Arent Fox’s Pro Bono Team Scores a ‘Home Run’ Victory for a Debtor Single Mother with Three Dependent Children
New York, NY — A team of Arent Fox LLP attorneys representing a single mother with three children pro bono obtained a major victory before the United States Bankruptcy Court for the Eastern District of New York, securing the dismissal with prejudice of a non-dischargeability complaint for over $250,000 under section 523(a)(2)(A) of the Bankruptcy Code.
In January 2013, Arent Fox was retained to represent Ms. T., an unemployed, single parent with three dependent children and no assets, following a divorce with her ex-husband, Mr. T. The matter was referred to Arent Fox by the Consumer Bankruptcy Project of the City Bar Justice Center (Justice Center) — one of only two pro bono bankruptcy projects in New York City — which provides legal assistance to debt-burdened low-income consumers. According to the Justice Center, the failure rate among New Yorkers filing pro se for bankruptcy is a staggering 90 percent. The Consumer Bankruptcy Project allows low-income New Yorkers who would otherwise be unable to file, due to inability to retain counsel, to reorder their finances and obtain a discharge.
Ms. T. filed her voluntary petition for protection under Chapter 7 of the Bankruptcy Code in February 2012. In May 2012, right before Ms. T. received her discharge, an adversary complaint was filed against her by Mr. and Mrs. S., seeking a determination that a debt in the amount of $250,000 was allegedly obtained by fraud or false pretenses and is therefore non-dischargeable under section 523(a)(2)(A) of the Bankruptcy Code. According to the complaint, Ms. T.’s ex-husband owned a plumbing company and borrowed $250,000 from plaintiffs and deposited the funds into Mr. and Mrs. T.’s joint bank account. The transaction was never documented. According to the plaintiffs, however, Mr. and Ms. T. were jointly and severally liable for failure to repay the alleged loan. Prior to Ms. T.’s bankruptcy filing, the plaintiffs obtained a default judgment in the Supreme Court of the State of New York. Ms. T. was unable to retain counsel to represent her in the adversary proceeding and the matter was referred by the Bankruptcy Court to the Justice Center.
Once Arent Fox became involved in the adversary proceeding in January 2013, Bankruptcy & Financial Restructuring partner George P. Angelich and associate George V. Utlik advised Ms. T. to file a motion to dismiss the adversary complaint for failure to state a claim and to plead fraud with particularity as required under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. Once the matter was fully briefed, the Bankruptcy Court held an oral argument in June 2013 and dismissed the complaint without prejudice, allowing the plaintiffs to file an amended complaint. In an attempt to locate viable legal and factual theories, the plaintiffs filed an amended complaint asserting new allegations designed to overcome the infirmities in their original complaint. Following careful review of the amended complaint, the Arent Fox team again advised Ms. T. to file a motion to dismiss it on the same grounds. Following submission of the parties’ briefs, the Bankruptcy Court held an oral argument in November 2013 and dismissed the plaintiffs’ amended complaint without prejudice, allowing them 30 days to file an amended complaint. After that, however, the plaintiffs were unable to assert any additional factual matter to overcome the infirmities in their pleadings, and the matter was eventually dismissed with prejudice. Thus, Ms. T. obtained a final decree and complete discharge of all debts in February 2014.
“We are delighted to have played a key role in bringing the outstanding results and dismissing the adversary complaint that could have resulted in a $250,000 non-dischargeability judgment against Ms. T. that she would be unable to pay,” said Mr. Angelich and Mr. Utlik. “This is precisely the sort of relief that low-income New Yorkers who would otherwise be unable to defend a non-dischargeability complaint, due to inability to retain counsel, the Justice Center was designed to provide.”