Divorce Attorney’s Legal Fees were not Dischargeable in a Chapter 7 Bankruptcy – where Court Found they were Incurred by way of Fraud

Posted by Alex Hess

Where a Woman filed a Chapter 7 Bankruptcy After Racking up Thousands of Legal Fees for Her Divorce, the Bankruptcy Court Determined that the Woman Still Had to Pay Those Legal Fees – Divorce Legal Fees Incurred by Fraud are Not Discharged in Bankruptcy

Where a debtor owes fees to the law firm that represented her in a divorce proceeding, the debt is nondischargeable under 11 U.S.C. §523(a)(2)(A).

“By his complaint in this adversary proceeding, plaintiff Thomas Bolton, as assignee for purposes of collection of a claim belonging to the law firm of Conn Kavanaugh Rosenthal Peisch & Ford, LLP (‘CKRPF’), of which he is the controller, seeks a determination that the debt for legal fees owed to the firm for its representation of the defendant and debtor, Erin G. Kenneally, a/k/a/ Erin K. Hughes (‘Kenneally’), during the latter’s divorce proceeding is excepted from discharge. CKRPF contends that the debt is excepted from discharge under 11 U.S.C. §523(a)(2)(A) as a debt arising from false representations and false pretenses and under 11 U.S.C. §523(a)(6) as a debt for willful and malicious injury to CKRPF. As the gravamen of both counts, CKRPF alleges that Kenneally made a false promise of payment to the firm, a promise to pay the firm’s fees that she had no intent to honor, in reliance on which the firm was injured by expenditure of time and effort without compensation. …

“… Kenneally did promise to pay CKRPF for the services of its attorneys and for its expenses. She also promised to make this payment from the proceeds of the marital home, upon its sale. In making these promises, however, she tacitly but consciously reserved to herself the prerogative of paying as she saw fit in light of her then‐existing financial circumstances. I do not find that, when she made the promises, she had resolved not to pay — the evidence suggests that she did not decide whether she would pay until much later. I do find that, notwithstanding her outward promises, she had not, when she made her promises, resolvedto pay, had made no internal commitment to pay. As a promise is a commitment, her lack of commitment, resolve, and intent to pay rendered the promise false, a false representation of her intent and state of mind. ‘[A] promise made with a positive intent not to perform or without a present intent to perform satisfies §523(a)(2)(A).’ Rubin v. West (In re Rubin), 875 F.2d 755, 759 (9th Cir. 1989) (emphasis added). She made this false representation with knowledge of its falsity, knowledge that the Firm was unaware of her inward reservation, and intent to deceive and induce reliance.

“The Firm did actually rely on these false promises by rendering services to her and electing not to insist on payment from other assets as a condition of continuing its service. The fact that the Firm did not take or insist on a mortgage on the home to secure its claim does not prove lack of reliance; rather it shows precisely that the Firm relied on the promise itself and nothing else. The reliance was justifiable; Kenneally does not contend that the Firm had reason to doubt the veracity of her promises. And that reliance caused the Firm to render services and make expenditures on Kenneally’s behalf, the services and expenditures that form the basis of its claim; but for these promises, the Firm would not have rendered the service and expenditures that gave rise to the debt. Accordingly, I conclude that the debt to the Firm, including any interest thereon, and any costs and attorney’s fees that may be awarded for its collection, are excepted from discharge under §523(a)(2)(A).”

In Re: Kenneally, Erin G. (Bailey, J.) (USBC) (Chapter 7 Case No. 11-22021-FJB; Adversary Proceeding No. 12-1074) (May 24, 2013).