United States District Court, D. Colorado
In re DANE ANDERS NIELSEN and ADIA JANINE PAYSINGER Debtors.
DANE ANDERS NIELSEN and ADIA JANINE PAYSINGER, Appellees. KEVIN DEAN HEUPEL and HEUPEL LAW, P.C., Appellants,
MEMORANDUM OPINION AND ORDER
T. BABCOCK, JUDGE
undisputed that Appellants Heupel Law and Kevin Heupel
(collectively, “Heupel”) willfully violated the
automatic stay provision of the Bankruptcy Code by taking
post-petition withdrawals from Appellees Dane Nielsen's
and Adia Paysinger's bank accounts. The bankruptcy court
awarded Mr. Nielsen and Ms. Paysinger sanctions, including
attorneys' fees and punitive damages, under 11 U.S.C.
§ 362(k). Heupel appeals the award of sanctions,
arguing: (1) the debtors were not actually injured by the
stay violation and were not entitled to any damages; (2)
because the debtors entered into contingency fee agreements
with their attorneys, they did not actually owe
attorneys' fees and therefore could not collect them
under § 362(k); (3) the fees awarded were excessive; (4)
the court should not have awarded any attorneys' fees
incurred after the stay violation ended; and (5) the punitive
damages award was not appropriate. Heupel also asks this
Court to remand the case because the bankruptcy judge who
initially presided over the case, Judge Brown, sua
sponte recused herself from the case while this appeal
the facts and legal argument relevant to this appeal are
adequately presented in the briefs and record, I decide this
case without oral argument. See Fed. R. Bankr. P.
8019(b)(3). As I describe below, I discern no error in the
bankruptcy court's decision. I also decline to remand the
case based on Judge Brown's sua sponte recusal.
I AFFIRM the bankruptcy judge's decision. I also DENY as
moot the debtors' Motion to Dismiss Appeal (ECF No. 14,
Nielsen, No. 16-cv-00081-LTB; ECF No. 16, Paysinger No.
16-cv-00082-LTB). I DENY the debtors' Motion to Correct
the Record on Appeal (ECF No. 21, Nielsen, No.
16-cv-00081-LTB; ECF No. 23, Paysinger, No. 16-cv-00082-LTB).
I REMAND the case to the bankruptcy court for the limited
purpose of awarding the debtors the reasonable attorneys'
fees and costs incurred in defending this appeal under §
Heupel is the sole shareholder of Heupel Law. See
Paysinger Bankruptcy Record (“BR”) Vol. 3 at 286,
ECF No. 10. From 2008 to 2014, Heupel Law filed more consumer
bankruptcy cases than any other firm in the District of
Colorado. Id. The firm's success was in large
part because of the unconventional billing structure it used:
the “zero down” bankruptcy filing program. Under
this program, a client could hire Heupel Law without paying
any up-front fees. 3 BR 286, 375. Instead, a client would
sign an agreement to make payments through regular automatic
bank or debit card withdrawals. Id. Heupel Law
typically charged $2, 500 for a chapter 7 case-an amount the
bankruptcy court characterized as “significantly higher
than the going rate” in this district. 3 BR 287.
zero-down program required clients to sign a promissary note
for the full fee and to begin making payments at or soon
after the initial consultation. Id. The zero-down
paperwork informed clients that nonpayment would result in a
collection action. Id. Clients also signed an
agreement to reaffirm the debt after the petition was filed.
2 BR 159. The reason for the reaffirmation agreement was
plain: As the reaffirmation document itself explained, after
filing the petition, the client's debt would otherwise be
discharged. See Id. The reaffirmation agreement
itself was not as plain: It informed the client that
reaffirmation was “voluntary” but also explained
that Heupel Law was only willing to provide post-petition
services “provided that” the client reaffirmed
the debt. Id. Heupel Law also informed clients it
would obtain court approval of the reaffirmation agreement.
January 2012 until June 2013, Heupel Law filed almost 600
zero-down chapter 7 cases. 3 BR 375. Initially, Heupel Law
filed the reaffirmation agreements for court approval. 3 BR
287, 376. But as bankruptcy courts began to deny them with
increasing frequency, Heupel Law stopped filing them. 3 BR
287. By October 2012, Heupel Law was no longer
filing reaffirmation agreements in the bankruptcy court, but
it was continuing to collect post-petition fees. Id.
Indeed, even in cases where the court had denied the
reaffirmation agreement, Heupel Law continued to collect, or
at least attempt to collect, fees. 3 BR 376.
Paysinger and Mr. Nielsen were typical “zero
down” clients. They had an initial consultation with a
non-attorney staff member, signed a note promising to pay $2,
500, signed up for automatic bank withdrawals, and signed the
reaffirmation agreement. 4 BR 83-84, 91-93, 123-24. After
Heupel Law filed their chapter 7 petitions in December 2012,
it did not file the reaffirmation agreements. Nonetheless,
Heupel Law continued to take automatic deductions after
filing the petition, taking a total of $400 from Mr. Nielsen
and $661.77 from Ms. Paysinger. 3 BR 287.
February 2013, Mr. Nielsen contacted Heupel Law because he
needed assistance defending against a motion for relief from
the stay (i.e., a creditor was attempting to collect payments
post-filing). 4 BR 131-32. Heupel Law agreed to assist him,
but only if he paid extra. Id. Unable to pay the
additional fee, Mr. Nielsen contacted Geoffrey Atzbach, a
different bankruptcy attorney. 4 BR 133. Mr. Atzbach reviewed
his case and discovered that Heupel Law was taking
post-petition payments, which Mr. Atzbach believed was in
violation of the Bankruptcy Code. Mr. Atzbach and his
brother, Erik Atzbach, substituted in as counsel to pursue
the stay violation claims. Because Mr. Nielsen and Ms.
Paysinger are co- workers, Mr. Nielsen advised Ms. Paysinger
about the stay violation claims, and the Atzbachs also
substituted in as counsel for her. 4 BR 94.
though it is their normal practice to contact a creditor who
is in violation of stay and ask the creditor to cease its
collections, the Atzbachs opted to file Motions for Orders to
Show Cause in Mr. Nielsen's and Ms. Paysinger's cases
without first contacting Heupel Law. 4 BR 166-67. The
Atzbachs filed the show cause motions on April 12, 2013.
Despite the pending show cause motions, Heupel Law continued
to attempt to collect its fees from Mr. Nielsen, threatening
to send his account into collections because Mr. Nielsen had
closed his account and stopped the automatic payments. 4 BR
137. Heupel Law took three more automatic debits from Ms.
Paysinger's account before it voluntarily stopped taking
withdrawals. 4 BR 168-67.
responses to the show cause motions, Heupel Law argued its
failure to file the reaffirmation agreements was inadvertent
and isolated. 1 BR 35-37. Heupel also argued that, as
competitors of Heupel Law, the Atzbachs were trying to gain a
competitive advantage by eliminating the zero-down program. 1
BR 37-38. Through counsel, Heupel later withdrew these
motions in light of compelling evidence that failure to file
the reaffirmation agreements was in fact a widespread and
regular practice of Heupel Law.
early 2013-around the same time the Atzbachs substituted in
as counsel for Mr. Nielsen and Ms. Paysinger-the United
States Trustee began investigating Heupel Law's billing
and collection practices. The trustee ultimately filed a
lawsuit in July 2013, shortly after Heupel Law voluntarily
stopped its zero-down program and after the Atzbachs filed
the show cause motions in Mr. Nielsen's and Ms.
Paysinger's cases. See Complaint, Layng et
al. v. Heupel Law, PC., No. 13-0005-EEB (Bankr. D. Colo.
filed July 11, 2013). The case was designated a
“Miscellaneous Proceeding.” Id. The
complaint alleged that Heupel's compensation and fee
collection practices violated the automatic stay, discharge
injunction, and other provisions of the Bankruptcy Code.
See Id. The complaint also alleged that Heupel had
failed to accurately disclose the terms of the client
agreements. Id. It specifically named Mr. Nielsen
and Ms. Paysinger as clients who had been damaged because of
Heupel's practices. Id. The trustee asked the
court to disgorge client fees, enjoin Mr. Heupel from
practicing bankruptcy law, and declare that his practices
violated the law. Id.
2013 (the same month the trustee filed the complaint against
Heupel), Heupel Law voluntarily provided checks refunding the
full amounts of the post-petition payments to Mr. Nielsen and
Ms. Paysinger. 4 BR 112-13, 146. However, on the advice of
counsel, they did not cash the refund checks. Id.; 3
bankruptcy court consolidated Ms. Paysinger and Mr.
Nielsen's cases with the trustee's case, and they
remained consolidated with the trustee's case until the
Atzbachs asked the court to bifurcate their cases, and the
court granted their requests on January 15, 2014. 1 BR 156,
parties in Ms. Paysinger and Mr. Nielsen's cases
conducted discovery until Mr. Heupel filed his own Chapter 11
bankruptcy case in May 2014 (attempting to reorganize his
substantial debts), which stayed the proceedings against him
personally but not against Heupel Law. 2 BR 15. However, Mr.
Heupel eventually agreed to let the cases against him
personally proceed. In August 2014-roughly a year after
Heupel Law tendered the refund checks that the Atzbachs
counseled Ms. Paysinger and Mr. Nielsen not to cash, and
roughly 20 months after the trustee began investigating Mr.
Heupel and Heupel Law-Mr. Heupel and Heupel Law conceded
liability for willful violations of the automatic stay
provision of the bankruptcy code. 2 BR 24-26. The only
remaining issue before the court was damages.
meantime, discovery also continued in the trustee's case.
In November 2014, the trustee and Heupel agreed to a
preliminary settlement where Mr. Heupel would repay $424, 000
in fees to clients. See Mot. Approve Stipulation,
Layng v. Heupel, No. 13-00005-EEB (Bankr. D. Colo.
filed Nov. 3, 2014) (ECF No. 58); BR 335-47. However, the
agreement was subject to the approval of the bankruptcy court
that was presiding over Mr. Heupel's voluntary chapter 11
petition. Id. The bankruptcy court ultimately
dismissed the chapter 11 petition and declined to convert it
into a chapter 7 case. See Order Dismissing Chapter
11 Case, In re Kevin Dean Heupel, No. 14-16337-MER
(Bankr. D. Colo. filed April 22, 2016) (ECF No. 220). Thus,
the $424, 000 settlement was not approved and that case
remains pending. Id.
November 2014, the Atzbachs filed their first fee affidavits.
Their fees at that point already totaled over $35, 000. 2 BR
102-110. After a two-day hearing on damages, their fees
exceed $72, 000. 3 BR 289.
damages hearing, the Atzbachs both testified, as did Ms.
Paysinger and Mr. Nielsen. Mr. Heupel also testified. After
hearing the testimony and considering the evidence, the
bankruptcy court first found, as Heupel had conceded, that
Heupel had willfully violated the automatic stay provisions,
a prerequisite to imposing sanctions under § 362(k).
bankruptcy court then found that other than attorneys'
fees and costs, Ms. Paysinger and Mr. Nielsen suffered only
“minimal” damages. Their damages were the
post-petition bank withdrawals of $661.77 and $400,
respectively, as well as the costs and lost wages associated
with attending the two-day hearing. 3 BR 292-93. In total,
the bankruptcy court concluded that the non-attorney fees
related damages were $1, 080.77 for Ms. Paysinger and $747.00
for Mr. Nielsen. 3 BR 293.
attorney's fees and costs, the bankruptcy court
significantly reduced the Atzbach's fee request. The
bankruptcy court found that “[f]rom the very beginning
of this litigation, the Atazbachs [sic] have demonstrated
that their motivation in pursuing this litigation was not
limited solely to vindicating the rights of Ms. Paysinger and
Mr. Nielsen.” 3 BR 294. The bankruptcy court found it
was “apparent” that “the Atzbachs, who were
rivals of the Firm in a very competitive consumer bankruptcy
market, wanted to put an end to the Firm's zero-down
bankruptcy program and to punish Mr. Heupel for what they
viewed as unethical and illegal conduct.” Id.
The bankruptcy court observed that the Atzbachs spent
“significant hours” putting together evidence not
relevant to Ms. Paysinger and Mr. Nielsen's cases, but