Friday, March 31, 2017
Karen Sloan, The Recorder, March 29, 2017
Bank of America's "heartless" treatment of two California mortgage holders may be a financial boon to five Golden State law schools. A federal bankruptcy judge last week awarded $45 million in punitive damages and more than $1 million in actual damages to a Sacramento-area couple whose home was wrongfully foreclosed upon. At the same time, the judge directed the bulk of the punitive damages to go to the five law schools housed at University of California campuses as well as a pair of consumer rights legal organizations.
University of California, Berkeley School of Law; the University of California, Davis School of Law; the University of California, Hastings College of the Law; the University of California at Los Angeles School of Law; and the University of California, Irvine School of Law would each received $4 million earmarked for consumer law education and direct legal services—minus any taxes owed by the plaintiffs on the award—under a March 23 opinion signed by Judge Christopher Klein of the U.S. Bankruptcy Court for the Eastern District of California. The National Consumer Law Center and the National Consumer Bankruptcy Rights Center are both to receive $10 million after taxes. The remaining $5 million in punitive damages goes to the plaintiffs.
"It caught me out of the blue," said UC Davis Law Dean Kevin Johnson. "I was very surprised. This doesn't usually happen."
Johnson was unaware of the case—and the windfall for his campus—until UC Irvine Law Dean Erwin Chemerinsky alerted his fellow UC deans to Klein's ruling last week. David Faigman, dean at UC Hastings, also said the award was a pleasant surprise. "In a sense, what the court is saying is when a defendant has behaved badly, the costs associated with that is providing resources to support legal education to create protectors so that other, future defendants don't behave badly," Faigman said. "And if they do, they'll get caught."
The bank's "high degree of reprehensibility" in the case called for punitive damages that would attract the attention of the bank's board of directors and serve as a deterrent, Klein found. The amount owed to the plaintiffs for lost wages, emotional distress, and their portion of the punitive damages would merely be seen as the cost of doing business for the banking behemoth, he wrote in the opinion. Hence, the majority of the $45 million award will go to organizations and law schools that can help prevent banks for taking advantage of consumers—an unusual provision.
"By channeling to these public academic and consumer advocacy institutions the societal portion of legitimate punitive damages, to be earmarked for consumer law purposes, this court is able to fashion a punitive damages remedy that addresses the enormity of the situation," Klein wrote.
In a statement from Bank of America, the company expressed regret that plaintiffs Erik and Renée Sundquist had a "challenging experience" with their mortgage.
"We believe some of the court's rulings are unprecedented and unsupported, and we plan to appeal," the bank's statement reads. Dennise Henderson, a Sacramento solo practitioner who represented the Sundquists, said she was pleased with Klein's ruling. "Generally, I'm thrilled," she said in an interview Wednesday. "Bank of America has been exposed."
But Henderson expressed reservations about Klein's allocation of the bulk of punitive damages to the law schools and consumer protection organizations, in part because her clients had no voice in deciding where the money will go. California's public law schools engage in some good public interest legal work, she said, but they also produce lawyers who go on to represent large banks against consumers like her clients. The underlying problem is that most lawyers won't take cases like the Sundquists' to trial and face off against the banks' teams of Big Law attorneys. (Bank of America was represented by attorneys from Reed Smith in the Sundquist case.)
Johnson said preliminary ideas for UC Davis' funds from the suit include an endowed chair in consumer law, and a recurring consumer law conference, perhaps in collaboration with the other UC law schools. Hastings is mulling the addition of professors with consumer protection expertise, or grants to students who do consumer protection work during their summers, Faigman said.