Court Won’t Let Bank of America “Buy and Bury” Judgment Against It

Posted by NCBRC - January 26, 2018

“To name and to shame Bank of America on the public record in an opinion that stays on the books serves a valuable purpose casting sunlight on practices that affect ordinary consumers.” Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No. 14-2278 (Bankr. E.D. Cal. Jan. 18, 2018).

Calling it a “naked effort to coerce this court to erase the record,” the bankruptcy court declined to vacate its 2017 judgment in which it awarded damages for violation of the automatic stay in the amount of $1,074,581.50 and ordered an additional $5 million in punitive damages based on Bank of America’s conduct in connection with Erik and Renee Sundquists’ home mortgage. In addition to the award directed to the Sundquists, the 2017 order included a $45 million punitive damage award to be distributed to various public interest entities which were added to the case as Intervenors. The order also cancelled the Sundquists’ attorney’s contingency fee agreement, citing section 329(b), and ordered payment of her fees on a lodestar basis. Sundquist v. Bank of America (In re Sundquist), 566 B.R. 563 (Bankr. E.D. Cal. 2017) (2017 order) (blogged here).

The parties jointly moved to dismiss the adversary complaint after they reached a settlement agreement in which BA would pay to the Sundquists substantially more that the over $6 million awarded by the court. The settlement addressed the court’s public interest component of the 2017 order by agreeing that the Sundquists would voluntarily designate $600,000.00 of the settlement to go to the Intervenors. BA conditioned the settlement upon the court withdrawing its 2017 published opinion.

After the court’s initial reaction of “No chance. No dice,” the parties entered into judicial mediation and reached a new agreement satisfactory to the court. Under that agreement, the court would vacate the damages judgment against BA in the 2017 order leaving the remainder of the order intact. It would then administratively close without dismissing the adversary proceeding. Finally, the court would retain jurisdiction to enforce the settlement agreement.

Discussing the reasoning behind its refusal to withdraw its 2017 order and its ultimate acceptance of the remainder of the settlement agreement, the court balanced BA’s desire for confidentiality against the public need to know. Where, as here, BA’s conduct leading to the sanctions appeared to be standard procedure rather than aberrant conduct, the court found it was unworthy of privacy protection. Furthermore, the court noted that its opinion had entered an ongoing judicial conversation and has been cited for its discussion of potential remedies under sections 329(b) and 362(k).

The court found the settlement agreement otherwise had the advantages of vindicating the Sundquists’ complaints and their claimed measure of damages against BA, and sparing them years of appeals and delay in receiving any money. Administratively closing without formally adjudicating the adversary proceeding, addressed BA’s concern that the court’s findings could be used against it in later litigation under res judicata principles. To further protect BA against the possibility of issue preclusion in other cases the court followed language in the Restatement [Second] of Judgments, to the effect that its conclusions with respect to damages “are not ‘sufficiently firm to be accorded conclusive effect’ in subsequent litigation with others.”

Retaining the remainder of the 2017 order addressed the issue, not covered in the settlement agreement, of the Sundquists’ counsel’s appeal of the court order cancelling her contingency fee and lien. It also had the benefit, as endorsed by the Intervenors, of holding BA’s feet to the fire in the public eye.

The court addressed BA’s concern about the confidential nature of the actual amount of damages it agreed to pay by agreeing not to state the sum, but noting that the amount was consistent with the Sundquists’ assertion that they could prove $9 million in damages. As to the public interest portion of the original judgment, the court found the Sundquists’ agreement to make voluntary donations to the entities sufficed to adequately punish BA without providing a windfall to the Sundquists. The court left undisturbed its section 329(b) judgment concerning the Sundquists’ attorney’s fees, and the remainder of all previous opinions and orders. It reserved jurisdiction over the settlement agreement.

Sundquist Bankr ED Cal opinion Jan 2018


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