In re Davenport, Bankruptcy No. 03-38089-11.

CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
Writing for the CourtJeff Bohm
Citation353 B.R. 150
PartiesIn re Valorie W. DAVENPORT, Debtor. Ron S. Rainey, Plaintiff, v. Valorie W. Davenport, Defendant.
Decision Date02 February 2006
Docket NumberBankruptcy No. 03-38089-11.,Adversary No. 04-3618.
353 B.R. 150
In re Valorie W. DAVENPORT, Debtor.
Ron S. Rainey, Plaintiff,
v.
Valorie W. Davenport, Defendant.
Bankruptcy No. 03-38089-11.
Adversary No. 04-3618.
United States Bankruptcy Court, S.D. Texas, Houston Division.
February 2, 2006.

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Valorie W. Davenport, Davenport Legal Group, Houston, TX, pro se.

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Aaron Keiter, The Keiter Law Firm, P.C., Houston, TX, for Debtor.

Susan J. Brandt, Nathan Sommers Jacobs, Hector Duran, Ellen Maresh Hickman, Office of U.S. Trustee, Houston, TX, for Trustee.

MEMORANDUM OPINION

JEFF BOHM, Bankruptcy Judge.


I. INTRODUCTION

This six-day adversary proceeding involves a dispute between two trial lawyers over contingent fees. The plaintiff, Ron S. Rainey (Rainey), was an associate at the Davenport Law Firm, a small civil litigation plaintiffs boutique solely owned by Valorie W. Davenport, the debtor in this Chapter 7 case (the Debtor). The Debtor lured Rainey away from another firm by offering him a higher salary and assigning to him a percentage of the contingent fees to which the Davenport Law Firm was entitled in certain litigation. Both the testimony at trial and various documents admitted into the record refer to this litigation as "the Brio/DOP Litigation." At trial, the Debtor described this litigation as follows:

The Brio DOP site is an old — basically it was portrayed as a site down in the

Friendswood area that was supposed to, or allegedly reprocessed byproducts from various chemical plants, but really what it was, it was a toxic dumpsite. It had a lot of unlined pits and a lot of chemical producers took their waste down there under the guise of some of them selling them for reprocessing, but really what it was, was a way of getting rid of their toxic waste and so it was the surrounding land was then developed for first-time home buyers and a elementary school was put in and the toxic waste seeped out into the community thereby causing injury to the — a lot of the children and the adults in the that area, causing a lot of litigation. [Transcript D1, p. 23, line 16 through p. 24, line 3].1

The defendants in this litigation were large corporations with deep pockets, including Monsanto Company, Atlantic Richfield Company, Chevron Chemical Company, Amoco Chemical Company, and Union Carbide Corporation. [Transcript, D1, p. 25, line 9 through p. 26, line 5]. Indeed, the "Brio/DOP" moniker stands for Brio Refining, Inc./Dixie Oil Producers. [Transcript D6, p. 244, lines 11-12]. in 1984, the Federal Government determined that hazardous substances present in the area endangered the residents and designated it as the "Brio Superfund Site". [Transcript D1, p. 24, line 20, through p. 25, line 3].

The Davenport Law Firm was one of several firms representing the plaintiffs in the Brio/DOP Litigation. As this litigation grew, the Debtor decided to recruit another attorney to join the Davenport Law Firm. That attorney was Rainey. [Transcript D1, p. 23, lines 4-9].

After Rainey moved to the Davenport Law Firm, the Debtor paid him the entire promised higher salary, but she failed to remit to him his full percentage of the contingent fees. When these fees were paid to the Debtor's firm, the Debtor, rather than allocating them proportionately to Rainey, spent some of the funds to which Rainey was entitled. Thereafter, Rainey

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sued the Debtor in state court. Rainey and the Debtor achieved a settlement in mediation, and the suit was dismissed. However, the Debtor then defaulted under the terms of the mediated settlement agreement, prompting Rainey to Me a second lawsuit. In this second suit, the Court granted summary judgment for Rainey. Thereafter, the Debtor filed a voluntary Chapter 11 petition, and Rainey filed a proof of claim based on the mediated settlement agreement and judgment from the second suit. Once the Debtor's case was converted to a Chapter 7 case, Rainey initiated this adversary proceeding by Ming a complaint against the Debtor to determine dischargeability under 11 U.S.C. § 523(a)(4) or, alternatively, 11 U.S.C. § 523(a)(6).

Rainey seeks to prevent the discharge of his claim against the Debtor for spending a portion of the contingent fees that she owed to him. Rainey negotiated the amount of the claim at the mediation and subsequently reduced the claim to a judgment in the second suit. [Transcript D2, p. 213, lines 8-17]. Rainey bases his complaint against the Debtor on any one of the following four grounds: (1) fraud or defalcation while acting in a fiduciary capacity; (2) embezzlement; (3) larceny; or (4) willful and malicious injury by the Debtor to Rainey. This Court does not believe that the Debtor was in a fiduciary relationship with Rainey, nor does this Court believe that the Debtor committed larceny; therefore, Rainey's complaint fails with respect to these two grounds. Conversely, this Court holds that the Debtor embezzled the funds belonging to Rainey. Accordingly, Rainey's claim is nondischargeable. Alternatively, and in addition to the Court's holding on embezzlement, this Court holds that the Debtor's spending of the monies belonging to Rainey constitutes willful and malicious injury by the Debtor to Rainey. The purpose of this Memorandum Opinion is to discuss how this Court has arrived at these holdings.

II. FINDINGS OF FACT2

1. The Debtor graduated from the University of Houston Law Center and has been a licensed attorney in the State of Texas since 1984. [Transcript D1, p. 20, line 21 through p. 21, line 1; Transcript D2, p. 139, lines 4-11].

2. After graduating from law school, the Debtor served as a briefing attorney for the Texas Court of Appeals, First District. Thereafter, for a few years, she worked for certain plaintiffs firms in Houston. In 1989, the Debtor founded her own firm with a civil litigation practice (the Davenport Law Firm or the Debtor's law firm). [Transcript D3, p. 140, lines 11-14]. The Debtor is the sole principal of the Davenport Law Firm. [Transcript ... D 1, p. 21, line 17 through p. 22, line 10; D6, p. 262, lines 6-18].

3. Soon after the Debtor started her own law firm, she was appointed as the attorney ad litem for approximately 200 children in the Brio/DOP Litigation. This appointment eventually led to her firm accepting representation of various plaintiffs in the Brio/DOP Litigation. [Transcript D3, p. 141, line 21 through p. 144, line 9].

4. Rainey has an undergraduate degree in accounting as well as a masters

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in taxation from the University of Texas — Arlington. He worked at an accounting firm for a few years before obtaining a law degree from the University of Houston Law Center in 1988; however, he does not hold a CPA. After graduating from law school, he began work as an associate at the law firm of Haynes and Fullenwider; and when that firm disbanded, he worked for the Law Offices of Richard Haynes for approximately seven years. Thereafter, he became an associate attorney at the Davenport Law Firm. [Transcript D1, p. 247, line 3 through p. 248, line 1; Transcript D2, p. 236, lines 2-3; Rainey's Exhibit # 42].

5. The Debtor first met Rainey in 1992 or 1993 when he was working for the Law Offices of Richard Haynes. [Transcript D1, p. 22, line 23 through p. 23, line 1].

6. When the Debtor first met Rainey, the Debtor believed that Rainey could help her firm because he "was a good administrative attorney and good second chair for Mr. Haynes and I thought he would be good in the practice from that perspective." [Transcript D1, p. 23, lines 4-9; see also Debtor's Exhibit # 64, p. 2, lines 2-5].

7. In order to persuade Rainey to leave the Law Offices of Richard Haynes and move to her firm, the Debtor orally promised Rainey: (a) a salary increase from $50,000.00 to $90,000.00; and (b) an initial assignment of 10% of the fees which the Davenport Firm earned from all Brio/DOP Litigation, with the percentage to increase over a period of time. [Transcript D1, p. 27, line 22 through p. 28, line 9; Transcript D1, p. 249, line 16 through p. 250, line 17].

8. Neither party reduced these promises to writing at the time the Debtor made them. [Transcript D1, p. 31, lines 19-22; Transcript D1, p. 251, lines 7-10]. However, Rainey in reliance on these promises, resigned from the Law Offices of Richard Haynes and took an associate position at the Davenport Law Firm in October of 1993. [Transcript D1, p. 250, lines 18-20]. Rainey was an associate at the Debtor's law firm during his entire tenure there. [Transcript D2, p. 271, lines 9-11; Transcript D4, p. 19, lines 17-19]. The Debtor considered him an employee at all times. [Transcript DS, p. 262, lines 18-20].

9. Once Rainey's employment started at the Davenport Law Firm, he worked on various cases, including the Brio/DOP Litigation. The Debtor never removed Rainey from working on the Brio/DOP Litigation, which was the biggest case in her firm. [Transcript D1, p. 251, pages 2-6; p. 251, line 22 through p. 252, line 2; Transcript D4, p. 19, lines 17-19].

10. On June 15, 1995, the Debtor and John M. O'Quinn, on behalf of his law firm (O'Quinn), entered into an agreement whereby, among other terms, O'Quinn assumed full responsibility for certain claims comprising a portion of the Brio/DOP Litigation; specifically, the Aguilar, Melendez, and Le claims (hereinafter referred to as the O'Quinn/Brio Litigation, which involved a total representation of approximately 26 plaintiffs). According to this agreement, O'Quinn and the Debtor's law firm would share the net attorneys' fees received from these

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cases on a 50%/50% basis. Further, O'Quinn was to have no involvement in or responsibility for any other case comprising the Brio/DOP Litigation, including but not limited to the so-called Allen case. [Rainey's...

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45 practice notes
  • In re Wilborn, Bankruptcy No. 03-48263-H4-13.
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • February 17, 2009
    ...to schedule certain assets, failed to produce documents, and failed to disclose an interest in an oil and gas leasehold); In re Davenport, 353 B.R. 150 (Bankr.S.D.Tex.2006) (concluding that an employee's claim against the debtor was nondischargeable pursuant to 11 U.S.C. § 523(a)(4) because......
  • In re Jacobs, Bankruptcy No. 07 B 13733.
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
    • April 9, 2009
    ...and despite knowing that the creditor wanted the funds returned, surreptitiously took them for his own benefit. See In re Davenport, 353 B.R. 150, 200 Here, Zamora alleges that Jacobs secretly withdrew funds for his own use from the profit-sharing plan account in which Zamora had a vested i......
  • Nextgear Capital, Inc. v. Rifai (In re Rifai), Case No. 18-34513
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • August 13, 2019
    ...and the debt owed to the plaintiff was deemed nondischargeable. Id. at 164.2. The Davenport Case In Rainey v. Davenport (In re Davenport), 353 B.R. 150 (Bankr. S.D. Tex. 2006), the debtor, who was an attorney, hired Rainey as an associate with her firm and promised him a higher salary plus ......
  • Barbknecht Firm, P.C. v. Keese (In re Keese), Case No. 18-40817
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas
    • February 28, 2021
    ...appropriates property after it has been entrusted to the Debtor's care. Minardi, 536 B.R. at 190; Rainey v. Davenport (In re Davenport), 353 B.R. 150, 199 (Bankr. S.D. Tex. 2006).184. As an unlawful appropriation of funds for personal use with a fraudulent intent, a civil theft under the Te......
  • Request a trial to view additional results
45 cases
  • In re Wilborn, Bankruptcy No. 03-48263-H4-13.
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • February 17, 2009
    ...to schedule certain assets, failed to produce documents, and failed to disclose an interest in an oil and gas leasehold); In re Davenport, 353 B.R. 150 (Bankr.S.D.Tex.2006) (concluding that an employee's claim against the debtor was nondischargeable pursuant to 11 U.S.C. § 523(a)(4) because......
  • In re Jacobs, Bankruptcy No. 07 B 13733.
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
    • April 9, 2009
    ...and despite knowing that the creditor wanted the funds returned, surreptitiously took them for his own benefit. See In re Davenport, 353 B.R. 150, 200 Here, Zamora alleges that Jacobs secretly withdrew funds for his own use from the profit-sharing plan account in which Zamora had a vested i......
  • Nextgear Capital, Inc. v. Rifai (In re Rifai), Case No. 18-34513
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • August 13, 2019
    ...and the debt owed to the plaintiff was deemed nondischargeable. Id. at 164.2. The Davenport Case In Rainey v. Davenport (In re Davenport), 353 B.R. 150 (Bankr. S.D. Tex. 2006), the debtor, who was an attorney, hired Rainey as an associate with her firm and promised him a higher salary plus ......
  • Barbknecht Firm, P.C. v. Keese (In re Keese), Case No. 18-40817
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas
    • February 28, 2021
    ...appropriates property after it has been entrusted to the Debtor's care. Minardi, 536 B.R. at 190; Rainey v. Davenport (In re Davenport), 353 B.R. 150, 199 (Bankr. S.D. Tex. 2006).184. As an unlawful appropriation of funds for personal use with a fraudulent intent, a civil theft under the Te......
  • Request a trial to view additional results

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