Autism Intervention Specialists, LLC v. Aoude (In re Aoude)

638 B.R. 263

IN RE: Nassim S. AOUDE, Debtor

Autism Intervention Specialists, LLC, Plaintiff

v.Nassim S. Aoude, Defendant

Case No. 19-40474-CJP

Adversary Proceeding No. 19-04026-CJP

United States Bankruptcy Court, D. Massachusetts.

Signed February 18, 2022

Peter J. Duffy, Pollack Soloman Duffy, Boston, MA, for Plaintiff.

David M. Nickless, Nickless, Phillips and O'Connor, Fitchburg, MA, for Defendant.

MEMORANDUM OF DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Christopher J. Panos, United States Bankruptcy Judge

Before the Court is a motion for summary judgment (the "Motion") filed by Defendant Nassim S. Aoude, who is the debtor in the main bankruptcy case. Def.’s Mot. Summ. J., Dkt. No. 18. Plaintiff Autism Intervention Specialists, LLC ("AIS"), opposes the Motion. Pl.’s Opp'n, Dkt. No. 24. For the reasons discussed below, I will deny Mr. Aoude's Motion as filed but may grant him summary judgment on other grounds I have raised sua sponte , after providing the parties with an opportunity to address those grounds. See Fed. R. Civ. P. 56(f)(2)-(3) ; Fed. R. Bankr. P. 7056 (applying Civil Procedure Rule 56 in adversary proceedings).

I. Background ¹

At all times relevant to the Complaint, Mr. Aoude was a board-certified behavior analyst and a licensed applied behavior analyst. Def.’s Facts ¶ 1, Dkt. No. 20; Pl.’s Facts Resp. ¶ 1, Dkt. No. 25. In early 2011, Mr. Aoude began providing autism services through AIS, which he founded. See Def.’s Facts ¶ 2; Pl.’s Facts Resp. ¶ 2; Pl.’s Opp'n Ex. R ("N. Aoude Dep.") 14:12-20, Dkt. No. 24-10. He served as AIS's chief executive officer. Def.’s Facts ¶ 2; Pl.’s Facts Resp. ¶ 2.

In October 2013, as AIS's sole member and manager, Mr. Aoude executed an Equity Interest Purchase Agreement ("Purchase Agreement" or "EIPA"), selling his entire membership interest in AIS to Pacific Child & Family Associates, LLC ("PCFA"). See Def.’s Facts ¶ 4; Def.’s Ex. C, EIPA 1, Dkt. No. 21-3; Def.’s Ex. E, EIPA Disclosure Sch. 4.1(b), Dkt. No. 21-5; Pl.’s Facts Resp. ¶ 4.² Among other things, the Purchase Agreement provided that Mr. Aoude would receive immediate and future cash payments and a membership interest in PCFA's parent company. EIPA §§ 1.1-1.6. The Purchase Agreement also provided for Mr. Aoude's continued employment with AIS, and it limited his ability to provide professional services in competition with AIS. See, e.g. , EIPA §§ 5.3-5.6; see also EIPA § 6.1(d) (referencing "Employment Agreements attached to this Agreement" that were not included among summary judgment materials or otherwise in the record). He was permitted, however, "to see individual patients and provide clinical services in an individual or BCBA supervisory capacity (overseeing a maximum a [sic] fifteen cases) to individuals and families."³ EIPA § 5.5.

In a schedule to the Purchase Agreement, Mr. Aoude disclosed that a tort lawsuit was pending in state court against him, AIS, and another person (the "Preexisting Litigation").⁴ See Def.’s Facts ¶¶ 6-7; EIPA § 4.21; Def.’s Ex. E, EIPA Disclosure Sch. 4.21; Pl.’s Facts Resp. ¶¶ 6-7. The Purchase Agreement required Mr. Aoude to defend and indemnify AIS from and against all costs and liabilities arising from the Preexisting Litigation. See EIPA § 7.2(a)(iii); N. Aoude Dep. 25:13-26:13; see also EIPA 43 (defining " ‘Designated Pre-Closing Liabilities’ " in subsection (g) as referenced in § 7.2(a)(iii)).

At some point after executing the Purchase Agreement, Mr. Aoude began providing autism services apart from AIS through another entity. Def.’s Facts ¶ 8; Pl.’s Facts Resp. ¶ 8. The parties dispute the timing and extent of this new practice. Compare Def.’s Facts ¶ 8, and N. Aoude Dep. 87:5-88:6, 129:3-130:1, with Pl.’s Facts Resp. ¶¶ 8, 31-40, 52-55. In mid-2014, Mr. Aoude left his employment with AIS while certain terms of the Purchase Agreement were ongoing, including the potential for Mr. Aoude to receive further payments based upon AIS's financial performance and the limits on his ability to engage in competing work. See, e.g. , EIPA §§ 1.6, 5.5; N. Aoude Dep. 39:22-23; see also EIPA 49 (defining " ‘Restricted Period’ " as referenced in § 5.5). Approximately fifteen months later in New York state court, Mr. Aoude sued PCFA, AIS, and others involved in the Purchase Agreement, asserting claims such as breach of contract and fraudulent misrepresentation. Def.’s Facts ¶ 9; Pl.’s Facts Resp. ¶ 9; Pl.’s Opp'n Ex. S, Dkt. No. 24-11.⁵ In response, PCFA and AIS asserted similar counterclaims. See Def.’s Facts ¶ 9; Pl.’s Facts Resp. ¶ 9; Pl.’s Opp'n Ex. T 15-30, Dkt. No. 24-12. The entities alleged that Mr. Aoude never intended to honor the Purchase Agreement's limits on competition, knowingly hid this intention, and thereby fraudulently induced PCFA into executing the Purchase Agreement.⁶ The entities also alleged that Mr. Aoude subsequently breached the Purchase Agreement, including its covenants not to compete. Separately, in Massachusetts state court, PCFA and AIS also sued Mr. Aoude's new practice, his father, his cousin, and another allegedly related entity, asserting that each had a role in Mr. Aoude's alleged scheme to compete with PCFA and AIS in violation of the Purchase Agreement. Def.’s Facts ¶ 9; Pl.’s Facts Resp. ¶ 9; Pl.’s Opp'n Ex. U, Dkt. No. 24-13.

In March 2016, the two lawsuits were resolved through a global Settlement Agreement and Release ("Settlement Agreement" or "SAR"). Def.’s Facts ¶ 10; Pl.’s Facts Resp. ¶ 10; Def.’s Ex. G, SAR, Dkt. No. 21-7. Each party denied wrongdoing and liability. SAR ¶ 14. Mr. Aoude agreed to release an estimated $463,000 in escrowed funds and to pay $1,000,000 in additional funds to PCFA's parent company over an approximately 18-month period.⁷ SAR ¶¶ 1, 3. He also agreed to forfeit his interest in the parent company. SAR ¶ 2. The parties agreed to void the Purchase Agreement's (and related agreements’) restrictive covenants, which included the limits on Mr. Aoude's ability to engage in competing work.⁸ See SAR ¶ 7. Among other provisions, the parties further agreed to mutual releases of liability. See SAR ¶¶ 9-12. Mr. Aoude also "reaffirm[ed] his existing indemnification obligation, including but not limited to his obligation to indemnify AIS," in the Preexisting Litigation that Mr. Aoude had disclosed at the time of the Purchase Agreement. SAR ¶ 6.

In March 2018, Mr. Aoude's new practice closed "after Blue Cross[ ] Blue Shield, the primary insurance company providing insurance coverage for approximately 80% of its clients, refused to pay for services rendered." Def.’s Facts ¶ 15; Def.’s Ex. H ("BCBS Letter"), Dkt. No. 21-8; Pl.’s Facts Resp. ¶ 15. Within a year after his practice closed, Mr. Aoude stopped paying AIS's defense costs in the Preexisting Litigation, citing his inability to afford those payments. Def.’s Facts ¶ 17; N. Aoude Dep. 123:24-124:9; Pl.’s Facts Resp. ¶ 17.⁹

In March 2019, about a year after his practice closed, Mr. Aoude filed an individual petition under Chapter 7 of the Bankruptcy Code.¹⁰ See Def.’s Facts ¶ 18; Pl.’s Facts Resp. ¶ 18; Pet., In re Aoude , Case No. 19-40474 (Bankr. D. Mass. Mar. 26, 2019). Mr. Aoude listed AIS as a creditor holding a nonpriority unsecured claim of "[u]nknown" value, which he denoted as disputed but not contingent or unliquidated. Sch. E/F at 4 (No. 4.4) & Attach. 1, In re Aoude , Case No. 19-40474 (Bankr. D. Mass. Mar. 26, 2019), Dkt. No. 1-1 (describing claim as "Demand for legal fees regarding lawsuit involving debtor's business"). He also listed AIS as a co-debtor on two debts related to the Preexisting Litigation and on another unrelated debt. See Sch. H at 2 (No. 3.6), In re Aoude , Case No. 19-40474 (Bankr. D. Mass. Mar. 26, 2019), Dkt. No. 1-1; Sch. E/F at 5 (No. 4.8), 10 (No. 4.23), 18 (No. 4.46). He did not list any other adverse party from the Purchase Agreement or Settlement Agreement on his bankruptcy schedules or statements. It appears to be undisputed that Mr. Aoude has no outstanding obligations to those other parties. See, e.g. , Def.’s Facts ¶¶ 11, 14; N. Aoude Dep. 123:9-23, 124:10-13; Pl.’s Facts Resp. ¶ 14.¹¹

In July 2019, AIS commenced this adversary proceeding seeking to prevent Mr. Aoude from discharging in bankruptcy "the debt owed to AIS" and asserting that "the obligation of [Mr.] Aoude to AIS is a debt ‘for fraud’ so as to bring the debt within the [exceptions to discharge set forth in] 11 U.S.C. § 523(a)(2)(A) and 11 U.S.C. § 523(a)(4)." Compl. ¶¶ 1-2, Dkt. No. 1. More specifically, the "debt" and "obligation" arise from Mr. Aoude's defense and indemnification obligations in connection with the Preexisting Litigation. See Def.’s Facts ¶ 19; Pl.’s Facts Resp. ¶ 19; Compl. ¶¶ 30, 33-34; N. Aoude Dep. 7:24-8:7, 36:13-36:19, 106:1-6.¹² In September 2019, AIS filed a proof of claim in the main bankruptcy case. Claim No. 17, In re Aoude , Case No. 19-40474 (Bankr. D. Mass. Sept. 3, 2019). In it, AIS asserts that from late February 2018 (around when Mr. Aoude's new practice closed) to August 2019, Mr. Aoude owes $28,721.91 for AIS's defense costs in the Preexisting Litigation, noting that such costs continue to accrue. See Claim No. 17 Ex. C (reflecting that $17,641.00 is alleged to have accrued prepetition); Def.’s Facts ¶ 15; BCBS Letter; Pl.’s Facts Resp. ¶ 15.¹³ AIS projects that additional defense costs through trial in the Preexisting Litigation will total $150,000. Claim No. 17 Ex. D. AIS further estimates that the plaintiff in the Preexisting Litigation could receive a "demanded" $750,000. See id. Thus, AIS asserts a total nonpriority unsecured claim for $928,721.91 based upon the accrued and projected amounts.

As noted, Mr. Aoude has moved for summary judgment in this adversary proceeding, and AIS has opposed it. Having considered the parties’ filings, the arguments of counsel at a hearing on the matter, and the record before me, for the reasons below I deny Mr. Aoude's Motion, but also address the possibility of granting him summary judgment on...