Barbknecht Firm, P.C. v. Keese (In re Keese)

• Decision Date: 27 July 2020
• Docket Number: Adversary No. 18-4057,Case No. 18-40817
• Parties: IN RE: HOPE RENEE KEESE xxx-xx-0192 Debtor THE BARBKNECHT FIRM, P.C. Plaintiff and Counter-Defendant v. HOPE RENEE KEESE Defendant and Counter-Plaintiff MARK A. WEISBART, Trustee of the Chapter 7 Bankruptcy Estate of Hope Renee Keese Plaintiff in Intervention v. THE BARBKNECHT FIRM, P.C. and HOPE RENEE KEESE Defendants in Intervention
• Court: U.S. Bankruptcy Court — Eastern District of Texas

IN RE: HOPE RENEE KEESE xxx-xx-0192 Debtor

THE BARBKNECHT FIRM, P.C. Plaintiff and Counter-Defendant v. HOPE RENEE KEESE Defendant and Counter-PlaintiffMARK A. WEISBART,Trustee of the Chapter 7 Bankruptcy Estate of Hope Renee Keese Plaintiff in Intervention v. THE BARBKNECHT FIRM, P.C. and HOPE RENEE KEESE Defendants in Intervention

Case No. 18-40817

Adversary No. 18-4057

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

July 27, 2020

Chapter 7

OMNIBUS MEMORANDUM OF DECISION REGARDING:

(1) DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

[Regarding: Count 10 - Objection to Discharge Under § 727(a)(2)(A)] [dkt #57];

(2) DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

[Regarding: Count 8 - Dischargeability of Debt Under § 523(a)(2)(A) and Count 9 - Dischargeability of Debt Under § 523(a)(4)][dkt #62]; and

(3) PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

[Regarding: Count 2 - Liability for Breach of Contract and Counterclaim of Defendant for Breach of Fiduciary Duty] [dkt #61]¹

On this date the Court considered the following Motions for Partial Summary Judgment which have been filed in the above-referenced adversary proceeding:

(1) Defendant's Motion for Partial Summary Judgment (the "727 Motion") filed by the Debtor-Defendant, Hope R. Keese (the "Defendant" or "Debtor") addressing Count 10 of the Plaintiff's Fourth Amended Complaint,² which seeks to deny the Debtor a discharge under the provisions of 11 U.S.C. § 727(a)(2)(A), to which a response in opposition was filed by the Plaintiff, The Barbknecht Firm, P.C. (hereafter the "Plaintiff" or the "Firm"), followed by the Defendant's reply;

(2) Defendant's Supplemental Motion for Partial Summary Judgment (the "523 Motion") addressing Counts 8 and 9 of the Plaintiff's Fourth Amended Complaint, which respectively seek a determination of the dischargeability of indebtedness as a debt procured by false representations, false pretenses, or actual fraud under the provisions of 11 U.S.C. § 523(a)(2)(A) and as a debt for larceny under 11 U.S.C. § 523(a)(4) to which a response in opposition was filed by the Plaintiff; and

(3) Plaintiff's Motion for (Partial) Summary Judgment (the "Plaintiff'sMotion") filed by the Plaintiff, The Barbknecht Firm, P.C., addressing Count 2 of the Plaintiff's Fourth Amended Complaint, which seeks to establish the liability of the Defendant under state law for breach of contract. The Plaintiff's Motion also seeks relief in its capacity as a counter-defendant and seeks summary judgment on the counterclaim for breach of fiduciary duty filed by the Defendant [and Counter-Plaintiff], and as effectively mirrored in the Chapter 7 Trustee's Complaint in Intervention for the same relief on behalf of the Chapter 7 bankruptcy estate. The Defendant filed a response in opposition to the motion to which the Trustee joined. The Plaintiff thereafter filed a reply.

Upon due consideration of the pleadings, the proper summary judgment evidence submitted by the parties, and after a close examination of the relevant legal authorities, the Court concludes that genuine disputes regarding material facts exist which preclude either party from obtaining a judgment as a matter of law on the respective causes of action. As set forth herein, the Court further elects to defer any determination regarding the Plaintiff's breach of contract claim until the time of trial. However, the parties have collectively established a significant number of facts that are not genuinely in dispute and that will be considered as established in this adversary proceeding pursuant to Fed. R. Civ. P. 56(g). This memorandum of decision disposes of all issues before the Court.³Factual and Procedural Background⁴

On February 10, 2016, the Defendant, Hope Renee Keese, hired the Plaintiff, The Barbknecht Firm, P.C., to represent her in a divorce action involving child custody. To that end, the Defendant and the Plaintiff entered into an attorney-client relationship based upon an agreement entitled "Agreement for Employment and Power of Attorney"⁵ at which time the Defendant paid a $3,000 retainer to the Plaintiff. The initial employment agreement provided for a two-week billing period and required the Defendant to pay that bill within seven days of receipt. Any payment failure would result in the invasion of the retainer to cover those fees and the Defendant would be subsequently required to restore the $3,000 retainer. The divorce case was subsequently commenced in the 470^th Judicial District Court of Collin County, Texas, and styled In the Matter of the Marriage of Hope Renee Keese and Corey Michael Keese, under case no. 470-50864-2016 (the "Divorce Case").

The case quickly became more complicated than had been originally anticipatedand a significant accrual of attorneys' fees began. Because the Defendant made no payments to the Plaintiff after tendering the initial retainer upon the inception of the representation, the parties engaged in discussions regarding the growing fee problem and the Plaintiff raised the specter of withdrawing from the representation for non-payment. Those discussions resulted in the execution of a document which the Complaint denominates as the Supplemental Fee Agreement (the "SFA") under which the Plaintiff agreed to continue its role as the attorney of record for the Defendant in the divorce action.⁶ The SFA essentially specified the means by which the growing sum of attorneys' fees would ultimately be addressed. Among the sources of payment identified in the SFA was any interest which the Defendant subsequently obtained through the divorce action in her soon-to-be ex-spouse's pension plan, which the Defendant agreed to liquidate within five business days of receipt in order to pay any outstanding fees to the Plaintiff. The SFA further required the Defendant to pay to the Plaintiff any sales proceeds which the Defendant might realize from the sale of her family's homestead through the divorce action. The specified sources did not preclude the Plaintiff's right to explore unnamed sources.

Subsequent to the entry of the divorce decree, the Defendant and her spouse agreed that she would relinquish her interest in the homestead in exchange for a greater share of her husband's pension plan proceeds. On August 29, 2017, the divorce court signed anAgreed Order Modifying Agreed Decree of Divorce⁷ which provided, inter alia, that the Defendant would receive the sum of $182,094.00 from her ex-husband's pension plan at the Ingersoll-Rand Company and the divorce court implemented that division by signing on that same date a First Amended Qualified Domestic Relations Order (the "QDRO") which generally delineated that the pension plan would establish a QDRO retirement account in the Defendant's name in the designated amount of $182,094.00.⁸ Notwithstanding the terms of the Supplemental Fee Agreement, the Defendant never tendered any of the proceeds from the QDRO retirement account to the Plaintiff. On February 5, 2018, the Defendant authorized a partial distribution from the QDRO retirement account which, after federal tax withholdings of $47,058,83, resulted in her receipt of net proceeds in the amount of $100,000.00.⁹ This $100,000.00 check was later deposited by the Defendant into an IRA account managed by Fidelity Investments (the "Fidelity IRA").¹⁰

Having received no payment of any type from the Defendant, the Plaintiff initiated litigation before the 296th Judicial District Court in and for Collin County, Texas forrecovery of the unpaid fees.¹¹ Other creditors of the Defendant had also initiated state court litigation against her for unpaid accounts. In light of these lawsuits, the Defendant filed a voluntary petition under Chapter 7 of the Bankruptcy Code in this Court on April 20, 2018.¹²

On June 3, 2018, the Plaintiff filed its original complaint against the Debtor-Defendant, seeking to deny the Defendant's Chapter 7 discharge pursuant to 11 U.S.C. § 727(a)(2)(A) based upon an alleged transfer of property by the Defendant with the intent to hinder, delay or defraud the Plaintiff as a creditor of the bankruptcy estate. Alternatively, the Plaintiff's complaint sought a determination of the dischargeability of its debt and claimed that any indebtedness established under its state law causes of action should be declared nondischargeable as a debt procured by fraud under 11 U.S.C. § 523(a)(2)(A) or a debt arising from larceny under 11 U.S.C. § 523(a)(4). The original complaint was subsequently amended in response to the Defendant's motion to dismiss, after which the Court denied the Defendant's dismissal motion. The Defendant subsequently filed an answer to the complaint. After the completion of discovery, the parties have tendered the three previously-described motions for partial summary judgment for consideration.Summary Judgment Standards and Process

Each party brings their respective Motions for Partial Summary Judgment in this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56 which provides that summary judgment shall be rendered "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."¹³

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion.¹⁴ As a movant, a party asserting that a fact cannot be genuinely disputed must support that assertion by:

(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or

(B) showing that the materials cited do not establish the . . . presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.¹⁵

The operation of the...