Aboud and Aboud PC v. Cary

• Court: District Court, D. Arizona
• Decided: November 29, 2022
• Docket: 4:21-cv-00240
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Aboud and Aboud PC, No. CV-21-00240-TUC-RCC

10 Appellant, ORDER

11 v.

12 Jeanette Cary,

13 Appellee. 14 15 Appellant Aboud and Aboud, P.C. ("Appellant") appeals from a final judgment of 16 the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"). 17 In support, Appellant filed an Opening Brief on July 29, 2021. (Doc. 8.) Appellee Jeanette 18 Cary ("Debtor") filed a Response Brief on August 30, 2021 (Doc. 12) and Appellant filed 19 a Reply Brief on September 9, 2021 (Doc. 13). Oral argument was held on August 30, 20 2022. 21 I. Factual and Procedural Background 22 Appellant is a law firm where attorney John Eli Aboud ("Aboud") practices 23 domestic relations law. (Doc. 8 at 5.) On May 11, 2017, Debtor hired Aboud to represent 24 her in post-decree enforcement proceedings against her ex-husband. (Id.) Over the course 25 of this representation, Debtor incurred legal fees in the amount of $27,273 that she did not 26 pay. (Id. at 8.) 27 On December 20, 2017, Aboud formally withdrew as counsel for Debtor. (Id. at 2.) 28 The minute entry order also granted Aboud's request for an attorney's lien against any 1 judgment or proceeds that Debtor may obtain, which was also a provision of the initial fee 2 agreement that Debtor signed upon retaining Aboud. (Id. at 2, 179.) The State Court 3 instructed, "If there is a conflict as to that amount, [Debtor] is directed to review the terms 4 of the retainer agreement and engage in arbitration to satisfy those disputes." (Id. at 2.) 5 Debtor hired new counsel, Erika Cossitt Volpiano, and, on September 13, 2018, 6 Debtor and her ex-husband entered into a Divorce Stipulation pursuant to which he made 7 six payments over the following three years totaling approximately $69,972.98. (Doc. 8 at 8 8.) The payments included $5,000 on August 29, 2018; $9,145 on October 24, 2018; $4,000 9 in child support arrears; $23,827.98 to Debtor's first mortgage loan; and $28,000 to 10 Debtor's second mortgage loan. (Id.) It appears the first two payments went directly to 11 Debtor's new attorney as legal fees, the third payment went directly to Debtor's adult 12 children, and the last two payments went directly to the lenders. Aboud did not learn of 13 this stipulation until later and did not receive any of this recovery despite his attorney's 14 lien. (Id.) In October 2018, Debtor initiated fee arbitration proceedings through the State Bar 15 of Arizona to resolve her outstanding debt to Aboud. (Id. at 9.) In lieu of a hearing, the 16 parties engaged in settlement negotiations and signed a Settlement Agreement on April 3, 17 2019. (Id.) The terms of the Settlement Agreement stated that Debtor would pay Aboud 18 the principal sum of $27,000 with 12% simple annual interest to begin to accrue on May 19 1, 2019, which would be secured by a deed of trust on her home. (Doc. 11-18 at 26.) Debtor 20 agreed to execute a note and deed of trust. (Id.) If Debtor sold or refinanced her home 21 before January 31, 2020, the principal would be reduced to $18,000. (Id.) On April 4, 2019, 22 Aboud sent the note and deed of trust to Debtor for her signature, but Debtor never executed 23 the note and deed of trust. (Doc. 8 at 9.) 24 On May 2, 2019, Debtor filed for bankruptcy. (Id.) She listed Aboud as an unsecured 25 creditor with a debt in the amount of $27,273. (Id.) Aboud then filed a three-count 26 complaint with the Bankruptcy Court seeking to have his debt exempted from discharge. 27 (Id.) He claimed that his debt was exempt because (1) Debtor incurred the debt within 90 28 days of the petition, making it exempt under 11 U.S.C. § 523(a)(2)(C)(i)(I); (2) Debtor 1 engaged in actual fraud under 11 U.S.C. § 523(a)(2)(A); and (3) Debtor willfully and 2 maliciously converted Aboud's funds under § 523(a)(6). (Doc. 11-1 at 4–5.) 3 On December 16, 2020, the Bankruptcy Court held a bench trial on Aboud's claims. 4 (Doc. 8 at 9.) Aboud first argued that Debtor incurred the $27,000 debt less than a month 5 before filing for bankruptcy by signing the Settlement Agreement. (See, e.g., Doc. 11-17 6 at 4.) He further argued that Debtor incurred the debt through actual fraud because she 7 intentionally diverted funds from her ex-husband directly to creditors to avoid Aboud's 8 attorney's lien. (Id. at 6.) Aboud asserted he only discovered the Divorce Stipulation by 9 chance when he examined the docket. (Id. at 23.) Aboud claimed he was damaged in the 10 amount of $27,000. (Id. at 8.) Finally, Aboud alleged that Debtor caused willful and 11 malicious injury by intentionally avoiding his attorney's lien and engaging in arbitration 12 just before filing for bankruptcy. (Id.) 13 Debtor testified that she told Aboud from the beginning of the representation that 14 she was in a difficult financial situation and would not be able to pay his fees if she did not recover anything from her ex-husband. (Id. at 113, 142, 180.) She claimed that the 15 stipulation with her ex-husband was a result of negotiations but that she did not draft the 16 terms of the payments. (Id. at 131.) Indeed, Debtor asserted it was her ex-husband's idea to 17 make direct payments on the mortgage. (Id.) Debtor disagreed that she owed Aboud 18 $27,273 in fees because she was dissatisfied with his representation, but she initiated 19 arbitration proceedings to resolve the fee dispute and "come up with a fair amount for [her] 20 to pay . . . ." (Id. at 119, 173.) She claimed she entered into the arbitration "[t]o conclude 21 everything that was going on" rather than to "mislead or defraud Mr. Aboud." (Id. at 154.) 22 Debtor testified that she wanted a hearing and felt pressured into the settlement negotiations 23 that happened instead. (Id. at 119–21.) Debtor, who was not represented by counsel at the 24 arbitration and settlement, testified that she was "scared" and "a nervous wreck." (Id. at 25 121, 153, 167.) Debtor testified that she did not have time to think about the Settlement 26 Agreement. (Id. at 155.) She said that, after signing, she immediately felt uncomfortable 27 with the Settlement Agreement and expressed these concerns to the arbitrator within three 28 days. (Id. at 153–54, 167.) After the fee arbitration, Debtor consulted with a bankruptcy 1 lawyer and decided to file for Chapter 7 bankruptcy. (Id. at 154, 167.) 2 At the close of testimony, the Bankruptcy Court took the matter under advisement 3 and had the parties file additional briefs before issuing a Memorandum Opinion on May 4 18, 2020. (Doc. 8 at 9.) The Bankruptcy Court found in favor of Debtor on all counts. (Doc. 5 11-12.) It reasoned that Debtor did not incur the debt within 90 days of filing for bankruptcy 6 because she accrued the legal fees years prior, and Aboud's legal representation was not 7 "luxury goods or services," as necessary under 11 U.S.C. § 523(a)(2)(C)(i)(I). (Id. at 6–7.) 8 Additionally, the Bankruptcy Court concluded that Aboud had not presented any 9 evidence that Debtor engaged in actual fraud or demonstrated an intent to deceive at any 10 point in time. (Id. at 8–9.) It first rejected the argument that Debtor obtained Aboud's legal 11 services through false pretenses, false representation, or actual fraud because Aboud had 12 not adduced any evidence to support this conclusion. (Id. at 8.) Even if Aboud's allegations 13 about Debtor intentionally diverting funds in the Divorce Stipulation were true, the 14 Bankruptcy Court reasoned, "Aboud produced no evidence Debtor intended to divert proceeds at the time legal services were obtained from Aboud." (Id. at 9.) Next, the 15 Bankruptcy Court considered whether, in entering into the Settlement Agreement, Debtor 16 extended, renewed, or refinanced an existing debt through false pretenses, false 17 representation, or actual fraud. (Id.) It found that Aboud had not proven by a preponderance 18 of the evidence that Debtor intended to deceive Aboud by the mere fact that she filed for 19 bankruptcy shortly after arbitration. (Id. at 9–10.) According to the Bankruptcy Court, 20 Debtor's testimony regarding the circumstances surrounding the negotiations and 21 Settlement Agreement was "credible and persuasive." (Id. at 10.) It reasoned "Debtor 22 simply could have filed bankruptcy without proceeding with the fee arbitration if she never 23 intended to pay." (Id.) 24 Finally, the Bankruptcy Court rejected Aboud's conversion claim. (Id. at 14.) It 25 found that Aboud had not presented sufficient evidence that the funds were subject to his 26 attorney's lien because none of the money was paid to Debtor. (Id. at 12.) Furthermore, 27 even if the lien attached to those funds, the Bankruptcy Court concluded that Aboud had 28 not shown Debtor was either willful or malicious in entering into the Divorce Stipulation. 1 (Id. at 14.) It found "[t]he Divorce Stipulation simply provided for payments by the 2 Debtor's former husband to satisfy outstanding obligations owed by the Debtor to her 3 current divorce counsel, his past due child support obligations, and his own debt secured 4 by his former residence." (Id.) 5 Pursuant to 11 U.S.C. § 523(d), the Bankruptcy Court then considered whether there 6 was substantial justification for Aboud's claims. (Id. at 14.) It found that there was neither 7 a reasonable basis in law or fact for the claims under § 523(a)(2)(C)(i)(I) and § 8 523(a)(2)(A). (Id. at 15–16.) However, the Bankruptcy Court did not explicitly conclude 9 that Aboud's § 523(a)(6) claim for conversion was not substantially justified; it simply did 10 not discuss whether that claim was substantially justified at all. 11 The Bankruptcy Court awarded Debtor her attorney's fees in the amount of 12 $30,332.50, having lowered it from the $32,430 that Debtor sought. (Id. at 16–17.) 13 On July 29, 2021, Aboud and Aboud, P.C. appealed the Bankruptcy Court's 14 judgment. (Doc. 8.) II. Standard of Appellate Review 15 The Court has appellate jurisdiction over this matter pursuant to 28 U.S.C. § 158(a). 16 When a district court considers an appeal of a final judgment from the bankruptcy court, it 17 reviews legal conclusions de novo. Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures Corp., 18 159 F.3d 412, 418 (9th Cir. 1998). The district court accepts the bankruptcy court's factual 19 findings unless they are clearly erroneous. Star v. West, 237 F.3d 1036, 1038 (9th Cir. 20 2001). It is not enough that the reviewing court would have weighed the evidence 21 differently. See United States v. Working, 224 F.3d 1093, 1102 (9th Cir. 2000) (en banc). 22 Rather, "[t]o be clearly erroneous, a decision must strike us as more than just maybe or 23 probably wrong; it must . . . strike us as wrong with the force of a five-week-old 24 unrefrigerated dead fish." Hayes v. Woodford, 301 F.3d 1054, 1067 n.8 (9th Cir. 2002) 25 (internal quotation omitted). 26 III. Analysis 27 Appellant asserts that the Bankruptcy Court erred when it (1) concluded that Debtor 28 did not incur a debt within 90 days of filing for bankruptcy, in violation of 11 U.S.C. § 1 523(a)(2)(C)(i)(I), when she signed the Settlement Agreement with Aboud less than a 2 month before filing her petition; (2) concluded that Debtor did not convert Aboud's funds, 3 in violation of 11 U.S.C. § 523(a)(6); (3) failed to consider whether Debtor engaged in 4 actual fraud by diverting funds in the Divorce Stipulation; (4) concluded that Aboud's claim 5 under § 523(a)(2)(A) lacked substantial justification; (5) awarded Debtor all her attorney's 6 fees although it found substantial justification for Aboud's § 523(a)(6) claim; and (6) 7 required Aboud to demonstrate substantial justification for all his claims to avoid an award 8 of attorney's fees under 11 U.S.C. § 523(d). (Doc. 8 at 7.) Each of these arguments is 9 addressed in turn. 10 a. Debt for Luxury Goods or Services Incurred Within 90 Days of 11 Bankruptcy 12 Under § 523(a)(2)(A) of the Bankruptcy Code, a debtor is not entitled to discharge 13 any debt "for money, property, services, or an extension, renewal, or refinancing of credit, 14 to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 15 523(a)(2)(A). Subsection C goes on to state, "for the purposes of subparagraph (A) . . . 16 consumer debts owed to a single creditor and aggregating more than $800 for luxury goods 17 or services incurred by an individual debtor on or within 90 days before the order for relief 18 under this title are presumed to be nondischargeable . . . ." Id. § 523(a)(2)(C)(i)(I). 19 "[T]he term 'luxury goods or services' does not include goods or services reasonably 20 necessary for the support or maintenance of the debtor or a dependent of the debtor." Id. § 21 523(a)(2)(C)(ii)(II). The Bankruptcy Code does not further define "luxury goods or 22 services," however, bankruptcy courts have concluded that legal fees for divorce 23 proceedings do not fall within the meaning of "luxury goods or services" for purposes of § 24 523(a)(2)(C). In re Vernon, 192 B.R. 165, 170 (Bankr. N.D. Ill. 1996) ("Indeed, legal fees 25 and expenses incurred during divorce proceedings do not generally qualify as 'luxury goods 26 or services' within the meaning of § 523(a)(2)(C)."); In re Shaw, 294 B.R. 652, 655 (Bankr. 27 W.D. Penn. 2003) ("(a) luxuries within the meaning of § 523(a)(2)(C), as a matter of law, 28 are limited to things that constitute extravagances or self-indulgences . . . and (b) the 1 incurrence of indebtedness for legal services, at least in the instant matter if not practically 2 in every case, does not constitute an extravagance or self-indulgence"). The Ninth Circuit 3 has observed that the purpose behind § 523(a)(2)(C)'s exemption was "to address the 4 problem of the debtor who goes on a spending spree by charging the limits on his credit 5 cards and then requests discharge of this credit card debt in bankruptcy." In re Eashai, 87 6 F.3d 1082, 1092 (9th Cir. 1996). 7 Appellant has not established that the $27,000 debt to Aboud falls within the 8 parameters of § 523(a)(2)(C)(i)(I). First, as the Bankruptcy Court concluded, Debtor 9 incurred the debt for Aboud's legal services at the time Aboud provided and billed for his 10 legal services back in 2017. This falls outside of the 90-day time frame because Debtor did 11 not file for bankruptcy until May 2019. 12 Second, Appellant asks the Court to focus on the signing of the Settlement 13 Agreement as the relevant time period. However, even if Debtor incurred a new debt or 14 "an extension, renewal, or refinancing" of an existing debt by signing the post-arbitration Settlement Agreement with Aboud within 90 days of filing for bankruptcy, this debt is still 15 not governed by § 523(a)(2)(C)(i)(I). Despite Appellant's argument, the statute requires 16 more than "a consumer debt (for goods or services) be incurred within 90 days." (Doc. 13 17 at 7.) The Court must consider whether the consumer debt is for luxury goods or services. 18 Appellant argues that the legal services here were luxury because they related to "post- 19 decree enforcement matters not related to support obligations because Debtor was not 20 awarded spousal maintenance . . . ." (Id. at 9.) Nonetheless, fees for legal services in such 21 post-decree enforcement litigation do not differ significantly from the fees incurred in 22 divorce proceedings that other courts have concluded are not the type of extravagance 23 covered by § 523(a)(2)(C)(i)(I). Because legal services in post-decree enforcement 24 litigation are not "luxury goods or services" covered by the statute, the Court will affirm 25 the Bankruptcy Court's finding on the first claim under § 523(a)(2)(C)(i)(I). 26 b. Willful and Malicious Injury 27 Section 523(a)(6) exempts from discharge any debt "for willful and malicious injury 28 by the debtor to another entity or to the property of another entity . . . ." 11 U.S.C. § 1 523(a)(6). Appellant seeks to have the debt exempt from discharge under § 523(a)(6) 2 because it argues Debtor committed the tort of conversion by diverting funds in her Divorce 3 Stipulation. 4 "Although federal law determines the nondischargeability of a debt, state law 5 governs the elements of a conversion respecting property." In re Thiara, 285 B.R. 420, 427 6 (9th Cir. BAP 2002). In Arizona, "[c]onversion is an intentional exercise of dominion or 7 control over a chattel which so seriously interferes with the right of another to control it 8 that the actor may justly be required to pay the other the full value of the chattel." Mill v. 9 Hehlen, 104 P.3d 193, 203 (Ariz. Ct. App. 2005). However, "[t]o maintain an action for 10 conversion, a plaintiff must have had the right to immediate possession of the personal 11 property at the time of the alleged conversion." Case Corp. v. Gehrke, 91 P.3d 362, 365 12 (Ariz. Ct. App. 2004). Moreover, an attorney's lien requires that there be some judgment 13 in the client's favor to which the lien can attach. Langerman Law Offices, P.A. v. Glen 14 Eagles at Princess Resort, LLC, 204 P.3d 1101, 1103 (Ariz. 2009). A creditor, upon demonstrating the elements of conversion, must also show that 15 such conversion was a willful and malicious injury under § 523(a)(6) by proving that the 16 debtor acted with "wrongful intent." In re Thiara, 285 B.R. at 429 (quoting Peklar v. Ikerd 17 (In re Peklar), 260 F.3d 1035, 1037–39 (9th Cir. 2001)). The focus of the willfulness 18 inquiry is on the debtor's actual knowledge, which can be gleaned from circumstantial 19 evidence. Id. at 432. Thus, the "willful injury requirement is met only when the debtor has 20 a subjective motive to inflict injury or when the debtor believes that injury is substantially 21 certain to result from his own conduct." In re Su, 290 F.3d 1140, 1142 (9th Cir. 2002); 22 Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (holding an injury is willful if the debtor 23 intends the consequences of her action and not merely the action itself). In the conversion 24 context, "[p]roof of the debtor's knowledge that he or she is harming the secured creditor 25 or the creditor's lien interest by converting the collateral establishes that the debtor either 26 intended to inflict such injury or believed that such injury was substantially certain to occur, 27 and thus meets the willfulness requirement of § 523(a)(6)." In re Thiara, 285 B.R. at 432– 28 33. 1 Additionally, a finding that the injury is malicious requires showing "(1) a wrongful 2 act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just 3 cause or excuse." In re Su, 290 F.3d at 1146–47 (quoting In re Jercich, 238 F.3d 1202, 4 1209 (9th Cir. 2001)). 5 Here, Appellant has not shown that Debtor converted Aboud's funds because, as the 6 Bankruptcy Court concluded, it is not clear that Aboud had a right to immediate possession 7 of these proceeds at the time Debtor entered into the Divorce Stipulation. First, Debtor 8 never received any proceeds under the terms of the Divorce Stipulation. 9 Second, it is not clear that Aboud's attorney's lien would have attached to any of the 10 payments made under the Divorce Stipulation even if they had first gone directly through 11 Debtor. These payments were made for child support arrears, home mortgage payments, 12 and attorney's fees to Volpiano, Debtor's counsel after Aboud. Although it does not appear 13 that courts in Arizona have explicitly considered the issue, other jurisdictions have 14 concluded that attorney's charging liens do not attach to child support payments as a matter of public policy. E.g., In re Benbow, 496 B.R. 605, 611–12 (Bankr. D. Colo. 2013) ("[T]he 15 court held that child support payments are exempt from the attorney's charging lien on 16 public policy grounds."); Sue Davidson, P.C. v. Naranjo, 904 P.2d 354, 358 (Wyo. 1995) 17 ("[A]n attorney's charging lien . . . 'is not enforceable against child support payments.'"); 18 In re Bush, 356 B.R. 28, 35 (Bankr. S.D. Cal. 2006) ("[T]he only apparent limitation is that 19 the charging lien may not attach to funds owed as child support."). 20 Additionally, testimony at trial suggested that Debtor's ex-husband remained 21 personally liable for the payments on the home mortgage because his name was still on the 22 loan with Chase Bank, although their divorce decree allocated the mortgage debt to Debtor. 23 (See Doc. 11-17 at 172–73.) And, as the Bankruptcy Court outlined, Debtor's ex-husband 24 remained personally liable for these mortgages under the terms of the Divorce Stipulation. 25 Finally, the parties have not cited any authority, nor can the Court find any, that 26 clarifies the priority of a former attorney's charging lien as compared to the fees for current 27 representation. And, as the Bankruptcy Court observed, "the same state court that granted 28 Aboud the attorney's lien also authorized the disbursement of proceeds in a manner 1 contrary to Aboud's asserted lien rights by entering the Divorce Order." (Doc. 11-12 at 13.) 2 Thus, Appellant has not shown that Aboud's lien would have taken priority over Volpiano's 3 fees for representation during the settlement negotiations that resulted in the Divorce 4 Stipulation itself. 5 Moreover, even if Appellant can establish the elements of conversion, the 6 Bankruptcy Court's factual finding that there was insufficient evidence to show the 7 requisite intent to injure Aboud was not clearly erroneous. Although Debtor ostensibly 8 knew of Aboud's attorney's lien, the Bankruptcy Court found that "no evidence proved that 9 Debtor's 'input' was done intentionally and wrongfully to avoid Aboud's attorney's lien and 10 to cause him injury without just cause or excuse." (Doc. 11-12 at 14 n.2.) For example, 11 although Debtor acknowledged she had "input" in negotiations over the Divorce 12 Stipulation, she testified that it was her ex-husband's idea to make some payments directly 13 to creditors. (Doc. 9-17 at 131.) Furthermore, it is not clear that Debtor knew the terms of 14 the Divorce Stipulation would harm Aboud by denying him fees because, as discussed above, Aboud's lien may not have attached to these payments. 15 For these reasons, the Court affirms the Bankruptcy Court's finding in favor of 16 Debtor on the § 523(a)(6) claim. 17 c. Debt Incurred Through Actual Fraud 18 Appellant next asserts that the Bankruptcy Court erred in failing to consider Aboud's 19 allegation that Debtor engaged in actual fraud under § 523(a)(2)(A). (Doc. 8 at 15.) A 20 debtor is not entitled to discharge of any debt "for money, property, services, or an 21 extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a 22 false representation, or actual fraud, other than a statement respecting the debtor's or an 23 insider's financial condition." 11 U.S.C. § 523(a)(2)(A) (emphasis added). "To establish 24 nondischargeability under § 523(a)(2)(A), a creditor must prove five elements: (1) 25 misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge 26 of the falsity or deceptiveness of his statement or conduct; (3) an intent to deceive; (4) 27 justifiable reliance by the creditor on the debtor's statement or conduct; and (5) damage to 28 the creditor proximately caused by its reliance on the debtor's statement or conduct." In re 1 Gugliuzza, 852 F.3d 884, 888 (9th Cir. 2017) (quotation marks omitted). "The term 'actual 2 fraud' in § 523(a)(2)(A) encompasses forms of fraud, like fraudulent conveyance schemes, 3 that can be effected without a false representation." Husky Int'l Elecs., Inc. v. Ritz, 578 U.S. 4 356, 359 (2016). This inquiry, however, is time-limited and focuses on the point in time 5 when the debtor incurred the debt or the creditor extended credit. In re Boyajian, 367 B.R. 6 138, 146–47 (B.A.P. 9th Cir. 2007), aff'd 564 F.3d 1088 (9th Cir. 2009). 7 Appellant asserts that the Bankruptcy Court erred by failing to consider Debtor's 8 fraudulent actions in entering into the Divorce Stipulation and allegedly intentionally 9 diverting funds away from Aboud in the Divorce Stipulation. (Doc. 8 at 16.) However, the 10 Bankruptcy Court instead focused on whether Debtor fraudulently obtained Aboud's legal 11 services, specifically because of the time-limited nature of the fraud inquiry. (See Doc. 11- 12 12 at 8–9.) This Court will likewise not focus on whether Debtor engaged in false pretenses, 13 a false representation, or actual fraud with regard to the Divorce Stipulation and 14 distribution of funds outlined in that agreement. Debtor did not "obtain" or incur any obligation to Aboud as a result of the Divorce Stipulation, nor did the Divorce Stipulation 15 relate to any extension or refinancing of an existing debt to Aboud. Debtor entered into the 16 Divorce Stipulation on September 13, 2018, long after Aboud withdrew as counsel on 17 December 20, 2017. And it was not until October 2018 that Debtor initiated fee arbitration 18 proceedings, signing the Settlement Agreement with Aboud the following year on April 3, 19 2019. Therefore, although the Divorce Stipulation is relevant to Aboud's claim, the Court 20 cannot undertake a nondischargeability analysis under § 523(a)(2)(A) with regard to the 21 Divorce Stipulation because it is not linked to the time a debt was incurred, which is the 22 focus of the exemption. 23 Second, Appellant argues that "Debtor engaged in false pretenses, a false 24 representation, or actual fraud when she signed the Fee Arbitration [Settlement] Agreement 25 a few weeks prior to filing bankruptcy." (Doc. 8 at 16.) However, Appellant has not 26 established the elements of fraud with regard to the Fee Arbitration Settlement Agreement. 27 Specifically, the Bankruptcy Court, after hearing testimony, concluded that there was no 28 evidence that Debtor engaged in arbitration or entered into the Settlement Agreement with 1 the intent to deceive Aboud or even with the intent to file for bankruptcy. 2 For example, Debtor testified that she entered into negotiations with the intent to 3 resolve the fee dispute with Aboud. She also testified that she was overwhelmed by the 4 process and felt pressured by the lawyers in the room to sign the Settlement Agreement. 5 As the Bankruptcy Court observed, had Debtor never intended to pay the Settlement 6 Agreement at the time she signed it, she did not have to enter into fee arbitration to begin 7 with. She could have—as she later did—filed for bankruptcy without going through the 8 lengthy process of preparing for a hearing and participating in negotiations. 9 The Bankruptcy Court found Debtor's testimony regarding her intent credible. This 10 finding is not clearly erroneous. If anything, the Bankruptcy Court was in a better position 11 than this Court to judge the veracity of Debtor's testimony. In light of her testimony and 12 the fact that Debtor was not obligated to arbitrate before filing for bankruptcy, the timing 13 of Debtor's subsequent bankruptcy does not alone establish that she acted deceptively or 14 fraudulently when she signed the Settlement Agreement with Aboud. Accordingly, the Court will affirm the Bankruptcy Court's ruling in favor of Debtor on Appellant's § 15 523(a)(2)(A) claim. 16 d. Award of Attorney's Fees 17 Appellant's remaining claims relate to the Bankruptcy Court's award of attorney's 18 fees to Debtor. A district court reviews the bankruptcy court's decision to award attorney's 19 fees for an abuse of discretion. In re Montano, 501 B.R. 96, 105 (9th Cir. BAP 2013). The 20 district court first "determine[s] de novo whether the bankruptcy court identified the correct 21 legal rule for application." In re Daecharkhom, 505 B.R. 898, 900 (9th Cir. BAP 2014). If 22 the bankruptcy court applied the correct rule, the district court must "determine under the 23 clearly erroneous standard whether [the bankruptcy court's] factual findings and its 24 application of the facts to the relevant law were: (1) illogical, (2) implausible, or (3) without 25 support in inferences that may be drawn from the facts in the record." In re Montano, 501 26 B.R. at 105. 27 Section 523(d) of the Bankruptcy Code states that if a creditor seeks to have their 28 debt exempted from discharge under § 523(a)(2), "and such debt is discharged, the court 1 shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee 2 for, the proceeding if the court finds that the position of the creditor was not substantially 3 justified, except that the court shall not award such costs and fees if special circumstances 4 would make the award unjust." 11 U.S.C. § 523(d) (emphasis added). The creditor bears 5 the burden of establishing there was substantial justification for his claim by demonstrating 6 the claim had "a reasonable basis both in law and in fact." In re Hunt, 238 F.3d 1098, 1103 7 (9th Cir. 2001). 8 Appellant argues that the Bankruptcy Court erred by finding there was no 9 substantial justification for Aboud's actual fraud claim under § 523(a)(2)(A) because the 10 Supreme Court in Husky held that actual fraud "encompass[es] fraudulent conveyance 11 schemes, even when those schemes do not involve a false representation." (Doc. 8 at 17 12 (quoting Husky, 578 U.S. at 359).) Assuming without deciding that one of Aboud's three 13 claims was substantially justified, it is not clear that the Bankruptcy Court was required to 14 limit Debtor's fees by, presumably, one-third. Appellant provides no authority, nor has this Court found any, to suggest that § 523(d)'s award of fees can be parsed out based on the 15 number of individual claims. The statute's mandatory award of attorney's fees, absent 16 substantial justification or special circumstances, refers to the fees for "the proceeding," 17 not the individual claims. Thus, the Bankruptcy Court applied the correct law under § 18 523(d). 19 However, Appellant also argues that the Bankruptcy Court should have applied the 20 special circumstances exception to deny fees "across the board." (Id. at 21.) Appellant 21 states that the Bankruptcy Court's "unconscionable" ruling resulted in "a net loss of $60,000 22 on a $27,000 receivable." (Id.) 23 The meaning of special circumstances under § 523(d) "is not well defined." In re 24 Stine, 254 B.R. 244, 251 (9th Cir. BAP 2000). The discretion to deny fees for special 25 circumstances "is not 'a license to the bankruptcy judge to make decision[s] on 26 idiosyncratic notions of equity, fair dealing, or family justice. The exception should be 27 interpreted with reference to "traditional equitable principles."'" Id. (quoting In re 28 McCarthy, 243 B.R. 203, 209 (1st Cir. BAP 2000)). "Whether special circumstances exist 1 is determined in the context of the totality of the circumstances." In re Dizinno, 559 B.R. 2 400, 412 (Bankr. M.D. Penn. 2016). Moreover, "§ 523(d) was intended to curb abusive 3 practices by institutional creditors . . . ." Id. Special circumstances may exist where the 4 creditor's claims involved provisions of the Bankruptcy Code that do not require fee 5 shifting, or, in other words, claims brought under provisions besides § 523(a)(2). See In re 6 King, 258 B.R. 786, 798 (Bankr. D. Mont. 2001) (finding fees should not be awarded under 7 § 523(d) because creditor also brought a claim under §523(a)(6)); see also In re Swenby, 8 529 B.R. 705, 710–11 (Bankr. W.D. Wis. 2015) (finding fees should not be awarded 9 because creditor also brought claims under § 523(a)(4) and (a)(6)). 10 The Court finds that special circumstances exist, and the Bankruptcy Court erred in 11 deciding otherwise. Section 523(d)'s goal of curbing abusive practices by institutional 12 creditors would not be furthered by requiring Appellant to pay $60,000 on a claim for an 13 original $27,000 debt. Moreover, the complaint was not limited to claims under § 523(a)(2) 14 but also alleged an exemption under § 523(a)(6). Accordingly, the Court will reverse the Bankruptcy Court's award of attorney's fees to Debtor. 15 e. Attorney's Fees on Appeal 16 Debtor also makes the conclusory statement that she "should be awarded her fees 17 and costs incurred on this Appeal, upon compliance with Federal Rules of Appellate 18 Procedure 39, and Circuit Rules 39-1.1 & 39-1.6." (Doc. 12 at 18.) 19 Federal Rule of Appellate Procedure 39(a) states that, "unless the law provides or 20 the court orders otherwise . . . if a judgment is affirmed, costs are taxed against the 21 appellant." Fed. R. App. P. 39(a). Ninth Circuit Rule 39-1.1 requires an itemized bill of 22 costs to be submitted and Ninth Circuit Rule 39-1.6(a) sets a 14-day deadline for filing a 23 request for attorney's fees. Subsection (b) further requires a request for fees to 24 25 be supported by a memorandum showing that the party seeking fees is legally entitled to them and must be accompanied by Form 9 or a document that 26 contains substantially the same information, along with: (1) a detailed 27 itemization of the tasks performed each date and the amount of time spent by each lawyer and paralegal on each task; (2) a showing that the hourly rates 28 claimed are legally justified; and (3) an affidavit or declaration attesting to 1 the accuracy of the information. All applications must include a statement 2 that sets forth the application’s timeliness. The request must be filed separately from any cost bill. Because Debtor has not complied with these rules, the Court will not address 5 whether an award of attorney's fees for this appeal is appropriate. ‘ IV. Conclusion For the foregoing reasons, IT IS ORDERED that the appeal is DENIED IN PART ’ AND GRANTED IN PART. The Bankruptcy Court's award of attorney's fees to Debtor is REVERSED. The Bankruptcy Court's remaining findings are AFFIRMED. The Clerk ° of Court shall close this matter. Dated this 28th day of November, 2022.

12 13 fl Dp 14 TR- 15 Honorable Raner C. Collins 6 merior United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28

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