Schiller Ducanto & Fleck, LLP v. Potter (In re Potter)

Citation616 B.R. 745
Decision Date06 July 2020
Docket NumberNo. 20 A 18,No. 19 B 23246,19 B 23246,20 A 18
Parties IN RE: Teri POTTER, Debtor. Schiller DuCanto & Fleck, LLP, Plaintiff, v. Teri Potter, Defendant.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

Attorney for plaintiff Schiller DuCanto & Fleck, LLP: Richard G. Larsen, Springer Larsen Greene, LLC, Wheaton, IL

Attorney for defendant Teri Potter: Matthew Lee Stone, Schneider & Stone, Inc., Skokie, IL

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge Before the court for ruling is the motion of defendant Teri Potter to dismiss the adversary complaint of plaintiff Schiller DuCanto & Fleck, LLP. Schiller alleges that Potter retained the firm to represent her in her divorce case and then failed to pay the bill. The resulting debt, Schiller says, is nondischargeable. Potter moves to dismiss the complaint either under Rule 12(b)(5) of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 12(b)(5) (made applicable by Fed. R. Bankr. P. 7012(b) ), for insufficient service of process, or under Rule 12(b)(6), Fed. R. Civ. P. 12(b)(6) (made applicable by Fed. R. Bankr. P. 7012(b) ), for failure to state a claim upon which relief can be granted.

For the reasons below, Potter's motion will be granted and the complaint dismissed for failure to state a claim. Schiller will be given leave to amend.

I. Facts

On a Rule 12(b)(6) motion, the court takes as true all well-pleaded allegations in the complaint and draws all reasonable inferences in favor of the non-movant. Viamedia, Inc. v. Comcast Corp. , 951 F.3d 429, 454 (7th Cir. 2020). Exhibits attached to the complaint are considered, as are matters subject to judicial notice. Geinosky v. City of Chi. , 675 F.3d 743, 745 n.1 (7th Cir. 2012).1 On a Rule 12(b)(5) motion, the court likewise assumes the truth of the complaint's well-pleaded allegations and draws reasonable inferences in the non-movant's favor. In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig. , 767 F. Supp. 2d 880, 891 (N.D. Ill. 2011). But the court can also consider affidavits and other documentary evidence. Cardenas v. City of Chicago , No. 08 C 3174, 2010 WL 610621, at *2 (N.D. Ill. Feb. 15, 2010), aff'd , 646 F.3d 1001 (7th Cir. 2011).

Schiller's short and spare complaint alleges the following. In January 2018, Potter entered into a written legal services agreement with Schiller. The purpose was for Schiller to represent Potter in connection with her divorce proceeding in the Circuit Court of Cook County, Illinois. Potter signed the agreement, as did Potter's brother, Adam. (According to Schiller, Adam also signed a separate guaranty of Potter's obligations under the agreement.) Erika Wyatt, a Schiller attorney, signed the agreement on Schiller's behalf.2

Potter must have racked up legal fees she failed to pay, because in June 2018 Wyatt told her that Schiller was "unable to carry a balance," and "the bill needed to be brought current." (Compl. ¶ 10). In response, either Potter or her brother (acting as her agent) told Schiller "on numerous occasions" that "full payment would be made by her, or by a member of her family." (Id. ).

The statements were false, and Potter knew they were false. Potter made them to induce Schiller to keep representing her. And relying on those statements, Schiller continued its representation. Potter currently owes Schiller $239,486.03 in unpaid fees.

In August 2019, Potter filed a chapter 7 bankruptcy case, and some months later Schiller filed this adversary proceeding. The one-count complaint alleges that Potter's debt to the firm is nondischargeable under section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), as a debt for services obtained by a false representation, false pretenses, or actual fraud.

Upon the filing of the complaint, the clerk of the court issued a summons to Potter. (Adv. Dkt. No. 2).3 On January 10, 2020, Schiller filed a return of service. (Id. No. 4). The return contains the sworn statement of Schiller's attorney that he served the summons and complaint on Potter by mail at an address in Wauconda, Illinois, and on Potter's bankruptcy counsel by mail at his office in Skokie, Illinois. (Id. ).

Potter now moves to dismiss the complaint either because service of process was insufficient or because the complaint fails to state a claim.

II. Discussion

Potter's motion will be granted. Potter is wrong that service was insufficient, but she is right that Schiller's complaint fails to state a claim – although the complaint's defect is not the one Potter identifies. Schiller will be given leave to amend to correct the actual defect.

A. Rule 12(b)(5)

Service of the complaint here was sufficient. Schiller served the complaint and proved service in the manner that the rules require. No evidence suggests otherwise.

The Bankruptcy Rules permit the methods of service available under Civil Rules 4(e)-(j). Fed. R. Bankr. P. 7004(b). Bankruptcy Rule 7004(b) then adds another: service can be made by "first class mail postage prepaid." Id. When the person to be served is "the debtor," service can be made "by mailing a copy of the summons and complaint to the debtor at the address shown in the petition or to such other address as the debtor may designate in a filed writing." Fed. R. Bankr. P. 7004(b)(9) ; see Bak v. Vincze (In re Vincze) , 230 F.3d 297, 299 (7th Cir. 2000). Rule 7004(g) adds that if an attorney is representing the debtor, service must also be made "upon the debtor's attorney." Fed. R. Bankr. P. 7004(g) ; see Vincze , 230 F.3d at 299. Under Rule 4(l ), service must be proved to the court, and with exceptions inapplicable here proof is made "by the server's affidavit." Fed. R. Civ. P. 4(l )(1) (made applicable by Fed. R. Bankr. P. 7004(a)(1) ).

Schiller served Potter with the summons and complaint by mailing them to her at the Wauconda address she listed on the second page of her petition. (See Bankr. Dkt. No. 1 at 2). Schiller also served Potter's attorney by mailing the summons and complaint to him at his office address. Schiller then filed a return of service consisting of its attorney's sworn statement. The statement said that the attorney had served Potter at her home address and Potter's attorney at his office by mailing copies of the summons and complaint to them "first class United States mail, postage fully prepaid." (Adv. Dkt. No. 4 at 2). The return constituted a prima facie showing of proper service. Relational, LLC v. Hodges , 627 F.3d 668, 672 (7th Cir. 2010) ; see also Vincze , 230 F.3d at 299 (noting that Rule 7004(b)(9) "does not require proof of actual receipt," only proof that the summons and complaint were mailed).

Potter offers nothing to rebut Schiller's showing. To overcome the return's prima facie effect, she had to produce " ‘strong and convincing evidence’ " that service was invalid. Relational , 627 F.3d at 672 (quoting O'Brien v. R.J. O'Brien & Assocs., Inc. , 998 F.2d 1394, 1398 (7th Cir. 1993) ). Potter has no evidence. All she offers is the bald assertion that neither she nor her attorney "received notice of this adversary proceeding via any method other than PACER." (Mot. at 3). But that assertion is not evidence; Potter supplies no affidavit to back it up. See Bilal v. Rotec Indus., Inc. , No. 03 C 9220, 2004 WL 1794918, at *3 (N.D. Ill. Aug. 5, 2004) (denying a Rule 12(b)(5) motion when the defendant alleged only that "he never received a copy of the summons"); Moglia v. Lowitz & Sons (In re Outboard Marine Corp.) , 359 B.R. 893, 898 (Bankr. N.D. Ill. 2007) (rejecting a defendant's "mere denial of receipt").

Not that her affidavit would have made a difference. It is "well settled" that "proof that a letter properly directed was placed in a post office creates a presumption that it reached its destination in usual time and was actually received by the person to whom it was addressed." Hagner v. United States , 285 U.S. 427, 430, 52 S.Ct. 417, 76 L.Ed. 861 (1932) ; see also Boomer v. AT & T Corp. , 309 F.3d 404, 415 n.5 (7th Cir. 2002). The presumption is "very strong," In re FairPoint Commc'ns, Inc. , 462 B.R. 75, 80 n.7 (Bankr. S.D.N.Y. 2012) (internal quotation omitted), and an affidavit that simply denies receipt cannot overcome it, Joshi v. Ashcroft , 389 F.3d 732, 735-36 (7th Cir. 2004) ("[A] bare, uncorroborated, self-serving denial of receipt, even if sworn, is weak evidence. Nothing is simpler than submitting an affidavit in which one attests that one didn't receive a particular piece of mail." (Internal citation omitted)).

Because Schiller's return of service meets the requirements for service under Rule 7004 and stands unrebutted, the complaint will not be dismissed under Rule 12(b)(5).

B. Rule 12(b)(6)

Schiller's complaint will instead be dismissed under Rule 12(b)(6) for failure to state a claim. The complaint fails to state a claim under section 523(a)(2)(A).

1. Dismissal Standard

To survive a motion to dismiss under Rule 12(b)(6), a complaint must clear "two easy-to-clear hurdles." EEOC v. Concentra Health Servs., Inc. , 496 F.3d 773, 776 (7th Cir. 2007). First, the complaint must describe the claim in enough detail to give the defendant fair notice of its nature. Cornielsen v. Infinium Capital Mgmt., LLC , 916 F.3d 589, 598 (7th Cir. 2019). "[A] formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

Second, the claim must be "plausible on its face," id. , at 570, 127 S.Ct. 1955, meaning the plaintiff's right to relief must rise above a "speculative level," id. at 555, 127 S.Ct. 1955 ; see also Cornielsen , 916 F.3d at 598. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). To establish plausibility, a plaintiff must provide "enough details about the...

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