David and Crystal Holm v. Wells Fargo Home Mortgage Inc. and Federal Home Loan Mortgage Corporation (Freddie Mac) ( 2016 )

In the
Missouri Court of Appeals
Western District
DAVID AND CRYSTAL HOLM, )
)
Respondents, ) WD78666
)
v. ) OPINION FILED: April 19, 2016
)
WELLS FARGO HOME MORTGAGE )
INC. AND FEDERAL HOME LOAN )
MORTGAGE CORPORATION )
(FREDDIE MAC), )
)
Appellants. )
Appeal from the Circuit Court of Clinton County, Missouri
The Honorable Richard B. Elliott, Judge
Before Division One: Lisa White Hardwick, Presiding Judge, Cynthia L. Martin, Judge
and Gary D. Witt, Judge
Wells Fargo Home Mortgage, Inc. ("Wells Fargo") and Federal Home Loan
Mortgage Corporation ("Freddie Mac") appeal from a judgment entered in a court tried
case in favor of Crystal G. Holm ("Crystal") and David Holm ("David") 1 (collectively the
"Holms"). The judgment awarded compensatory and punitive damages in favor of the
1
We refer to the Holms individually by their first names to avoid confusion. No undue familiarity or
disrespect is intended.
Holms and against Wells Fargo for wrongful foreclosure. The judgment also quieted title
in the foreclosed real estate in favor of the Holms as against the interests of Freddie Mac.
We affirm in part and reverse in part.
Factual and Procedural Summary2
The Holms were the owners of real property at 3800 Timberlake Drive
("Property") in Clinton County, Missouri. They executed a deed of trust ("Deed of
Trust") on the Property on July 30, 2001, to secure a promissory note ("Note"). The Note
and Deed of Trust identified the lender/mortgagee as Commercial Federal Mortgage
Corp.
At a point in time not clearly identified in the record, Freddie Mac acquired the
Note, Wells Fargo began servicing the Note for Freddie Mac, and the Holms began
making their mortgage payments to Wells Fargo. In early May 2008, the property
suffered significant storm damage. An insurance check in the amount of $4,467.74 was
issued to cover the damages, payable jointly to the Holms and to Wells Fargo. The
Holms sent the check to Wells Fargo for its endorsement so that the proceeds could be
returned to the Holms to be used to repair the Property. Wells Fargo refused to return the
check.
By letter dated June 4, 2008, the law firm of Kozeny & McCubbin, L.C.
("Kozeny") notified the Holms that their Note had been accelerated and that the amount
required to be paid to reinstate the Note was $6,608.93, of which $5,534.62 represented
2
We view conflicting evidence in the light most favorable to the judgment. Blanchette v. Blanchette, 476
S.W.3d 273, 278 n.1 (Mo. banc 2015).
2
unpaid payments, and the balance represented various itemized charges or fees. The
Holms sent a handwritten letter dated June 9, 2009, to Kozeny disputing the validity of
the debt. They complained that a representative of Wells Fargo had falsely reported that
the Holms were evacuating the Property, having witnessed the Holms cleaning out a
storm damaged barn. Though, as the letter explained, another Wells Fargo representative
had since verified that the Holms were not evacuating the Property, the Note had
nonetheless been accelerated based on the false information, and the insurance proceeds
check was thus being improperly held by Wells Fargo. The Holms explained in the letter
to Kozeny that although they had been behind a few months on their Note payments, they
had a payment plan in place with Wells Fargo before the storm damage occurred and that
Wells Fargo had since agreed to apply the insurance proceeds check to the Note. As a
result, according to the Holms, they were not in default, and the "fees" itemized in the
June 8, 2008 letter were not owed.
Kozeny responded with a letter dated June 18, 2008 providing a payoff amount for
the entire loan.
Frustrated, the Holms wrote a second letter to Kozeny dated June 24, 2008. They
again disputed the debt and asked that the insurance proceeds check be returned to them
so that it could be endorsed and sent back to Wells Fargo to be applied to the Note
balance.
By letter dated June 26, 2008, Kozeny again wrote to the Holms "in response to
your correspondence disputing the validity of the debt . . . ." The letter enclosed a copy
of the Deed of Trust and a copy of the Note and stated that the enclosed "documents
3
verify the debt which is owed . . . ." The Note was not endorsed. As such, neither the
letter, nor its enclosures, identified Wells Fargo or Freddie Mac, or explained how a debt
was owed to either.
On July 17, 2008, Wells Fargo recorded an appointment naming Kozeny as the
successor trustee of the Deed of Trust. The appointment referenced the Deed of Trust
granted by the Holms to Commercial Federal Mortgage Corp. The appointment asserted
that Wells Fargo was now the "owner and holder of the [N]ote described and secured by
the Deed of Trust . . . ."
Foreclosure of the Property was scheduled at noon on August 15, 2008. David
called Kozeny and Wells Fargo repeatedly to discuss options to resolve the dispute over
the debt. On August 14, 2008, at approximately 7:00 p.m., David was finally able to
speak with someone at Wells Fargo who had authority to reach an agreement. That
person offered David a reinstatement amount of $10,306.94 and said that if he agreed to
pay that amount, the foreclosure sale would be postponed. David agreed to the
reinstatement terms. He was advised by Wells Fargo to contact Kozeny the next morning
to confirm the reinstatement amount and to make arrangements to deliver payment.
David was not told that payment had to be received before the foreclosure sale scheduled
at noon the following day.
David called Kozeny at approximately 10:00 a.m. on August 15, 2008. Kozeny
confirmed the $10,306.94 reinstatement amount and told David that someone would call
him back later that afternoon with directions for delivery of a cashier's check. Kozeny
told David that the foreclosure sale would be postponed.
4
Immediately after the 10:00 a.m. phone call, David went to his local physician for
treatment of stress, anxiety attacks, and panic attacks. He was directed to go to the
hospital where a heart monitor was attached to his chest. Between his medical visits that
morning, David arranged with his mother to secure a cashier's check in the amount of
$10,306.94. With a cashier's check in his possession, David awaited the telephone call
from Kozeny.
Kozeny called David at around 1:00 or 2:00 p.m. and instructed him to overnight
the cashier's check to its St. Louis, Missouri, office and to send a copy of the check by
facsimile. David did as instructed, sending a copy of the cashier's check to Kozeny by
facsimile at 4:31 p.m. on August 15, 2008, and arranging for overnight delivery of the
actual check to Kozeny by Federal Express.
Unbeknownst to the Holms, the foreclosure sale of the Property had proceeded as
scheduled. Freddie Mac was the purchaser at sale. Kozeny executed and recorded a
successor trustee's deed dated August 19, 2008, naming Freddie Mac as the grantee of the
Property.
On August 18, 2008, David contacted Wells Fargo to make arrangements for
paying future Note payments. He was told that Wells Fargo did not yet have the
information he needed. A few days later, the Holms received a letter from Kozeny
returning the $10,306.94 cashier's check. The letter stated that the check was being
returned because it had been received after the foreclosure sale. The Holms were
surprised and frustrated. David had not been told that the cashier's check had to be
received before noon on August 15, 2008, in order to postpone the foreclosure sale.
5
The Holms received another letter from Kozeny dated August 22, 2008. This
letter stated that the $10,306.94 cashier's check had been returned because the funds were
not "enough and/or not certified."
The Holms retained counsel and were offered another reinstatement amount of
$8,162.24. Once again, David made arrangements with his mother to secure a cashier's
check in the agreed amount. The check was sent to Wells Fargo. Wells Fargo did not
cash the check or reinstate the loan and retained the check for approximately one year
before it was returned.
On November 26, 2008, the Holms filed a lawsuit against Wells Fargo and
Freddie Mac. Count I asserted a claim for wrongful foreclosure against Wells Fargo only
and sought compensatory and punitive damages. Count I alleged that Wells Fargo was
the "trustee and beneficiary/mortgagee under a deed of trust purchased by Commercial
Federal Bank executed by" the Holms and that said "deed of trust [was] secured by a note
payable by [the Holms] to . . . Wells Fargo." The petition also identified Freddie Mac as
the entity whose pre-foreclosure regulations were required to be followed. Count 1
alleged that the Property was wrongfully foreclosed because the Note had been falsely
accelerated based on a mistaken belief that the Holms were abandoning the Property;
because on August 15, 2008, there was no breach of condition or failure to perform by
the Holms which would authorize foreclosure; and because Wells Fargo "failed to accept
reinstatement funds of $10,306.94 tendered by [the Holms] at [Wells Fargo's] request
. . . ." The petition did not allege that the foreclosure was wrongful because the Note was
not endorsed, preventing its enforcement by either Wells Fargo or Freddie Mac. Count I
6
of the petition alleged that as a result of the wrongful foreclosure, the Holms were
deprived of the Property and of any equity and alleged that Wells Fargo acted maliciously
and outrageously. Count I sought a judgment against Wells Fargo for compensatory
damages in a "fair and reasonable [sum], together with punitive damages."
Counts II and III of the petition were asserted solely against Freddie Mac and
respectively sought judgments quieting title and setting aside the successor trustee's deed.
Both Counts incorporated all other allegations in the petition and alleged a right to the
requested relief because the Property had been wrongfully foreclosed.
The parties had several discovery disputes. The details of those disputes will be
addressed as necessary later in this Opinion. In a pretrial order entered on January 12,
2015, the trial court summarized the discovery issues it had encountered and concluded
that Wells Fargo, Freddie Mac, and Kozeny (who was acting as counsel for both) "have
demonstrated a pattern of contempt for the Missouri Supreme Court Rules, as well as this
Court's rules and Orders." As a result of the disputes, the trial court imposed the
following discovery sanctions: (1) Wells Fargo's and Freddie Mac's pleadings were
stricken; (2) Wells Fargo and Freddie Mac were prohibited: from offering any evidence
at trial, from cross-examining the Holms' witnesses, and from objecting to the admission
of evidence3 offered by the Holms with respect to liability and damages; and (3) Wells
3
The trial court did not prohibit all objections and advised that objections would be addressed one by one at
trial. As a result, procedural objections were not included within the scope of the discovery sanctions. Rather, the
trial court's intent appears to have been limited to prohibiting routine objections to the admission of evidence at trial.
Wells Fargo and Freddie Mac have not complained on appeal that the discovery sanction was ambiguous in this
regard to their prejudice. And our review of the record indicates it was not, as Wells Fargo and Freddie Mac freely
objected at trial.
7
Fargo and Freddie Mac were ordered to pay attorney's fees and costs in an amount to be
determined.
At trial, the Holms read the deposition of Freddie Mac's corporate representative,
Dean Meyer ("Meyer"), into evidence. Meyer testified that Freddie Mac, not Wells
Fargo, was the owner of the Note, and that Wells Fargo was the loan servicer pursuant to
a loan servicing agreement. Meyer acknowledged that the copy of the Note sent to the
Holms with Kozeny's June 26, 2008 letter was not endorsed, which prevented that copy
of the Note from being enforced by anyone other than Commercial Federal Mortgage
Corp., the lender identified in the Note. In other words, Meyer acknowledged that the
documents sent with the June 26, 2008 letter did not verify that a debt was owed by the
Holms to either Wells Fargo or Freddie Mac. Meyer testified that the loan servicing
agreement with Wells Fargo encouraged loan servicers to work with borrowers to
reinstate loans. Meyers verified that Freddie Mac did not contemporaneously know
about the reinstatement agreement Wells Fargo reached with the Holms but would have
had no issue with the agreement. Meyers also testified that had Freddie Mac been asked,
it would have agreed to reinstate the loan on the same terms immediately after the
foreclosure sale.
At trial, the deposition of Wells Fargo's corporate representative, Amber Ott
("Ott"), was read into evidence. Ott verified that David had been told on August 14,
2008, that the loan could be reinstated by payment of $10,306.94, that a facsimile copy of
a cashier's check in that amount was received by Kozeny on August 15, 2008, and that
the actual cashier's check was received by Kozeny on August 16, 2008. Contrary to
8
Kozeny's August 22, 2008 letter to the Holms, Ott testified that the Holms' cashier's
check was a "certified" check in the agreed amount. Ott claimed, however, that the check
was returned to the Holms because David had been told that payment needed to be
received before the scheduled foreclosure sale in order to postpone the sale.
David testified and explained why the Note was not in default at the time it was
accelerated. David recounted all of his efforts to communicate with Wells Fargo and
Kozeny, culminating with the agreement to reinstate the Note reached with Wells Fargo
late on August 14, 2008. David explained how the disputes with Wells Fargo had caused
him severe emotional distress and related physical stress, requiring medical attention. He
testified that although the Property sold at foreclosure for $141,762.30, it was only worth
$52,000 at the time of trial. And he testified that he had undertaken post-foreclosure
repairs to the Property valued at $6,150, which included the cost of materials and a value
assigned to his labor.4 Crystal testified about the effect of the disputes with Wells Fargo
on her emotional health and well-being and on that of her husband.
The Holms called an expert witness to testify about the practices and procedures in
the mortgage industry, and to explain why Wells Fargo would have been financially
incentivized to proceed with foreclosure notwithstanding the reinstatement agreement
reached with the Holms on August 14, 2008.
During the trial, Wells Fargo and Freddie Mac registered numerous objections to
the proceedings. The trial court repeated its sanction prohibiting objections to the
4
The Holms remained in possession of the Property after it was foreclosed. They have been named as
defendants in two unlawful detainer actions initiated by Freddie Mac, both of which have been dismissed, the last
one with prejudice.
9
admission of evidence but entertained (and denied) several procedural objections. Those
objections included that: (i) Wells Fargo had not waived the right to a jury trial on Count
I of the petition, an action at law seeking damages; (ii) emotional distress damages were
not pled in the petition as special damages and could not be awarded; (iii) wrongful
foreclosure based on a theory that the Note was not endorsed and could not be enforced
by Wells Fargo or Freddie Mac was not pled in the petition; and (iv) the Holms could not
recover both compensatory and punitive damages for wrongful foreclosure, while also
recovering title to the Property, and were required to elect between these inconsistent
remedies. In response to the latter objection, the Holms dismissed Count III of the
petition seeking to set aside the successor trustee's deed. However, the Holms did not
agree to dismiss Count II of the petition seeking to quiet title.
The trial court entered its judgment on January 26, 2015 ("Judgment"). The
Judgment found in favor of the Holms and against Wells Fargo on Count I of the petition
and awarded compensatory damages in the amount of $89,762.30 for the post-foreclosure
loss in value of the Property; in the amount of $6,150 for the value of post-foreclosure
repairs to the Property; and in the amount of $200,000 for emotional distress. The
Judgment awarded the Holms punitive damages against Wells Fargo in the amount of
$2,959,123. The Judgment found in favor of the Holms and against Freddie Mac on
Count II of the petition and quieted title to the Property in the Holms.
Wells Fargo and Freddie Mac timely appealed after post-trial motions were
denied.
10
Analysis
Wells Fargo and Freddie Mac raise eight points on appeal. We address them in
order.
Point One
In the first point on appeal, Wells Fargo claims that the trial court erred in entering
judgment in favor of the Holms on Count I for wrongful foreclosure because the Holms
failed to carry their burden of proof because the evidence established that: (i) the Holms
were in default; (ii) there was no enforceable agreement to reinstate the loan after it was
accelerated; and (iii) Wells Fargo was the holder of the Note and Deed of Trust when the
foreclosure occurred.
The applicable standard of review for appeals of court-tried civil cases is detailed
in White v. Director of Revenue, 321 S.W.3d 298, 307-08 (Mo. banc 2010). The
judgment of the trial court will be affirmed "'unless there is no substantial evidence to
support it, it is against the weight of the evidence, or it erroneously declares or applies the
law.'" Id. (citing Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976)). Here, no
party requested findings of fact and conclusions of law as permitted by Rule 73.01(c).
We therefore presume that all factual issues were resolved in accordance with the result
reached and will affirm the trial court on any basis supported by the record. Hervey v.
Director of Revenue, 371 S.W.3d 824, 828 (Mo. App. W.D. 2012).
Wells Fargo claims that the Holms' wrongful foreclosure claim rested on three
theories and that the Holms failed to meet their burden of proof as to any of the theories.
11
The first theory, according to Wells Fargo, was that the Holms were not in default
when the Note was accelerated. Where a claim of wrongful foreclosure urges that there
was no right to foreclose because no default giving rise to a right to sell exists, the party
seeking damages "must plead and prove that when the foreclosure proceeding was
begun, there was no default on its part that would give rise to a right to foreclose."
Dobson v. Mortgage Elec. Registration Sys., Inc./GMAC Mortgage Corp., 259 S.W.3d
19, 22 (Mo. App. E.D. 2008) (emphasis added).
Here, the Holms pled that they were not in default at the time foreclosure
proceedings commenced. They pled that the Note had been falsely accelerated at a time
when they were making payments per a payment arrangement and, based on a false
report that they were evacuating the Property, when in fact they were only cleaning out a
storm damaged barn. The Holms' evidence at trial was consistent with this allegation and
satisfied the Holms' burden of proof.
Wells Fargo's Brief emphasizes evidence from which it could be inferred that the
Holms were behind on monthly payments when the Note was accelerated. In doing so,
Wells Fargo ignores contrary evidence from which the trial court could have inferred that
a payment plan regarding those payments had been reached and was being performed by
the Holms when the Note was accelerated. The Holms wrote to Kozeny twice explaining
that they had a payment plan in place with respect to the unpaid payments. The Holms
also attempted to explain to Kozeny that the Note had been accelerated not for
nonpayment, but because a Wells Fargo representative had falsely represented that the
12
Holms were evacuating the Property. The Holms consistently disputed that they were in
default. The trial court was free to believe this evidence.
The second theory, according to Wells Fargo, was that the Holms were not in
default when the Property was sold at foreclosure because a reinstatement agreement had
been reached with Wells Fargo.5 Because we have already concluded that the trial court's
judgment on Count I of the petition is supported by substantial evidence that there was no
default at the time foreclosure proceedings were commenced, we technically need not
address this second theory. Hervey, 371 S.W.3d at 828 (holding that we are to affirm the
trial court on any basis supported by the record). However, because it is plain from the
Judgment that this second theory was heavily relied on by the trial court to award
punitive damages, we address whether the Holms met their burden of proof to establish
that they had reached an enforceable agreement to reinstate the Note at the time the
Property was sold.
The Holms claim that the night before the scheduled foreclosure, Wells Fargo
agreed to postpone the foreclosure sale based on the Holms' promise to pay $10,306.94 to
reinstate the Note. There was substantial evidence to support this assertion, given
David's testimony, and given that Ott admitted that Wells Fargo reached an agreement
with David on August 14, 2008, to reinstate the Note and to postpone the foreclosure sale
in exchange for payment of $10,306.94. Although Ott claimed the agreement required
5
Ordinarily, a mortgagor's contention that a reinstatement agreement was reached with a mortgagee would
suggest a concession by the mortgagor that the loan requiring reinstatement was in default. Here, however, the
Holms' assertions that they were not in default, and had reached a reinstatement agreement, are not in tension. On
this record, the trial court could readily have concluded that the Holms felt they had no choice but to reach a
reinstatement agreement with Wells Fargo in order to avoid foreclosure of the Property, even though they contended
that the Note had been wrongly accelerated.
13
the Holms to deliver payment in advance of the scheduled sale, David testified he was
never told he had to ensure delivery of payment before the scheduled sale. The trial court
was free to resolve this conflicting evidence by believing David's testimony. The
circumstances surrounding the agreement suggest that would have been a reasonable
inference. The agreement was not reached until late on August 14, 2008. Wells Fargo
told David to contact Kozeny the next morning to confirm the reinstatement amount and
to arrange for delivery of payment. Kozeny's offices were in St. Louis, making delivery
of payment by noon on that same day a difficult proposition. David contacted Kozeny at
around 10:00 a.m. on August 15, 2008, at which time Kozeny confirmed the payment
amount and that the foreclosure would be postponed and told David to secure a cashier's
check and to await a call with specific payment delivery instructions. And Kozeny called
David at around 1:00 or 2:00 p.m. on August 15, 2008, (after the time scheduled for the
foreclosure sale) with payment delivery instructions. This evidence suggests that the
reinstatement agreement did not require the delivery of payment before the scheduled
foreclosure sale. The Holms satisfied their burden to establish that there was a
reinstatement agreement with Wells Fargo in place prior to the scheduled foreclosure sale
and that, as a result, they were not in default at the time of the foreclosure sale.
Wells Fargo nonetheless challenges whether the reinstatement agreement was
legally enforceable. The argument portion of the Brief claims that even if a reinstatement
agreement was reached, it was not enforceable because it violated the Deed of Trust's
prohibition against oral modifications. This assertion is in the nature of an affirmative
defense as to which Wells Fargo, not the Holms, would have born the burden of proof.
14
Warren v. Paragon Technologies Group, Inc., 950 S.W.2d 844, 846 (Mo. banc 1997).
The affirmative defense was not asserted in Wells Fargo's answer to the petition, and
even had it been, Wells Fargo's pleadings were stricken, rendering affirmative defenses
(whether or not properly pled) irrelevant to the resolution of this case. Moreover, Meyer,
Freddie Mac's representative, testified that oral reinstatement agreements to forestall
foreclosures are permitted by the terms of the loan servicing agreement with Wells Fargo.
There was substantial evidence from which the trial court could have concluded
that the Note was not in default when the Property was sold at foreclosure because an
enforceable reinstatement agreement had been reached between Wells Fargo and the
Holms.6
The third wrongful foreclosure theory relied on by the Holms, according to Wells
Fargo, was that Wells Fargo was not the holder of the Note and Deed of Trust and had no
power to foreclose the Property because the Note was not endorsed. We need not address
whether the evidence supported this theory because we have already concluded that the
trial court's judgment on Count I of the petition is supported by substantial evidence that
6
Wells Fargo's point on appeal does not challenge whether a mortgagee's failure to honor an agreement to
postpone a scheduled foreclosure can support a claim in tort to recover damages at law for wrongful foreclosure (as
distinguished from a claim in equity to set aside the foreclosure). We thus do not address the issue but assume for
purposes of this Opinion that such a claim is cognizable. Compare Dobson, 259 S.W.3d at 22 (holding that "[a] tort
action for damages for wrongful foreclosure lies against a mortgagee only when the mortgagee had no right to
foreclose at the time foreclosure proceedings were commenced") with Peterson v. Kansas City Life Ins. Co., 98
S.W.2d 770, 773 (Mo. 1936) (addressing "true cases of wrongful foreclosure by the mortgagee," including the case
of Missouri Real Estate Syndicate v. Sims, 78 S.W. 1006 (Mo. 1904), where the "mortgagee had no right to
foreclose because he had made a valid extension agreement)." (Emphasis added.) And see Spires v. Lawless, 493
S.W.2d 65, 71 (Mo. App. Spring. Dist. 1973) which holds:
Recovery for wrongful foreclosure has been allowed in such widely varying circumstances that it
is doubtful that any single theory of recovery is applicable to every case which has been called an
"action for wrongful foreclosure." The best that can be said is that the authorities cannot be fully
reconciled, and an examination of the topically collated cases to discover the true basis of legal
liability in such actions obscures as much as it clarifies.
15
there was no default at the time foreclosure proceedings were commenced or at the time
the foreclosure sale proceeded. Hervey, 371 S.W.3d at 828 (holding that we are to affirm
the trial court on any basis supported by the record). We are particularly inclined in this
direction because the Holms did not plead wrongful foreclosure in their petition based on
a theory that neither Wells Fargo nor Freddie Mac was the holder of the Note. Rather,
the petition alleges that Wells Fargo was the trustee and beneficiary/mortgagee under the
Deed of Trust, which was secured by the Note "payable . . . to . . . Wells Fargo." Though
evidence was admitted at trial establishing that the copy of Note attached to Kozeny's
June 28, 2008 letter was not endorsed, it was admitted over Wells Fargo's and Freddie
Mac's objection that the evidence exceeded the scope of the petition. We need not
address whether that objection should have been sustained, as Judgment on Count I of the
petition is otherwise supported by the evidence.
Point one on appeal is denied.
Point Two
In the second point on appeal, Freddie Mac claims that the trial court erred in
entering judgment in favor of the Holms on Count II of the petition quieting title in favor
of the Holms. Freddie Mac claims that because the Holms elected to recover monetary
damages for wrongful foreclosure, they could not also seek the inconsistent remedy of
restoration of title to the Property.7
7
During a January 12, 2015, pretrial conference, the trial court made it clear that it would entertain an
objection requiring the Holms to elect between inconsistent remedies at the close of the plaintiffs' evidence at trial,
notwithstanding the imposition of discovery sanctions barring objections to the Holms' evidence.
16
The applicable standard of review is the same as is described in our discussion of
point one on appeal. We will affirm the trial court's judgment "'unless there is no
substantial evidence to support it, it is against the weight of the evidence, or it
erroneously declares or applies the law.'" White, 321 S.W.3d at 307-08 (citing Murphy,
536 S.W.2d at 32).
When a foreclosure is wrongful, "the mortgagor has two remedies: it can let the
sale stand and sue at law for damages or it can bring an equitable action to have it set
aside." Dobson, 259 S.W.3d at 22. The Holms acknowledged this legal principle when,
at the close of the evidence, they dismissed Count III of their petition seeking to set aside
the successor trustee's deed, electing instead to proceed with an action at law for
damages.
The Holms nonetheless insisted on proceeding to judgment on Count II of the
petition seeking to quiet title. They argued that a quiet title action is different from an
action to set aside a trustee's deed. In the context of a wrongful foreclosure action, we
disagree.
Counts II and III of the petition were asserted against Freddie Mac, the owner of
the Note, and the purchaser of the Property at the foreclosure sale. Count II alleged that
Freddie Mac has no right to title, ownership, or possession of the Property "because the
foreclosure was unlawful." Count III alleged that "[b]ecause the foreclosure was
unlawful," there was no authority to issue a successor trustee's deed to Freddie Mac.
Both Counts incorporated all other allegations in the petition by reference. The other
allegations in the petition asserted that foreclosure was wrongful foreclosure because: (i)
17
the Holms were not in default at the time the Note was accelerated; and (ii) Wells Fargo
wrongfully failed to postpone the foreclosure sale after reaching an agreement to reinstate
the Note.
Counts II and III of the petition are not legally distinguishable. Neither is the
relief sought in the Counts. Demonstrative of this point, the prayer for relief in Count III
sought "to set aside the [successor trustee's deed], quiet title to the [Property] in favor of
[the Holms], and for such other relief the Court deems just and fair." Stated simply, in
both Counts II and III of the petition, the Holms sought to divest Freddie Mac of title and
sought to have title to the Property restored to them. Thus, in electing the remedy to
pursue an action at law for damages and to dismiss Count III, the Holms were necessarily
electing to abandon the legally indistinguishable claim to quiet title under Count II.
The Holms argue that Count II is distinguishable from Count III because quiet title
is a statutory cause of action pursuant to section 527.150, which only requires proof that
the Holms possessed title superior to that of Freddie Mac. However creative the
argument, it distills to this simple point. The Holms' title is superior to that of Freddie
Mac's if and only if the recorded successor trustee's deed conveying title to the Property
to Freddie Mac is disregarded. And to disregard the successor trustee's deed, the
evidence must establish that the foreclosure was wrongful and void. Whether framed as
an action in equity to set aside the successor trustee's deed, or as a statutory quiet title
action, the relief requested by the Holms is the same and depends for its proof on the
same evidence.
18
The Holms were not entitled to recover damages at law for wrongful foreclosure
while also recovering title to the Property in equity. Dobson, 259 S.W.3d at 22. "An
action of tort, and a proceeding to set aside the foreclosure, are alternative and
inconsistent remedies." Peterson, 98 S.W.2d at 774 (internal quotation omitted).
Undeterred, the Holms contend that the recovery of damages from Wells Fargo is
not inconsistent with the recovery of title to the Property from Freddie Mac. The Holms
reason that the quiet title Count was asserted against a different defendant and depended
on a different theory of wrongful foreclosure from that relied on to recover damages at
law under Count I, as the quiet title action relied on the fact that the Note was not
endorsed and could not be enforced by Wells Fargo or Freddie Mac, while Count I relied
on the fact that the Note was not in default at the time foreclosure was commenced or at
the time the foreclosure sale was conducted. We have already explained, however, that
the Holms' petition did not assert that foreclosure of the Property was wrongful because
neither Wells Fargo nor Freddie Mac was the holder of the Note. And we have explained
that Wells Fargo and Freddie Mac consistently objected that evidence on this issue
impermissibly exceeded the scope of the petition. The discovery sanction imposed did
not afford the Holms carte blanche to offer evidence on theories of liability or damage
that exceeded the scope of their petition.
Even assuming that the evidence at trial permissibly modified the theory of
wrongful foreclosure relied on to quiet title, it cannot be ignored that the result was to
render the proof required to establish Count II inconsistent with the proof required to
establish Count I as pled. The quiet title action as modified by the evidence required
19
proof that neither Wells Fargo nor Freddie Mac had the authority to enforce the Note
because neither were holders of the Note, while the wrongful foreclosure action seeking
damages required proof that Wells Fargo had the authority to reinstate the Note because
either Wells Fargo or Freddie Mac was the holder of the Note. "If two counts are so
inconsistent that proof of one necessarily negates, repudiates, and disproves the other, it
is error to submit them together." Trimble v. Pracna, 167 S.W.3d 706, 711 (Mo. banc
2005) (citing Whittom v. Alexander-Richardson Partnership, 851 S.W.2d 504, 507 (Mo.
banc 1993)).
The Holms' reliance on Williams v. Kimes, 996 S.W.2d 43 (Mo. banc 1999) is
unavailing. In Kimes, the Supreme Court observed that "numerous circumstances . . .
may render a foreclosure sale void," including "where the foreclosing party does not hold
title to the secured note." Id. at 45. While that is true, the reason a foreclosure sale is
void must be distinguished from the remedy available for wrongful foreclosure.
Evidence that Wells Fargo and Freddie Mac did not hold the Note would indeed be a
reason for declaring the foreclosure of the Property void, just as would evidence that the
Note was not in default. Id. (holding that "no default by the mortgagor" is another
circumstance that "may render a foreclosure sale void"). Regardless why a foreclosure is
wrongful, however, "the mortgagor has two remedies: it can let the sale stand and sue at
law for damages or it can bring an equitable action to have it set aside." Dobson, 259
S.W.3d at 22 (emphasis added).
As we have explained, at the close of the evidence, the Holms dismissed Count III
of the petition and elected to "let the sale stand and sue at law for damages . . . ."
20
Dobson, 259 S.W.3d at 22. That election was equally binding on the Holms as to Count
II of the petition. The entry of judgment against Freddie Mac on Count II of the petition
quieting title in the Property in favor of the Holms is legally erroneous and is reversed.8
Point two is granted.
Point Three
In the third point on appeal, Wells Fargo argues that the trial court erred in
awarding actual damages of $295,912.30 because: (i) the Holms did not introduce
evidence to establish the proper measure of damages at law in a wrongful foreclosure
action; (ii) the damages the Holms were awarded were unpled special damages; (iii) the
Holms did not present the required evidence of medically diagnosable and significant
emotional distress; and (iv) the Holms did not present evidence that any of the damages
were caused by wrongful foreclosure of the Property.
This point relied on is impermissibly multifarious. Rule 84.04(d). The point
raises four distinct claims of error. Rule 84.04(d)(1)(A) requires discrete complaints of
error to be asserted in separate points on appeal. The failure to abide by this Rule
preserves nothing for appellate review. Host v. BNSF Railway Company, 460 S.W.3d 87,
96 n.4 (Mo. App. W.D. 2015). However, it is our policy where reasonably possible to
"decide a case on its merits rather than on technical deficiencies in the brief." J.A.D. v.
F.J.D., 978 S.W.2d 336, 338 (Mo. banc 1998).
8
During oral argument, the Holms' counsel confirmed that should this court disagree with the Holms'
position with respect to the election of remedies, they would indeed desire to retain their judgment at law for
damages for wrongful foreclosure against Wells Fargo in lieu of their judgment in equity to quiet title against
Freddie Mac.
21
The standard of review applicable to each of the components of this point relied on
is the same as that described in point one on appeal.
By seeking to recover damages at law for the tort of wrongful foreclosure, the
Holms necessarily elected to accept the result of the foreclosure sale. In such a case, the
measure of damages is the value of the equity in the property the mortgagor is deprived
of by virtue of the wrongful foreclosure. Missouri Real Estate Syndicate v. Sims, 98 S.W.
783, 786 (Mo. App. St. L. Dist. 1906) (holding in wrongful foreclosure case where
mortgagor claimed mortgagee breached agreement to extend time for payment that by
pursuing action at law to recover damages, "the measure of . . . damages is the value of
the equity in the property"); see also Edwards v. Smith, 322 S.W.2d 770, 777 (Mo. 1959)
(holding that measure of damages in wrongful foreclosure action where mortgagor claims
mortgagee did not have the right to foreclose because it had waived right to insist on
prompt payment was "the difference between the reasonable market value of the property
and the aggregate amount of the liens thereon at the date of the foreclosure sale").
Though the Holms pled a loss of their equity in the Property as damages in Count I
of the petition, the Holms did not introduce any evidence suggesting that they lost equity
as a result of wrongful foreclosure of the Property. Instead, the Holms claim that the
Property declined in value after the foreclosure and that they are entitled to recover that
lost value, measured by the difference between the price paid for the Property at
foreclosure ($141,762.30) and the value of the Property at the time of trial according to
David's testimony ($52,000).
22
Accepting arguendo that these values at the referenced temporal points are
accurate, and that the loss in value was caused by the foreclosure, 9 the difference was not
damage sustained by the Holms. Having elected to accept the result of the sale and to sue
at law for damages, the Holms have not been injured by the Property's decline in value
since the foreclosure sale. The award of $89,762.30 to the Holms for the Property's post-
foreclosure loss in value is legally erroneous.
In contrast, the amount awarded to the Holms for the value of post-foreclosure
repairs made to the Property is not susceptible to the same error. The recovery of this
sum is not inconsistent with an election to accept the outcome of the wrongful foreclosure
sale in order to recover damages at law. However, the value of post-foreclosure repairs
to the Property is not damage proximately caused by wrongful foreclosure of the
Property. "Proximate cause is the casual connection between the actor's conduct and the
resulting injury." Van Acter v. Hierholzer, 865 S.W.2d 355, 358 (Mo. App. W.D. 1993).
Wells Fargo's wrongful foreclosure of the Property did not cause the Holms to expend
labor or funds to repair the Property, proximately or otherwise. If the value of such work
to the property was recoverable from anyone, it would have been recoverable from
Freddie Mac, the purchaser of the Property at the foreclosure sale, and the entity who
stood to gain from the repairs. The Holms did not seek the recovery of damages from
Freddie Mac, and the Judgment did not award the Holms damages against Freddie Mac.
9
David testified at trial that the loss in value of the Property was attributable to the foreclosure, the lack of
post-foreclosure maintenance, and the Property's location.
23
The award of $6,150 to the Holms for the value of post-foreclosure repairs to the
Property was legally erroneous.
The Holms were also awarded $200,000 in damages for emotional distress. "[A]
plaintiff will be permitted to recover for emotional distress provided: (1) the defendant
should have realized that his conduct involved an unreasonable risk of causing the
distress; and (2) the emotional distress or mental injury must be medically diagnosable
and must be of sufficient severity so as to be medically significant." Bass v. Nooney Co.,
646 S.W.2d 765, 772-73 (Mo. banc 1983). Wells Fargo does not challenge the
sufficiency of the Holms' evidence to sustain the first element of this test. Wells Fargo
does not challenge the sufficiency of the evidence to support the trial court's conclusion
that:
David Holm suffered panic attacks, heart problems requiring a heart
monitor, high blood pressure, and daily anxiety due to the circumstances
relating to the wrongful foreclosure. Plaintiff Crystal Holm testified
regarding her "fear" of losing her family's home, and the impact of such a
loss on her 12-year-old daughter, Liberty, and family. [She] recounted her
loss of optimism regarding a property that she hoped would be populated
by horses and other animals. Both Plaintiffs testified about the substantial
stress on their marriage resulting from the defendants' predatory and
extreme and outrageous conduct.
And Wells Fargo does not challenge the amount awarded for emotional distress.
Wells Fargo challenges only that the Holms' claim for damages for emotional
distress required "medical testimony." [Appellants' Brief, p. 34] We disagree. It is true
that to be compensable, emotional distress must be medically diagnosable and medically
significant. Id.; see also Fetick v. American Cyanamid Co., 38 S.W.3d 415, 419 (Mo.
banc 2001). Medical testimony is not required, however, to establish that emotional
24
distress is "medically diagnosable." Rather, "whether or not [a] plaintiff's emotional
distress [is] of sufficient severity to be legally cognizable is a matter for jury
determination." Medlock v. Farmers State Bank of Texas County, 696 S.W.2d 873, 879
(Mo. App. S.D. 1985) (citing Bass, 646 S.W.2d at 772-73). David testified that he sought
medical treatment given the stress he was experiencing due to his dealings with Wells
Fargo--dealings that were not limited to negotiation of the reinstatement agreement but
extended over the entire course of the foreclosure proceedings. Although the supporting
evidence that the emotional distress suffered by the Holms was "medically diagnosable"
could have been stronger, it was not non-existent or incredible. Rather, the emotional
distress the Holms' described is readily understandable, given the frustrating
circumstances they encountered in dealing with Wells Fargo and Kozeny and given all
that was at stake--the loss of their home. The award of $200,000 in damages for
emotional distress is supported by the evidence.
Wells Fargo also complains that none of the compensatory damages awarded the
Holms were recoverable because all were special damages that were not pled in the
petition as required by Rule 55.19. Count I of the Holms' petition alleged that "[a]s a
direct and proximate cause" of Wells Fargo's conduct, the Holms "[have] been damaged,
including but not limited to the fair market value of Plaintiff's [sic] property and lost
profits, together with interest at the legal rate." The Holms prayer for judgment on Count
I of the petition sought compensatory damages in a "sum [that] is fair and reasonable."
We have already concluded that the Holms were not entitled to an award for the
post-foreclosure loss in value of the Property or for the value of post-foreclosure repairs
25
to the Property. We thus limit our discussion on the subject of special damages to
whether emotional distress was required to be specifically pled in the petition.
Rule 55.19 provides that "[w]hen items of special damage are claimed, they shall
be specifically stated." "The general rule is that 'general damages' are those that flow as a
natural and necessary result of the act complained of and that 'special damages' are
damages which actually result from the act by reason of the special circumstances of the
case and not as a necessary result of the act." Porter v. Crawford & Co., 611 S.W.2d
265, 271 (Mo. App. W.D. 1980).
Emotional distress is a natural and probable consequence of wrongful foreclosure
where malice and willfulness are alleged. See, e.g., Medlock, 696 S.W.2d at 880. Here,
the Holms pled that Wells Fargo's conduct as described in the petition was "intentional,
knowing, willful, malicious and outrageous, and warrants an award of punitive damages."
As such, Wells Fargo should and could have reasonably expected that the Holms would
seek to recover damages for emotional distress as general damages as a "natural and
necessary result of the act complained of." Porter, 611 S.W.2d at 271; see Fetick, 38
S.W.3d at 419 (observing in addressing right to recover emotional distress damages that
"[w]hile Fetick did not specifically plead emotional distress in his petition, he did
contend, in his punitive claim, that Cyanamid acted willfully and maliciously"). The
Holms were not required to plead emotional distress as special damages given their
assertion in the petition that Wells Fargo acted willfully and maliciously in wrongfully
foreclosing the Property.
26
Point three on appeal is granted in part and denied in part. The trial court's award
of emotional distress damages in the amount of $200,000 is affirmed. The damage
awards of $89,762.30 for the Property's post-foreclosure loss in value, and of $6,150 for
the value of post-foreclosure repairs to the Property, are reversed for the reasons herein
explained.
Point Four
In the fourth point on appeal, Wells Fargo claims it was error to deny it a jury trial
on Count I of the petition because Wells Fargo did not waive its right to jury trial. This
issue of first impression requires us to address the permissible impact of discovery
sanctions on the right to trial by jury.
Rules 61.01(b) and (d) expressly authorize a trial court to "make such orders in
regard to the failure" to make discovery "as are just," including, among others, the
striking of pleadings or parts thereof, the dismissal of an action or proceeding or parts
thereof, or the rendering of a judgment by default. Here, the trial court imposed harsh
sanctions that struck Wells Fargo's and Freddie Mac's pleadings, denied them the right to
introduce any evidence, denied them the right to cross-examine any witnesses on issues
of liability and damages, and denied them the right to object to the admission of evidence
on the issues of liability and damages. The trial court stopped short of entering a
judgment by default against Wells Fargo and Freddie Mac. However, the practical effect
of the trial court's sanctions was to permit the Holms to present their case as if the
defendants were in default. Lewellen v. Franklin, 441 S.W.3d 136, 150 (Mo. banc 2014)
27
(holding that where pleadings were struck, and offending party was precluded from
defending the plaintiff's claims, "the court, in effect, found [the defendants] liable").
Given the procedural posture of the case following the imposition of discovery
sanctions, the Holms elected to waive the right to trial by jury on Count I of the petition
the day before trial.10 The next day, on the morning of trial, Wells Fargo demanded that
Count I be tried to a jury. The trial court refused this request. Though the trial court did
not definitively explain its ruling, it discussed at various times on the record that Wells
Fargo had acted in bad faith by waiting to assert a right to jury trial on the morning of
trial; that Wells Fargo never tendered proposed jury instructions though earlier required
to do so, suggesting a waiver of the right to jury trial; and that the sanctions imposed
against Wells Fargo warranted a denial of the right to jury trial.
When discovery sanctions include the striking of all pleadings, a prohibition
against the admission of all evidence and witness testimony, and a prohibition against
cross-examining witnesses or objecting to the admission of evidence, then the sanctions
effectively "render the cause uncontested and subject to judgment." Karolat v. Karolat,
151 S.W.3d 852, 857 (Mo. App. W.D. 2004). We conclude as a matter of first
impression that in such a case, although the non-offending party has the right to insist that
the uncontested case proceed to trial before a jury, the offending party has no right to
insist that the uncontested case be tried to a jury. See Eidson ex rel. Webster v. Eidson, 7
S.W.3d 495, 499 (Mo. App. W.D. 1999) (holding that "[w]hen such sanctions are
10
There was no right to trial by jury on Counts II and III of the petition, which were equitable claims to be
tried to the court.
28
imposed [striking pleadings, and prohibiting the introduction of evidence, cross-
examination of witnesses, and objections] and trial occurs and judgment is entered, the
principles governing the appeal relate to the discretion of the trial court in the
circumstances resulting in imposition of the sanctions that renders the cause uncontested
and subject to judgment") (emphasis added).
Our conclusion intentionally mirrors the procedural effect of a default judgment
entered as a discovery sanction. In such a case, "'[t]he rendition of judgment . . . for
failure to obey a discovery order . . . is treated as a judgment upon trial by the court.'"
Davis v. Chatter, Inc., 270 S.W.3d 471, 476 (Mo. App. W.D. 2008) (quoting Karolat,
151 S.W.3d at 857). Certainly, if default judgment is entered as a discovery sanction, an
offending party cannot successfully complain that it has been deprived of its
constitutional right to trial by jury. See Scott v. LeClercq, 136 S.W.3d 183, 193 (Mo.
App. W.D. 2004) (rejecting claim that right to trial by jury was denied when trial court
imposed sanction of default judgment pursuant to Rule 61.01). We see no meaningful
basis to distinguish a case where a default judgment is entered as a discovery sanction
from a case where discovery sanctions strike an offending party's pleadings and operate
to preclude a defense of claims asserted against the party. Though the entry of judgment
against the offending party is not by default, and remains subject to the non-offending
party's submission of evidence that sustains the burden of proof, the effect of the
sanctions is to render the case uncontested and subject to judgment, just as with a default
29
judgment.11 As such, the offending party has no right to insist on trial by jury, having
lost that right as a natural and effective consequence of the discovery sanctions.
Applied here, Wells Fargo had no right to jury trial on Count I of the Holms'
petition following the discovery sanctions imposed. The trial court did not err in refusing
to submit Count I of the Holms' petition to a jury.
Point four is denied.
Point Five
In the fifth point on appeal, Wells Fargo and Freddie Mac complain that the trial
court abused its discretion in imposing sanctions because (i) they did not act in
"contumacious disregard" for the trial court's authority; (ii) the Holms were not
prejudiced; (iii) the sanctions were too extreme and were not tailored to the challenged
discovery conduct; and (iv) the exclusion of Kozeny's testimony punished the defendants
for a non-party's conduct.
"'The imposition of sanctions for a party's failure to participate in discovery,
including an order denying the right to cross-examine witnesses and present defenses, is a
matter within the discretion of the trial court.'" Davis, 270 S.W.3d at 476 (quoting
Karolat, 151 S.W.3d at 857). "'The exercise of the trial court's discretion will not be
disturbed on appeal unless it is exercised unjustly.'" Davis, 270 S.W.3d at 476 (quoting
Karolat, 151 S.W.3d at 857). "'Review is limited to determining whether the trial court
11
Consistent with this conclusion, the trial court addressed the import of its imposed sanctions during a
January 12, 2015, pretrial conference. In explaining why it was denying the defendants' pretrial motion to dismiss
Count I of the Holms' petition, the trial court explained: "I've stricken your pleadings. You don't--your answers are
out the window. Your defenses are out the window, okay?" "[T]he technical term is not a default when pleadings
are stricken, but I think, in effect, that's--that's what happens. You're--you're considered--it's similar to a default of--
although I believe that the plaintiffs have to present their evidence . . . ."
30
could have reasonably concluded as it did, not whether the reviewing court would have
imposed the same sanctions under the same circumstances.'" Davis, 270 S.W.3d at 476
(quoting Karolat, 151 S.W.3d at 857).
"Rule 61.01 allows the court to impose sanctions, even severe sanctions, when
there is an unreasonable lack of cooperation in discovery." Davis, 270 S.W.3d at 477.
Based on our review of the record, we have no quarrel whatsoever with the sanctions
imposed by the trial court.
Though the Holms' petition languished for more than three years, new counsel was
retained and discovery commenced. Initial written discovery propounded on Wells Fargo
and Freddie Mac yielded objections to nearly every discovery request. Notably, Wells
Fargo and Freddie Mac were represented by Kozeny.
When the objections could not be informally resolved, the Holms filed a motion to
compel discovery. The motion was granted on May 20, 2014, with the trial court
admonishing the defendants that "we don't play hide the ball up here." Answers to the
discovery were ordered to be provided within twenty days. The discovery sought
included a copy of the written servicing agreement between Wells Fargo and Freddie
Mac applicable to the Deed of Trust.
The defendants provided supplemental answers to the written discovery on
June 23, 2014, a month after the May 20, 2014 discovery order, though they were
required to do so within twenty days. The defendants once again objected to production
of the servicing agreement, claiming it was equally accessible to the Holms via Freddie
Mac's website. A golden rule letter addressing that objection resulted in the Holms
31
receiving a faulty website address from which it could not secure the servicing
agreement. The Holms' repeated requests for a hard copy of the servicing agreement
were unavailing.
On September 4, 2014, the Holms sent Wells Fargo a second golden rule letter
requesting a correct link to the website where the servicing agreement could be found. A
third golden rule letter was sent on September 17, 2014, requesting the servicing
agreement in hard copy, along with other documents not yet produced as required by the
May 20, 2014 court order. Wells Fargo responded that it did not maintain a hardcopy of
the servicing agreement and refused to print one off for the Holms.
The Holms filed a motion for Rule 61.01(b) sanctions on October 3, 2014. The
defendants did not file a response. A hearing on the motion was continued to permit the
parties time to resolve their disputes, if possible. Kozeny, the defendants' attorney,
agreed to work with the Holms' attorney to identify relevant links on the Freddie Mac
website to access the servicing agreement, after which the defendants would print off the
desired pages. That agreement was never performed.
In the meantime, on May 21, 2014, the Holms sent a second request for production
of documents to Wells Fargo. The request sought documents that would verify the
amount of debt allegedly owed by the Holms, including receipts for fees identified in the
"reinstatement" letters that had been sent to the Holms by Kozeny prior to the foreclosure
sale.
Ott, Wells Fargo's corporate representative, was initially deposed on
September 16, 2014. Ott testified that Wells Fargo had receipts for all of the charges
32
billed to the Holms as reflected in the pre-foreclosure "reinstatement" letters from
Kozeny and agreed that the documents had not yet been produced to the Holms. As a
result, on September 17, 2014, the Holms sent yet another golden rule letter to Wells
Fargo requesting the receipts. Though Kozeny advised that the documents would be
provided the next day, they were not, forcing the Holms to file a second motion to
compel discovery.
The second motion to compel discovery, and the still pending motion for Rule
61.01 sanctions, were argued on October 21, 2014. During that hearing, Wells Fargo
agreed to supplement its responses to the document requests seeking receipts to support
the fees charged to the Holms.
In the mean time, the Holms had issued a subpoena to Kozeny on October 14,
2014, seeking documents which included the receipts supporting the charges reflected in
Kozeny's pre-foreclosure "reinstatement" letters to the Holms. In response to the
subpoena, Kozeny retained counsel who authored a lengthy objection to the subpoena.
That attorney and the Holms' attorney then agreed to a compromise that Kozeny's
attorney assured he would run by his client. Thereafter, Kozeny's attorney never returned
calls, nor responded to emails or letters regarding the dispute over the subpoena. At a
pretrial proceeding on December 16, 2014, Wells Fargo and Freddie Mac stipulated on
the record that any documents possessed by Kozeny in its capacity as successor trustee
were discoverable and would be produced. Prior to that pretrial proceeding, the Holms
had issued a second subpoena to Kozeny on November 24, 2014, requiring Kozeny's
corporate representative to appear at a deposition on December 29, 2014. No motion for
33
a protective order or to quash the subpoena was filed. A Special Master appointed by the
trial court ruled that Kozeny had been properly subpoenaed to appear for a deposition
through a corporate representative. Yet, no one from Kozeny appeared at the
December 29, 2014 deposition.
During these same time frames, the Holms were also struggling to secure
deposition testimony from a corporate representative for Freddie Mac. A third deposition
notice was issued by the Holms on November 13, 2014. Freddie Mac moved to quash the
notice. The trial court overruled Freddie Mac's motion on November 18, 2014. That
same day, the Holms served a fourth deposition notice on Freddie Mac, seeking the
deposition of a corporate representative on December 2, 2014. No one appeared.
At the aforementioned December 16, 2014 pretrial conference, the trial court
ordered Freddie Mac to appear for a deposition on Friday, December 19, 2014. Meyer
appeared on that date. Importantly, Meyer testified that the servicing agreement that had
been the subject of such contention throughout the course of discovery was not available
on the Freddie Mac website as had been represented and that a hard copy was actually
available in his office. Meyer said no one had ever asked Freddie Mac for a copy of the
servicing agreement and confirmed that several of Freddie Mac's prior answers to
discovery were false. When this testimony was later brought to the trial court's attention,
the trial court said:
Well, I'm not going to lie to you. I was surprised when I got to see the
excerpts that were outlined in the motion for sanctions from Mr. Meyers
[sic]. Wow. That was--kind of shook me to the shoes there that if
somebody had simply asked this guy, he could have produced those
documents months ago and we wouldn't be up here arguing this . . . .
34
As noted earlier, a Special Master had been appointed by the trial court to address
discovery disputes. Following a lengthy meeting with the parties, the Special Master,
retired Platte County Judge Abe Shafer, issued findings of fact and rulings dated
December 29, 2014. The Special Master ordered the defendants to "produce all
documents identified on Exhibit A (Pending Discovery Disputes) and all written
responses to the pending discovery by no later than noon on Friday, January 2, 2015."
Exhibit A included materials responsive to the Holms' first written discovery requests as
well as more recent written discovery requests.
The Special Master also ordered that the depositions of corporate representatives
for Wells Fargo and Freddie Mac be completed on January 6, 2015--a date Kozeny
expressly agreed to. Ott, Wells Fargo's corporate representative, did not appear in person
for her continued deposition as ordered.
The defendants did not provide the documents identified on Exhibit A by noon on
January 2, 2015, as ordered by the Special Master. The unproduced documents included
a Tri-Party Agreement that describes the process to be followed to transfer notes. Meyer
had identified the Tri-Party Agreement as a document in Freddie Mac's files that could be
produced. When Meyer appeared for his continued deposition, he confirmed the
document was in his files.
Throughout the course of these protracted discovery disputes, the trial court
frequently warned the defendants. We have already mentioned that in connection with
the May 20, 2014 hearing, the trial court told the defendants: "Answer discovery. . . .
35
[W]e don't play hide the ball up here. . . . Just answer discovery." During an October 21,
2014 hearing, the trial court instructed: "Here's the deal: I ordered you to produce the
document. Produce the document. . . . Did you not understand what I said?" The trial
court went on to warn: "[L]et me caution you, Counsel. If I find out you're -- your --
your -- the deponent is not answering questions that they should be, the sanctions will be
heavy in view of the fact that we are so close to trial. . . . I'm not into this hide-the-ball
stuff."
During a November 18, 2014, hearing, the trial court told the defendants to quit
throwing up discovery "roadblocks." The trial court also warned that "sanctions could be
entered at some point here . . . ," including "striking pleadings." During the
December 16, 2014 pretrial hearing, the trial court again cautioned that sanctions could
be entered, including striking pleadings. A new attorney in attendance representing
Kozeny (who was himself a partner in the Kozeny firm) represented to the court that if
documents had not been produced it was because the documents did not exist.
Thereafter, the Kozeny attorney who represented Wells Fargo and Freddie Mac corrected
Kozeny's attorney--a contradiction that was only enhanced when the Holms' attorney read
from Ott's deposition that the documents requested from Kozeny existed. The trial court
described Kozeny's attorney's statement to the contrary as an intentional
misrepresentation.
On January 5, 2015, the Holms made a detailed record of the discovery disputes to
that point and requested that sanctions requested in their still pending motion for
sanctions be imposed. The trial court described its reluctance to impose serious
36
sanctions, something it had not done in 14 years on the bench. However, the trial court
advised that it felt the defendants had "backed me into a corner, out of which I cannot
escape, and I think you backed the plaintiffs into that corner." The trial court then
entered its order striking the defendants' pleadings. The trial court advised that is was
contemplating additional sanctions and that the parties should be prepared to address
sanctions at a pretrial conference scheduled on January 12, 2015, two days before trial.
During the pretrial conference on January 12, 2015, the trial court made a detailed
record concerning the defendant's discovery abuses. The trial court advised that it was:
[I]mposing sanctions because, as I've mentioned in prior appearances, it is
the Court's opinion that the defendant has failed to respond to discovery
requests--in accordance with the rules of discovery, they have repeatedly
failed to respond to those requests even after ordered to do so.
I believe they repeatedly mislead the Court and the plaintiff[s] as to the
availability of certain requested documents, indicated that those documents
were available on the Internet, causing Plaintiffs' counsel considerable time
and effort in searching for the documentation that was not, in fact, available
on the Internet.
Counsel for the defense mislead this court about the existence of certain
requested documents, indicated in open court that circuit--certain
documents requested did not exist when, in fact, they did, which was
verified by their own witness at a later date.
Counsel for the defense made no effort to contact the appropriate
employees from the Defendant Freddie Mac who could readily provide the
documentation requested and the documentation [that] had been ordered by
the Court. Defendants provided only the documents deemed appropriate
rather that all of the documents ordered by the Court and/or the special
master.
The Court further finds that the defendants failed to provide certain
documents and information ordered by the Court and/or special master even
after the special master found Defendants had failed to file timely
objections to the requests, and that was according to irrefutable statements
37
by Plaintiffs' counsel at a recent hearing. Defendants continued to assert
previously overruled objections, such as attorney-client privilege, when
refusing to properly respond to discovery or provide discovery as ordered
by the Court and/or special master. The defendants generally exacerbated
their noncompliance with discovery requests by what can only be described
as obstinacies in providing--or, failing to produce witnesses for depositions
after being specifically ordered by this court to have a crucial witness
appear for a deposition. The defendants waited until the date set for a
deposition to advise plaintiffs' counsel the witness would be available by
telephone only. In addition, even after being specifically ordered by the
special master to have another critical witness appear on a specific date and
time, the witness failed to appear as ordered.
....
By these actions, and those previously mentioned by the Court, and the
allegations set forth in the plaintiffs' suggestions regarding the scope of
sanctions which are hereby incorporated by reference in the Court's
findings, the defendants have shown a contumacious and deliberate
disregard for the authority of this court, both directly and through the
special master. Defendants have thrown up roadblocks to the preparation
of Plaintiffs' case at every stage of the discovery process by the perpetual
evasiveness under--or, recalcitrance in complying with the discovery
orders. I can only conclude that the defendants have engaged in a
deliberate and calculated effort to prevent plaintiff[s] from preparing their
case and, thus, their right to their day in court.
Many of the discovery violations by Defendants relate directly to Plaintiffs'
ability to present evidence of their action under punitive damages and have
resulted in a substantial prejudice and additional expense and hardship to
the plaintiffs. The defendants' actions have made it virtually impossible for
the plaintiffs to anticipate or prepare for any defense to this action; and to
allow the defense to present evidence in any form, either through direct or
cross-examination of witnesses, would violate the very foundational
principles of fundamental fairness in our judicial system.
The defendants have, by their actions, attempted to make a mockery of this
judicial system, and it's time to pay the piper. It's, therefore, ordered that in
addition to having their pleading stricken, the defendants are prohibited
from questioning, either direct or cross-examination, any witness in this
case either as they may relate to the issue of liability, actual, or punitive
damages.
38
The trial court later clarified that it would address objections at trial on a case by case
basis, but that generally, the effect of the sanctions was to prohibit objections to the
admission of evidence on the issues of liability and damages.
The trial court's findings are compelling and are not an abuse of discretion. We
reject the defendants' contentions that they did not act in contumacious disregard for the
trial court's authority; that the Holms were not prejudiced; and that the sanctions imposed
were too extreme and were not tailored to the challenged discovery conduct. We also
reject the claim of error associated with the exclusion of Kozeny's testimony. The
exclusion of Kozeny's testimony falls within the scope of the discovery sanction
prohibiting Wells Fargo and Freddie Mac from introducing any evidence and did not
impermissibly punish the defendants for Kozeny's discovery misconduct.
Point Five on appeal is denied.
Point Six
In the sixth point on appeal, Wells Fargo argues that the Holms should not have
been awarded punitive damages because they failed to establish by clear and convincing
evidence that Wells Fargo acted with evil motive or reckless indifference to their rights in
that: (i) punitive damages cannot be imposed for a breach of contract; (ii) the servicing
agreement did not create enforceable rights or require Wells Fargo to accept
reinstatement funds; (iii) the evidence did not support that Wells Fargo was motivated by
financial incentives to foreclose; and (iv) Amber Ott's testimony did not reflect the
required culpable mental state.
39
Once again, this point relied on is impermissibly multifarious because it raises
four distinct claims of error that are required to be asserted in separate point on appeal.
Rule 84.04(d)(1)(A). We would be within our discretion to dismiss this point as it
preserves nothing for appellate review. Host, 460 S.W.3d at 96 n.4. However, we will
endeavor to decide the point on its merits. J.A.D., 978 S.W.2d at 338.
The standard of review applicable to each of the components of this point relied on
is the same as that described in point one on appeal.
The Judgment awarded punitive damages because "[t]he evidence established that
Wells Fargo intentionally promised a reinstatement to Plaintiffs and told David Holm that
no foreclosure sale would take place if he accepted the reinstatement. Mr. Holm
immediately accepted the offer, but Wells Fargo deliberately ignored the reinstatement
deal and, in an egregious and deceitful manner, intentionally foreclosed on David and
Crystal Holm's family home." The balance of the Judgment's discussion of the award of
punitive damages explains some of the evidence on which the trial court relied to reach
its conclusion. Regardless the Judgment's discussion of the evidence, we are bound to
affirm the award of punitive damages on any basis supported by the record, as no
findings of fact were requested as permitted by Rule 73.01(c), and as we assume all facts
to have been found in accordance with the Judgment. Hervey, 371 S.W.3d at 828.
Wells Fargo first complains that punitive damages were improperly awarded for a
breach of contract. We disagree. When a mortgagor brings an action for wrongful
foreclosure and seeks the recovery of damages at law, the action sounds in tort, not
contract, even though the relationship between the mortgagor and mortgagee is one that
40
arises out of contracts--generally a promissory note and a deed of trust. See Dobson, 259
S.W.3d at 22 ("A tort action for damages for wrongful foreclosure lies against a
mortgagee only when the mortgagor had no right to foreclose at the time foreclosure
proceedings were commenced."). Punitive damages can be recovered in a wrongful
foreclosure claim as in any other tort action so long as there is "a showing, by clear and
convincing proof, of a culpable mental state on the part of the defendant, either by a
wanton, willful or outrageous act, or reckless disregard for an act's consequences (from
which evil motive is inferred)." Werremeyer v. K.C. Auto Salvage Co., Inc., 134 S.W.3d
633, 635 (Mo. banc 2004) (citing Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 111
(Mo. banc 1996); Burnett v. Griffith, 769 S.W.2d 780, 787 (Mo. banc 1989)). Here, the
Holms sued for wrongful foreclosure, arguing in part that they were not in default at the
time of the foreclosure sale because a reinstatement agreement had been reached.12
Though the facts giving rise to the claim involve an agreement that was not honored, the
wrongful foreclosure action pled by the Holms was for an independent, willful tort.
Punitive damages are recoverable where breach of an agreement "amounts to an
independent, willful tort and there are proper allegations of malice, wantonness or
12
We reiterate that we have not been asked to determine in this case whether the tort of wrongful
foreclosure permitting the recovery of damages at law (as opposed to an action in equity to set aside the sale) can be
based on a failure to honor a reinstatement agreement reached after foreclosure proceedings have commenced. See
Dobson, 259 S.W.3d at 22 ("A tort action for damages for wrongful foreclosure lies against a mortgagee only when
the mortgagee had no right to foreclose at the time foreclosure proceedings were commenced.") (emphasis added);
see note 6, supra. Whether the failure to honor a reinstatement agreement should be recognized as another form of
"no default" that will support a tort recovery for damages, or whether that set of circumstances permits only the
pursuit of a claim in equity to set aside a foreclosure as wrongful, has not been clearly addressed in Missouri.
However, given the posture of this case at the time of trial in light of the imposed discovery sanctions, and given that
Wells Fargo has not challenged whether the failure to honor a reinstatement agreement will permit the recovery of
damages in tort for wrongful foreclosure, we do not address the issue.
41
oppression." Smith v. American Bank & Trust Co., 639 S.W.2d 169, 176 (Mo. App.
W.D. 1982)) (citations omitted).
Wells Fargo next complains that the servicing agreement did not require them to
accept reinstatement funds. It is immaterial whether the servicing agreement required
Wells Fargo to accept reinstatement funds. It is uncontested that the servicing agreement
encouraged reinstatement agreements. Freddie Mac's policy of encouraging
reinstatement as reflected in the servicing agreement was offered as evidence to show
that by disregarding the reinstatement agreement, Wells Fargo acted outrageously and/or
recklessly.
Wells Fargo next argues that the evidence did not support the conclusion that it
had a financial motivation to disregard the reinstatement agreement. This argument
disregards our standard of review. Wells Fargo asks us to discredit the Holms' expert
witness's testimony. However, the trial court was free to accept that testimony, and thus
to conclude that Wells Fargo may have been motivated not to honor the reinstatement
agreement and to instead remove a "toxic" loan from its portfolio by foreclosure. Tadych
v. Horner, 336 S.W.3d 174, 177 (Mo. App. W.D. 2011) (holding that "'the trial court
determines the credibility of witnesses and is free to believe or disbelieve all or part of
the witnesses' testimony'") (quoting Zinc v. State, 278 S.W.3d 170, 192 (Mo. banc 2009)
(other citation omitted).
Wells Fargo makes the same mistake in asking us to discredit the trial court's
conclusion that Ott's testimony in which she said that she was not appearing as a human
being, but instead as a representative of Wells Fargo, reflected on Wells Fargo's lack of
42
remorse and humanity. The trial court heard the context of this testimony and was free to
draw the inference that it did. Tadych, 336 S.W.3d at 177.
Wells Fargo's sixth point on appeal ignores the big picture. The trial court
concluded, and the record supports, that although Wells Fargo reached an agreement with
the Holms to postpone the foreclosure sale based on the Holms' agreement to pay
$10,306.94 to reinstate the Note, and although the Holms' performed the agreement
exactly as directed by Wells Fargo and Kozeny, Kozeny proceeded with the foreclosure
sale. Kozeny first claimed it did so first because the reinstatement funds were not
received by noon on August 15, 2008, (though the Holms were never told they needed to
be), and then claimed it did so because the funds received were in the wrong amount and
not certified. The second explanation was plainly dispelled by Ott's testimony. And the
trial court could have concluded that the first explanation was not credible given that the
reinstatement agreement was not even reached until 7:00 p.m. the night before the
scheduled foreclosure sale, given that Kozeny's offices were in St. Louis, and given that
Kozeny did not call David to provide him with payment delivery instructions until after
the foreclosure sale had already been conducted.
The Holms clearly and convincingly established that Wells Fargo deliberately
ignored the reinstatement agreement reached with the Holms on August 14, 2008, and in
the process acted intentionally, willfully, outrageously, and/or with reckless disregard for
the consequences of their actions.
Point six on appeal is denied.
43
Point Seven
In point seven on appeal, Wells Fargo argues that the punitive damage award
violated its due process rights due to the sanctions imposed by the court by arbitrarily
depriving it of property without being able to present defenses and that the one-sided
record that resulted from the imposition of sanctions did not yield clear and convincing
evidence supporting punitive damages.
The argument which follows this point on appeal is brief, is premised on Wells
Fargo's contentions that discovery sanctions were erroneously imposed, and claims that
the evidence supporting an award of punitive damages was not clear and convincing. We
have already addressed and rejected both arguments in our discussion of points five and
six on appeal.
Moreover, discovery sanctions that "destroy completely one party's case" are not
an abuse of discretion, and do not violate due process, if "the errant party has shown
contumacious and deliberate disregard for authority of the trial court." S.R. v. K.M., 115
S.W.3d 862, 865 (Mo. App. E.D. 2003). Having found that standard was met here, Wells
Fargo has no basis to complain that as a natural consequence of its errant behavior, it was
deprived of the constitutional right to present a defense.13
Point seven on appeal is denied.
13
We observe that the trial court did not enter a default judgment against Wells Fargo, though it would have
had the discretion to do so pursuant to Rule 61.01. As such, the trial court's ability to enter a judgment in favor of
the Holms remained subject to the Holms' introduction of evidence at trial sufficient to sustain their burden of proof.
This is not a case where judgment was entered against Wells Fargo without requiring evidence sufficient to establish
liability and damages.
44
Point Eight
In the eighth point on appeal, Wells Fargo argues that the $2,959,123 punitive
damages award is excessive because: (i) section 510.265.1 required the award to be
reduced to five times the actual damage award; and (ii) the award denies Wells Fargo's
constitutional right to due process because it bears no reasonable relationship to Wells
Fargo's conduct and is substantially disproportionate to the compensatory damage award.
Wells Fargo's first contention is without merit. Section 510.265.1 has been
determined by our Supreme Court to be unconstitutional if applied to causes of action
that would have been triable to a jury in 1820 when the Missouri Constitution was
adopted. Lewellen, 441 S.W.3d at 143-44 (citing by analogy Watts v. Lester E. Cox
Medical Centers, 376 S.W.3d 633, 638 (Mo. banc 2012)). Wrongful foreclosure is a
cause of action which derives out of common law principles of deceit, trespass,14 and
invasion of property ownership rights. In Rutherford v. Williams, 42 Mo. 18 (Mo. 1867),
our Supreme Court addressed such a claim where a mortgagor contended that a
mortgagee violated an agreement not to foreclose. In recognizing that such a claim
invokes jurisdiction both in equity and at law, the court explained:
The jurisdiction in equity is concurrent, in the exercise of discretion, where
it is necessary and fit, and where the law cannot give so speedy and
effectual a remedy, though relief may be had at law [citation omitted]. The
cases illustrative of the application of this jurisdiction in equity would seem
to show very clearly that the relief is confined to instances of fraud and
misrepresentation by one party, touching some matter of interest, contract,
14
"Fraud does not appear as a separate cause of action in Missouri cases until the mid-nineteenth century.
Nonetheless, 'Missouri's common law is based on the common law of England as of 1607.' Fraud claims were
historically encompassed in trespass claims, as English common law recognized actions for trespass as a means to
recover for deceit." Lewellen, 441 S.W.3d at 143 n. 10 (quoting Watts, 376 S.W.3d at 638) (internal citations
omitted).
45
security, mortgage, or conveyance, or property of some kind, in respect of
which the other party is going to deal on the faith of representations made
as to the truth of facts, whereby he is induced to act and deal not only to his
own injury and loss, but to the gain of the party who makes the false
representations, or practices the fraud and deceit; and in these cases relief is
administered in general for the purpose of annulling the contract,
conveyance, or instrument, and subjecting the property so acquired to the
purpose of making such representations good, but sometimes even to
compel the party to make up any deficiency in money, by way of
compensation or damages, where the property itself proves insufficient, or
cannot be reached. . . .
If the proofs in this case had fully sustained the petition, or shown a
deliberate scheme of fraud and deceit designed to induce the plaintiff to go
away in order that the defendant might get the property at a sacrifice in his
absence, in violation of express promises or plighted faith, or upon false
representations made, or had clearly established the fact that deceitful
inducements had been held out to him, or that any such promise or
understanding or misrepresentation had been made, and were acted upon by
the other as the sole ground of his proceeding, with or without further proof
that there had been fraudulent conduct or unfairness at the sale, and that an
actual fraud had been accomplished to the injury of the plaintiff, and that by
means thereof the defendant had acquired this property, we should certainly
have been disposed to sustain this petition and grant such relief as the case
made might justify upon the principles upon which the court acts in
administering relief in such cases.
Id. at 25-26. Plainly, a claim of wrongful foreclosure is grounded in common law
principles permitting a civil action for either damages or equitable relief. "[C]ivil actions
for damages resulting from personal wrongs have been tried by juries since 1820."
Watts, 376 S.W.3d at 638. As such, section 510.265.1 cannot be applied to impose a
statutory cap on punitive damages in a wrongful foreclosure action where the mortgagor
has elected to accept the result of the sale and to recover damages in an action at law.
Wells Fargo's reliance on Federal Nat. Mortg. Ass'n v. Howlett, 521 S.W.2d 428
(Mo. banc 1975) for the proposition that Missouri did not recognize a claim for wrongful
46
foreclosure in 1820 is without merit. Howlett addresses the legislative and judicial
history of nonjudicial foreclosure pursuant to a contractually agreed upon power of sale
clause in a deed of trust. Id. at 431. In addressing the origin of nonjudicial foreclosure,
the Supreme Court observed that during the early years of statehood, Missouri statutes
"provided for and authorized only judicial foreclosure." Howlett, 521 S.W.2d at 431
(citing RSMo 1825, p. 593). The Court also noted that "[p]reviously, the territorial laws
of Missouri also provided only for judicial foreclosure." Howlett, 521 S.W.2d at 431 n.4
(citing Act of October 20, 1807, 1 Terr. Laws of Missouri, pp. 182-83, sections 1, 3).
Plainly, an action for wrongful foreclosure exists independent of whether the foreclosure
is conducted judicially or nonjudicially. Howlett does not address wrongful foreclosure
actions in either context. However, by addressing the history of judicial and nonjudicial
foreclosures in Missouri, Howlett underscores that the prospect of a claim for wrongful
foreclosure necessarily predated the adoption of the Missouri Constitution in 1820.
We are also not persuaded by Wells Fargo's argument that because the Holms
waived a right to jury trial on Count I of its petition, the holding in Lewellen is not
controlling. The issue in Lewellen was whether the right to jury determination of civil
damages existed as of 1820, not whether that right was exercised at the time of trial. 441
S.W.3d at 144 ("Because section 510.265 changes the right to a jury determination of
punitive damages as it existed in 1820, it unconstitutionally infringes on [the] right to a
trial by jury protected by article I, section 22(a) of the Missouri Constitution.") (emphasis
added). To conclude otherwise would leave the application of section 510.265 to the
folly of trial procedure and would reward defendants whose contumacious disregard of
47
discovery leads to a situation where a default judgment is entered, or where liability is all
but determined by virtue of discovery sanctions, and a plaintiff is thus inclined to the
efficiency of trying the issue of damages to the court.
Though section 510.265.1 cannot be applied to the award of punitive damages in
this case, the punitive damage award is nonetheless subject to due process limitations.
The United States Supreme Court has ruled that "due process rights guaranteed by the
United States Constitution 'prohibit[] the imposition of grossly excessive or arbitrary
punishments on a tortfeasor.'" Lewellen, 441 S.W.3d at 144 (quoting State Farm Mut.
Auto. Ins. Co. v. Campbell, 538 U.S. 408, 409 (2003)). "Courts must review punitive
damages awards and consider the reprehensibility of the defendant's misconduct, the
disparity between the harm and the award, and the difference between the award and civil
penalties authorized or imposed in comparable cases." Id. (citing BMW of N. Am., Inc. v.
Gore, 517 U.S. 559, 574-75 (1996)).
"The reprehensibility of the conduct is the most important factor and includes
consideration of whether:
'[T]he 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.'"
Lewellen, 441 S.W.3d at 146 (quoting State Farm, 538 U.S. at 419).
The harm in this case was physical, as reflected by the damages awarded to the
Holms for emotional distress. And the Holms were financially vulnerable, as they faced
48
the loss of their family home to nonjudicial foreclosure even though they disputed the
debt.
Moreover, Wells Fargo's conduct involved intentional malice, trickery, or deceit,
not mere accident. Wells Fargo disregarded the Holms' attempts to explain early in the
foreclosure proceedings that they were not in default and that Wells Fargo had
accelerated the Note based on a mistaken belief that the Holms were evacuating the
Property. When David finally reached someone at Wells Fargo with authority to discuss
a resolution of the disputed debt, an agreement was reached to reinstate the Note late in
the day before the scheduled foreclosure sale. Wells Fargo assured David that the sale
scheduled for noon the next day would be postponed. Wells Fargo told David to contact
Kozeny the next morning to confirm the reinstatement amount and to make arrangements
to deliver payment to Kozeny. David did exactly as he was instructed, reaching Kozeny
at 10:00 a.m. on the morning of the scheduled sale. Kozeny confirmed the reinstatement
amount and that the sale would be postponed. Kozeny told David to secure a cashier's
check in the agreed upon amount and to await a phone call with instructions for its
delivery. Again, David did exactly as he was instructed. Kozeny called David back at
1:00 or 2:00 p.m. and instructed David to send a facsimile copy of the cashier's check to
its offices and to overnight the actual check for next day delivery. Once again, David did
exactly as instructed. At no point was David told by Wells Fargo or Kozeny that his
cashier's check had to be received before the scheduled foreclose sale.
Though an agreement to reinstate the Note and to postpone the foreclosure sale
had been reached, Kozeny proceeded with the sale as scheduled. At trial, Wells Fargo
49
claimed that payment had to be received before the scheduled sale in order to postpone
the sale. However, the circumstances suggest otherwise. The reinstatement agreement
was not reached until very late the night before the scheduled sale, making the prospect
of delivery of payment to Kozeny in St. Louis by noon the following day unlikely.
Further, had receipt of payment by noon been a requirement, then Kozeny would not
have called after the scheduled sale with payment delivery instructions. And had receipt
of payment by noon on August 15, 2008, been a requirement, the scheduled sale would
have been cancelled because receipt of payment would have cured the alleged default.
The concept of "postponing" the scheduled sale--a concept which Ott acknowledged was
discussed--was only relevant if, as David claimed, Wells Fargo never imposed a
requirement that his payment be received before the scheduled sale.
Adding insult to injury, Kozeny provided the Holms with two completely different
explanations for returning their cashier's check. The first was that the payment had to be
received by the time of the scheduled sale. The second was that the payment was not in
the right amount and was not certified. Ott acknowledged at trial that the second
explanation was completely false.
If by some chance the scheduled foreclosure sale proceeded accidentally, then it
would be reasonable to conclude that Wells Fargo would have contacted Freddie Mac,
the owner of the Note and the purchaser at sale, to arrange to disregard the sale as to
honor the reinstatement agreement reached with the Holms. No such request was made.
Yet Meyers, Freddie Mac's corporate representative, testified that Freddie Mac would
have consented to such a request.
50
The trial court was left to conclude one of two things. Either Wells Fargo
willfully proceeded with the foreclosure sale despite agreeing to postpone the sale, or
Wells Fargo willfully refused to correct its mistake in proceeding with the scheduled sale.
In either case, Wells Fargo's conduct was sufficiently reprehensible to warrant an award
of punitive damages in the amount of $2,959,123.
The second standard we are to examine is "the disparity between the actual
damages and the punitive damages awarded." Lewellen, 441 S.W.3d at 147. We have
concluded that the Holms were entitled to the damage award they received for emotional
distress in the amount of $200,000. We have concluded that the Holms were not entitled
to the award they received for economic damages in the amount of $95,912.30. The
punitive damage award of $2,959,123 yields an approximate 14.8:1 ratio between
punitive damages to permissible compensatory damages. "While 'few awards exceeding
a single digit ratio between punitive damages and compensatory damages . . . will satisfy
due process,' greater ratios may comport with due process where 'a particularly egregious
act has resulted in only a small amount of economic damages.'" Id. (quoting State Farm,
538 U.S. at 425) (emphasis added). This is just such a case. Wells Fargo's conduct was
particularly egregious--to the extent that it warranted an award of noneconomic damages
for emotional distress. Yet, as the Property wrongfully foreclosed had (apparently) no
equity at the time of foreclosure, the Holms suffered no compensable economic loss. A
double digit ratio between the punitive and compensatory damages awarded in this case
is thus not plainly a violation of due process. Certainly the ratio of punitive damages to
actual damages of 14.8:1 in this case is much smaller than ratios approved in other cases.
51
See TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 461 (1993) (upholding 526:1
ratio of punitive damages to actual damages); Krysa v. Payne, 176 S.W.3d 150, 160-62
(Mo. App. W.D. 2005) (upholding 27:1 ratio of punitive damages to actual damages);
Weaver v. African Methodist Episcopal Church, Inc., 54 S.W.3d 575, 589 (Mo. App.
W.D. 2001) (upholding 66:1 ratio of punitive damages to actual damages).
The third standard we are to examine is "the disparity between the punitive
damage [award] and 'the civil penalties authorized or imposed in comparable cases.'"
Lewellen, 441 S.W.3d at 148 (quoting Gore, 517 U.S. at 575). We have not been
afforded any argument by the parties about civil penalties, if any, to which Wells Fargo
might be exposed for its conduct. That is not, however, controlling. Lewellen, 441
S.W.3d at 148 (holding that punitive damages awarded were not excessive even though
they were substantial larger than any civil penalties that could have been awarded).
As in Lewellen, we have "consider[ed] all three guideposts, and the punitive
damages award[] assessed against [Wells Fargo] [is] not grossly excessive considering
[its] intentional and flagrant trickery and deceit employed to target . . . financially
vulnerable person[s] causing [them] to lose [their home]. Id. The trial court did not err
in denying Wells Fargo's post-trial motion to modify the Judgment by reducing the
punitive damage award.
The award of punitive damages in this case did not violate Wells Fargo's right to
due process. Point eight on appeal is denied.
52
Conclusion
The trial court's Judgment is affirmed in part and reversed in part. The Judgment's
award of compensatory damages on Count I of the petition in favor of the Holms and
against Wells Fargo is reduced to $200,000 from $295,912.30.15 In all other respects, the
judgment on Count I of the petition is affirmed. The trial court's judgment on Count II of
the petition quieting title in the Property in favor of the Holms as against the interests of
Freddie Mac is reversed.16
__________________________________
Cynthia L. Martin, Judge
All concur.
15
The reduction in compensatory damages removes from the damage award $89,762.30 (the post-
foreclosure loss in value of the Property) and $6,150 (the value of post-foreclosure repairs). The effect of this
modification to the Judgment is to leave intact the award of compensatory damages for emotional distress in the
amount of $200,000, and the award of punitive damages in the amount of $2,959,123.
16
For recording purposes, the Property is legally described as: "Lot Sixteen (16) in Woodrail, a Subdivision
in Clinton County, Missouri, according to the recorded plat thereof."
53