616 B.R. 745
Bankr. N.D. Ill.2020Background
- In Jan. 2018 Potter retained Schiller DuCanto & Fleck, LLP for divorce representation; engagement signed by Potter and her brother (who also signed a guaranty).
- By June 2018 Schiller demanded payment; Potter (or her brother as agent) repeatedly represented that "full payment would be made."
- Schiller alleges those representations were false and that Potter currently owes $239,486.03 in unpaid fees.
- Potter filed Chapter 7 in Aug. 2019; Schiller filed an adversary proceeding seeking a nondischargeability determination under 11 U.S.C. § 523(a)(2)(A).
- Schiller served the summons and complaint by first-class mail to the address on Potter’s petition and to Potter’s counsel and filed a sworn return of service.
- Potter moved to dismiss for insufficient service (Fed. R. Civ. P. 12(b)(5)) and for failure to state a claim (Fed. R. Civ. P. 12(b)(6)). The court found service sufficient but dismissed the complaint for failing to plead the intent element of promissory fraud, with leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of service under Fed. R. Bankr. P. 7004 | Service by first-class mail to address on petition and to counsel satisfied Rule 7004 and proved by sworn return | Service was ineffective because neither Potter nor counsel "received" the complaint | Service was sufficient; return of service created prima facie proof and Potter offered no admissible evidence to rebut it |
| Whether debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) (fraud) | Potter made false representations (promises to pay) to induce continued representation, so debt is nondischargeable | Potter’s statements were oral promises about payment and thus were statements "respecting financial condition" or otherwise insufficient to show fraud | Complaint dismissed: statements were promissory (future conduct), not statements of financial condition; plaintiff failed to plead facts supporting an inference Potter made the promises with no intent to pay (intent element not adequately alleged) |
Key Cases Cited
- Relational, LLC v. Hodges, 627 F.3d 668 (7th Cir. 2010) (sworn return of service creates prima facie proof of proper service)
- Bak v. Vincze (In re Vincze), 230 F.3d 297 (7th Cir. 2000) (Rule 7004(b)(9) service on debtor by mailing to address in petition is sufficient)
- Hagner v. United States, 285 U.S. 427 (U.S. 1932) (properly mailed letter creates presumption of receipt)
- Joshi v. Ashcroft, 389 F.3d 732 (7th Cir. 2004) (bare, self-serving denial of receipt is weak evidence)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must provide more than formulaic recitation of elements)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plaintiff must plead sufficient factual content to show plausibility, including mental state)
- Davis v. The People (In re Davis), 638 F.3d 549 (7th Cir. 2011) (elements of representational fraud under § 523(a)(2)(A))
- Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (U.S. 2018) (definition and scope of a statement "respecting the debtor's financial condition")