It is interesting that a New York judge decided to "punish" One West Bank of California for poor behavior, for their unwillingness to fairly negotiate with one of their customers. The tide may be turning against the banks as judges begin to come forward and fight for home owner mortgage modifications.
While I think it is possible that this case could be overturned in a higher court, I think this judge may be making a valid decision using the premise of a "wake up call" to the banks. If Banks continue to behave smugly, especially when they have received federal bailout money, then maybe judicial "wake up calls" are a valid reason to waive homeowner debt as the verdict serves to create motivation for the banks to try and be more helpful then they presently are being.
Don't forget, the Cat Who Ate Chase Bank Book, coming in early 2010.