Casper v. O'Sullivan (In re O'Sullivan)

630 B.R. 679

Kimberley L. O'SULLIVAN, Debtor.

Madge K. Casper, Plaintiff-Appellant,

v.Kimberley L. O'Sullivan, Defendant-Appellee.

BAP No. MB 20-022

Bankruptcy Case No. 18-10529-FJB

Adversary Proceeding No. 18-01077-FJB

United States Bankruptcy Appellate Panel of the First Circuit.

Signed September 1, 2021

Madge K. Casper, Esq., Pro Se, on brief for Appellant.

Ira H. Grolman, Esq., on brief for Appellee.

Before Finkle, Harwood, and Cary, United States Bankruptcy Appellate Panel Judges.

Cary, U.S. Bankruptcy Appellate Panel Judge.

Madge K. Casper ("Ms. Casper") appealed the bankruptcy court's determination that the debt Kimberley O'Sullivan (the "Debtor") owed her for unpaid legal fees was not excepted from discharge under § 523(a)(2)(A).² Even though the bankruptcy court determined that the Debtor knowingly entered into a payment agreement with Ms. Casper under false pretenses, it concluded that Ms. Casper did not actually rely on those false pretenses, a crucial element of a successful nondischargeability claim under § 523(a)(2)(A), and ruled against her. Finding no error, we AFFIRM .

BACKGROUND

I. Pre-Bankruptcy Events³

A. The Agreement to Pay for Legal Services

Prior to 2008, the Debtor, then a licensed plastic surgeon, treated both Ms. Casper and her husband, Joseph Casper ("Mr. Casper"), who are attorneys and law partners. The Caspers credited her with saving Mr. Casper's life by diagnosing and successfully removing a cancerous growth from his arm. In October of 2008, the Debtor contacted Ms. Casper and asked her to take over as her attorney in a contentious divorce proceeding. Thereafter, Ms. Casper and the Debtor entered into an agreement which provided that, in return for Ms. Casper's legal services in her divorce, the Debtor would give Ms. Casper a $5,000 retainer and pay for her legal services at a fixed hourly rate within 30 days of receipt of monthly bills (the "2008 Fee Agreement").⁴

This agreement was short-lived. In January of 2009, Ms. Casper, upon the Debtor's request, orally agreed to modify the 2008 Fee Agreement and bill the Debtor only once at the end of the divorce case instead of sending monthly bills. Although Ms. Casper found the arrangement to be unusual, she agreed to its terms, as she was grateful to the Debtor for saving her husband's life.

As the date for the divorce trial neared, Mr. Casper told the Debtor on July 19, 2011 that, even after a substantial courtesy discount, the accrued legal fees totaled $70,000 and he reminded her of her agreement to pay them upon the conclusion of the trial. The Debtor informed him she would pay the legal fees in monthly installments of $2,000 beginning in November of 2011. Three weeks later, on August 9, 2011, the day before the scheduled divorce trial, the Caspers presented the Debtor with a one-page document entitled "Agreement for Payment of Legal Fees" (the "August 2011 Agreement"). It provided that the Debtor would pay the "present balance of $70,000.00, as well as future amounts that are incurred for Legal Services," in $2,000 monthly installments beginning on November 1, 2011. Both the Debtor and Ms. Casper signed it.

B. Debtor's Loss of Hospital Privileges and Medical License

Meanwhile, the Debtor's professional life was in turmoil. By September of 2010, she had lost all operating and lab privileges at area hospitals, which triggered the initiation of an administrative proceeding by the state medical licensing board. Although some of her privileges were reinstated in September of 2011, they were ultimately revoked in 2012, and she eventually lost her license to practice medicine in Massachusetts. Accordingly, in July and August of 2011, when the Debtor was discussing payment of her substantial legal bill with the Caspers, her medical practice was in jeopardy. Because the Debtor's medical practice was her sole source of income, her ability to produce the level of income she had previously generated was also in serious question.

Neither Ms. Casper nor Mr. Casper knew this in August of 2011 because the Debtor never told them. Instead, the Debtor concealed her professional troubles from the Caspers, and from everyone else involved in her divorce case, in part because she feared she might lose custody of her children if her financial problems were discovered. Thus, at an April 20, 2011 deposition in the divorce case, the Debtor falsely testified that she was working 40 to 60 hours per week between hospital and office visits, when actually she had no hospital privileges anywhere. She also testified at a deposition on July 19, 2011, that her professional responsibilities remained unchanged since her testimony in April. Based on this testimony, Mr. Casper, who accompanied the Debtor to both depositions, was led to believe the Debtor's medical practice was stable when, after the July 19, 2011 deposition, he spoke to her about her agreement to pay her legal fees after the divorce trial. In fact, the Caspers did not learn of the Debtor's professional troubles until November 1, 2011, when the Debtor asked Ms. Casper to seek a postponement of a divorce hearing, because the Debtor was required to be at a medical licensing board hearing the same day.

C. Debtor's Failure to Pay Legal Fees

The Debtor's divorce trial concluded in January of 2012. The Debtor paid a total of $1,200 in late and partial payments under the August 2011 Agreement and then stopped paying altogether. When Ms. Casper pressed her for payment, the Debtor responded by filing a disciplinary complaint against her with the Massachusetts Board of Bar Overseers. The complaint was ultimately dismissed. In 2017, Ms. Casper sued the Debtor in state court to collect her unpaid legal fees. That action was stayed by the Debtor's bankruptcy filing.

II. The Bankruptcy Proceedings

The Debtor filed a chapter 7 petition in February of 2018. On her schedules, she listed Ms. Casper as an unsecured creditor with a disputed claim in the amount of $155,897.

A. The Adversary Proceeding

Subsequently, Ms. Casper commenced an adversary proceeding against the Debtor seeking a determination that the debt the Debtor owed her for unpaid legal fees was excepted from discharge under § 523(a)(2)(A).⁵ The essence of Ms. Casper's complaint was that the Debtor intentionally made false and misleading statements in the August 2011 Agreement regarding her ability to pay in order to induce Ms. Casper to "continue to provide" legal services to her. Ms. Casper alleged she "reasonably" relied on those statements and suffered great economic harm as a result. But for her reliance on the Debtor's false and misleading statements in the August 2011 Agreement, she contended, she would not have continued to provide legal services to the Debtor, "and would have withdrawn from the case ... and taken appropriate legal action."⁶

B. The March 2020 Trial

The bankruptcy court conducted a trial in March of 2020. Ms. Casper, appearing pro se, testified on her own behalf. She also called the Debtor and Mr. Casper as witnesses.

The Caspers testified in line with the facts as presented above. The Debtor disagreed with most of what they said. She denied that she hid her professional troubles from the Caspers or that she agreed to revise the terms of the 2008 Fee Agreement. The Debtor also claimed she signed the August 2011 Agreement under duress as she was presented with the written agreement on the eve of her divorce trial with an ultimatum by Ms. Casper that unless she signed it, Ms. Casper would withdraw as her attorney.⁷

On cross-examination, the Debtor's counsel questioned Ms. Casper as to whether she would have withdrawn as the Debtor's divorce attorney had she known the true state of the Debtor's financial and professional troubles:

Q. Now, you are alleging that had you known the true state of her finances you would never have provided the legal services that you did and instead you would have withdrawn?

....

A. No, and I'll tell you why –

....

Q. It's a direct quote from your complaint.

A. No, it's not. You have not put in the full sentence. [Y]ou purposely cut off the last half of it where it says I would have withdrawn at ... a practical time or something like that.... [L]ook at my sentence exactly....

Q. Sure.

"Had plaintiff known the true state of defendant's financial condition she would have never provided the legal services she did and instead would have withdrawn from the case the first practical moment."

A. Yes, at the first practical moment, not just ending with "withdrawn" and end quote. The first practical moment –

Q.... You didn't attempt to withdraw, correct?

A. No, of course not. It never came up.

Q.... And so had Dr. O'Sullivan elected not to sign the 8/9/11 agreement you would have had to still ... go to trial the next day and the day after, correct?

A. It never came up. You're speculating. It never came up.

Q. Thank you. Whether it came up or not, I just want to be very clear that you could not have withdrawn the day before trial. It just wouldn't have been possible.

A. In general it would not have been possible.

Q. Okay.

A. And I personally –

Q. Thank you.

A. – would never have done such a thing.

....

Q. So whether or not O'Sullivan signed the 8/9/11 agreement, ... you were duty bound to continue representing her until the Court said you didn't have to, correct?

A. In general, yes.

(emphasis added).

Ms. Casper further conceded that, even after learning of the Debtor's professional troubles, she did not seek to withdraw:

Q. Now, it's your position, ma'am, that you learned of Dr. O'Sullivan's issue with her medical license after the signing of the second fee agreement promise to pay [the August 2011 Agreement], right?

A. I can give you the exact date. November 1st when she came to me and ... finally admitted about her loss of hospital privileges and the fact that she might lose her medical license –

....

Q. Okay. And on November 1st the trial had not been completed, right?

A. The trial was completed on ... January 30th of [20]12.

Q. Okay. And you didn't seek to

...