal, we review an order denying such a motion to determine whether the jury’s verdict is supported by substantial evidence. (Diffey v. Riverside County Sheriff’s Department (2000) 84 Cal.App.4th 1031, 1035.) We do not weigh the evidence or judge the credibility of witnesses, but, disregarding conflicting evidence and indulging every legitimate inference in favor of the jury’s verdict, we determine whether the evidence is sufficient to support that verdict. (Stubblefield Construction Co. v. City of San Bernardino (1995) 32 Cal.App.4th 687, 703.)

1. THE TRIAL COURT PROPERLY DENIED DEFENDANT’S JNOV MOTION

Although a motion for JNOV challenges the sufficiency of the evidence to support the verdict, defendant’s first challenge to the trial court’s order denying that motion raises an issue of law. Specifically, defendant claims, as it did in its JNOV motion in the trial court, that under title 15 United States Code section 1681s-2(b), the pertinent FCRA provision, plaintiffs’ private right of action only applies to events that occurred after they contacted TransUnion and TransUnion sent the CDV to defendant. Therefore, defendant contends that it can only be held liable to plaintiffs for the events that occurred after May 2003 when TransUnion sent the CDV to defendant advising it that plaintiffs disputed the late mortgage payment information.

Defendant does not actually quote the above cited code section in its opening brief and therefore has not demonstrated that the law is as represented. However, even if we accept defendant’s representation as accurate, the point is not properly raised for the first time in a JNOV motion.

The parties do not dispute the language of the provision in question, and therefore we will not quote it in this opinion. Plaintiffs acknowledged in the trial court that there is no private right of action under title 15 United States Code 1681s-2(b), and that they were proceeding under the above noted FCRA and CCRAA code sections.

The law that governs a jury’s verdict is set out in the instructions the trial court gives to the jury. Defendant does not claim, nor does the record on appeal indicate, that the jury was instructed on the noted legal principle or that defendant requested such an instruction and the trial court denied that request. Because defendant did not raise the issue in the trial court and request that it be included in the trial court’s instructions to the jury, defendant has not demonstrated that error occurred and therefore cannot complain that the evidence is insufficient to establish a fact about which the jury was not instructed. (See Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1535 (Null) [“where a party to a civil lawsuit claims a jury verdict is not supported by the evidence, but asserts no error in the jury instructions, the adequacy of the evidence must be measured against the instructions given the jury”].)

Defendant also contends that the evidence is insufficient to support the jury’s verdict because there is no substantial evidence to show that after August 2001 defendant continued to send incorrect information to the credit reporting agencies. Defendant’s assertion is incorrect.

Although defendant discredits the evidence, describing it as speculation, it nevertheless acknowledges that Elizabeth Nicodemus, a team leader in TransUnion’s Priority Processing Department (the department that handles credit reporting disputes) testified, in pertinent part, that the information TransUnion includes in its credit reports comes from its subscribers, such as defendant, which transmit the information monthly on tapes; and even if defendant had previously sent a UDF requesting that the information be deleted, TransUnion would include the delinquent loan payment information in Reed Fisher’s credit report if defendant continued to include that information in the monthly tapes. According to Ms. Nicodemus, because the delinquent mortgage payment information was included in Reed Fisher’s May 2003 TransUnion credit report, defendant would have included that late payment information in the last tape TransUnion received from defendant before it prepared Reed Fisher’s May 2003 credit report. Although defendant claimed at trial that TransUnion was responsible for the error, the jury could reasonably infer from the fact that defendant erroneously initiated foreclosure proceedings on the property, that defendant did not maintain accurate information and therefore defendant was the source of the incorrect delinquent mortgage payment information included on Reed Fisher’s TransUnion credit report.

Defendant’s employee, Midge Baker, explained that the tapes are electronic transmissions from defendant’s operating system through secured lines directly to the credit reporting agencies.

In short, the above noted evidence is sufficient to support the jury’s implied finding that defendant continued to provide incorrect information to TransUnion about Reed Fisher after August of 2001. Consequently, the trial court correctly denied defendant’s JNOV motion.

2. THE TRIAL COURT PROPERLY DENIED DEFENDANT’S NEW TRIAL MOTION

A. Misconduct Issue is Not Preserved for Review on Appeal

Defendant next contends that the trial court should have granted its motion for new trial because plaintiffs’ attorney committed misconduct during closing argument first by asserting arguments that were not supported by the evidence, and next by offering a new argument in his final closing that was based on a view of the evidence defendant had not anticipated and therefore had not presented evidence at trial to refute. Defendant contends this argument not only was improper but also constituted unfair surprise. Although we do not share the view that plaintiffs’ counsel engaged in misconduct, we will not resolve that issue because defendant did not object during trial when the alleged misconduct purportedly occurred. As our state Supreme Court pointed out long ago in Horn v. Atchison, T. & S.F. Ry. Co. (1964) 61 Cal.2d 602, “Generally a claim of misconduct is entitled to no consideration on appeal unless the record shows a timely and proper objection and a request that the jury be admonished.... In the absence of a timely objection the offended party is deemed to have waived the claim of error through his participation in the atmosphere which produced the claim of prejudice.” (Id. at p. 610; see also Whitfield v. Roth (1974) 10 Cal.3d 874, 891-892.)

Defendant cites Minneapolis, St. Paul & Sault Ste. Marie Ry. Co. v. Moquin (1931) 283 U.S. 520 as support for the view that an objection was not required to preserve the issue for review on appeal. The issue in that case was whether the Court of Appeal, after concluding the verdict was the result of trial counsel’s appeals to the jury’s passions and prejudice, could properly order a reduction of the damage award as an alternative to a new trial. The Supreme Court held that the alternative remedy was improper and that the appellate court should have reversed the judgment: “In actions under the [Federal Employers’ Liability Act] no verdict can be permitted to stand which is found to be in any degree the result of appeals to passion and prejudice. Obviously such means may be quite as effective to beget a wholly wrong verdict as to produce an excessive one. A litigant gaining a verdict thereby will not be permitted the benefit of calculation, which can be little better than speculation, as to the extent of the wrong inflicted upon his opponent.” (Id. at pp. 521-522.) Because it does not address the issue of waiver or the need for an objection, the case is irrelevant.

Moreover, counsel’s closing argument did not constitute legal surprise, as defendant contends, but if it had, the issue was waived by defendant’s failure to raise the issue before the jury rendered its verdict. “[W]here a situation arises which might constitute legal surprise, counsel cannot speculate on a favorable verdict. He must act at the earliest possible moment for the ‘right to a new trial on the ground of surprise is waived if, when the surprise is discovered, it is not made known to the court, and no motion is made for a mistrial or continuance of the cause.’” (Kauffman v. De Mutiis (1948) 31 Cal.2d 429, 432.) Defendant did not object during plaintiffs’ closing argument or otherwise raise the purported new theory issue before the cause was submitted to the jury. As a result, defendant waived the issue, and the trial court properly denied defendant’s new trial motion.

B. Compensatory Damages Are Not Excessive

Defendant contends, as it did in its new trial motion, that the trial court should have granted its request to reduce, or offset, the jury’s $15,000 compensatory damage award by the amount plaintiffs received in their settlements with TransUnion and Lonestar, respectively. Defendant cites Civil Code section 877, subdivision (a) for the principle that a good faith settlement by one of several joint tortfeasors shall reduce the claims against the other tortfeasors. Plaintiffs’ damage claim under the FCRA is not subject to state tort rules. As plaintiffs point out, “Where contribution is sought by one who has had to pay damages for violating a federal statute, the scope and limitations of the right of contribution are invariably treated as questions of federal rather than state law.” (Donovan v. Robbins (7th Cir. 1985) 752 F.2d 1170, 1179.) There is no equitable offset for a cause of action under the FCRA. (Nelson v. Equifax Information Services LLC (C.D. Cal. 2007) 522 F.Supp.2d 1222, 1239.) Defendant does not cite contrary authority and therefore we must conclude the trial court correctly rejected defendant’s offset claim.

C. Evidence is Sufficient to Support Punitive Damage Award

Defendant contends as it did in its JNOV motion and motion for new trial that the evidence presented at trial is insufficient to support the punitive damage award under the FCRA. According to the trial court’s instructions to the jury, punitive damages can be awarded “under the FCRA only if you first determine [defendant] failed to comply with the FCRA, and the failure to comply was willful. If [defendant’s] failure to comply with the FCRA was not willful, then you cannot award any punitive damages to Plaintiffs. [¶] If you determine that [defendant] acted with the knowledge that its actions violated Plaintiffs’ rights, or if you determine that [defendant] acted with reckless disregard for Plaintiffs’ rights, then you must find that [defendant] acted willfully. [¶] On the other hand, if you determine that [defendant] attempted in good faith to comply with the FCRA, then you must find that [defendant] did not act willfully.” As for defendant’s obligations under the FCRA, the trial court instructed the jury, in pertinent part, that defendant is a furnisher of credit information to the credit bureaus; a furnisher of credit information must conduct a reasonable investigation of disputed derogatory credit information; “‘investigation’ under the FCRA is defined as a detailed inquiry or systematic examination... [and] requires some degree of careful inquiry by furnishers of credit information”; “[u]pon receiving notice from a consumer, a furnisher of credit information must act with diligence to correct false or inaccurate credit reporting”; and “‘diligence’ means ‘done with care and effort.’” The trial court also instructed, “When a furnisher receives a notice of a dispute with regard to the completeness or accuracy of any information provuded [sic] by the furnisher to a consumer reporting agency, the furnisher shall: [¶] 1. Conduct an investigation with respect to the disputed information; [¶] 2. Review all relevant information provided by the consumer reporting agency; [¶] 3. Report the results of the investigation to the consumer reporting agency; [¶] 4. If an item of information disputed by a consumer is found to be inaccurate or incomplete or cannot be verified after any investigation, for purposes of reporting to a consumer reporting agency only, as appropriate, based on the results of the investigation promptly -- [¶] a. Modify that item of information; [¶] b. Delete that item of information; or, c. Permanently block the reporting of that item of information. [¶] The furnisher must complete its investigation within 30 days of receiving notice from the consumer reporting agency.”

The trial court’s instructions to the jury were not reported and the trial court did not initial or otherwise individually identify the written instructions that were actually given. We assume the trial court gave the above quoted instruction from the fact that the instruction follows a page in the clerk’s transcript entitled “Instructions to the Jury” and on which the word “Given” is checked.

Defendant does not challenge the correctness of the jury instructions.

As previously explained, in assessing the sufficiency of evidence to support a jury’s verdict we do not weigh the evidence or judge the credibility of witnesses, but, disregarding conflicting evidence and indulging every legitimate inference in favor of the jury’s verdict, we determine whether the evidence is sufficient to support that verdict. (Stubblefield Construction Co. v. City of San Bernardino, supra, 32 Cal.App.4th at p. 703.) Application of these principles to the jury’s finding that defendant acted willfully leads us to conclude, for reasons we now explain, that the finding is supported by substantial evidence.

According to the law set out in the jury instructions, quoted above, defendant was required under the FCRA to conduct a diligent investigation once it received plaintiffs’ claim that their credit reports contained inaccurate information. Such an investigation, according to the jury instructions, required defendant to undertake a careful, detailed inquiry or systematic examination of the problem.

The evidence presented at trial, and recounted above, shows that after plaintiffs contacted defendant on July 23, 2001, and requested that defendant remove the derogatory notation from their credit reports, defendant issued a credit stop, and sent a UDF to the three major credit reporting agencies directing them to remove the delinquent payment information from plaintiffs’ credit reports. In September, after plaintiffs learned that two credit reporting agencies still included the derogatory information in plaintiffs’ credit reports, Maryann Fisher contacted defendant again to request that it remove the information. According to Maryann Fisher, defendant told her that it had sent another UDF. When plaintiffs notified defendant in May 2003 that the incorrect mortgage payment information had not been removed from Reed Fisher’s TransUnion credit report, defendant sent plaintiffs a letter stating that it had not reported any negative payment history information to the credit reporting agencies. After plaintiffs again complained about the incorrect information, defendant sent UDF’s to all three credit reporting agencies instructing them to report plaintiffs’ account as paid in full as of September 2001, and to remove all reporting on that account. When that did not work, and plaintiffs reported in August 2003 that the incorrect payment information had not been removed, defendant directed TransUnion to delete, or “cloak,” all information about the trade line from Reed Fisher’s credit report.

Midge Baker, defendant’s employee, testified in pertinent part, that it was a mistake to delete the entire trade line. Instead, “[i]t should have been actually researched and responded to in accordance [sic].” Baker also testified that defendant has production quotas for its employees. Employees responsible for responding to consumer credit reporting complaints are expected to process 35 UDF’s per day, and those who respond to CDV’s from credit reporting agencies are expected to process 85 per day, which translates to four and 12 per hour, respectively.

Plaintiffs’ expert witness also testified that cloaking the entire trade line had an adverse impact on Reed Fisher’s credit score because it removed favorable payment history information along with the incorrect delinquent payment information.

A jury could find based on the above quoted evidence that defendant’s failure to conduct the requisite careful investigation was willful in that each time plaintiffs complained that the inaccurate delinquent mortgage payment information continued to appear on Reed Fisher’s TransUnion credit report, defendant responded with the least amount of effort possible, and as a result the error was not corrected. From the evidence that defendant engaged in only a minimal effort to correct the error, even after it was apprised that its minimal effort had not succeeded, the jury could reasonably infer defendant acted with recklessness and thus that its failure to conduct the required investigation was willful.

According to plaintiffs’ expert, deleting or cloaking the entire trade line was also the easiest solution for defendant and eliminated the need to determine the actual cause of the problem.

The cases defendant relies on as authority for its argument that the evidence is insufficient to support a finding of willfulness either predate the Supreme Court decision in Safeco Ins. Co. of America v. Burr (2007) 551 U.S. 47, which held that a willful act under the FCRA includes acts that are committed with reckless disregard of a statutory duty, or are distinguishable based on their facts, or pertain to the size rather than the fact of the punitive damage award.

Because we conclude the evidence is sufficient to support a punitive damage award, we next must address defendant’s claim that the award is excessive.

D. Punitive Damage Award is Excessive

The jury awarded plaintiffs punitive damages of $750,000. In its motion for new trial defendant not only challenged the sufficiency of the evidence to support that award, but also asserted that the jury’s punitive damage award is excessive and therefore violates state law and the federal Constitution. The trial court rejected defendant’s claims. On this issue we must agree with defendant, for reasons we now explain.

“To determine the constitutional limits of a punitive damages award in any given case, we look to three ‘guideposts’ articulated by the United States Supreme Court: ‘(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.’ [Citations.]” (Gober v. Ralphs Grocery Co. (2006) 137 Cal.App.4th 204, 215, quoting State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 418 (State Farm).) “In deciding whether an award of punitive damages is constitutionally excessive under State Farm and its predecessors, we are to review the award de novo, making an independent assessment of the reprehensibility of the defendant’s conduct, the relationship between the award and the harm done to the plaintiff, and the relationship between the award and civil penalties authorized for comparable conduct. [Citations.] This ‘[e]xacting appellate review’ is intended to ensure punitive damages are the product of the ‘“‘application of law, rather than a decisionmaker’s caprice.’”’ [Citation.]” (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1172 (Simon), quoting State Farm, at p. 418, and Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424, 436-443.)

1. Degree of Reprehensibility

“[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.” (Simon, supra, 35 Cal.4th at p. 1180, quoting State Farm, supra, 538 U.S. at p. 419.) “In StateFarm, the court summarized the subsidiary factual circumstances it believed particularly relevant to assessing reprehensibility: ‘We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.’ [Citation.]” (Simon, at p. 1180, quoting State Farm, at p. 419.)

Our evaluation of defendant’s conduct in light of the above specified subsidiary considerations leads us to conclude that the conduct was not particularly reprehensible. First, the potential and actual harm caused to plaintiffs was economic, rather than physical and, next, defendant’s conduct did not reflect an indifference to or reckless disregard for the health or safety of plaintiffs. Third, plaintiffs did not present any evidence to show their financial vulnerability at the time in question. Defendant’s conduct did involve repeated action, or repeated failures to correct the erroneous information on Reed Fisher’s TransUnion credit report, and although defendant’s conduct involved more than mere accident, it did not involve intentional malice, trickery, or deceit. In our view, in a hierarchy of reprehensibleness, defendant’s conduct in this case would rank near the bottom. In reaching this conclusion we do not intend to minimize the frustration plaintiffs suffered as a result of defendant’s inability to correct the delinquent mortgage payment information. Nevertheless, we must conclude that defendant’s conduct while annoying and frustrating was not particularly reprehensible when compared with other conduct supporting punitive damage awards.

2. Ratio of Punitive Damages to Harm Done

The jury awarded plaintiffs $15,000 in compensatory damages and $750,000 in punitive damages, which is a ratio of 50 to 1. “Although the United States Supreme Court has ‘consistently rejected the notion that the constitutional line is marked by a simple mathematical formula’ [citation], the high court has concluded that ‘few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.’ [Citation.] The high court ‘also explained that past decisions and statutory penalties approving ratios of 3 or 4 to 1 were “instructive” as to the due process norm, and that while relatively high ratios could be justified when “‘a particularly egregious act has resulted in only a small amount of economic damages’ [citation]... [t]he converse is also true.... When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”’ [Citation.]” (Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1223-1224, quoting BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 582, State Farm, supra, 538 U.S. at p. 425, and Simon, supra, 35 Cal.4th at p. 1182.)

Our California Supreme Court views the above quoted language as creating “a type of presumption: ratios between the punitive damages award and the plaintiff’s actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification (by, for example, extreme reprehensibility or unusually small, hard-to-detect or hard-to-measure compensatory damages), cannot survive appellate scrutiny under the due process clause.” (Simon, supra, 35 Cal.4th at p. 1182, fn. omitted.)

The ratio of 50 to 1 in this case is presumptively suspect under Simon. Thus, the award can survive our review only if the facts established at trial demonstrate a special justification for that award. We have already discussed the “reprehensibility” of defendant’s conduct and have concluded that it was not particularly reprehensible when compared to other conduct supporting punitive damage awards. Moreover, under any view of the evidence, defendant’s conduct in this case does not reflect the “extreme reprehensibility” considered a prerequisite for punitive damage awards that exceed a single digit ratio to compensatory damages.

Nor can we say that plaintiffs’ compensatory damage award of $15,000 was unusually small given the nature of the claimed harm, or that plaintiffs’ actual damages were difficult to assess. Plaintiffs argue the punitive damage award is not excessive because the jury could have awarded them more in compensatory damages in light of the emotional and financial damage they suffered as a result of defendant’s conduct. Plaintiffs do not cite any facts to support their assertion that they suffered injury for which they were not compensated at trial. Absent such a showing, we must conclude the jury’s compensatory damage award fully compensated plaintiffs for the harm they suffered.

In arguing that the punitive damage award in this case is not excessive, plaintiffs also rely on cases in which the ratio of punitive to compensatory damages is far greater than the 50 to 1 ratio at issue in this case. However, plaintiffs do not discuss the facts of those cases, the vast majority of which do not involve FCRA claims and which also predate State Farm. For example, plaintiffs cite TXO Prod. Corp. v. Alliance Res. Corp. (1993) 509 U.S. 443, in which the compensatory damage award was $19,000 and punitive damages were $10 million, resulting in a ratio of 526:1 that the Supreme Court held was not excessive. However, plaintiffs do not mention that the case, which obviously predates State Farm, is a plurality opinion, and that the facts involve gas and oil leases worth millions of dollars. Plaintiffs have shown nothing more than the mathematical comparison, a showing that plaintiffs acknowledge is inadequate to resolve the due process issue. (See BMW of North America, Inc.v. Gore, supra, 517 U.S. at p. 582 [“[W]e have consistently rejected the notion that the constitutional line is marked by a simple mathematical formula, even one that compares actual and potential damages to the punitive damage award”].)

3. Comparable Civil Penalties

The FCRA includes a penalty provision in title 15 United States Code section 1681s(a)(2)(A) that authorizes the Federal Trade Commission to seek penalties of up to $2,500 for knowing violations of the FCRA that constitute a pattern and practice on the part of the defendant. The actual amount of the penalty is determined based among other things on the defendant’s culpability and history of similar conduct. (15 U.S.C. § 1681s(a)(2)(B).) That civil penalty is modest, at best, and as such supports a modest punitive damage award. A civil penalty equal to the punitive damage award of $750,000 at issue in this appeal would require a finding that defendant committed 300 knowing violations of the FCRA, all of which warranted imposition of the maximum fine. The record in this case, viewed in the light most favorable to plaintiffs, supports a finding that defendant committed 24 violations of the FCRA, comprised of the number of months defendant wrongly included the derogatory delinquent mortgage payment information in the information it sent to TransUnion about Reed Fisher. That evidence supports maximum statutory penalties under the FCRA of $60,000.

It occurs to us that the jury also found defendant committed 24 violations of the FCRA, as evidenced by its punitive damage award of $120,000 under the CCRAA. In connection with that award, the verdict form limited the punitive damages to between $100 and $5,000 for each violation committed. A maximum award of $5,000 for each of the 24 months in which the incorrect information appeared in Reed Fisher’s TransUnion credit report equals $120,000. Unlike the CCRAA, the FCRA does not limit punitive damages.

The Simon court observed that although “comparison to [the] statutory penalties cannot tell us precisely how large an award would be constitutional, it clearly does not tend to support the [] award [in that case] of $1.7 million in punitive damages, a sum 340 times the financial harm defendant’s fraud caused plaintiff.” (Simon, supra, 35 Cal.4th at p. 1184.) Even though the disparity in this case is far less dramatic than that in Simon, we nevertheless conclude that the pertinent comparison indicates that the punitive damage award in this case is constitutionally excessive.

The only other justification we arguably must consider is that of defendant’s financial condition, and thus the deterrent effect of the punitive damage award. As explained in Simon, a state has a legitimate interest in authorizing punitive damage awards that have the effect of punishing or deterring wrongful conduct directed at its citizens. “Because a court reviewing the jury’s [punitive damage] award for due process compliance may consider what level of punishment is necessary to vindicate the state’s legitimate interests in deterring conduct harmful to state residents, the defendant’s financial condition remains a legitimate consideration in setting punitive damages. [Citation.] The StateFarm court, however, also emphasized that wealthy defendants are equally entitled to due process and that ‘[t]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award.’ [Citation.]” (Simon, supra, 35 Cal.4th at pp. 1185-1186.)

Defendant waived a bifurcated trial on punitive damages and also waived the right to present net worth evidence.

In this case, the factors identified in State Farm and discussed in Simon do not support the jury’s $750,000 punitive damage award. Therefore, we must conclude based on our review of the record and independent application of those factors that the punitive damage award of $750,000 violates due process even though the size of the award nevertheless is appropriate to punish defendant and deter future wrongful conduct. That justification, standing alone, does not save the award, which in all other respects is excessive, from its constitutional infirmity.

Because we conclude the punitive damage award is constitutionally excessive, we must determine the appropriate amount of such an award. Faced with this same issue and under circumstances similar to those at issue here, the Simon court concluded that the appropriate punitive damage award was one that was 10 times the compensatory damage award of $5,000. (Simon, supra, 35 Cal.4th at p. 1188.) The court held that an award in that amount “will ‘further [California’s] legitimate interests in punishing unlawful conduct and deterring its repetition’ [citation]—interests limited here by the relatively light culpability of the conduct—without exceeding a level ‘both reasonable and proportionate to the amount of harm to the plaintiff’ [citation].” (Id. at pp. 1188-1189.)

A punitive damage award in this case 10 times that of the compensatory damage award of $15,000, or $150,000, achieves the same function and serves the same goals identified in Simon. Accordingly, we conclude that a punitive damage award of $150,000 is consistent with due process and will reduce the jury’s award accordingly.

3. ATTORNEY FEES AWARD IS PROPER

Defendant’s final claim is that the trial court should not have awarded attorney fees to plaintiffs in this action because the trial court should have offset the TransUnion and Lonestar settlement amounts against the jury’s compensatory damage award, an action that would have reduced plaintiffs’ damages to zero. Defendant argues that because plaintiffs would not recover damages, the court could not declare them the prevailing party, and therefore they would not be entitled to recover attorney fees. We previously addressed and rejected defendant’s offset argument. Because that is the only basis upon which defendant challenges the attorney fees award, we must likewise reject that challenge.

DISPOSITION

The judgment is modified by reducing the punitive damage award from $750,000 to $150,000. As modified, the judgment is affirmed.

Plaintiffs to recover their costs on appeal.

We concur: Hollenhorst, Acting P.J., Gaut, J.


Summaries of

Fisher v. Wells Fargo Bank

California Court of Appeals, Fourth District, Second Division
Sep 2, 2009
No. E043771 (Cal. Ct. App. Sep. 2, 2009)
Case details for

Fisher v. Wells Fargo Bank

Case Details

Full title:REED FISHER et al., Plaintiffs and Respondents, v. WELLS FARGO BANK…

Court:California Court of Appeals, Fourth District, Second Division

Date published: Sep 2, 2009

Citations

No. E043771 (Cal. Ct. App. Sep. 2, 2009)