By Michael Elias Shammas
2019 was a strange year. One of its strangest cases was decided only a month ago.
The case —which I will (for now) call Saccameno v. Ocwen —involves a dizzying nightmare of facts. The jury thought the ordeal merited $3,000,000 in punitive damages, but the 7th Circuit disagreed with both the jury and the district judge. In doing so, it lowered the award to produce a 1:1 ratio of punitive to compensatory damages—$582,000.
The court agreed with the defendant that the $3 million award was so high as to deny it property in violation of the Due Process Clause. Given the defendant’s quest to evict Monette E. Saccameno from her home—without anything resembling reasonable process—it is unclear that the Circuit Court should have substituted its own judgment for that of the jury and district judge.
You might want to sit down. For the facts are, as the 7th Circuit noted, “reprehensible.” Saccameno v. U.S. Bank Nat’l Ass’n , 943 F.3d 1071, 1088 (7th Cir. 2019).
Ocwen—a subprime mortgage servicer featured by the New York Times for “years of abuses” ; subjected to a 2017 CFPB enforcement action alleging “significant and systemic misconduct” for “failing borrowers at every step of the mortgage servicing process” ; and operating a system described by its own executive as a “train wreck” —put Saccameno through nine years of hell starting October 2011, when it inexplicably sent her a statement saying she owed $16,000. On June 28, 2013, this incompetence evolved after an employee named “Marla” apparently confused a bankruptcy court’s discharge order for a dismissal. As the 7th Circuit, quoted at length, writes:
Around 2009, Saccameno fell behind on her $135,0000 home mortgage and her bank … began foreclosure proceedings. To keep her home, she sought the protection of the bankruptcy court and, in December 2009, began a Chapter 13 plan under which she was required to cure her default over 42 months while maintaining her ongoing monthly mortgage payments.… Saccameno first began having problems with Ocwen in October 2011, shortly after it acquired her previous servicer. Ocwen sent her a loan statement saying, inexplicably, that she owed $16,000 immediately. With her attorney’s advice, [she] ignored the statement and continued making payments [per] her plan. Her statements continued to fluctuate: her February 2013 statement said she owed … $7,500, her March statement, $9,000. A month later, Ocwen now owed Saccameno about $1,000 in credit, and Ocwen told her she did not need to pay again until September. Still, Saccameno continued making payments through June, the last month of her plan. At that time the bankruptcy court issued a notice of final cure informing Ocwen that Saccameno had completed her payments. Ocwen never responded to the notice, and the court entered a discharge order on June 29, 2013. Saccameno’s last statement pre-discharge showed that the credit in her favor had grown to $2,800 and she was paying down her loan.
Within days … Marla reviewed the discharge but mistakenly treated it as a dismissal. As far as Ocwen was concerned, then, the bankruptcy stay had been lifted and it could immediately start collecting Saccameno’s debts. This might not have been a problem—for Saccameno of course did not have a debt anymore. but Marla’s mistake was only the tip of the iceberg…. “[I]n March, Ocwen had manually set the due date for Saccameno’s plan payments to September 2013, hence the credit. That manual setting took place in a bankruptcy module that overrode and hid Ocwen’s active foreclosure module, which instead reflected that Saccameno had not made a single valid payment in 2013, as each check was being placed into a suspense account and not being applied to the loan. Marla’s dismissal entry deactivated the bankruptcy module and reactivated the foreclosure one. If Marla had properly marked Saccameno’s bankruptcy as a discharge, then someone in Ocwen’s bankruptcy department would have reconciled the plan payments with the suspense accounts before closing both modules. Instead, on July 6 and 9, Ocwen sent Saccameno two letters saying it had not heard from her since its non-existent recent communication about her “severely delinquent mortgage.”
Id. at 1079.
This series of unfortunate events led to several further frustrations, all compounded by Marla’s error. In the “you’ll never rent in this town again” letters sent in July 2013, Ocwen warned the plaintiff that her failure to rectify the situation could result in foreclosure and eviction. Id. Before the letters arrived, however, Saccameno had coincidentally called Ocwen to ask about lowering her interest rate and had been told by an employee (perhaps Marla) that she was ineligible because she was in default for thousands of dollars—an assertion Saccameno knew was mistaken. Consequently, two full weeks before her discharge, Saccameno asked Ocwen how to correct the records and received a fax number, which she promptly sent her documents to.
“[I]f only that were the end of this story.” Id . After performing a reconciliation using the corrected records, Ocwen’s bankruptcy department recognized Saccameno had made several 2013 payments and thus that “her default was nowhere near as large as the employee had said.” Id. Unfortunately, it then somehow calculated that Saccameno flubbed two payments during her bankruptcy and remained in default, and the foreclosure module stayed open. Id . “In August, Ocwen sent Saccameno a letter declaring that it had ‘waived’ $1,600 in [discharged] fees … and that it was missing two of her plan payments (which, even if true, would also have been discharged under the terms of the plan).” Id . Even though Ocwen assigned Marla a “relationship manager” to rectify these supposed issues, this manager, Anthony Gomes, proved unfamiliar with her case. Id . After re-sending Gomes her documents and never hearing back, Saccameno “frequently” called Ocwen’s customer service line and “each time was directed to a new, similarly unhelpful person.” Id.
After Ocwen started rejecting Saccameno’s payments in September due to her supposed default and after several more months of rejection, during which her fictional default grew and her underlying foreclosure action remained pending (albeit stayed due to bankruptcy), Saccameno asked a lawyer friend for help. This friend incurred the misfortune of interacting with Ocwen several times, but she herself soon grew frustrated. Eventually Ocwen’s incompetence forced Saccameno to hire legal counsel.
As all of this was going on, Ocwen internally prepared to revive the foreclosure action and seek judgment of foreclosure. It sent experts to appraise Saccameno’s property and spied on Saccameno monthly through use of agents to see if Saccameno was still living in the home (if they concluded she wasn’t, “they would have placed locks on the doors”). Id. at 1080. Ocwen added these measures’ cost to Saccameno’s ballooning debt and “produced affidavits to support a request for judgment of foreclosure, including one prepared as early as July 2013,” which it “gave … to its local law firm. That firm filed an appearance in the foreclosure proceeding in 2014 and told Ocwen, in January 2015, that it needed only one more document before it could move for judgment).” Id.
The 7th Circuit’s Analysis
Though the 7th Circuit found the facts “reprehensible,” they apparently were not so reprehensible as to necessitate $3,000,000. This is despite the fact that reprehensibility is “the first and most important guidepost” in the applicable three-step test. Id. at 1086. As the court noted, at least five factors must be weighed when considering reprehensibility:
[W]e judge [reprehensibility] based on five factors including whether  the harm caused was physical as opposed to economic;  the tortious conduct evinced an indifference to or 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.
Id . (internal citations omitted).
The 7th Circuit agreed with the district judge that Ocwen’s conduct was reprehensible but disagreed with Saccameno that all five factors applied. The court found all factors applicable except the first two, rejecting the argument that the mental illness Saccameno developed had anything to do with the first two factors.
Legally, the 7th Circuit is right. As far as the common law is concerned, mental illness is neither a “physical harm” (thereby satisfying the first prong) nor a “health or safety” issue (satisfying the second prong). See, e. g ., Sanders v. Melvin, 873 F.3d 957, 959 (7th Cir. 2017) (“Mental deterioration, however, is a psychological rather than a physical problem.”). Given what we’ve learned about mental illness, this legally correct result seems far from scientifically correct . Several peer-reviewed studies have found trauma, anxiety, and depression (which afflicted the plaintiff due to her nine long years of economic and legal uncertainties, Saccameno, 943 F.3d at 186) can wreak havoc on everything from the immune system to skin health.
One law review article even went so far as to assert that “[t]here is no scientific basis to distinguish biologic and non-biologic mental disorders.” Joni Roach, Discrimination and Mental Illness: Codified in Federal Law and Continued by Agency Interpretation, 2016 Mich. St. L. Rev. 269, 310 (2016) (emphasis added); see also Stacey A. Tovino, Reforming State Mental Health Parity Law, 11 Hous. J. Health L. & Pol’y, 455, 499 (2011) (explaining that “[c]urrent science shows that almost all mental health conditions and substance use disorders have been reported by scientists to have some type of basis in neurobiology”).
Leaving science aside, the 7th Circuit’s analysis was correct as a matter of law. Where its analysis strayed was with regard to the latter two prongs, “ratio” (“the disparity between the harm to the plaintiff and the punitive damages awarded,” Saccameno, 943 F.3d at 1088) and “civil penalties” (“the disparity between the award and civil penalties authorized or imposed in comparable cases,” id. at 1091 (internal citations and quotations omitted)).
As the 7th Circuit saw it, Ocwen’s most persuasive argument concerned ratio, the second prong. The district judge, Ocwen said, made its due-process-denying decision to uphold the jury’s punitive damages award “by looking to the entire compensatory award instead of just the $82,000 awarded under the” Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA). Id . at 1078. That is, the district court looked at the award resulting from all four claims, instead of the award resulting from just the ICFA (permitting punitive damages). The 7th Circuit agreed with Ocwen, “not because the district court was obligated to use a certain denominator but because the choice between available denominators—and their resulting ratios—reflecting the same underlying conduct and harm should not unduly influence whether a given award is constitutional.” Id. at 1088.
The district court had calculated its ratio by adding the compensatory damages awarded on all counts, yielding a 5:1 ratio that the judge approved because the ratio met Supreme Court guidance suggesting that single-digit ratios can be appropriate (as opposed to multi-digit ones). Id. at 1086 (citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003)). The Supreme Court has issued three guidelines concerning the ratio prong: (1) “[F]ew awards exceeding a single digit ratio ‘to a significant degree’ will satisfy due process,” id. (internal citation omitted); (2) “the ratio is flexible” in that “[h]igher ratios may be appropriate when there are only small damages” and vice versa, id. (internal citation omitted); and (3) “the ratio should not be confined to actual harm, but also can consider potential harm,” id. at 1088 (citing TXO Prod. Corp. v. All. Res. Corp., 509 U.S. 443, 460-61 (1993)). The 7th Circuit noted that several federal courts of appeal have instead “implied or held that courts should calculate punitive damages ratios claim-by-claim,” and that, whatever the case, even though “[t]he disparity guidepost is not a mechanical rule,” as “[t]he court must calculate the ratio to frame its analysis, but the ratio itself does not decide whether the award is permissible,” the 37:1 ratio that would result without aggregation—which the district judge held might still be constitutional—was simply too high on these facts. Id. at 1089.
According to the 7th Circuit, the cases the district court cited involving such ratios were more reprehensible; thus, the district court should have hesitated just as much in the face of a 5:1 ratio as it did in the face of a 37:1 ratio because the $582,000 compensatory award is “substantial” under Supreme Court precedent. Id. at 1090-91. Ultimately, the 7th Circuit held that this substantial award meant that a 1:1 ratio involving all compensatory damages (here $582,000) was appropriate. Thus, despite its analysis of the third prong (mandating that courts look at comparable civil penalties), the 7th Circuit’s decision seems to have been guided mostly by its ratio analysis, and its conclusion that a 1:1 ratio was appropriate because the misconduct (in its opinion) was not so reprehensible as to deviate from that ratio and because the compensatory damages were “substantial” meant that the punitive damages award would have to be reduced to $582,000 to satisfy due process.
The 7th Circuit might have got it wrong.
First, its analysis of the facts—wherein it painted Ocwen’s misconduct in terrifying terms—describes conduct that seems at least as reprehensible as case law involving ratios above 1:1. Although Ocwen’s misconduct was not (one assumes) intentional, intentionality is not required when measuring reprehensibility, especially when the defendant is a repeat offender such that an inference of intentionality arises. See, e.g., Action Marine, Inc. v. Cont’l Carbon Inc., 481 F.3d 1302, 1321 (11th Cir. 2007) (upholding a 5:1 ratio of compensatory to punitive damages despite “substantial” compensatory damages).
Second and more importantly, it is unclear that the 7th Circuit should have undertaken such a fact-intensive analysis. True, the second and third prongs—the ratio and civil penalties analyses—concern legal questions. But those prongs also involve an implicit weighing of the first prong’s chief factual concern—reprehensibility. Both the district judge and the jury were better equipped to analyze Ocwen’s reprehensibility than the 7th Circuit. Even if one buys that nine years of hell yielding severe mental illness is not reprehensible enough to implicate physical health or to demonstrate a reckless disregard to the health or safety of another, the other three factors were more than enough to justify an award of $3,000,000, see Campbell, 538 US. at 425. Indeed, the 7th Circuit’s attempt to distinguish other civil cases with equally high awards seems bizarre given its lurid description of Ocwen’s “reprehensible” misconduct.
My main issue with Saccameno involves a segment where the 7th Circuit is unfortunately in accord with its sister circuits and the Supreme Court. In relation to the final disputed issue—whether the Seventh Amendment mandates an offer of a new trial after determining the constitutional limit on the punitive damages award—the 7th Circuit curtly noted that it would follow existing federal law, which holds that “the constitutional limit of a punitive damage award is a question of law not within the province of the jury, and thus a court is empowered to decide the maximum permissible amount without offering a new trial.” Id. at 1092 (internal citations omitted); see also Cooper Indus. v. Leatherman Tool Grp., 532 U.S. 424, 437 (2001) (“[T]he [amount] of punitive damages is not really a ‘fact’ ‘tried’ by the jury.”).
Furthermore, punitive damages serve a different function than compensatory damages. They “are retributive in nature and seek to deter wrongful acts in the first place.” Id. at 1086 (internal citations omitted). While the Saccameno court decided that this public-minded purpose means the reward must be carefully scrutinized in order to protect defendants from unjust punishment, it seems equally probable that this public-policy-minded purpose should result in a more liberal standard of judicial review than that regarding compensatory damages. After all, public policy questions by nature implicate the public interest—not just the defendant’s private property interest—and juries are the closest thing to a democratic institution we have in our justice system (and perhaps in our political system). See Tim M. Stubson, Why the Legislature Needs Lawyers, Wyo. Law., August 2017, at 22 (discussing Toqueville’s view of lawyers’ and jurors’ special roles in a democracy). Should judicial elites really be able to substitute their judgment for that of a jury? If so, does this mean we mistrust jurors to decide just how egregious a defendant’s misconduct is?
Ultimately, Ocwen received substantially more process than it incompetently afforded Saccameno, who is left with permanent mental scars as a result of her nine-year ordeal. Given the utter lack of process Ocwen afforded Saccameno—at least per the 7th Circuit’s detailed retelling—one cannot help but find the result less than ideal.
As it stands, the punitive damages award is “a miniscule amount compared to the value of Ocwen’s business license.” Saccameno, 943 F.3d at 1092. As demonstrated by ongoing public enforcement actions against Ocwen for widespread systemic failures, Ocwen has repeatedly acted in a manner causing great public harm. By substituting its judgment for that of the jury and district judge, the 7th Circuit gave Ocwen an ineffectual slap on the hand—one much too benign to fulfill either the retributive or deterrent functions that should guide any constitutional analysis of punitive damages.
Interested readers with Westlaw access can find the entire opinion at this link .
Michael Elias Shammas is a research fellow at the Civil Jury Project. After graduating from Harvard Law School, he worked as a litigator for two years at Paul, Weiss, Rifkind, Wharton & Garrison, LLP, then clerked in the District of Maine for the Honorable D. Brock Hornby. He will begin a clerkship with the Honorable Ronald L. Gilman at the United States Court of Appeals for the Sixth Circuit in fall 2020. You can read some of his in-progress research here .