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Posted on Fri, Aug. 27, 2004 |
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Court
restores $6 million award
A federal
appeals court on Thursday restored a $6 million punitive damage award in a
debt collection case brought against a subsidiary of Bear Stearns. The ruling by a three-judge panel of
the 8th U.S. Circuit Court of Appeals reversed a decision by a federal judge
in Kansas City throwing out the award. The award, thought to be the largest
ever handed down locally in an individual consumer protection case, was in
favor of Stanley and Pat Stark of Holden, Mo. In 2002, arbitrator Donald L. Mason
ordered EMC Mortgage Corp. of Irving, Texas, to pay the punitive damages to
the Starks. The couple had argued that EMC, a subsidiary of Bear Stearns
& Co. Inc., had violated the Fair Debt Collection Practices Act by
repeatedly contacting them when they were represented by a lawyer. Kansas City lawyer Roy True said
Thursday that the appeal court's decision was a victory for the arbitration
process. “The debt collector got what they
bargained for,” True said. “They forced my client into arbitration and then
when we won the arbitration case, they wanted the court to overturn it.” Elizabeth Ventura, a Bear Stearns
spokeswoman, declined comment, saying the firm had not yet reviewed the
court's decision. The case stemmed from a loan the
Starks took out from United Lending Corp. Not long afterward, the Starks
filed for bankruptcy. About the same time, United Lending also filed for
bankruptcy. In mid-2000, EMC bought United Lending's promissory notes,
including the Starks' loan. Shortly after that, EMC and its lawyers began
contacting the Starks to collect the debt. Although True warned them not to
contact his clients directly, EMC and the lawyers persisted, sending
additional letters and then a “notice of foreclosure sale” to Stanley Stark. The foreclosure never occurred.
Instead, an EMC agent entered the Starks' vacant house and placed a sign in
the window stating that the property had been secured and was not for sale or
rent. The Starks earlier had filed a federal lawsuit to stop the foreclosure,
but EMC invoked a provision in the loan documents that required sending the
case to arbitration. Mason then hit EMC with $6 million in
punitive damages, finding the company's conduct “reprehensible and outrageous and in total disregard of
(the Starks') legal rights.” EMC appealed the award to U.S.
District Judge Ortrie Smith, who set it aside, saying that the arbitration
agreement precluded an award of punitive damages. The appeals court reversed
Smith on Thursday, agreeing with Mason that the contract language was
ambiguous. To reach Mark Morris, call (816) 234-4310 or send e-mail
to mmorris@kcstar.com. |
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