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High court: Courts may award attorney fees as equitable remedy in exceptional cases

The Wisconsin Supreme Court has found that a St. Croix County Circuit Court judge got it right when he awarded attorney fees to a New Richland lawmaker and businessman.

Friday’s opinion, written by Justice Michael Gableman, reversed a District 3 Court of Appeals decision overturning Judge Scott Needham, who had awarded Rob Stafsholt attorney fees and costs in 2015.

The appeals court had reversed Needham’s decision based on the American Rule, which provides that parties to litigation are responsible for their own attorney fees and costs.

However, in 6-0 decision Friday, the justices reversed the appeals court and found that Needham had applied the right standard of law to the facts when he concluded that Bank of America acted in bad faith and then awarded attorney fees to Stafsholt. Justice Shirley Abrahamson did not participate.

The justices held that courts have the power to award attorney fees as an equitable remedy in exceptional cases — an issue that had not reached the court until Stafsholt’s case

The high court also found that Needham had been correct in letting one of the loan servicers in the case collect interest on the loan’s principal during the time Stafsholt had defaulted. To fail to do so, the justices reasoned, would give Stafsholt a windfall because he would receive attorney fees and also would not have to pay any interest.

The case stems from a years-long foreclosure dispute over a more than $200,000 mortgage taken out by Stafsholt, the owner of a residential rental business and a lawmaker in the Wisconsin Assembly, and his ex-wife on some property in New Richmond. The mortgage required them to buy insurance for the property.

In 2010, the loan servicer at the time, Bank of America, asked for proof of insurance or else it would buy insurance and charge the couple for it. Bank of America contended it had not received the proof of insurance, so it bought a policy and began charging Stafsholt for it.

When Stafsholt called customer service to request the insurance be removed and the charges reversed because he had bought insurance and sent proof of it, a Bank of America employee told him that only the next level of customer service could reverse the change and Stafsholt would have to skip a payment on the mortgage even though he had the financial ability to make payments.

In 2011, BAC Home Loans, who took over the mortgage from Bank of America, filed a foreclosure action against Stafsholt and his ex-wife based on that missed payment.

In response to the lawsuit, the couple contended, among other things, that the bank could not foreclose on the property because it had created the dispute by encouraging them to default on the mortgage.

Needham sided with Stafshot, finding he was entitled to a judgment declaring that Bank of America breached the mortgage and that the current loan servicer could not collect costs and expenses it and its predecessors had incurred. Needham dismissed the lawsuit and reinstated the mortgage, finding that Stafsholt owed the principal balance of the loan, $172,108.17.

Stafsholt, however, asked Needham to reconsider the ruling, contending he was in worse financial circumstances than if he had just agreed to the charges because of the attorney fees and costs he spent because of litigation. He argued that he balance he owed the bank was $10,167.38, which was the loan principal minus a $6,000 payment and $71,940.79 in attorney fees and costs.

Needham partially granted Stafsholt’s motion, awarding him $24,506.89 in attorney fees, deducting interest from the loan to arrive at that amount. Both Stafsholt and the loan’s current servicer appealed.

In addition to affirming Needham’s ruling, the high court’s decision on Friday sends the case back to Needham and instructs him to calculate the balance of the loan and determine the amount of attorneys fees and costs Stafsholt incurred at the high court and court of appeals.


About Erika Strebel, erika.strebel@wislawjournal.com

Erika Strebel is the law beat reporter for the Wisconsin Law Journal and a law school student at UW-Madison. She can be reached at 414-225-1825.

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