MEMORANDUM DECISION ON MOTION FOR SUMMARY JUDGMENT (DOCKET NO. 136)

KEVIN R. ANDERSON, U.S. Bankruptcy Judge.

In this case, the Debtor found himself in need of immediate bankruptcy relief arising from the entry of a default judgment. The Debtor initially sought the legal services of Lincoln Law to represent him in a Chapter 7 case, but he ultimately declined their representation because he lacked the funds to pay Lincoln Law's required pre-petition retainer. The Debtor then contacted Capstone Law, which offered a bifurcated fee arrangement that involved no retainer for filing the petition, and then a post-petition fee agreement to ultimately pay $2,000 in ten monthly installments. The Debtor and Capstone Law agreed, signed the required documents, filed the Chapter 7 case, and the Debtor expeditiously received a discharge. Based on the issues raised by the attorney's use of the bifurcated fee agreements, the U.S. Trustee successfully moved to re-open the Debtor's bankruptcy case. Thereafter, Lincoln Law brought a motion for sanctions against Capstone Law and later was substituted as Debtor's counsel. Capstone Law filed a motion for summary judgment against Lincoln Law.1 On May 3, 2019, the Court held a status conference to address Capstone's unresolved Motion for Summary Judgment against Lincoln Law.2 The parties agreed that the last remaining issue for decision in the Motion is whether a violation of the automatic stay occurred under 11 U.S.C. § 362.

I. JURISDICTION AND VENUE

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(a)-(b), 157(b). Capstone's Motion for Summary Judgment is a core proceeding under 28 U.S.C. § 157(b)(2)(H). Venue is appropriate in this District under 28 U.S.C. §§ 1408-1409, and notice of the hearing was properly given to all parties in interest.

II. FACTS3

1. To the extent not explicitly set forth below, the Court incorporates its findings of fact contained in its Memorandum Decision on Motion For Summary Judgment at ECF No. 155.

A. The Debtor's Pre-Petition Meetings with the Two Bankruptcy Firms

2. On or about May 25, 2016, the Debtor met with Lincoln Law regarding the possible filing of a Chapter 7 bankruptcy case. The Debtor and Lincoln Law signed a "Contract for Chapter 7 Bankruptcy Services" (the "Lincoln Law Contract").4 The Lincoln Law Contract provided that it was not valid until the Debtor paid at least a $200 fee. Lincoln Law conceded at the hearing that the Debtor never paid the $200 fee. The Lincoln Law Contract further provides that the "client is free to consult with another attorney at any time, and may discharge the firm at any time."

3. On October 5, 2016, the Debtor was sued on a collection action in a Utah state court. On November 14, 2016, the state court entered a default judgment against the Debtor for $7,302.5

4. Prior to the entry of the default judgment, the Debtor again contacted Lincoln Law Center and was told he would need to first pay a $1,200 retainer before Lincoln Law would file the bankruptcy petition.6

5. The Debtor did not have $1,200 to pay a retainer to Lincoln Law.7

6. The Debtor then contacted Russell B. Weekes and his law firm Capstone Law, LLC ("Capstone Law" or "Capstone") about filing for bankruptcy.8

7. During the initial consultation on October 27, 2016, Mr. Weekes offered the Debtor three options to accomplish the filing of a Chapter 7 bankruptcy case:9

8. Mr. Weekes then explained to the Debtor the following: (1) the terms of the Pre-petition Agreement and its limited scope of services (e.g., Capstone Law would only file the Initial Bankruptcy Papers); (2) the Debtor's options to proceed pro se, hire another attorney, or hire Capstone Law; and (3) the terms of the Post-Petition Agreement wherein Capstone Law would continue to represent the Debtor after the bankruptcy filing for $2,400 that could be paid in monthly installments.11

9. After these explanations, the Debtor selected the Zero-Down Option because: (1) he did not have the funds to pay a retainer; (2) even though Capstone Law charged a higher fee, the Debtor could pay that fee over ten months after the bankruptcy filing; and (3) the Debtor feared a garnishment of his wages from the collection lawsuit.12

10. On October 29, 2016, the Debtor personally signed the Pre-Petition Agreement, the Two-Contract Disclosure, and the Third-Party Disclosure and Consent. Mr. Weekes also instructed the Debtor in writing on what the Debtor needed to do and the information to be provided before Capstone Law could file the bankruptcy petition.13

11. The above-mentioned documents included a multitude of disclosures, explanations, and warnings regarding the fee arrangement, the bankruptcy process, the possible use of BK Billing as a third party to collect payments, and the importance of providing true, complete, and accurate information to Mr. Weekes.14

12. Capstone Law also provided the Debtor a detailed questionnaire that elicited the information needed to prepare the bankruptcy papers. The Debtor completed the questionnaire, signed it in ink, and returned it to Capstone Law.15

13. Capstone Law also provided the Debtor with a document titled "General Information and Instructions" (the "Instructions"). The Instructions contain almost fifty paragraphs of disclosures and explanations that the Debtor was required to read and initial. Except for the paragraph on student loans, the Debtor initialed all of the disclosures and explanations and signed the document in ink.16

14. As to bankruptcy papers requiring the Debtor's signature, Capstone Law utilized Adobe Sign17 to send the Debtor documents for review and to obtain an e-signature on such documents. The Debtor signed all the Initial Bankruptcy Papers using Adobe Sign. Capstone Law maintained appropriate log entries of the documents emailed to the Debtor, the documents reviewed by the Debtor, and when the Debtor signed the documents using Adobe Sign.18

B. The Chapter 7 Bankruptcy Filing

15. On November 22, 2016, Capstone Law filed the Chapter 7 petition for the Debtor along with the Initial Bankruptcy Papers.

16. The Debtor's bankruptcy papers included an application to pay the filing fee in installments with $200 due on December 6, 2016, and a final installment of $135 due on January 2, 2017.19 Capstone Law timely made the filing fee installments on behalf of the Debtor, with this amount being part of the Post-Petition Fee Agreement.20

17. After filing the petition, the Debtor electronically signed the Post-Petition Agreement, the Check Draft Authorization, and the Third-Party Disclosure and Consent.21 These documents likewise contain detailed disclosures and explanations as to the attorney fee arrangement, the legal services to be provided, and the Debtor's responsibilities.22

C. The BK Billing Factoring Service

18. Because the Debtor agreed that Capstone Law would represent him post-petition, Capstone Law prepared and filed all the other required bankruptcy papers, which were also signed electronically by the Debtor.24

19. The Form 2030, Disclosure of Compensation of Attorney for Debtor ("Disclosure of Compensation"), which is required by Bankruptcy Rule 2016, states that Capstone Law agreed to accept $2,007 for legal services (exclusive of costs), and that it had not received a retainer.25

20. Under the Post-Petition Agreement and the Check Draft Authorization, the Debtor has paid a total of $1,800 towards the $2,007 attorney fee.26

21. An attorney for Capstone Law represented the Debtor at a meeting of creditors, provided documents to the Chapter 7 Trustee in accordance with 11 U.S.C. § 521,27 and otherwise assisted the Debtor in all tasks necessary for the Debtor to qualify for and receive a discharge on March 15, 2017.28 No party has requested a revocation of the Debtor's discharge under § 727(d), and the one-year limitation period for bringing such an action expired on March 15, 2018 (see § 727(e)).29

22. On April 12, 2017, the Chapter 7 Trustee filed a no-asset report, and the case was closed on May 15, 2017.30

23. The docket for the Debtor's case establishes that it was uneventful in that no motions or adversary proceedings were filed, the Debtor was not required to turnover to the Trustee any assets, and the Debtor received a discharge of over $29,000 in debts within 113 days after the petition date.31

D. Lincoln Law Contacts the Debtor After the Discharge and Closing of His Bankruptcy Case.

24. On September 6, 2017, which was after the Debtor received his discharge and the Court closed his case, Andrew Gustafson of Lincoln Law made an unsolicited telephone call to the Debtor. At the time of this phone call, Capstone Law still represented the Debtor in the bankruptcy case. Mr. Gustafson contacted the Debtor to determine why the Debtor had retained Capstone Law over Lincoln Law.32

25. During this phone call, the Debtor complained because BK Billing was drawing funds from the bank account of the Debtor's mother pursuant to an authorization provided by the Debtor. The payments to BK Billing were to satisfy the funds it had advanced to pay Capstone's attorney's fees for representing the Debtor in the Chapter 7 case.33

26. On October 25, 2017, the Debtor and his non-filing spouse met with Andrew Curtis of Lincoln Law. During that meeting, Mr. Curtis "created a new bankruptcy case as if [the Debtor] was coming into my office for the first time to file bankruptcy. We did this to ensure that the documents filed in his case were accurate."34

E. Reopening the Bankruptcy Case

27. After its unsolicited contact with the Debtor, Lincoln Law contacted the U.S. Trustee and reported the alleged improprieties of Capstone Law.

28. On September 25, 2017, the U.S. Trustee filed a motion to reopen the bankruptcy case to review the Capstone Law retainer agreements and Capstone's use of BK Billing to factor the post-petition fee. On October 23, 2017, the Court granted the motion. On November 20, 2017, the U.S. Trustee took the Debtor's examination under Bankruptcy Rule 2004.35

29. On November 8, 2017, Lincoln Law filed its motion for sanctions against Capstone Law. The motion sought the disgorgement of all fees, attorney's fees in bringing the motion, punitive damages, and a restriction on the e-filing privileges of Capstone Law.36

30. On March 9, 2018, after completing its investigation, the U.S. Trustee filed its motion for sanctions against Capstone Law based on the following: (1) the marketing of Zero-Down Chapter 7 bankruptcy services; (2) the bifurcation of bankruptcy services into pre-petition and post-petition fee agreements; (3) filing the petition and the Initial Bankruptcy Papers for purportedly no charge; (4) the reasonableness of the $2,400 post-petition fee; (5) the use of BK Billing to factor and collect the fee; and (6) the propriety of utilizing electronic signatures in bankruptcy.37

F. The U.S. Trustee's Motion and Capstone's Opposition

31. On March 9, 2018, the U.S. Trustee filed its motion seeking the following relief: (1) cancellation of the attorney fee agreements with Capstone Law under § 329 and Local Rule 2091-1; (2) sanctions under Local Rules 2090-3, 2091-1(a), and 5005-2(c); and (3) sanctions and other relief under § 526.38

32. Capstone Law filed an opposition to the Motion,39 and later filed a Motion for Summary Judgment.40

33. Capstone Law asserted that it made full disclosures that enabled the Debtor to make an informed decision about the use of bifurcated fee agreements. It asserted that the bifurcated fee agreements allowed the Debtor to retain and pay Capstone Law that facilitated the Debtor receiving a discharge without complications. Finally, Capstone Law asserted that its fee of $2,000 was reasonable under § 329, and that its use of electronic signatures does not merit the imposition of sanctions.41

34. At the hearing on Capstone's Motion for Summary Judgment held on January 4, 2019, the parties discussed the need to comply with the Bankruptcy Code and the ethical rules while enabling cash-poor debtors to retain and pay for legal counsel to represent them during a Chapter 7 case.42

35. On April 10, 2019, the Court entered a Memorandum Decision and Order, granting Capstone's Motion for Summary Judgment,43 finding that:

G. Lincoln Law's Motion and Capstone's Opposition

36. On November 8, 2017, Lincoln Law filed a Motion for Sanctions (the "Motion") seeking the following relief: (1) disgorging all fees paid by the Debtor in this case; (2) awarding reasonable attorney fees and costs; (3) restricting Capstone's e-filing privileges, and; (4) assessing punitive damages.45

37. On November 21, 2017, Lincoln Law filed a Notice of Substitution of Counsel.46 However Lincoln Law has never filed a Form B2030 Disclosure of Compensation of Attorney for Debtor as required by § 329 and Bankruptcy Rule 2016.

38. On March 29, 2018, Capstone filed a Motion to Dismiss Lincoln Law's Motion for Sanctions.47 Lincoln Law filed an Objection on April 3, 2018.48

39. On April 5, 2018, Capstone filed a Motion to Withdraw the Reference of Lincoln Law's Motion for Sanctions (as well as the U.S. Trustee's motion for Sanctions), to the Utah District Court.49 On July 6, 2018, the District Court denied the motion to Withdraw the Reference.50

40. On November 12, 2018, Lincoln Law filed an Amended Motion for Sanctions ("Amended Motion"), seeking the following relief: (1) disgorgement of all fees paid by the Debtor in this case under § 329; (2) restriction of Capstone's e-filing privileges; (3) sanctions and other relief under § 105 and § 362(k).51

41. In their Amended Motion, Lincoln Law essentially incorporated the same arguments as the U.S. Trustee, and asserted that Capstone Law did not perform the essential services for which he had been hired, and the services that were provided ran afoul of the law.52 Specifically, that Capstone's use of an electronic signature and collection of payments after the filing of the bankruptcy petition pursuant to the bifurcated fee arrangement had an adverse impact on the Debtor and diminished the integrity of the bankruptcy system.53

42. Capstone Law filed an opposition to the Amended Motion,54 and later it filed this Motion for Summary Judgment.55

43. Lincoln Law filed a Reply on December 20, 2018.56

44. On January 4, 2019, at the hearing on Capstone's Motion for Summary Judgment against the U.S. Trustee, the Court, acknowledging that Lincoln Law's Amended Motion and Capstone's MSJ involved the same operative facts and allegations, suspended all other matters in the case, pending the resolution of the U.S. Trustee's Motion.57

45. As stated above, on April 10, 2019, the Court entered a Memorandum Decision and Order, granting Capstone's Motion for Summary Judgment against the U.S. Trustee's Motion for Sanctions.

46. On May 3, 2019, the Court held a status conference to address Capstone's unresolved Motion for Summary Judgment against Lincoln Law.58 The Court ordered that the parties were to submit supplemental briefing on the MSJ, focusing on whether a violation of the automatic stay occurred under 11 U.S.C. § 362 and if so, whether BK Billing was solely liable or whether Capstone Law was jointly liable for any damages that may have resulted from such a violation.59

47. Capstone Law subsequently filed Supplemental Briefing,60 and Lincoln Law filed a Responsive Supplemental Briefing.61

48. After reviewing the Supplemental briefing of the Parties, the Court took the Defendants' Motion for Summary Judgment of Debtor's Motion for Sanctions under advisement.62

III. ANALYSIS

A. Utilizing the Same Operative Facts, this Court Has Already Determined That Defendant's Claims for Post-Petition Services Arose Under a Post-Petition Agreement That is Not Subject to § 362.

On April 10, 2019, the Court issued and entered its Order Granting Motion for Summary Judgment of the U.S. Trustee's Motion for Sanctions and Memorandum in Support, (the "Prior Ruling").63 Using the same operative facts, the Prior Ruling held that the Debtor's payments arose under a post-petition agreement signed by the Debtor, for services that arose post-petition.64 Specifically, the Prior Decision and Order made the following factual findings and conclusions of law:

The foregoing establishes that Capstone's attorney's fees did not arise under the pre-petition agreement as alleged by Debtor. Rather, they arose under a post-petition agreement, which is not governed by § 362 because the "claim"—or right to payment—does not arise "before the commencement of the case under this title."71 Any order finding violation of § 362 would be inconsistent with the Court's prior ruling and finding of facts. Furthermore, the undisputed facts in this case demonstrate that Capstone did not have a claim against the Debtor that was stayed by § 362.

The plain language of § 362 states that the "automatic stay has no effect whatsoever upon claims which arose after the petition."72 As cited by Capstone Law, a pair of cases from the Middle District of Florida, Walton I73 and Walton II,74 illustrate the distinction between pre-petition and post-petition claims. In Walton I, the attorney used a pre-petition retainer agreement that required the debtor to sign postdated checks that the law firm would cash post-petition for post-petition services.75 The Walton I court found that depositing the postdated checks violated the automatic stay because the payment obligation arose under the pre-petition agreement.76 Walton II involved the same law firm and Chapter 7 trustee, but involved a two-contract approach, whereby one contract covered pre-petition services, and a second, post-petition agreement covered post-petition services.77 The Walton II court found that the attorney's two-contract approach did not violate the automatic stay, it was not in violation of the ruling in Walton I, and it complied with the Bankruptcy Code because the payment obligation arose under the post-petition agreement.78

As previously found by this Court, Capstone Law did not have a claim against the Debtor that was stayed by § 362: "After filing the petition, the Debtor electronically signed the Post-Petition Agreement, the Check Draft Authorization, and the Third-Party Disclosure and Consent."79 The Court further found: "Under the Post-Petition Agreement and the Check Draft Authorization, the Debtor has paid a total of $1,800 towards the $2,007 attorney fee."80 As this Court has found that all payments made by the Debtor were paid pursuant to post-petition agreements, there can be no violation of 11 U.S.C. § 362 and consequently, no basis to justify sanctions under § 362(k).

B. The Debtor Suffered No Compensable Damages

While acknowledging the Court's Prior Decision and Order, Lincoln Law continues to maintain that Capstone Law violated the automatic stay and should be sanctioned under § 362(k). Yet, Lincoln Law has repeatedly failed to demonstrate how the Debtor was actually harmed in any way by Capstone Law. In their the Supplemental Brief, Lincoln Law asserts that the Debtor suffered the following damages: (1) $600 in principal; (2) accrued interest on the $600 of $142.13; (3) all amounts paid by the Debtor prior to the entry of his discharge; (4) damage to the Debtor's relationship with his mother; and (5) attorney fees because Capstone Law advanced "baseless, nonsensical legal pleadings" in this case.81 The Court disagrees.

First, the Court has found that all charges made against the Debtor were for post-petition services relating to a post-petition contract. Further, after careful scrutiny, this Court determined that all the charges were reasonable, and that the outcome of the bankruptcy case was completely satisfactory as to the Debtor. Specifically, nearly three years ago, the Debtor was in need of an immediate bankruptcy filing and lacked the funds to pay an upfront retainer to Lincoln Law. After reviewing his options, the Debtor made a choice to retain Capstone Law, who filed and prosecuted the Chapter 7 case with sufficient competence for the Debtor to receive a prompt discharge of his debts without complications and without the turnover to the trustee of any of his assets.

The Debtor's real complaint arises not from Capstone's legal representation or the results of his bankruptcy filing but from his post-petition obligation to pay for the cost of those services. The Debtor is an adult who, based on his inability to pay an up-front retainer, made an informed business decision to enter into a post-petition agreement for BK Billing to advance Capstone's legal fees and to repay BK Billing with monthly installments of $200 each for ten months.82 Having received the benefit of this contractual bargain (e.g., legal representation in a successful Chapter 7 case), the Court will not, without more, relieve the Debtor from his obligation to pay for those services.83 Consequently, the Court sees no basis to award the Debtor monetary damages of $600 plus interest.

For the same reason, all the amounts paid by the Debtor prior to receiving a discharge are likewise inapplicable. Even if this Court were to find that the Capstone's post-petition conduct amounted to some sanctionable activity, Lincoln Law has not pled a cause of action under § 524. Violations of the discharge injunction are facilitated under the Court's contempt powers, using a standard of clear and convincing evidence. The evidence fails to establish any sanctionable, post-petition activity by Capstone Law or Mr. Weekes.

The Court will also not consider the alleged "damage" arising from the Debtor's strained relationship with his mother. When the Debtor had difficulty making his monthly payments to BK Billing, he provided BK Billing with his mother's account information. The Debtor asserts that he requested BK Billing to draw only one monthly payment from that account, but that BK Billing continued to draw the payments from his mother's account. However, the Debtor has presented no evidence to support his claim that the authorization was limited to a single withdrawal. More importantly, the Court lacks jurisdiction over BK Billing and this dispute, and the Debtor has other remedies in other courts he can pursue if he believes he has a cause of action against BK Billing.

As to punitive damages, at the time of the Debtor's bankruptcy filing, there was no clear guidance as to the propriety of bifurcated fee agreements. Further, Capstone Law has changed its procedures to comply with this Court's prior ruling and it has ended its use of BK Billing to finance attorney's fees. Based on these considerations, there is no basis or need for punitive damages to deter recidivism.

C. Lincoln Law Has Not Complied with the Compensation Disclosure Requirement of § 329.

As a final matter, Lincoln Law has failed to comply with the disclosure requirements of the Bankruptcy Code. Section 329(a) requires every debtor's attorney to file a statement of compensation in every case. Bankruptcy Rule 2016 requires that such statement be filed within 14 days after any fee arrangement not previously disclosed, and that the disclosure must include all compensation paid or promised, all services to be rendered, the source of payment, and any fee sharing agreement. The purpose of this disclosure is to prevent overreaching by an attorney and to enable the court to determine if the fees were reasonable even if there is no objection to the fees.84

Therefore, Lincoln Law is given 14 days to file the required statement of compensation including any amounts actually paid towards such fees by either the Debtor or other parties. The Court will then review the statement and determine if additional action is required. Further, Lincoln Law shall not accept any payments for its attorney's fees or costs incurred in this case without an order of the Court.

IV. CONCLUSION

Under Fed. R. Civ. P. 56(a), as incorporated into bankruptcy proceedings by Fed. R. Bankr. P. 7056, the Court is required to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The parties do not dispute the facts as set forth herein. For the reasons stated above, the Court grants summary judgment finding that neither the actions of Capstone Law nor Mr. Weekes, as described in the Court's findings of fact, violated the automatic stay of § 362.

This order is SIGNED.