## Facts

- Michael L. Jones filed a Chapter 13 case; Wells Fargo Home Mortgage, Inc. serviced and held a mortgage secured by Jones’s residence and filed a proof of claim.
- During the Chapter 13 plan period, Jones sought to refinance and requested a payoff and accounting; he contended the payoff was inflated and Wells Fargo would not provide a clear accounting.
- After trial in an adversary proceeding, the court found Wells Fargo made substantial accounting errors, charged unreasonable fees and costs, failed to apply payments properly, and willfully violated the automatic stay.
- The court found Wells Fargo applied payments first to fees and costs, then to principal, interest, and escrow, contrary to the note and mortgage terms requiring application first to principal, interest, and escrow.
- The court found the fee assessments and payment reallocations occurred without adequate disclosure and were discovered through litigation.
- In 2007, the court entered a partial judgment awarding Jones $24,441.65 plus legal interest for overcharges and found an automatic-stay violation; the court did not award punitive damages at that time.
- After related appellate proceedings limited certain broad, non-case-specific remedies in similar litigation, the Fifth Circuit remanded this case for reconsideration of monetary sanctions.
- On remand, the bankruptcy court considered supplemental briefing and Wells Fargo’s request that the court take judicial notice of post-judgment compliance efforts.

## Issues

1. What monetary sanctions, including punitive damages, were permissible and appropriate for Wells Fargo’s willful violation of the automatic stay and contempt, consistent with statutory authority and the appellate remand.
2. Whether, and to what extent, evidence of similar conduct in other cases could be considered when determining sanctions in this case.
3. Whether Wells Fargo’s conduct warranted civil contempt sanctions aimed at compensation and coercion, and what amount would deter future violations.

## Decision

- The court held it had authority under 11 U.S.C. §§ 105(a) and 362 to enforce the automatic stay through civil contempt sanctions, including punitive damages.
- The court reaffirmed the prior findings that Wells Fargo willfully violated the automatic stay by misapplying postpetition payments and assessing unauthorized charges.
- The court treated Wells Fargo’s conduct as serious and aggravated, including because it reflected a broader pattern reflected in the evidentiary record.
- The court imposed substantial case-specific monetary sanctions, including a large punitive damages award (described in later proceedings as $3,171,154), in addition to the earlier compensatory award for overcharges.
- The court gave limited mitigating weight to Wells Fargo’s asserted post-judgment remediation efforts.

## Legal Principles

- A willful violation of the automatic stay may be found when a creditor with notice of the bankruptcy intentionally takes acts that constitute unauthorized collection activity or interference with estate property, even absent a specific intent to violate the stay.
- A bankruptcy court may use civil contempt sanctions to enforce the automatic stay and its orders; sanctions may be compensatory and may also be set to coerce compliance and deter similar misconduct.
- Remedies must be tied to the particular case before the court; broad, district-wide structural relief may exceed the bankruptcy court’s authority, but case-specific monetary sanctions remain available.
- Systemic or repeated servicing practices may be considered as an aggravating factor when setting case-specific sanctions intended to deter future violations.

## Conclusion

The bankruptcy court, on remand, imposed large case-specific monetary sanctions (including punitive damages) against a mortgage servicer for willfully violating the automatic stay through misapplication of Chapter 13 mortgage payments and undisclosed charges, relying on its contempt authority to compensate the debtor and deter similar conduct while limiting relief to the single case.


Jones v. Wells Fargo Home Mortg., Inc. (In re Jones), 2012 WL 1155715 (Bankr. E.D. La. Apr. 5, 2012)