802 F. Supp. 2d 1147
D. Nev.2011Background
- USA Commercial Mortgage filed for bankruptcy in 2006; Compass acquired LSAs and related assets at auction.
- Silar financed Compass’s acquisition via a Master Repurchase Agreement (MRA); Silar later assigned assets to Asset Resolution and foreclosures occurred.
- Direct Lenders (LLCs) sued Compass, Silar, and principals for declaratory relief and damages; the court later limited standing of LLCs and added Asset Resolution as a defendant.
- Jury found Silar/Asset Resolution liable for multiple contract and tort theories; Compass Defendants held liable by pretrial determinations.
- Court awarded damages (approx. $79k compensatory, $5.1m punitive) and declared the relationship and duties under Nevada law; various post-trial motions were denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LSAs create a fiduciary/duty-based standard against servicers | Direct Lenders contend servicers owed fiduciary duties under Nevada law. | LSAs create only an agency/ordinary business relationship, not fiduciary duties. | Nevada law recognizes fiduciary duties in this context. |
| Nature of the MRA: purchase-sale vs collateralized loan | MRA constituted a purchase-and-sale; Silar remained title owner and Compass served as servicer/agent. | MRA resembled a loan with security interests; Article 9 may apply. | MRA is a purchase-and-sale, not a collateralized loan. |
| 51% Rule: who controls loan servicing and foreclosures | 51% Direct Lenders control servicing; 51% rule valid and binding regardless of date of interests. | Defendants retained servicing rights despite 51% control by others. | Direct Lenders could terminate servicers and control loans under the 51% Rule. |
| Whether impairment of Direct Lenders’ rights supports punitive damages | Defendants’ conduct evidences oppression, malice, and fraud justifying punitive damages. | Egregious conduct not proven; damages mitigated by counsel guidance and plan. | Defendants liable for punitive damages; conduct deemed reprehensible and purposeful. |
| Award of attorneys’ fees and costs under §2202 and LSAs | LSAs authorize prevailing-party fees; declaratory relief supports fee award under §2202. | Fees should follow contingency agreements and not be awarded as damages. | Plaintiffs entitled to attorneys’ fees and costs; fees awarded in gross; §2202 applicable. |
Key Cases Cited
- Granite Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp. 2d 275 (S.D.N.Y. 1998) (distinguishes purchase vs loan characteristics in repurchase-like agreements)
- In re American Home Mortgage Holdings, Inc., 388 B.R. 69 (Bankr. D. Del. 2008) (interprets repurchase agreements as purchases, not secured loans)
- Evans v. Dean Witter Reynolds, Inc., 5 P.3d 1043 (Nev. 2000) (no fiduciary duty absent special relationship in a loan servicing context)
- LeMon v. Landers, 402 P.2d 648 (Nev. 1965) (establishes agency fiduciary duties when handling principal funds)
- Jory v. Bennight, 542 P.2d 1400 (Nev. 1975) (fiduciary duties include utmost good faith and loyalty)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (S. Ct. 2003) (guideposts for constitutional excess in punitive damages)
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (S. Ct. 1996) (non-bright-line approach to punitive damages ratios)
- Planned Parenthood of the Columbia/Willamette Inc. v. Am. Coalition of Life Activists, 422 F.3d 949 (9th Cir. 2005) (considers egregiousness and ratio in punitive awards)
- Exxon Shipping Co. v. Baker, 554 U.S. 471 (S. Ct. 2008) (ratios not governed by simple mathematical formula in maritime context)
- Gant v. Grand Lodge of Tex., 12 F.3d 998 (10th Cir. 1993) (allowing §2202-fee recovery under declaratory judgments when warranted)