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Cooper v. Hartford Financial Services Group


June 15, 2005


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Plaintiffs, an estate and eight individuals, seek to hold defendant, The Hartford Financial Services Group, Inc. ("Hartford"), an investment and insurance company, liable for $200,000 on a bond Hartford issued to cover liability imposed on First Government Mortgage and Investors Corp. ("First Government"), a mortgage lender against which plaintiffs hold a judgment in excess of $4 million. Before the court are the parties' cross motions for summary judgment. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that both motions must be granted in part and denied in part.


In 1996, First Government applied for a mortgage license. In order to satisfy licensing requirements and the District of Columbia Mortgage Lender and Broker Act of 1996, D.C. Code § 26-1101 et seq., ("MLBA"), First Government purchased a bond from Hartford in the amount of $50,000. Thereafter, in exchange for an annual payment of $500, Hartford re-issued the bond each year for the next four years until First Government ceased doing business in 2001.*fn1 Compl. ¶ 17.

In 2000, plaintiffs sued First Government alleging that it had violated various federal and District of Columbia consumer protection laws that govern mortgage lenders.*fn2 They succeeded in winning a jury verdict against First Government in the amount of $4.125 million in punitive damages, $543,734.25 in attorneys' fees, and compensatory and statutory damages in varying amounts for each plaintiff.*fn3 Plaintiffs now seek to recover $200,000 on Hartford's bond.


As plaintiffs point out, the resolution of this case turns on "whether Hartford is liable for $50,000 in each of the four years covered by [the bond it issued to First Mortgage] or whether its liability is limited to the amount in the bond for a single year . . . ." Pls.' Mot. at 1. The court's resolution of the issue, in turn, depends on whether the bond issued by Hartford, along with its subsequent renewals, is a "continuous bond" or a "cumulative bond." If the bond is continuous, Hartford's liability is only the face value of the original bond, $50,000, regardless of how many years the bond was in effect. If, on the other hand, the bond is cumulative, Hartford is liable for up to $50,000 for each year the bond was in effect and plaintiffs can demonstrate they suffered losses.*fn4

Plaintiffs' primary argument is that because the bond at issue is "statutory," one required by law for the protection of the public, it must be construed to be cumulative.*fn5 Hartford disagrees, contending that even though its bond is "statutory," the language of the bond itself and the text of the MLBA show that it is continuous. Plaintiffs' have the better argument.*fn6

A. Interpreting the Bond

A bond is a contract and is to be interpreted in accordance with established rules of contract construction. United States v. Insurance Company of North America, 131 F.3d 1037, 1041-42 (D.C. Cir. 1997).In instances where a bond is mandated by statute, the provisions of the statute are to be read into the bond. Speir v. United States, 31 App. D.C. 476, 483 (D.C. Cir. 1908) (holding that statutory conditions "must be considered as read into and made a part of the bond"). In addition, the bond must be construed in light of the purpose of the statute. United States v. American Surety Co., 200 U.S. 197, 205 (1906) (holding that the bond must be read in light of "the declared purpose of the statute"). Hence, whether a statutory bond is continuous or cumulative is determined by whether the statute and the bond, construed as a whole, indicate an intention that liability should be limited to the amount of the original bond or extended each time the bond is renewed.

1. The Language of the Hartford bond

Hartford contends that the language of its bond indicates that it is continuous.*fn7 For example, Hartford points to a provision that states, "[t]his obligation may be continued by an appropriate renewal certificate in support of licenses issued for subsequent years." Pls.' Ex. 4; Def.'s Ex. B. Hartford argues that "this" means that it is a single obligation intended to extend for multiple years and "continued" demonstrates the D.C. Council's intention for the bond to be continuous. Def.'s Opp'n at 7. Hartford's argument is unpersuasive for two reasons. First, as Hartford has conceded, statutory bonds must be read in light of the governing statute. When so read, "this obligation" refers simply to the general requirement in the MLBA for all licensees to have a bond, D.C. Code § 26-1103(i), and "continued" indicates only that the bond may be renewed, not that it is a continuous bond. Id.

Second, and more important, Hartford's bond states "[t]his obligation is issued under and is governed by District of Columbia Code 26-1003(i) and the obligations of the surety shall be those therein set forth."*fn8 Pls.' Ex. 4. In cases involving statutory bonds, courts have determined that "the obligation of a bonding company is determined by the statute, and not by the wording of the bond." Royal Indemnity, 393 P.2d at 262. This is particularly the case when, as here, the precise language of the bond expressly states that the terms of the statute control. Accordingly, the court now turns to the MLBA.

2. The MLBA

The MLBA was enacted to protect D.C. homeowners from "abuses in the mortgage industry." Council of the District of Columbia Report on Bill 11-637, "The District of Columbia Mortgage Lender and Broker Act of 1996," May 31, 1996, at 1-2 ("Leg. Hist."). Anyone engaging in business as a mortgage lender or broker must be licensed under the MLBA, D.C. Code § 26-1103(a), and applicants must post a surety bond as a condition to obtaining or renewing a license, id. § 26-1103(i). The original draft of the legislation called for a $5,000 bonding requirement, but this was ultimately replaced with a sliding schedule because the D.C. Council was concerned that the amount of the bond be "an adequate amount to protect the interests of injured borrowers." Leg. Hist. at 7. Now, the amount of the bond is determined by "the total dollar amount of mortgage loans applied for, procured, or accepted" by the lender during the previous calendar year, and it is to be reassessed annually. D.C. Code § 26-1103(i)(3). The language of the MLBA and its legislative history make clear that the purpose of the bond requirement is to provide recourse for borrowers who are damaged by a licensee's noncompliance with the statute and other applicable laws.*fn9 It is undisputed that plaintiffs, whom a jury found to be victims of First Government's predatory lending scheme, Pls.' Ex. 1, fall squarely into the category of individuals the MLBA was attempting to protect.

In the face of the MLBA's purpose to protect D.C. homeowners, a purpose that obviously would be served better were the bond it requires to be construed to be "cumulative," Hartford asserts that the language of the MLBA compels the conclusion that the bond is continuous. Hartford first finds significance in § 1103(i)(1)(D), which states that the surety bond shall "[b]e continuously maintained thereafter for as long as any license issued under this chapter remains in force." Hartford argues that "any license issued under this chapter" indicates the bond was intended to apply to more than one license. Def.'s Opp'n at 9. The court disagrees. It is generally accepted that "the literal words of a statute . . . are 'to be read in light of the purpose of the statute taken as a whole, and are to be given a sensible construction and one that would not work an obvious injustice.'" District of Columbia v. Gallagher, 734 A.2d 1087, 1091 (D.C. 1999) (quoting Metzler v. Edwards, 53 A.2d 42, 44 (D.C. 1947)). Looking at the MLBA as a whole, it is clear that one of its primary purposes is to require mortgage lenders and brokers to have a license at all times. It is equally clear that each license must be accompanied by a bond, and each license may last no longer than one year. The far more reasonable interpretation of the requirement that the surety bond shall "[b]e continuously maintained thereafter for as long as any license issued under this chapter remains in force," therefore, is simply that a mortgage lender or broker must at all times have both a license and a bond. "Continuously," rather than signifying a continuous bond, is simply a modifier of the verb "maintained." Similarly, the term "any license" merely emphasizes that both original and renewal licenses must be accompanied by a bond.

Hartford also finds significance in § 1103(i)(5), which reads "[a]ny person who may be damaged by noncompliance of a licensee with any condition of such bond may proceed on such bond against the principal or surety thereon, or both, to recover damages. The aggregate liability under the bond shall not exceed the penal sum of the bond." The words "aggregate liability" cannot bear the weight Hartford would have them carry. These words logically mean that, while an injured party may proceed against both the principal and the surety, she may not recover the full amount of the bond from both of them individually. In other words, both entities are jointly and severally liable for the full amount of the bond. Hartford's position that "aggregate liability" limits its liability to $50,000 again demonstrates its failure to consider the language of the statute in context.*fn10 The Hartford bond uses "aggregate liability" in the same section that explains that an injured person may sue multiple parties for relief. "Aggregate liability" therefore refers to the fact that both the lender and the surety company are liable; it is not referring to what type of bond was issued. See, e.g., General Electric Credit Corp. v. Wolverine Ins. Co., 362 N.W.2d 595, 603 (Mich. 1985) (holding that use of the term "aggregate liability" must be read in the context of the statute and does not necessarily mean the bond is continuous).

While the MLBA does not contain language that expressly states that the bond it requires is either continuous or cumulative, it contains two provisions that lend support for plaintiffs' position that Hartford's bond is cumulative. First, § 26-1103(i)(3) requires the value of the bond to be re-assessed annually based on the amount of loans the mortgage lender has procured. That the value of the bond can change on a yearly basis is a strong indication that it is meant to be a separate contract every year. Second, § 26-1103(h) requires that "[f]or each license for which an applicant applies, the applicant shall: (1) Submit a separate application; (2) Pay a separate license fee; and (3) File a separate surety bond." (Emphasis added). These requirements apply to both original and renewal licenses, which means that every year, every person applying for either an original or a renewal license must submit an application, pay a fee, and file a bond. Because this one-year licensing term is supplied by the MLBA, it is incorporated into the bond. While the fact that the license expires every year does not automatically signify that the bond must terminate every year as well, the explicit requirements that the fee and the bond be re-filed along with the license do suggest that the bond, like the license, was meant to be cumulative.*fn11

Having determined that the bond is cumulative, the court will now determine the amount to which plaintiffs are entitled to recover on the bond.

B. Damages

Hartford issued five bonds to First Government, each in the amount of $50,000, to cover damages incurred during a specified year. Plaintiffs contend that they are entitled to recover $200,000 for damages that accrued from 1997 to 2000.*fn12

Because the court has determined that Hartford issued a cumulative rather than a continuous bond, plaintiffs must demonstrate that they incurred damages in each year the bond was in place.*fn13 See Columbia Hospital, 188 F.2d at 657; A.B.S. Clothing Collection, Inc., v. Home Insurance Company, 41 Cal. Rptr. 2d 166, 169 (Cal. Ct. App. 1995).

1. Actual Damages

Plaintiffs assert that four of them entered into mortgage loans with First Government in Year 1. The loans plaintiffs took out in Year 1 totaled $140,104.00.*fn14 Plaintiffs assert that the remaining five of them entered into loans with First Government in Year 2, and those loans amounted to $135,944.*fn15 These assertions, set forth in plaintiffs' statement of material facts not in dispute, are not controverted. They are, therefore, assumed to be true. LCvR 7(h) ("In determining a motion for summary judgment, the court may assume that facts identified by the moving party in its statement of material facts are admitted, unless such a fact is controverted in the statement of genuine issues filed in opposition to the motion."). Accordingly, plaintiffs are entitled to recover $100,000, the maximum amount of the bond, for Years 1 and 2.

2. Statutory Damages

Plaintiffs allege that they incurred statutory damages of $18,000 in Year 3 and $8,000 in Year 4 because First Government failed to timely rescind plaintiffs' loan agreements in violation of the Truth in Lending Act.*fn16 Hartford does not dispute that plaintiffs were awarded statutory damages in the aforementioned amounts. Rather, Hartford contends that statutory damages are the functional equivalent of punitive damages and that sureties on statutory bonds cannot be held liable for punitive damages. Def.'s Reply at 5. Hartford's ipsit dixit argument cannot be sustained. See Molzof v. United States, 503 U.S. 301, 306 (1992) (rejecting the argument that "damages awards that may have a punitive effect" are the same as "punitive damages"). Hartford has not cited any authority, and the court is not aware of any, that equates statutory and punitive damages awards. As plaintiffs point out, the two types of damages serve different purposes. "Statutory damages are awarded to compensate a plaintiff for unlawful actions by a defendant where the injury is non-pecuniary or difficult of calculation." Pls.' Sur-Reply at 6. Punitive damages on the other hand, "are awarded to punish a defendant for particularly egregious conduct, and to serve as a deterrent to future conduct of the same type." Cronin v. Islamic Republic of Iran, 238 F.Supp. 222, 235 (D.C. Cir. 2002). The Truth in Lending Act makes no mention of punishing creditors, and it leaves no room for discretion in awarding damages. Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 250 (3rd Cir. 1980) ("[O]nce the court finds a violation, no matter how technical, it has no discretion with respect to liability") (quoting Grant v. Imperial Motors, 539 F.2d 506, 510 (5th Cir. 1976)). It simply sets up a system of strict liability whereby a creditor who fails to comply with the Act in any respect is liable to the consumer for a pre-determined amount, regardless of the nature of the violation or the creditor's intent. Furthermore, the MLBA provides that "[a]ny person who may be damaged by noncompliance of a licensee with any condition of such bond may proceed on such bond against the principal or surety thereon, or both, to recover damages." D.C. Code § 26-1103(i)(5). Plaintiffs were indeed damaged by First Government's noncompliance, and the statutory damages were awarded to address that very injury. Plaintiffs therefore are entitled to recover $26,000 on Hartford's bond for their statutory damages.*fn17

3. Attorneys' Fees

The court next determines whether plaintiffs may recover what is left of the Hartford bond in Years 3 and 4 for their attorneys' fees in the amount of $543,734.25. The MLBA states that "[a] borrower aggrieved by any violation of this section shall be entitled to bring a civil suit for damages, including reasonable attorney's fees, against the lender." D.C. Code § 26-1113(b)(3) (emphasis added). Hence, when the MLBA states that an injured party may proceed on the bond to "recover damages," D.C. Code § 26-1103(i)(5), those damages necessarily include attorneys' fees because all sections of the same statute must be read in accordance with one another. See Sec. Indus. Ass'n v. Bd. of Governors of Fed. Reserve Sys., 468 U.S. 207, 219 (1984) (holding that the same terms used in different sections of a statute are to be interpreted consistently).

While plaintiffs are entitled to recover for their attorneys' fees, Hartford asserts correctly that there is a dispute of material fact as to whether the attorneys' fees for which plaintiffs seek to recover were incurred in Year 3 or Year 4. Plaintiffs state that "[t]he Court entered judgment for plaintiffs' attorneys' fees in the amount of $543,734.25. This judgment covered attorney hours spent prosecuting plaintiffs' claims from November 1999 - March 2003." Pls.' Statement ¶ 33. Plaintiffs also allude to detailed billing records that were submitted in their previous litigation against First Government and suggest that this court "take judicial notice of the records . . . or, alternatively, plaintiffs can resubmit them in this action . . . though we do not believe that should be necessary." Pls.' Sur-Reply at 9. Plaintiffs are wrong. The court has no basis for determining that they incurred $74,000 in attorneys' fees in years 3 and 4. Because there is a dispute of material fact, summary judgment on this issue must be denied.

4. Punitive Damages

Finally, the court must determine whether plaintiffs may recover any amount of the bond for their $4.125 million punitive damages award.*fn18 Sureties on statutory bonds are not liable for punitive damages unless the statute explicitly imposes such liability. See Butler v. United Pacific Insurance Co., 265 Ore. 473, 474-75 (Ore. 1973) (citing 11 Appleman, Insurance Law and Practice, § 6361, p. 86 (1944) ("[A] surety is liable only for the payment of actual damages caused by the principal, and may not be held for exemplary or punitive damages, in the absence of any statutory provision imposing such liability.")); see also The New Hampshire Insurance Company v. Gruhn, 99 Nev. 771, 772 (Nev. 1983) ("To determine the scope of the coverage, we look to the language and purpose of the bond, and in doing so, to that of the statute."); Harper v. Home Insurance Company, 533 P.2d 559, 560 (Ariz. App. 1975) ("[T]he surety is liable only for the payments of actual damages caused by the principal and is not liable for punitive damages in the absence of any statutory provision imposing such liability"). The MLBA states, in relevant part, "[a]ny person who may be damaged by noncompliance of a licensee with any condition of such bond may proceed on such bond against the principal or surety thereon, or both, to recover damages." D.C. Code § 26-1103(i)(5). The implication of providing relief for individuals who "may be damaged" is that a person may recover damages to compensate her only insomuch as the damages actually relate to her injury. Punitive damages do not relate to the type or extent of damage endured by the individual to whom they are awarded. By definition, punitive damages are imposed against a wrongdoer for the sole purposes of punishment and deterrence. The MLBA only compensates individuals to the extent that they "may be damaged." It therefore does not allow for recovery based on an award of punitive damages. See Harper, 533 P.2d at 560 (holding that a statute allowing for recovery by "any person [who] suffers any loss or damage" did not allow for punitive damages because one cannot be said to "suffer" punitive damages).


For the aforementioned reasons, it is this 9th day of June, 2005, hereby ORDERED that the motions for summary judgment are granted in part and denied in part as set forth in this Memorandum Opinion.

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