Wednesday, July 1, 2015


            Several years ago, a client contacted us because it suspected that it had been scammed by an individual it had trusted. After briefly investigating, we learned that the client’s suspicion was correct. The individual (who we’ll call John Smith) had collected well over $100,000 on debts owed to our client, a construction subcontractor, for extensive goods and services our client provided. For over two years, Smith, through his company (which we’ll call ABC Corp.), billed our client and accepted its payments for services purportedly performed in attempting collection of the debts on behalf of our client. He also repeatedly reassured our client that he was acting in its interests and on its behalf, and would notify it as soon as collection was made. Despite collecting approximately $130,000, Smith never notified our client and, when the client got word that Smith had collected some of the money and confronted Smith, he affirmatively denied any such recovery.
            Obviously our client had been defrauded, and we had to take action against Smith to protect our client’s rights. The only hitch was that both Smith and ABC Corp. filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. In fact, Smith’s petition was filed just four days after he obtained the vast majority of the $130,000, through another corporation he owned.
            It is well known that some debts are non-dischargeable in bankruptcy. Debts resulting from fraud are one example. So we knew we had a basis to file an “adversary proceeding” against Smith in the bankruptcy court, objecting to the discharge of the debt he owed our client as a result of his fraud. After looking at his bankruptcy schedules and statement of financial affairs, however, we realized that there were glaring omissions and misstatements that gave rise to an objection to Smith’s discharge entirely. So we filed a complaint against Smith, objecting both to the discharge of the specific debt owed to our client as well as to his discharge generally.
            At first, Smith failed to answer or otherwise respond to our complaint, and also failed to appear at the first scheduled hearing in the case. Only after we filed a motion for entry of default, did Smith appear. His attorney (different from the one who represented him when he filed the bankruptcy petition itself) asked the court for additional time to answer or otherwise plead, and the court granted it. A baseless motion to dismiss was filed, and after it was fully briefed, the court denied it. When Smith finally answered the complaint, he included some nonsensical affirmative defenses, requiring us to file a motion to strike such defenses. After that motion was fully briefed, the court granted it and struck the affirmative defenses, and so we were finally ready to move past the pleading stage almost a year after our complaint was filed. Unfortunately, our difficulties in dealing with Smith had just begun.
            Pursuant to court protocol, we had to exchange mandatory disclosures with Smith. We made our own disclosures to Smith, but he failed to reciprocate. Smith’s attorney contacted us to explain that he was having difficulty working with Smith, and shortly thereafter he withdrew as Smith’s counsel. Smith continued to ignore his mandatory disclosure obligation, just as he ignored our discovery requests. This went on for several months, despite our efforts to communicate with Smith and obtain his compliance. This necessitated motion practice, including a motion for default judgment. Again, only after forcing wasteful motion practice upon us and involving the court, and only after the court ordered him to comply, did Smith respond to our discovery requests and sit for his deposition. Even then, his responses were grossly inadequate and his deposition testimony was combative and, as would later be proved, dishonest.
            Smith then prevailed upon the court to appoint him pro bono counsel. Several excellent attorneys from a large firm filed their appearances on his behalf, and extensive discovery ensued. Smith, while living in a large home and driving luxury cars, now had lawyers devoting countless hours to his case free of charge, leaving no stone unturned.
            We made several efforts to settle on very reasonable terms, but Smith was determined to fight us to the end. After a trial, three years after the complaint was filed, Smith’s mendacious and pugnacious testimony, as well as the mountain of evidence against him, resulted in a judgment in our favor, denying Smith’s discharge. However, because it was unnecessary to the determination that Smith’s discharge must be denied, the court abstained from ruling on the claims for the debt that Smith owed to our client. Consequently, we had to initiate a new lawsuit, this time in state court.
            Smith was wily, and we knew that the sheriff would not have much luck serving him with summons. But with a little planning and coordination, we were able to serve Smith using a special process server. We were then well on our way to obtaining a money judgment against Smith and justice for our client. . . . Two days later, Smith died.
            Unsure of what assets might turn up for either the bankruptcy estate (whose administration is still ongoing) or the probate estate that was opened shortly after Smith’s death, we decided to continue the litigation, substituting the personal representative of the probate estate as the party defendant. Apparently the personal representative was uninterested in defending, and we obtained a default judgment, which included punitive damages.

            The above saga illustrates that you can never be sure what to expect in litigation, and what seems like a straightforward case can sometimes morph into an intense battle of wills, full of twists and turns.