Nationstar Mortgage LLC n/k/a Bank of America, NA, as successor by merger to BAC Home Loans, Plaintiff-Appellant-Cross-Respondent,
Robert R. Stafsholt, Defendant-Respondent-Cross-Appellant-Petitioner, Colleen Stafsholt f/k/a Coleen McNamara, unknown spouse of Robert R. Stafsholt, unknown spouse of Colleen Stafsholt, f/k/a Colleen McNamara, Richmond Prairie Condominiums Phase I, Association and The First Bank of Baldwin, Defendants.
Argument: October 23, 2017
OF A DECISION OF THE COURT OF APPEALS Reported at 373 Wis.2d
309, 895 N.W.2d 103
of Appeal from Circuit Court county St. Croix L.C. No.
2011CV224, Scott R. Needham Judge
the defendant-respondent-cross-appellant-petitioner, there
were briefs filed by Nathan M. Brandenburg, Steven J.
Weintraut, and Siegel, Brill, P.A., Minneapolis, Minnesota.
There was an oral argument by Steven J. Weintraut.
the plaintiff-appellant-cross respondent, there was a brief
filed by Amy M. Salberg and Salberg Law Firm, LLC, West Bend.
There was an oral argument by Amy M. Salberg.
Justices: Concurred: Dissented: Not Participating:
ABRAHAMSON, J. did not participate.
MICHAEL J. GABLEMAN, J.
This is a review of an unpublished, per curiam decision of
the court of appeals reversing the St. Croix County Circuit
Court's order awarding attorney fees and costs to
Robert Stafsholt ("Stafsholt") and against
Nationstar Mortgage LLC ("Nationstar") on the basis
of equitable estoppel. Nationstar Mort. LLC v.
Stafsholt, No. 2015AP1586, unpublished slip op. (Wis.
Ct. App. Dec. 28, 2016) (per curiam).
Stafsholt raises two issues for our review. First, whether
the circuit court properly awarded attorney fees to
Stafsholt. Within this issue are two sub-issues: (a) whether
circuit courts acting in equity possess the power to award
attorney fees to prevailing parties in order to make them
whole; and (b) if so, whether the circuit court properly
exercised its discretion in this case. Second, whether the
circuit court erroneously exercised its discretion in
allowing Nationstar to collect interest on the principal
amount of the loan during the default period.
We reverse the decision of the court of appeals. As to the
first issue, circuit courts may include attorney fees as part
of an equitable remedy "in exceptional cases and for
dominating reasons of justice." Sprague v. Ticonic
Nat'1 Bank, 307 U.S. 161, 167 (1939) . The circuit
court properly exercised its discretion because it applied
the proper standard of law to the facts of record when it
concluded that Bank of America acted in bad faith and then
awarded attorney fees to Stafsholt.
As to the second issue, we hold that Nationstar may collect
interest accrued during litigation because Stafsholt would
receive a windfall if he was both excused from paying
interest and received his attorney fees. We remand the matter
to the circuit court for determination of the reasonable
attorney fees Stafsholt incurred before the court of appeals
and this court, and to then calculate the balance of the
I. FACTUAL AND PROCEDURAL BACKGROUND
Stafsholt and his ex-wife Colleen Stafsholt
("Colleen") owned property in New Richmond,
Wisconsin. In October 2002, Colleen executed a note in the
amount of $208, 000, which was secured by a mortgage on the
property owned by Stafsholt and Colleen. Though the mortgage
changed hands many times, only four servicers are relevant to
this appeal: Bank of America ("BOA") was the
servicer while the events underlying this case took place;
Ocwen Loan Servicing, LLC ("Ocwen") and BAC Home
Loans ("BAC") were both servicers while this case
was pending at the circuit court; and Nationstar Mortgage LLC
("Nationstar") has serviced the loan from the time
of post-trial motions through the present appeal.
One of the terms in the mortgage requires the Stafsholts to
maintain insurance on their home. In July 2010, Colleen
received two letters from BOA asking for proof of insurance
for the time period beginning June 2010, when the previous
policy expired. BOA informed Colleen it would purchase Lender
Placed Insurance ("LPI") if it did not receive the
requested proof of insurance. If BOA received proof of
insurance that demonstrated no lapse in coverage, it would
cancel any LPI purchased at no charge. In September, BOA
purchased LPI and notified the Stafsholts of its
After receiving the notice from BOA regarding the purchase of
the LPI, Stafsholt called BOA because he was
"irritated" that BOA continued to fail to recognize
the insurance he purchased. Stafsholt requested the LPI be
taken off his account. The BOA representative with whom
Stafsholt spoke informed him she could not do anything about
the LPI charge, and he would need to speak with "the
next elevated level of customer service" to have the
charge removed. The representative told Stafsholt that the
only way he could reach the next level of customer service
was to skip a mortgage payment and become
Stafsholt followed the phone representative's advice and
skipped his September and October payments in order to reach
the next level of customer service, even though he had the
financial ability to pay his mortgage. Stafsholt never
communicated with the next level of BOA customer service.
Instead, he received a letter dated September 16, 2010,
detailing BOA's intent to accelerate the mortgage.
BOA charged Stafsholt for LPI from December 2010 through July
2012, as evidenced by various reinstatement quotes that
always included LPI. Stafsholt called BOA five times between
December 30, 2010, and January 27, 2011, in an effort to get
the LPI charges removed from his account to no avail. He then
sent BOA an offer to reinstate the loan in May 2011. The
offer was for $10, 573.60, which represented nine monthly
loan payments, without LPI or other fees, less $500 for
expenses. Stafsholt continued to make similar offers before
trial, but BOA never responded.
BAC, then servicing the loan, filed a foreclosure action
against the Stafsholts in February 2011 based on the default.
After a series of mergers and assignments, Ocwen became the
loan's servicer and was substituted as plaintiff in
Stafsholt raised equitable estoppel as an affirmative
defense. He asserted that Ocwen was "estopped from
foreclosing on the property" because its
predecessors-in-interest "created the dispute" and
"induced" the default. Stafsholt's answer also
raised a number of counterclaims: (1) breach of contract; (2)
breach of the implied covenant of good faith and fair
dealing; (3) equitable estoppel; (4) a request for
declaratory judgment; and (5) assignment of the mortgage
pursuant to Wis.Stat. § 846.02 (2013-14) .
Following a bench trial, the circuit court issued findings of
fact and conclusions of law in April 2015. The circuit court
made four key conclusions of law for purposes of this appeal:
(1) BOA improperly charged the Stafsholts for LPI; (2) the
Stafsholts established the affirmative defense of equitable
estoppel because BOA "caused the Stafsholts to default
on the Mortgage and Note" through the
"misrepresentations of the BOA agent"; (3) BOA and
its successors improperly commenced and maintained the
foreclosure proceeding from February 2011 to the date of the
order (April 2015); and (4) BOA breached the implied covenant
of good faith and fair dealing.
The circuit court concluded that due to BOA's improper
actions, Stafsholt was entitled to a declaratory judgment
finding that BOA breached the note and mortgage and,
furthermore, that Ocwen could not recover the costs and
expenses incurred by Ocwen and its predecessors-in-interest.
Based on these conclusions, the circuit court dismissed the
foreclosure action and reinstated the Stafsholts'
mortgage. The court permitted Ocwen to recover $172, 108.17,
which represented the principal balance of the loan. The
court did not allow Ocwen to recover interest that accrued
during litigation, nor did it allow Stafsholt to recover his
Stafsholt moved for reconsideration, claiming that the
principal balance of the loan due was actually $10, 167.38.
Stafsholt argued that because of the attorney fees and other
costs he incurred as a result of the litigation, he was
"left in a worse financial position than he would have
been had he just done what most homeowners do ...: capitulate
and pay the improper charges." Stafsholt reached his
balance through the following calculations: $172, 108.17 of
principal as of the default minus $71, 940.79 for attorney
fees and costs,  and a $90, 000 payment he made in April
The circuit court granted in part Stafsholt's motion for
reconsideration. It concluded that Stafsholt was entitled to
recover a portion of his attorney fees and costs based on
equitable estoppel. The court reasoned that equitable
estoppel allowed Stafsholt to receive an offset for his
attorney fees because it "is used to 'prevent the
assertion of what would otherwise be an unequivocal
right.'" That is, equitable estoppel applies to
preclude Nationstar from recovering the entire balance on the
note, which would otherwise be an unequivocal right. The
court concluded that the remedy in this case "should
serve to make [Stafsholt] whole."
The circuit court utilized the factors outlined in
Standard Theatres v. DOT, 118 Wis.2d 730, 349 N.W.2d
661 (1984), to determine the reasonableness of the attorney
fees sought by Stafsholt. The court reduced Stafsholt's
claimed attorney fees and costs of $71, 940.79 by ten percent
($7, 194.08) using the "lodestar method, " as
articulated in Standard Theatres,  resulting in an
award of $64, 746.71 for attorney fees. The circuit court
then deducted $40, 239.82 from the attorney fee award,
representing the amount of interest the court had previously
denied, because the court concluded that allowing Stafsholt
to recover attorney fees and not pay interest accrued during
litigation would be a windfall for Stafsholt. This left a net
award of $24, 506.89 in attorney fees and costs.
The court then held that the remaining principal balance on
the loan was $57, 601.28. It reached this number by
subtracting the allowed attorney fees of $24, 506.89 and the
$90, 000 payment made by Stafsholt from the principal balance
of $172, 108.17 ($24, 506.89 $90, 000.00 = $114, 506.89;
$172, 108.17 - $114, 506.89 = $57, 601.28). The court ordered
Ocwen to assign the mortgage to Stafsholt pursuant to
Wis.Stat. § 846.02(1) if Stafsholt paid the amount due
by August 1, 2015.
Nationstar, which was substituted as plaintiff after
acquiring the note, appealed the order dismissing the
foreclosure and the portion of the order granting
Stafsholt's claims for attorney fees and costs. Stafsholt
cross-appealed, arguing that the circuit court erred in
reducing his requested attorney fees and costs.
The court of appeals affirmed the circuit court's holding
that BOA breached the implied covenant of good faith and fair
dealing when it charged Stafsholt for LPI.
Nationstar, unpublished slip op., ¶37. The
court of appeals concluded that the circuit court's
finding that BOA committed wrongful actions in telling
Stafsholt to default on his mortgage was supported by the
record; therefore, it affirmed the circuit court's
determination that Stafsholt established equitable estoppel
as an affirmative defense. Id., ¶¶39, 55.
The court also affirmed the circuit court's grant of
declaratory judgment to Stafsholt on his breach of contract
claim because Stafsholt did, in fact, have proof of insurance
and did supply BOA with that proof. Id., ¶58.
Consequently, Nationstar was not entitled to collect costs
and fees for LPI or the foreclosure. Id.,
However, the court of appeals reversed the circuit
court's award of attorney fees to Stafsholt. In doing so,
it relied on the American Rule ("parties to litigation
typically are responsible for their own attorney's
fees") to conclude that the circuit court did not have
the power to award attorney fees in this case. Id.,
¶¶61-62. It declined to address Stafsholt's
argument that the circuit court possessed the inherent
authority to award his attorney fees because the argument was
not raised in the circuit court and, furthermore, was first
raised in Stafsholt's reply brief to the cross-appeal,
which deprived Nationstar of any opportunity to respond.
Finally, the court of appeals reversed the circuit court as
to Nationstar's collection of interest during litigation.
Id., ¶75. The court of appeals held that the
circuit court's analysis was
a fair and logical way to resolve the parties' dispute
over Nationstar's recovery of interest. . . . However, in
practice, applying this analysis in the instant case would
result in accomplishing by indirect means what we have
already determined cannot be done directly: awarding
Stafsholt a portion of his attorney fees and costs.
Id. The court of appeals then remanded to the
circuit court to determine "whether there are other
grounds on which the circuit court could have determined it
was appropriate to prohibit Nationstar from ...