Nationstar Mortgage LLC v. Robert R. Stafsholt

2018 WI 21

SUPREME COURT OF WISCONSIN
CASE NO.: 2015AP1586
COMPLETE TITLE: Nationstar Mortgage LLC n/k/a Bank of America,
NA, as successor by merger to BAC Home Loans,
Plaintiff-Appellant-Cross-Respondent,
v.
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.

REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 373 Wis. 2d 309, 895 N.W.2d 103
(2017 – Unpublished)

OPINION FILED: March 23, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: October 23, 2017

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: St. Croix
JUDGE: Scott R. Needham

JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING: ABRAHAMSON, J. did not participate.

ATTORNEYS:

For 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.

For 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.
 2018 WI 21
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2015AP1586
(L.C. No. 2011CV224)

STATE OF WISCONSIN : IN SUPREME COURT

Nationstar Mortgage LLC n/k/a Bank of America,
NA, as successor by merger to BAC Home Loans,
Plaintiff-Appellant-Cross-Respondent,

v.

Robert R. Stafsholt,
FILED
Defendant-Respondent-Cross-Appellant-
Petitioner, MAR 23, 2018

Colleen Stafsholt f/k/a Coleen McNamara, Sheila T. Reiff
Clerk of Supreme Court
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.

REVIEW of a decision of the Court of Appeals. Reversed and

cause remanded.

¶1 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unpublished, per curiam decision of the court of appeals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's1 order awarding

attorney fees and costs to Robert Stafsholt ("Stafsholt") and

1
The Honorable Scott R. Needham presided.
 No. 2015AP1586

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).

¶2 Stafsholt raises two issues for our review.2 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.

¶3 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

2
Stafsholt also asks this court to decide whether circuit
courts possess the inherent authority to award attorney fees.
Stafsholt argues that circuit courts have the authority to award
attorney fees as sanctions for egregious conduct committed
during litigation. See State ex rel. Godfrey & Kahn, S.C. v.
Circuit Court for Milwaukee Cty., 2012 WI App 120, ¶43, 344
Wis. 2d 610, 823 N.W.2d 816. Because we hold that attorney fees
may be awarded as an equitable remedy, it is unnecessary to
address the question of the circuit court's inherent authority.
See Md. Arms Ltd. P'ship v. Connell, 2010 WI 64, ¶48, 326
Wis. 2d 300, 786 N.W.2d 15 (citations omitted) ("[A]n appellate
court should decide cases on the narrowest possible grounds.
Issues that are not dispositive need not be addressed.").

2
 No. 2015AP1586

dominating reasons of justice." Sprague v. Ticonic Nat'l 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.

¶4 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 loan.

I. FACTUAL AND PROCEDURAL BACKGROUND

¶5 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.

¶6 One of the terms in the mortgage requires the
Stafsholts to maintain insurance on their home. In July 2010,
3
 No. 2015AP1586

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 purchase.3

¶7 After receiving the notice from BOA regarding the

purchase of the LPI, Stafsholt called BOA because he was

3
The incident at issue in this case followed three similar
situations involving LPI. First, in early 2008, Countrywide
Home Loans, then the loan's servicer, sent Colleen two notices
informing her that it would purchase LPI and charge it to the
loan account if Colleen did not submit satisfactory proof of
insurance. Countrywide purchased LPI on April 2, 2008, but
received proof of insurance from Colleen on April 23, 2008; the
LPI was canceled, at no cost to the Stafsholts, on April 25,
2008.

Next, in June of 2009, BOA, then servicing the loan, sent
Colleen a notice that it would purchase LPI if it did not
receive proof of insurance by August 12, 2009. The requisite
proof was provided, and no LPI charge was incurred.

Finally, in September 2009, BOA again sent Colleen a notice
that it would purchase LPI if it did not receive proof of
insurance within 30 days. This deadline was then extended to
October 25, 2009. BOA purchased LPI and charged it to the loan
account on October 26, 2009. The charge was reversed on
December 24, 2009, after BOA received proof of coverage on
December 21, 2009.

For the incident at issue in this case, the record shows
that Stafsholt's insurance agent faxed proof of coverage to BOA
no later than April 26, 2011.

4
 No. 2015AP1586

"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 delinquent.4

¶8 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.

¶9 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

4
BOA contested Stafsholt's version of events at trial, but
the circuit court found Stafsholt more credible than the
representative designated by BOA to testify about the company's
usual policies and procedures. Nationstar does not dispute this
factual finding to this court, and nothing in the record
indicates the circuit court's credibility determination is
clearly erroneous. See E-Z Roll Off, LLC v. Cty. of Oneida,
2011 WI 71, ¶17, 335 Wis. 2d 720, 800 N.W.2d 421 ("a factual
finding . . . may not be overturned unless clearly erroneous").

5
 No. 2015AP1586

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.

¶10 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

December 2013.

¶11 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).5

¶12 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;

5
All subsequent references to the Wisconsin Statutes are to
the 2013-14 version unless otherwise indicated.

6
 No. 2015AP1586

(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.

¶13 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 attorney fees.
¶14 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

7
 No. 2015AP1586

default minus $71,940.79 for attorney fees and costs,6 and a

$90,000 payment he made in April 2015.

¶15 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."

¶16 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

6
Stafsholt never separately itemizes his attorney fees and
costs. Based on our review of the record, it appears Stafsholt
reached this amount by adding $68,119.00 for attorney fees
actually billed at the time of the motion for reconsideration,
$1,600 expected to be billed for the motion for reconsideration,
and $2,221.79 billed for costs at the time of the motion for
reconsideration.

8
 No. 2015AP1586

Theatres,7 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.

7
In Standard Theatres, we utilized the factors listed in
SCR 20:12 to determine whether an award of attorney fees was
proper. Standard Theatres v. DOT, 118 Wis. 2d 730, 749, 349
N.W.2d 661 (1984). Those factors are:

(a) The time and labor required, the novelty and
difficulty of the questions involved and the skill
requisite to perform the legal service properly.

(b) The likelihood, if apparent to the client, that
the acceptance of the particular employment will
preclude other employment by the lawyer.

(c) The fee customarily charged in the locality for
similar legal services.

(d) The amount involved and the results obtained.

(e) The time limitations imposed by the client or by
the circumstances.

(f) The nature and length of the professional
relationship with the client.

(g) The experience, reputation and ability of the
lawyer or lawyers performing the services.

(h) Whether the fee is fixed or contingent.

Id. at 730 n.9.

9
 No. 2015AP1586

¶17 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.

¶18 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.

¶19 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.

10
 No. 2015AP1586

Id., ¶58. Consequently, Nationstar was not entitled to collect

costs and fees for LPI or the foreclosure. Id., ¶70-71.

¶20 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. Id., ¶67.

¶21 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 recovering interest." Id., ¶76.

11
 No. 2015AP1586

¶22 Stafsholt filed a petition for review in this court,

which we granted on April 10, 2017. Nationstar did not file a

cross-petition for review. Consequently, we consider only the

issues raised by Stafsholt.

II. STANDARD OF REVIEW

¶23 Whether circuit courts possess the power to award

attorney fees as part of an equitable remedy is a question of

law we review de novo. GMAC Mortg. Corp. v. Gisvold, 215

Wis. 2d 459, 480, 572 N.W.2d 466 (1998). The circuit court's

decision to grant equitable remedies is reviewed for an

erroneous exercise of discretion. Prince Corp. v. Vandenberg,

2016 WI 49, ¶16, 369 Wis. 2d 387, 882 N.W.2d 371.

III. ANALYSIS

¶24 We first consider whether circuit courts possess the

power to award attorney fees as an equitable remedy to a

prevailing party in order to make that party whole. We hold

that attorney fees may be awarded as an equitable remedy "in

exceptional cases and for dominating reasons of justice."
Sprague, 307 U.S. at 167. We further hold that the circuit

court properly exercised its discretion when it awarded attorney

fees to Stafsholt.

¶25 We next consider whether the circuit court properly

exercised its discretion when it awarded accrued interest to

Nationstar. We hold that Nationstar is entitled to recover

interest accrued during litigation, and thus remand to the

circuit court to calculate the balance of the loan.

12
 No. 2015AP1586

A. The Circuit Court Properly Exercised its Equitable
Discretion when it Awarded Attorney Fees to Stafsholt.

¶26 We first consider whether circuit courts possess the

power to award attorney fees to prevailing parties in equitable

actions such as this foreclosure proceeding.8 We hold that

circuit courts sitting in equity do possess the power to award

attorney fees "in exceptional cases and for dominating reasons

of justice." Sprague, 307 U.S. at 167. Next, we consider

whether the circuit court properly exercised its discretion when
it awarded attorney fees to Stafsholt and hold that it did.

1. Attorney Fees as a remedy in equitable actions

¶27 Under the American Rule, each party is generally

responsible for its own attorney fees. Estate of Kriefall v.

Sizzler USA Franchise, Inc., 2012 WI 70, ¶72, 342 Wis. 2d 29,

816 N.W.2d 853. A limited number of exceptions to the American

Rule allow a prevailing party to recover its attorney fees. Id.

See also 3 Robert J. Kasieta et al., Law of Damages in Wisconsin

§ 37.7-37.18 (7th ed. 2017).9

8
"Foreclosure proceedings are equitable in nature, and the
circuit court has the equitable authority to exercise discretion
throughout the proceedings." GMAC Mortg. Corp. v. Gisvold, 215
Wis. 2d 459, 480, 572 N.W.2d 466 (1998).
9
Other exceptions to the American Rule include insurer bad
faith, third-party litigation, and the common-fund doctrine. 3
Robert J. Kasieta et al., Law of Damages in Wisconsin § 37.10-
37.18 (7th ed. 2017).

13
 No. 2015AP1586

¶28 Because the primary purpose of equitable actions is to

do justice between the parties, State v. Excel Mgmt. Servs.,

Inc., 111 Wis. 2d 479, 491, 331 N.W.2d 312 (1983), equitable

actions are sometimes considered an exception to the American

Rule where attorney fees are "necessary to effect an adequate

remedy." Kasieta, § 37.17. We have never decided whether

attorney fees may be awarded as an equitable remedy in

Wisconsin. We find two decisions from our court of appeals

helpful to our consideration of the question. In White v.

Ruditys, 117 Wis. 2d 130, 141, 343 N.W.2d 421 (Ct. App. 1983),

the court stated, in the context of punitive damages in

equitable proceedings, "[e]quitable remedies are distinguished

by their flexibility, their unlimited variety, their

adaptability to circumstances, and the natural rules which

govern their use. There is in fact no limit to their variety

and application . . . ." The White court applied this broad

rule regarding equitable remedies to attorney fees, holding that

"a court of equity has a great deal of flexibility in fashioning
its remedy . . . [which] includes the awarding of attorney

fees." Id. at 142.

¶29 Five years later, the court of appeals concluded that

"something more is needed . . . before attorney's fees can be

ordered . . . " as a remedy in an equitable action. Gundlach v.

Estate of Pirsch (In re Estate of Pirsch), 148 Wis. 2d 425, 433,

435 N.W.2d 317 (Ct. App. 1988). That "something more" was

defined as "something shocking, something of bad faith, fraud or

14
 No. 2015AP1586

deliberate dishonesty." Id. (quoting In re P.A.H., 115 Wis. 2d

670, 675, 340 N.W.2d 577 (Ct. App. 1983)).

¶30 It is axiomatic that Wisconsin courts have broad

flexibility to "adapt[] their decrees to the actual condition of

the parties . . . so as to meet the very form and pressure of

each particular case, in all its complex habitudes" in equitable

actions. Hall v. Bank of Baldwin, 143 Wis. 303, 312, 127 N.W.

969 (1910) (quoting Garner, Neville & Co. v. Leverett, 32 Ala.

410, 413-14 (1858)). Remedies in equitable actions are without

limit as to "their substance, their form, or their extent."

Meyer v. Reif, 217 Wis. 11, 20, 258 N.W. 391 (1935) (quoting 1

Pomeroy, Equity Jurisprudence, § 111). The elements of

"flexibility and expansiveness, so that new [remedies] may be

invented, or old ones modified, in order to meet the

requirements of every case" are the hallmarks of equity. Id.

¶31 This broad power to fashion equitable remedies has

been utilized to award attorney fees. See, e.g., Sprague, 307

U.S. 161 (1939) (common-fund case) (holding that the district
court has the power "in equity suits to allow counsel fees and

other expenses entailed by the litigation not included in the

15
 No. 2015AP1586

ordinary taxable costs");10 Weinhagen v. Hayes, 179 Wis. 62, 190

N.W. 1002 (1922) (third-party litigation case) (quoting McGaw v.

Acker, Merral & Conduit Co., 111 Md. 153 (1901)) ("[W]here the

wrongful acts of the defendant [have] involved the plaintiff in

litigation with others, or placed him in such relation with

others as to make it necessary to incur expense to protect his

interest, such costs and expense should be treated as the legal

consequences of the original wrongful act.").
10
There are factual distinctions between the case at bar
and Sprague in that the latter concerns an award of attorney
fees under the common fund doctrine, where ours, of course, does
not. Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (1939). We
apply the reasoning of Sprague here, however, for the same
reason so many other courts have within so many varied factual
contexts. That is, the central holding of Sprague is based on
the nature and extent of the equitable authority of courts to
fashion remedies it views as fair in equitable actions, such as
those concerning mortgage foreclosures, and not on the specific
equitable considerations at issue. See, e.g., In re Air Crash
Disaster at Fla. Everglades, 549 F.2d 1006, 1018 (5th Cir. 1977)
("Perhaps more significant than the decision [in Sprague] is the
language explaining that the award of fees in a fund case is
rooted in the inherent powers of equity."); Brisacher v. Tracy-
Collins Trust Co., 277 F.2d 519, 524 (10th Cir. 1960) ("The
allowance of counsel fees for an opposing party has been
committed to the discretion of the trial court in certain equity
actions, but that discretion must be exercised in accordance
with the admonition of Sprague, [meaning] such allowances are
appropriate only in exceptional cases and for dominating reasons
of justice."); Cleveland v. Second Nat'l Bank & Trust Co., 149
F.2d 466, 469 (6th Cir. 1945) (holding that Sprague does not
limit awarding attorney fees to common fund or class action
cases; if "fair justice" permits, then awarding attorney fees in
appropriate situations is "part of equity jurisdiction."); In re
Appeal of Gadhue, 544 A.2d 1151, 1154 (Vt. 1987) (explaining the
exceptions to the American Rule "are flexible [and] not
absolute," concluding that "[t]o this end, we focus on the
historic powers of equity courts to award attorney's fees as the
needs of justice dictate.").

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 No. 2015AP1586

¶32 We are mindful, however, that the power to award

attorney fees as an equitable remedy is not unlimited——nor

should it be, given the traditionally narrow character of

exceptions to the American Rule. See supra ¶27 n.9. Rather,

"such allowances are appropriate only in exceptional cases and

for dominating reasons of justice." Sprague, 307 U.S. at 167;

see Pirsch, 148 Wis. 2d at 433; accord Baldwin v. Burger Chef

Sys., Inc., 507 F.2d 841, 842 (6th Cir. 1974) (per curiam) ("A

court exercising its equitable powers may award attorney's fees

in certain extraordinary circumstances."). "In the actual

exercise of the power to award costs 'as between solicitor and

client' all sorts of practical distinctions have been taken

in[to account]." Sprague, 307 U.S. at 167. Traditionally, the

power to award attorney fees as an equitable remedy was

considered "wisely exercised . . . to prevent the use of the

courts as machinery for extortion or chicanery." Arthur L.

Goodhart, Costs, 38 Yale L.J. 849, 862 (1929). Thus, this power

is reserved for situations where sanctions pursuant to Wis.
Stat. § 802.05 will not suffice. Chambers v. NASCO, Inc., 501

U.S. 32, 46 (1991) (quoting Universal Oil Products Co. v. Root

Refining Co., 328 U.S. 575, 580 (1946)). In Chambers, the

United States Supreme Court upheld the district court's award of

attorney fees as an equitable remedy because imposition of

sanctions pursuant to Federal Rule of Civil Procedure 11, the

federal analogue to § 802.05, was insufficient to remedy bad-

faith conduct. Id. at 50-51.

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 No. 2015AP1586

¶33 In light of the foregoing, we reverse the court of

appeals' determination that the circuit court did not possess

the power to award attorney fees in this equitable proceeding.

We next consider whether the circuit court properly exercised

its discretion by: (a) finding that BOA acted in bad faith;

and, (b) awarding attorney fees to Stafsholt.

2. The circuit court properly exercised its discretion when it
awarded attorney fees to Stafsholt.

¶34 Having held that the circuit court possesses the power

to award attorney fees, we must next consider whether the

circuit court properly exercised its discretion by awarding

attorney fees in this case. We could address this one of two

ways. First, we could remand to the court of appeals to review

the circuit court's exercise of discretion because the court of

appeals did not do so in the first instance; rather, it held as

a matter of law that "the circuit court lacked authority to

award Stafsholt the attorney fees and costs he incurred in these

foreclosure proceedings." Nationstar, unpublished slip op.,

¶69. Second, we could review the circuit court's exercise of

discretion ourselves. We conclude that the interests of

efficiency are best served by reviewing the circuit court's

discretion ourselves, as we are just as able to review the

record as is the court of appeals. See Raz v. Brown, 2003 WI

29, ¶20, 260 Wis. 2d 614, 660 N.W.2d 647.

¶35 A circuit court properly exercises discretion when it
applies a correct legal standard to the facts of record. Miller

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v. Hanover Ins. Co., 2010 WI 75, ¶29, 326 Wis. 2d 640, 785

N.W.2d 493. We hold the circuit court properly exercised its

discretion in this case. The circuit court articulated its

reasoning as to why Stafsholt was entitled to attorney fees:

 "BOA improperly charged the Stafsholts for the lender-

placed insurance. This entire dispute was caused by

BOA's poor record-keeping and business practices. BOA

caused this dispute by unnecessarily purchasing insurance

for Stafsholt when he had always maintained insurance and

provided proof of a Conforming Policy. BOA improperly

demanded that Stafsholt pay for the cost of the

unnecessary lender-placed insurance and other costs. BOA

[b]reached the implied covenant of good faith and fair

dealing."

 "BOA caused the Stafsholts to default on the Mortgage and

Note in September 2011. Stafsholt acted in good faith

and reliance on the misrepresentations of the BOA agent."

 "[T]he Court agrees with Stafsholt . . . that the relief
here should serve to make him whole."

 "The egregious nature of Ocwen's conduct in handling this

particular mortgage and subsequent foreclosure action

necessitates . . . an equitable remedy . . . ."

¶36 These conclusions find ample support in the record.

The following findings of fact support the circuit court's

conclusions:

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 "From June 27, 2008 to the present, Stafsholt has

maintained a Conforming Policy that covers the [h]ome in

satisfaction . . . of the Mortgage."

 "[Stafsholt] called BOA because he was 'irritated' that

BOA still failed to recognize that he had and had always

maintained a 'Conforming Policy.'"

 "Stafsholt asked the BOA representative what he needed to

do to get the hazard insurance premium off of his

mortgage and she responded that he had to pay the

insurance charge because BOA had already taken out the

hazard insurance premium and that she couldn't do

anything about it. The BOA representative also indicated

that the next mortgage payment that Stafsholt made would

be applied to accrued interest and then to the charge for

the insurance, with none of the payment being applied to

the principal."

 "Stafsholt asked the BOA representative who he needed to

talk to in order to get the escrow removed from his
account and she said that she didn't have that authority.

Stafsholt asked the BOA representative who did have the

authority and she said that the only person would be the

next elevated level of customer service. She said that

the only way that Stafsholt could get to that next level

of customer service would be if he skipped a mortgage

payment and became delinquent on the mortgage."

 "The testimony of BOA representative Heather Pollock
contradicting Stafsholt on the topic [of what he was told
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over the phone] was not credible. Stafsholt was credible

and consistent with the facts of the case, including

BOA's policies [and] procedures . . . ."

 "Stafsholt did not make [the September and October 2010

mortgage] payments because he detrimentally relied on

what the BOA representative told him regarding how to get

to the next level of customer service. . . . Stafsholt's

intent in not paying the mortgage was to follow the

advice he received from the BOA representative; that if

he skipped a mortgage payment, a higher ranking customer

service representative could be reached and the

insurance/escrow issue finally resolved."

 When Stafsholt did as he was told and defaulted on his

loan, "Stafsholt did not receive the next level of

customer service when he failed to make his next mortgage

payment. Instead, he received [a letter] of intent to

accelerate the Mortgage on September 16, 2010."

 "On October 16, 2010, BOA sent Stafsholt another notice
of intent to accelerate the mortgage."

 "On December 14, 2010, BOA generated a reinstatement

calculation, which stated that Stafsholt would have had

to pay $8,528.16 by December 27, 2010 to cure the default

and reinstate his loan. Included in that calculation was

the $2,822 cost of the lender-placed insurance even

though Stafsholt had a conforming policy. In addition to

that cost, BOA also included fees for uncollected late
charges ($184.56), property inspection fees ($15.00),
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 No. 2015AP1586

foreclosure attorney/trustee fees ($360.00) and

foreclosure expenses ($225.00)."

 "On May 11, 2011, Stafsholt's attorney, James Krupa, sent

a letter to BOA offering to reinstate the loan for a

payment of $10,573.60, which included nine monthly

payments, less $500 in expenses. BOA did not respond to

that letter. Stafsholt continued to attempt to reinstate

the loan prior to trial."

¶37 Our review of the record satisfies us that a

reasonable circuit court judge could reach the conclusions made

in this case. Miller, 326 Wis. 2d 640, ¶30. This is an

"exceptional" case in which an award of attorney fees is proper

"for dominating reasons of justice," Sprague, 307 U.S. at 167,

because BOA intentionally caused this dispute when it told

Stafsholt that defaulting on the loan was the only way the

erroneous LPI charges could be removed from his account, but

then proceeded to file a foreclosure action when Stafsholt

followed its directions. BOA doubled down on its bad faith by
refusing Stafsholt's offers to reinstate the loan, without the

erroneous LPI charges, before trial. At its core, BOA's conduct

was an attempt to use Wisconsin courts to extort the LPI charges

from Stafsholt. We will not allow Wisconsin courts to be used

for this purpose. See Goodhart, supra ¶32, at 862.

¶38 Though we hold that the circuit court properly

exercised its discretion in awarding attorney fees after the

motion for reconsideration, we remand for the circuit court to
determine Stafsholt's reasonable attorney fees at the court of
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 No. 2015AP1586

appeals and this court, and then add that amount to the attorney

fees previously awarded by the circuit court.

B. We Remand to the Circuit Court to Calculate the Remaining
Balance on the Loan.

¶39 In its original order, the circuit court did not allow

Stafsholt to recover his attorney fees, and also prohibited

Nationstar from collecting interest11 accrued during litigation.

The circuit court found that the balance of the loan was

$172,108.17, the principal balance on the date of default, and

interest would accrue from April 15, 2015 (eight days after the

order was signed). The effect of the circuit court's action was

to "pause" the loan during the foreclosure proceeding.

¶40 In its order resolving Stafsholt's motion for

reconsideration, the circuit court allowed Stafsholt to recover

his attorney fees, but deducted the interest accrued during

litigation from the amount of attorney fees Stafsholt was

entitled to recover. The court held that Stafsholt would

receive a windfall if he recovered his attorney fees and was

relieved of his obligation to pay accrued interest.

¶41 The court of appeals agreed that the circuit court

could limit Nationstar's collection of interest as part of its

equitable powers. Nationstar, unpublished slip op., ¶75.

11
When we discuss "interest," we mean the standard interest
Stafsholt was obligated to pay on the note, not additional
interest charges triggered by Stafsholt's default. See also
infra note 13.

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 No. 2015AP1586

However, the court of appeals reversed the circuit court's

denial of interest because "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 then remanded to determine if another basis

existed to prohibit Nationstar's collection of interest. Id.,

¶76.

¶42 Circuit courts have the power to limit a lender's

collection of interest accrued while litigation is pending as

part of its equitable power to make the aggrieved party whole.

Excel Mgmt. Servs., 111 Wis. 2d at 490; accord Hall, 143

Wis. 2d at 412. In this case, the circuit court properly

exercised this discretion by allowing Stafsholt to recover

attorney fees or be excused from interest payments while

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 No. 2015AP1586

litigation was pending, but not both.12 Allowing Stafsholt to

avoid paying interest while litigation was pending and recover

his attorney fees would put him in a better position than if the

default never occurred because he would have paid interest

during the time period litigation was pending if the default had

not occurred.

¶43 The circuit court is to calculate the balance of the

loan using the following calculation: principal balance at the

time of default ($172,108.17), plus any fees Nationstar is

12
Because of the court of appeals' seemingly contradictory
holdings on the interest issue, we clarify our mandate. The
court of appeals first stated that the circuit court properly
exercised its discretion on the interest issue, Nationstar Mort.
LLC v. Stafsholt, No. 2015AP1586, unpublished slip op., ¶75
(Wis. Ct. App. Dec. 28, 2016) (per curiam) ("The
analysis . . . appears to be a fair and logical way to resolve
the parties' dispute over Nationstar's recovery of interest."),
but then concluded that the circuit court prohibited Nationstar
from collecting interest as a proxy for awarding attorney fees.
Based on its previous holding regarding attorney fees, the court
of appeals concluded that the circuit court could not prohibit
collection of interest as a proxy for awarding attorney fees.
Id. ("However, in practice, applying this analysis . . . would
result in accomplishing by indirect means what we have already
determined cannot be done directly . . . ."). The court of
appeals' ultimate holding is flawed because, as we stated above,
the circuit court did have the power to award attorney fees in
this case. Thus, we reverse the decision of the court of
appeals, though we agree with its initial statement that the
circuit court properly exercised its discretion by allowing
Nationstar to collect interest while awarding Stafsholt his
attorney fees.

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 No. 2015AP1586

rightfully entitled to collect13 (to be determined on remand),

plus contractual interest on the principal balance accrued

during the default period that Nationstar is rightfully entitled

to collect14 (to be determined on remand), minus Stafsholt's

reasonable attorney fees incurred in the original circuit court

litigation ($64,746.71), minus Stafsholt's reasonable attorney

fees incurred during the appeal process (to be determined on

remand),15 minus Stafsholt's payments ($90,000). The result of

this calculation is the total amount due on the loan. The loan

is then reinstated at this amount, subject to all contractual

terms and conditions, including interest at the contractual

13
We agree with the court of appeals that "the circuit
court properly exercised its discretion by prohibiting
Nationstar from recovering any fees that were charged as a
result of Stafsholt's default." Nationstar, unpublished slip
op., ¶71. Therefore, Nationstar can recover only such fees as
are unrelated to the default. We leave to the capable hands of
the circuit court to decide which, if any, of those fees
unrelated to the default that Nationstar is rightfully entitled
to collect.
14
Stafsholt indicated in briefing that he tendered
$57,601.28 to Nationstar on July 28, 2015, which represents the
outstanding balance on the loan as established by the circuit
court's June 16, 2015 order. Nationstar rejected this tender.
On remand, the circuit court should consider whether Nationstar
is rightfully entitled to collect interest that accrued after
July 28, 2015.
15
In lieu of subtracting Stafsholt's reasonable attorney
fees from the balance of the loan, the circuit court may
exercise its equitable discretion to order Nationstar to pay his
attorney fees directly.

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 No. 2015AP1586

rate, prospectively from the date of the circuit court's final

order following remand.16

IV. CONCLUSION

¶44 We reverse the decision of the court of appeals.

Circuit courts may include attorney fees as part of an equitable

remedy "in exceptional cases and for dominating reasons of

justice." Sprague, 307 U.S. at 167. The circuit court properly

exercised its discretion because it applied the proper standard

of law to the facts of record when it concluded that BOA acted

in bad faith and thus awarded attorney fees to Stafsholt.

¶45 We further 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 to the circuit court to

determine the reasonable attorney fees Stafsholt incurred before

the court of appeals and this court, and to then calculate the

balance of the loan.

By the Court.—The decision of the court of appeals is
reversed, and the cause is remanded to the circuit court for

further proceedings consistent with this opinion.

¶46 SHIRLEY S. ABRAHAMSON, J., did not participate.

16
The final balance of the loan may be negative. This
would occur if Stafsholt's payments and reasonable attorney fees
during the default period exceed both the amount due during the
default period and the principal balance of the loan. In the
event that the total amount due on the loan is negative, the
circuit court shall make all orders necessary to terminate the
mortgage and may order Nationstar to refund Stafsholt.

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