O'Connor v. Burg (In re Burg)

641 B.R. 120

IN RE: Martha Anderson BURG, Debtor.

Michael O'Connor, Plaintiff,

v.Martha Anderson Burg, Defendant.

CASE NO: 19-30251

ADVERSARY NO. 19-3372

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed June 9, 2022

Gary F. Cerasuolo, Smith Cerasuolo LLP, Houston, TX, for Plaintiff Sandra G. O'Connor.

Michael C. O'Connor, O'Connor PC, Houston, TX, Mynde Shaune Eisen, Attorney at Law, Sugar Land, TX, for Plaintiff Michael O'Connor.

David L. Venable, Attorney at Law, Houston, TX, for Defendant.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

Attorney Michael O'Connor removed a state court proceeding to this Court seeking determination under 11 U.S.C. § 523(a)(2)(A) as to the nondischargeability of $170,591.02 in fees earned under a contingent fee agreement for pre-petition representation of Martha Anderson Burg. Mr. O'Connor passed away before the conclusion of this adversary and Sandra G. O'Connor, Independent Executor of the Estate of Michael C. O'Connor, was substituted as plaintiff. The Court conducted a full day trial on March 22, 2022, and, at the conclusion of the trial, the court took the matter under advisement. For the forgoing reasons, the Court finds that Ms. Burg's $170,591.02 debt to Sandra G. O'Connor, Independent Executor of the Estate of Mr. O'Connor, is nondischargeable. Additionally, Sandra G. O'Connor, Independent Executor of the Estate of Michael O'Connor is awarded $56,617.75 in attorney's fees and $518.48 in expenses.

I. BACKGROUND

1. On March 30, 2007, Martha Burg ("Burg or Defendant ") entered into a home equity loan (the "Home Equity Loan ") in the original principal sum of $270,000.00.¹

2. On September 9, 2008, Burg defaulted on the Home Equity Loan that was secured by her residence located at 5330 Dumfries Drive, Houston, Texas 77096 (the "Property ").²

3. Burg never made any payments on the Home Equity Loan after June 1, 2008, save and except one payment in 2009.³

4. On September 9, 2008, Burg was sued by her mortgage company Saxon Mortgage Services, Inc. for an expedited foreclosure of Burg's home equity loan under Cause No. 2008-54797 styled In re Order for Foreclosure Concerning Martha A. Burg and 5330 Dumfries Drive, Houston, Texas 77096 (the "2008 Lawsuit ").⁴

5. On October 31, 2008, Burg filed a pro se answer in the 2008 Lawsuit.⁵

6. On October 19, 2009, the 2008 Lawsuit was dismissed.⁶

7. On June 19, 2009, Saxon Mortgage Services, Inc. filed a second application for an expedited foreclosure of Burg's home equity loan under Cause No. 2009-39239; styled In re Order for Foreclosure Concerning Martha A. Burg and 5330 Dumfries Drive, Houston, Texas 77096 (the "2009 Lawsuit ").⁷

8. On February 10, 2010, the 2009 Lawsuit was dismissed.⁸

9. On August 3, 2010, Saxon Mortgage Services, Inc. filed its third application for an expedited foreclosure of Burg's home equity loan under Cause No. 2010-47883; styled In re Order for Foreclosure Concerning Martha A. Burg and 5330 Dumfries Drive, Houston, Texas 77096 (the "2010 Lawsuit ").⁹

10. On September 20, 2010, Burg hired Michael O'Connor, ("Mr. O'Connor ") to represent her in the 2010 Lawsuit, and Mr. O'Connor filed an answer on Burg's behalf.¹⁰

11. On December 13, 2012, Mr. O'Connor successfully stopped Saxon Mortgage Services, Inc.’s efforts to foreclose under the 2010 Lawsuit, and the 2010 Lawsuit was administratively closed.¹¹

12. On May 18, 2011, Mr. O'Connor, upon request of Burg, filed a lawsuit against Saxon Mortgage Services, Inc. under Cause No. 2011-30025; styled Martha Burg vs Saxon Mortgage Services, Inc. (the "2011 Lawsuit ") pursuant to Rule 736-10 seeking to declare that Burg's Mortgage was unenforceable, among other claims.¹²

13. On July 31, 2012, the 2011 Lawsuit was nonsuited without prejudice.¹³

14. During the pendency of the 2011 Lawsuit, no actions to foreclose on the Property were initiated by Burg's mortgage lender.¹⁴

15. On May 10, 2013, Residential Credit Solutions, successor in interest to Saxon Mortgage Services, Inc., filed an Application For Home Equity Foreclosure Order and Affidavit under Cause No. 2013-28135; styled In re Order for Foreclosure Concerning Martha A. Burg and 5330 Dumfries Drive, Houston, Texas 77096 (the "2013 Foreclosure Lawsuit ").¹⁵

16. In May 2013, Burg told Mr. O'Connor that she could not afford $1,000.00 or more per month to cover the legal fees incurring the 2013 Foreclosure Lawsuit.¹⁶

17. Burg and Mr. O'Connor discussed a contingent fee arrangement, the relevant terms of which were that Mr. O'Connor would be entitled to 30% of any recovery, including any reduction of indebtedness on the mortgage loan, before any appeal of a final judgment and 35% if there was an appeal of a final judgment.¹⁷

18. Mr. O'Connor and Burg signed a contingent fee agreement (the "Fee Agreement "), providing that Mr. O'Connor would be entitled to 30% of any recovery, including any reduction of indebtedness on the mortgage loan, before any appeal of a final judgment and 35% after an appeal of a final judgment.¹⁸

19. On July 1, 2013, Mr. O'Connor filed a response on behalf of Burg in the 2013 Lawsuit.¹⁹

20. On August 16, 2013, Mr. O'Connor moved to dismiss the 2013 Foreclosure Lawsuit.²⁰

21. On September 10, 2013, the Court dismissed the 2013 Foreclosure Lawsuit.²¹

22. On August 12, 2013, Mr. O'Connor, on Burg's behalf, filed a lawsuit against Residential Credit Solutions Inc. under Cause No. 2013-47157; styled Martha Burg vs Residential Credit Solutions, Inc. (the "Second 2013 Lawsuit ").²²

23. The Second 2013 Lawsuit sought to hold the Deed of Trust lien and power of sale therein sought to be foreclosed by Burg void and barred by limitations.²³

24. On September 14, 2014, after litigating a highly contested Motion for Summary Judgment, Mr. O'Connor was successful in obtaining a final judgment (the "Final Judgment ") in the Second 2013 Lawsuit.²⁴

25. The Final Judgment held that the liens sought to be foreclosed by Residential Credit Solutions were void pursuant to Tex. Civ. & Prac. Rem Code § 16.035(d).²⁵

26. Residential Credit Solutions appealed the Final Judgment under Cause No. 01-15- 0067-CV; styled Residential Credit Solutions, Inc., Appellant v Martha Burg, Appellee .²⁶

27. On June 2, 2016, the First Court of Appeals affirmed the Final Judgment and entered its Mandate on August 12, 2016.²⁷

28. The result of the Second 2013, Lawsuit was the cancellation of Burg's entire indebtedness on the mortgage loan.²⁸

29. Under the Fee Agreement, Mr. O'Connor was entitled to a 35% of the reduction of indebtedness on the mortgage loan.²⁹

30. In 2010, Mr. O'Connor, on behalf of Burg, filed suit against Texas EZ Pawn, L.P. d/b/a EZPawn in the 295th Judicial District Court of Harris County, Texas (the "EZPawn Litigation ") arising from Burg's pawn, sales, layaway, and other transactions with EZPawn.³⁰

31. On October 2, 2012, the EZPawn Litigation was settled, the terms of which required Burg to pay $35,000 in exchange for the return of all items Burg pawned with EZPawn.³¹

32. Mr. O'Connor loaned Burg $35,000 to fund the settlement of the EZPawn Litigation and received certain collateral to secure the loan.³²

33. Mr. O'Connor was never repaid the $35,000 loan, however, eventually accepted the collateral in satisfaction of the loan.³³

34. On July 3, 2017, Burg took out a reverse mortgage on her home but did not pay Mr. O'Connor’s fees.³⁴

35. Mr. O'Connor fully performed under the Fee Agreement by eliminating Burg's debt on the mortgage note and deed of trust.³⁵

36. Mr. O'Connor did not misrepresent anything to Burg concerning the Fee Agreement or his representation of Burg.³⁶

37. On January 18, 2019, Burg filed her initial petition under chapter 7 of title 11 of the Code.³⁷

38. On April 1, 2019, Cause No. 201707392; Michael C. O'Connor v. Martha Burg ; in the 151st District Court of Harris County, Texas (the "State Court Lawsuit ") as removed to the United States Bankruptcy Court for the Southern District of Texas, Houston Division commencing the instant adversary proceeding.³⁸

39. On May 7, 2019, Mr. O'Connor filed a first amended complaint.³⁹

40. On May 17, 2019, Burg filed a motion to dismiss along with an answer and counterclaims.⁴⁰

41. On May 21, 2019, the Court entered its scheduling order.⁴¹

42. On May 8, 2020, Mr. O'Connor filed a response to the motion to dismiss.⁴²

43. On May 12, 2020, the Court held a hearing on the motion to dismiss and denied it but ordered Mr. O'Connor to amend his complaint.⁴³

44. On May 26, 2020, Mr. O'Connor filed his second amended complaint ("Complaint ").

45. On June 9, 2020, Burg filed an answer to the Complaint and withdrew her counterclaims ("Answer ").⁴⁴

46. On September 21, 2021, Burg filed a "Suggestion of Death" reflecting that Mr. O'Connor had passed away on September 13, 2021.⁴⁵

47. On October 5, 2021, the Court held another status conference regarding the "Suggestion of Death" and set a further hearing for November 3, 2021.⁴⁶

48. On November 3, 2021, a "Motion To Substitute Party" was filed by Sandra G. O'Connor ("Mrs. O'Connor " or "Plaintiff "), Independent Executor of the Estate of Michael C. O'Connor, requesting that she be substituted as plaintiff for Michael C. O'Connor.⁴⁷

49. On November 17, 2021, the Court entered an order approving Mrs. O'Connor, to be substituted as plaintiff.⁴⁸

50. On March 22, 2022, a trial on the pending matter was held.⁴⁹

II. CREDIBILITY OF WITNESSES

It is the Court's duty to assess and weigh the credibility of witnesses.⁵⁰ At the March 22, 2022 trial, the Court heard testimony from four witnesses: (1) Mrs. O'Connor; (2) Burg; (3) Mina Uddin; and (4) Mynde Eisen. After observing the witness and listening to their testimony, the Court makes the following observations regarding the credibility of the witnesses, as set forth below.

1. Mrs. O'Connor

Mrs. O'Connor is the wife of Mr. O'Connor and the Independent Executor of the Estate of Michael C. O'Connor.⁵¹ At the trial, Mrs. O'Connor responded to questions...