In re: Adia Janine Paysinger
MEMORANDUM OPINION AND ORDER affirming the bankruptcy court's decision. Denying as moot the debtors' Motion to Dismiss Appeal 16 . Denying the debtors' Motion to Correct the Record on Appeal 23 . The case is remanded to the bankruptcy court for the limited purpose of awarding the debtors their reasonable attorneys' fees and costs incurred in defending this appeal under § 362(k), by Judge Lewis T. Babcock on 1/4/2017. (ebuch)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case Nos. 16-cv-00081-LTB-MJW (Consolidated w/16-cv-00082-LTB-MJW)
DANE ANDERS NIELSEN and ADIA JANINE PAYSINGER
KEVIN DEAN HEUPEL and HEUPEL LAW, P.C.,
DANE ANDERS NIELSEN and
ADIA JANINE PAYSINGER,
MEMORANDUM OPINION AND ORDER
It is 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
Because 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.
Accordingly, 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-00081LTB; 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 § 362(k).
Kevin 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.
The 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. Id.
From 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.
Ms. 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
In 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 postpetition 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 co4
workers, Mr. Nielsen advised Ms. Paysinger about the stay violation claims, and the
Atzbachs also substituted in as counsel for her. 4 BR 94.
Even 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
In its 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.
In 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. 13-0005EEB (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.
In July 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 BR
The 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, 158.
The 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.
In the 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
In 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.
At the 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).
The 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.
As for 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 zerodown 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 instead related to what the Atzbachs viewed
“as the illegalities of the entire zero-down program,” even though the United States
Trustee was already pursing relief against Heupel on behalf of the hundreds of
other debtors. Id.
The bankruptcy court based its conclusion in part on testimony from the
Atzbachs themselves. For instance, Geoffrey Atzbach testified on “multiple
occasions that the practices of the Firm and Mr. Heupel ‘deeply offended’ and
‘disturbed’ him and that he felt ‘embarrassed’ and ‘indignant’ as a member of the
bar.” Id. He admitted he “took the matter personally” and that the litigation
“‘consumed his life for quite a while.’” 3 BR 294-95. He also acknowledged that he
did not follow his normal practice and call Mr. Heupel and try to resolve the matter
out of court when he learned of stay violations. 3 BR 295. Instead, he was
“‘dumbfounded and aghast’ at the ‘scope and breadth’ of Mr. Heupel’s conduct and
felt it needed to be addressed to the court in a ‘very public way.’” Id. Erik Atzbach’s
testimony revealed that he “agreed with his brother’s reasons for litigating these
cases,” “wanted the conduct addressed in a public manner, and spent so much time
on these cases that it hurt both his business and his marriage.” Id.
Based on their testimony, the bankruptcy court concluded that:
In essence, the Atzbachs seemed on a personal crusade to publicly air
their grievances against Mr. Heupel. These personal motivations
caused them to bill an unreasonable amount to time [sic] to these
matters. The Court is cognizant that proof of the [Heupel Law’s]
conduct in other cases had some relevance to establishing punitive
damages in these individual cases. However, the Atzbachs billed time
well in excess of what was required to show the Firm’s standard
practices. Moreover, much of the work they expended was duplicated
by the [United States Trustee]. Indeed that is why this Court initially
consolidated these cases into the Miscellaneous Proceeding. Although
the Debtors acted within their rights to seek their individual damages
outside of the Miscellaneous Proceeding, those individual rights did
not give the Atzbachs the license to bill excessive amounts in an
attempt to expose all purported wrongdoings of the Firm and Mr.
Id. The court also explained that it would “not go so far as to say this was a
profit-making venture for the Atzbachs, but the idea that Mr. Heupel would
ultimately foot the bill for the litigation was certainly a factor.” Id. Additionally,
the court found that the “Atzbachs’ excessive fees and desire for public castigation
of Mr. Heupel and [Heupel Law] also influenced their willingness to settle.” 3 BR
Finally, the court concluded that the Atzbach’s lack of litigation experience
substantially inflated their billing. The court concluded that the Atzbachs spent far
more time than necessary preparing the motion for an order to show cause and the
reply, as well as preparing for what should have been a simple hearing on damages.
Id. Based on these factors, the court imposed an across the board reduction of 40%
on all of the Atzbachs’ fees and 60% and 75%, respectively, on the show cause
briefing and the damages hearing. Id. The court awarded a total of $27,512.88 in
attorneys’ fees, plus costs of $786.28, for a total of $28,299.16. Id. at 297.
The bankruptcy court also awarded modest punitive damages under § 362(k).
After weighing the relevant factors, the court awarded $2,000 in punitive damages
to each debtor. 3 BR 300. Heupel appealed the attorneys’ fee award and the
punitive damages award. The debtors moved to consolidate their appeals without
opposition, see Mot. Consol. Cases, ECF No. 32, and this Court granted their
request, see Order, ECF No. 33.
While this appeal was pending, the Colorado Supreme Court suspended Mr.
Heupel from the practice of law for one year and one day pursuant to a stipulation
with Mr. Heupel. 3 BR 315-22. The suspension was based on Mr. Heupel’s conduct
related to the zero-down program. Id.
II. Jurisdiction and Standard of Review
Mr. Nielsen elected to proceed in the United States District Court as the
forum for appellate review pursuant to 28 U.S.C. § 158(c)(1)(B). Accordingly, this
Court has jurisdiction under 28 U.S.C. § 158(a).
Neither party in this appeal cites the correct standard of review. Heupel
argues for de novo review of all issues before this Court, citing In re Diviney, 225
B.R. 762, 769 (10th Cir. BAP 1998). Diviney, however, specifically holds that “an
award of sanctions for a violation of the automatic stay is reviewed for an abuse of
discretion.” Id. “Under the abuse of discretion standard, a trial court’s decision will
not be disturbed unless the appellate court has a definite and firm conviction that
the lower court made a clear error of judgment or exceeded the bounds of
permissible choice in the circumstances.” Pandit v. Am. Honda Motor Co., Inc., 82
F.3d 376, 379 (10th Cir. 1996) (quoting Boughton v. Cotter Corp., 65 F.3d 823, 832
(10th Cir. 1995)). Moreover, a reviewing court reviews the factual determinations
of the bankruptcy court under the clearly erroneous standard; only conclusions of
law are reviewed de novo. In re Market Ctr. E. Retail Prop., 730 F.3d 1239, 1244
(10th Cir. 2013). Despite this controlling law, Mr. Nielsen and Ms. Paysinger fail to
address the correct standard of review in their brief and do not dispute Heupel’s
assertion that de novo review applies.
Although the parties all failed to cite the correct standard of review, I decline
to decide this appeal under the wrong standard and instead apply the standards
described above. In addition, on appeal, “[t]he burden of proof is on the party
seeking to reverse a bankruptcy court’s holding.” In re Van Vleet, 461 B.R. 62, 68
(D. Colo. 2010) (quotation omitted).
The automatic stay provision of the Bankruptcy Code prevents creditors from
taking actions to collect a debt from a debtor who has filed for bankruptcy. See 11
U.S.C. § 362(a). This stay provision “has been described as one of the fundamental
debtor protections provided by the bankruptcy laws.” Midlantic Nat’l Bank v. N.J.
Dep’t of Envtl. Prot., 474 U.S. 494, 503 (1986) (quotation omitted). If a creditor
willfully violates the stay, then an individual harmed by that violation “shall
recover actual damages, including costs and attorneys’ fees, and in appropriate
circumstances, may recover punitive damages.” 11 U.S.C. § 362(k).
Heupel does not dispute he willfully violated the stay based on his postpetition withdrawals from Ms. Paysinger’s and Mr. Nielsen’s accounts. However, he
argues that the bankruptcy court erred in awarding attorneys’ fees and punitive
damages. As I describe below, I discern no error in the bankruptcy court’s analysis
and therefore reject Heupel’s arguments.
Heupel argues that, as a threshold matter, Mr. Nielsen and Ms. Paysinger
did not demonstrate they were “injured” by the violation of the automatic stay.
Thus, he argues that they cannot collect any other award under § 362(k), which only
provides a remedy for “an individual injured by any willful violation of a stay.”
This argument is inconsistent with Mr. Heupel and Heupel’s Law’s earlier
“admission of liability” in these cases. 2 BR 25. In any event, it fails on its merits
because both Mr. Nielsen and Ms. Paysinger demonstrated that Heupel Law
unlawfully took post-petition payments from their bank accounts and did not return
them for some time. They also incurred attorneys’ fees litigating the stay violation,
which qualifies as damages. See In re Gagliardi, 290 B.R. 808, 820 (Bankr. D. Colo.
2003) (“Section 362(h) [now § 362(k)] states . . . that an individual injured by any
willful violation of the automatic stay ‘shall recover actual damages, including costs
and attorneys’ fees.’ The use of ‘including’ indicates that Congress considered fees
as an example of actual damages by itself.” (citations omitted)). Accordingly, I
reject the argument that the debtors did not demonstrate they were injured by the
automatic stay violation.
Contingency Fee Agreement
As an alternative argument, Heupel argues that Mr. Nielsen and Mr.
Paysinger were not actually liable for attorneys’ fees because they signed
contingency-fee agreements with the Atzbachs. As a result, Heupel contends the
Atzbachs’ fees are not “actual damages” under § 362(k).
Section 362(k) is not a fee-shifting provision. Instead, it permits debtors to
recover “actual damages,” including attorneys’ fees. Because of the unique
language of § 362(k), courts have disallowed fees where the debtor was represented
pro bono and by a legal aid organization, reasoning that the debtor had not actually
incurred any damages where no fees were owed. See In re Dean, 490 B.R. 662, 671
(Bankr. M.D. Pa. 2013) (finding that debtor represented by pro bono counsel “failed
to prove that she incurred attorneys fees as actual damages”); In re Hedetneimi,
297 B.R. 837, 843 (Bankr. M.D. Fla. 2003) (finding that debtor represented by legal
services agency not entitled to recover attorneys’ fees as actual damages); accord In
re Gagliardi, 290 B.R. at 820 (reasoning that the language of § 362(k) “indicates
that Congress considered fees as an example of actual damages by itself”).
As a threshold matter, it is not clear that the debtors actually signed
contingency fee agreements with both Atzbachs. Mr. Nielsen and Ms. Paysinger
clearly signed hybrid continency-fee agreements with Erik Atzbach, which provided:
Out of the total recovery amount, [Erik B. Atzbach, LLC, (“EEB”)]
shall receive and retain as compensation for its services (the “EEB
An amount equal to the fees it has earned on the case at
its hourly rate of $300/hour.
However, in no case shall the amount retained by EEB in
respect of its fees earned on the Cases be less than fortynine percent (49%) of the total recovery amount.
In addition, EBA shall retain the full amount of any costs
or expenses actually advanced by EEB.
2 BR 111, 113. The agreements were dated March 20, 2013. However, the nature
of the fee agreement with Geoffrey Atzbach is less clear. Mr. Nielsen and Ms.
Paysinger signed separate fee agreements with Geoffrey Atzbach, who joined their
cases sometime after they retained Erik Atzbach. 2 BR 115-16. These agreements
purport to be effective as of “March 20, 2012,” a almost year before Mr. Nielsen and
Ms. Paysinger met either Atzbach. Id. This may well be a clerical error, but there
was no testimony to that effect. On their face, the Geoffrey Atzbach fee agreements,
which are partially redacted, do not appear to be contingency agreements. The
Atzbachs contend they are not. Response at 11, ECF No. 27. However, the
bankruptcy court found that Ms. Paysinger and Mr. Nielsen entered into
contingency agreements with both Atzbachs. 3 BR 295. Consequently, the court
concluded that the “[d]ebtors are not responsible for paying those fees out-of-pocket
since they retained the Atzbachs on a contingency basis.” 3 BR 298.
I need not determine whether the bankruptcy court erred when she
concluded the debtors signed contingency fee agreements with Geoffrey Atzbach.
Either way, the debtors are “responsible” for paying the Atzbachs’ fees, even if they
are not responsible for paying the fees out-of-pocket. Indeed, one court that
disallowed fees under § 362(k) based on a pro bono fee agreement specifically
distinguished contingency fee agreements. The court advised that:
[i]f they proceed carefully, [pro bono counsel] can preserve a fee claim
under § 362(k) while assuring the client that he will not have to pay
that fee. Thompson’s attorneys could have entered into a clear written
agreement providing that the fees were to be due from him but
contingent upon success of the appeal and collection from GMAC. By
doing so, they could have eliminated Thompson’s risk of payment while
also ensuring that Thompson actually incurred damages in the form of
attorneys’ fees that were due from the client . . . .
In re Thompson, 426 B.R. 759, 767 (Bankr. N.D. Ill. 2010). As the reasoning of the
Thompson court makes clear, there is a distinction between a complete lack of
responsibility for paying any attorneys’ fees—which prevents recovery under §
362(k)—and a lack of responsibility for paying fees out of pocket—which does not.
Accordingly, even if the debtors entered into contingency fee agreements with both
Atzbachs, they are responsible for paying fees. I therefore reject Heupel’s argument
that the Atzbachs’ fees are not recoverable under § 362(k) based on the contingencyfee agreements.
Reasonableness of Fees
Heupel argues that the fees awarded were unreasonable in light of the small
amount of damages at issue. While I may well have come to a lower figure were I
deciding the issue de novo, Heupel points to no evidence that the bankruptcy court
abused its discretion by awarding a total of $28,299.16 in attorneys’ fees and
costs—an amount far less than the initial request of over $72,0000. And when
applying the abuse of discretion standard, I defer to the bankruptcy court in part
because of “its first-hand ability to view the witness or evidence and assess
credibility and probative value.” United States v. Ortiz, 804 F.2d 1161, 1164 n.2
(10th Cir. 1986).
The bankruptcy court extensively discussed why its award was appropriate.
It multiplied the hours counsel reasonably spent on the litigation by a reasonable
hourly rate to arrive at the “lodestar” figure. 3 BR 293 (citing Praseuth v.
Rubbermaid, Inc., 406 F.3d 1245, 1257 (10th Cir. 2005). It also disallowed any
unnecessary, irrelevant, or duplicative work, and took into account other factors
relevant to the lodestar analysis: (1) the time and labor required; (2) the novelty
and difficulty of the questions; (3) the skill requisite to perform the legal service
properly; (4) the preclusion of other employment by the attorney due to acceptance
of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time
limitations imposed by the client or the circumstances; (8) the amount involved and
the results obtained; (9) the experience, reputation, and ability of the attorneys; (10)
the “undesirability” of the case; (11) the nature and length of the professional
relationship with the client; and (12) awards in similar cases. 3 BR 293 (citing In re
Market Ctr. E. Retail Prop., Inc., 730 F.3d 1239, 1246-47 (10th Cir. 2013).
The court explained its reasons for substantially discounting—but not
disallowing—the fees. First, the court concluded the Atzbachs “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.” 3 BR 294. Second, the court
concluded the Atzbachs’ personal motivations “caused them to bill an unreasonable
amount” and also considered that much of the work was duplicated by the trustee.
3 BR 295. Third, the court found that the Atzbachs billed far more than they would
have had their clients been paying out of pocket. Id. Fourth, the court concluded
the Atzbachs were reluctant to settle in part because of their “excessive fees” and
their desire to publicly castigate Mr. Heupel and Heupel Law. 3 BR 296. Finally,
the court considered the Atzbachs’ lack of litigation experience, which it concluded
caused them to bill excessive hours. Id. However, the court also recognized that
much of the work was still necessary and reasonable. Id. The motion for the show
cause order and the reply were both filed before Heupel conceded liability, and a
substantive reply was required because Heupel had argued his failure to file the
reaffirmation agreements was isolated and inadvertent. Id. Once he conceded
liability, the issues of damages was still unresolved and contested. Id.
After its comprehensive discussion, the court reduced all of the Atzbachs’ fees
by 40%. Id. It further reduced two categories it found particularly excessive—the
motions for an order to show cause and the damages hearing—by 60% and 75%,
Despite these large reductions, Heupel argues the amount the bankruptcy
court awarded was unreasonable, relying in large part on the bankruptcy court’s
own findings regarding the Atzbachs’ desire to discredit Heupel, their
overzealousness, their inexperience in litigation, and their reluctance to settle even
after the stay violations ceased. But Heupel points to nothing suggesting the
bankruptcy court abused its discretion by misapprehending the facts or misapplying
the law. While Heupel does argue certain types of entries should have been
disallowed, “the district court need not identify and justify every hour allowed or
disallowed, as doing so would run counter to the Supreme Court’s warning that a
‘request for attorney’s fees should not result in a second major litigation.’” Malloy v.
Monahan, 73 F.3d 1012, 1018 (10th Cir. 1996) (quoting Mares v. Credit Bureau of
Raton, 801 F.2d 1197, 1203 (10th Cir. 1986)). Accordingly, the bankruptcy court did
not abuse its discretion by awarding $28,299.16 in attorneys’ fees and costs.
Fees Incurred After the Stay Violation Ended
Heupel also argues the debtors failed to adequately mitigate their damages
by continuing to incur attorneys’ fees after the stay violation ended, and the
bankruptcy court erred by awarding fees that could have been avoided. However,
the bankruptcy court explicitly considered and discussed the fees incurred after the
stay violation ended and reduced the fees that were redundant or improper. 3 BR
295-96. Moreover, the issue of damages—including fees incurred up to that
point—still needed to be resolved after the stay violation ceased. 3 BR 296.
Nevertheless, to account for the Atzbach’s excessive billing, the court reduced fees
from the damages hearing by 75%. Heupel again points to nothing in the record
that suggests the bankruptcy court failed to consider the appropriate factors or
misapplied the law. To the contrary, Heupel largely relies on the bankruptcy
court’s own findings—considerations it obviously took into account—to suggest that
fees incurred after the stay violation ceased should have been disallowed. This
argument falls short of demonstrating that the bankruptcy court abused its
discretion by rendering a decision that was “arbitrary, capricious or whimsical,” an
“exercise of manifestly unreasonable judgment” or “the result of partiality,
prejudice, bias or ill-will as shown by the evidence or the record of proceedings.” In
re Bueno, 248 B.R. 581, 582 (D. Colo. 2000).
Mr. Heupel also argues that his case was inappropriate for a punitive
damages award. Because the bankruptcy court acted within its discretion in
awarding punitive damages, I reject this argument.
The bankruptcy court’s well-reasoned and comprehensive opinion lists and
analyzes the relevant factors. First, it correctly explains that punitive damages are
only available under § 362(k) in “appropriate circumstances,” which include “where
a defendant has acted with actual knowledge that they were violating a federally
protected right or with reckless disregard of whether they were doing so.” 3 BR 297
(citing In re Diviney, 225 B.R. at 776). It then looked to the factors the Diviney
court discussed: (1) the nature of the defendant’s conduct; (2) the defendant’s ability
to pay; (3) the motives of the defendant; and (4) any provocation by the debtor. Id.
After discussing the applicability of each of these factors, the bankruptcy court
concluded that in light of Mr. Heupel’s widespread misconduct (that allowed him to
profit substantially from an unethical billing structure), the minimal harm to the
debtors, and the lack of provocation, a small punitive damages award was
appropriate. 3 BR 297-300.
Mr. Heupel essentially argues that the factors do not weigh strongly in favor
of punitive damages. However, he points to no evidence suggesting the lower court
“made a clear error of judgment or exceeded the bounds of permissible choice in the
circumstances.” Pandit, 82 F.3d at 379 (quoting Boughton, 65 F.3d at 832).
Accordingly, he has not carried his burden of demonstrating the bankruptcy judge
abused its discretion in awarding a modest amount of punitive damages.
Judge Brown’s Recusal
Heupel argues that the case should be remanded because Judge Brown sua
sponte recused herself from this case while this appeal was pending. In the order of
recusal, Judge Brown explained that she “deems it would be improper for her to
hear the within bankruptcy case” but provided no further elaboration. See Order of
Recusal, In re Dane Anders Nielsen, In re Adia Janine Paysinger, Nos. 12-36010
EEB, 12-35943 EEB (April 22, 2016) (ECF No. 292). Judge Michael Romero, who
presided over Mr. Heupel’s chapter 11 case, was reassigned to the case. Mr. Heupel
then moved to set aside the judgments issued by Judge Brown, arguing that Judge
Brown’s unexplained recusal raised questions of her impartiality in earlier
decisions. Judge Romero denied the request. See Order, In re Dane Anders
Nielsen, In re Adia Janine Paysinger, Nos. 12-36010 EEB, 12-35943 EEB (May 9,
2016) (ECF No. 305).
Mr. Heupel did not file a notice of appeal from Judge Romero’s decision,
which was issued after he filed his notice of appeal in this case. See Def’ts Notice of
Appeal, ECF No. 3 (filed January 12, 2016). Because there is no effective notice of
appeal as to the recusal motion, this Court lacks jurisdiction to consider it on
appeal. See United States v. Ortiz, 741 F.3d 288, 292 (1st Cir. 2014) (holding post21
judgment motion was not properly before the court where appellant failed to file a
new or amended notice of appeal).
Even if this Court were to construe the argument—raised for the first time
before this Court in the reply—as a motion for relief under Fed. R. Bankr. P.
8013(a) and consider it on its merits, it would fail because there is no evidence
suggesting Judge Brown should have recused herself earlier.
“Any justice, judge, or magistrate judge of the United States shall disqualify
himself [or herself] in any proceeding in which his [or her] impartiality might
reasonably be questioned.” 28 U.S.C. § 455(a). Section 455(a)’s recusal requirement
arises sua sponte when the judge’s impartiality might be reasonably questioned.
United States v. Pearson, 203 F.3d 1243, 1277 (10th Cir. 2000). “The trial judge
must recuse himself when there is the appearance of bias, regardless of whether
there is actual bias.” Bryce v. Episcopal Church, 289 F.3d 648, 659 (10th Cir. 2002).
Under this standard, Judge Brown’s obligation to recuse herself may well have
arisen after she entered judgment in this case. Moreover, Heupel provides no
evidence to suggest that something should have compelled Judge Brown to recuse
herself before she did. See Hill v. Schilling, 593 Fed. App’x 330, 334 (5th Cir. 2014)
(unpublished) (denying relief where judge recused herself without providing an
explanation after entering judgment). Additionally, Judge Brown was not required
to provide any explanation for her recusal. See id. Accordingly, nothing in the
record suggests that remand is appropriate.
Other Pending Motions
In examples of the Atzbachs’ overzealous litigation of this case—and perhaps
their litigation inexperience—the Atzbachs filed various motions while this appeal
was pending. First, they filed a motion to dismiss this case after Mr. Heupel was
suspended from the practice of law because Heupel Law was no longer represented
by an attorney, as required under the federal rules. See Mot. Dismiss Appeal (ECF
No. 14, Nielsen, No. 16-cv-00081-LTB; ECF No. 16, Paysinger, No. 16-cv-00082LTB). However, Heupel Law quickly retained counsel after Mr. Heupel’s
suspension. See Notice of Entry of Appearance (ECF No. 18, Nielsen, No. 16-cv00081-LTB; ECF No. 20, Paysinger, No. 16-cv-00082-LTB. I thus DENY that
motion as moot. Second, they filed a Motion to Correct the Record on Appeal (ECF
No. 21, Nielsen, No. 16-cv-00081-LTB; ECF No. 23, Paysinger, No. 16-cv-00082LTB), which did not actually request any record correction, but instead complains
that Heupel only transcribed and submitted certain portions of the damages
hearing rather than the entire hearing. As the appellant, Heupel was not obligated
to transcribe the complete hearing. Instead, Heupel may choose what proceedings
to transcribe. See Fed. R. Bankr. P. 8009(b)(1)(A) (directing appellant to submit
“transcript of such parts of the proceedings not already on file as the appellant
considers necessary for the appeal”). If the appellant fails to transcribe necessary
and relevant proceedings, he likely will not carry his burden of demonstrating the
bankruptcy court erred. See In re Van Vleet, 461 B.R. at 68. But an Appellee
cannot compel an Appellant to transcribe additional portions of the record and
submit them. I thus DENY the 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).
Attorneys’ Fees on Appeal
The Atzbachs ask for attorneys’ fees for the cost of defending this appeal.
Given the mandatory language of § 362(k), I remand this case with an instruction to
award reasonable attorneys’ fees and costs for defending this appeal.
For the reasons described above, I AFFIRM the bankruptcy court’s decision.
I 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-cv00081-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 their
reasonable attorneys’ fees and costs incurred in defending this appeal under §
BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE
DATED: January 4, 2017
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