Freedom Mortgage Corp. v. LoanCare, LLC

Virginia-based LoanCare, LLC (defendant) serviced mortgages for Freedom Mortgage Corp. (Freedom) (plaintiff), a New Jersey corporation headquartered in New Jersey. The parties’ relationship eventually soured, prompting Freedom to sue LoanCare in a federal district court in New Jersey. LoanCare asserted tort counterclaims against Freedom. LoanCare explained that when the parties’ business relationship was ending, Freedom requested the return of funds from accounts in LoanCare’s custody. LoanCare claimed that Freedom secretly blocked LoanCare’s access to the accounts while moving the money in the accounts into Freedom’s own accounts. Consequently, when LoanCare attempted wire transfers to Freedom, the bank could not fund the transfers from the custodial accounts and instead funded them from LoanCare’s personal accounts. Over $111 million was transferred to Freedom. When LoanCare demanded that Freedom return the money, Freedom returned most of the funds. However, LoanCare alleged that Freedom still held over $22 million that belonged to LoanCare. LoanCare’s counterclaim sought both compensatory damages covering its losses and punitive damages to punish Freedom’s conduct. Virginia law governed liability and compensatory damages. However, there was a dispute as to whether New Jersey law or Virginia law governed the punitive-damages award. Virginia law capped punitive damages at $350,000, while New Jersey law allowed punitive-damages awards up to five times the amount of compensatory damages. The district court applied New Jersey’s choice-of-law rules to determine which state’s law should govern the punitive-damages issue.