Top Plaintiffs' Verdict by Impact: Behm v. Cervenka & Lukes Mortgage Corp.

A toxic business loan secretly designed to force the borrower to default and force her out of her $3 million Victorian-era home was the focus of the trial. The jury found that plaintiff Barbara Behm suffered economic losses of nearly $5 million and emotional distress and other noneconomic losses of $25.6 million.

Behm purchased the property for $400,000 in 2010 and sought financing to upgrade it in 2014. Cerenka & Lukes issued the $1.6 million loan using the house, now worth an estimated $3 million, as collateral. When Behm defaulted, the defendants repossessed the home and sold it at a steep discount to an allegedly preselected couple posing as rescue lenders.

Once the jury heard the facts and found for Behm, the mortgage company agreed to a confidential settlement to end the case to avoid a punitive damages phase that could have seen the big verdict skyrocket.

"Having had extensive post-trial discussions with jurors," Daniel K. Balaban of Balaban & Spielberger LLP said, "we learned they were very upset with the defense and were going to give us whatever we asked for in punitives."

"The jury saw how lenders were using a loophole to call residential mortgages 'business loans' to get around safeguards enacted after the housing crisis which were put into place to crack down on predatory lenders," Balaban said. "We hope this verdict will close that loophole." The lenders justified the deal as a business loan because Behm had occasionally listed the home on short-term rental sites such as Airbnb Inc.

In discovery, co-counsel Daniel G. Brown found an email from the lenders setting up Behm to take advantage of her. It strongly influenced the jury, Balaban said. Added Brown, "Abusive lenders may think they can get away with cheating an individual borrower, but this verdict reflected that American homeowners are still in control, and that you can't get away with cheating a jury."

The trial included a dramatic moment when the jurors sent the judge a note. "I've never seen this before," Balaban said. "They asked if the clerk could move the exhibit board because it was blocking their view of the defendants sitting in the audience. The jury wanted to look at them — and not in a friendly way."

When Balaban had one of the lenders on the stand, he refused to agree that what he had done was not just wrong but outrageous, Balaban said. "The judge gave him a very hard look. He came back after a recess and finally did agree."

The jurors found the defendant company and its individual principals liable for breaching a fiduciary duty to Behm, conspiring to conceal aspects of the loan and intentionally misrepresenting its terms. The panel also found that the defendants acted with malice, oppression or fraud.

"We were able to get Ms. Behm back into her home of 14 years," Balaban said.

— John Roemer