Business Law

Allred v. Arendt (In re Dozier) (Bankr. S.D.)

The following is a case update written by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLP, analyzing a recent decision of interest:


In Allred v. Arendt (In re Dozier), 2021 Bankr. LEXIS 3450 (Bank. S.D. December 15, 2021) (“Dozier”), the United States Bankruptcy Court for the District of South Dakota (the “Bankruptcy Court”) denied the Chapter 7 trustee’s motion for summary judgment against the debtor’s former counsel on claims alleging various species of fraud and sanctionable conduct for failure to identify assets that he knew the debtor was aware of but had not disclosed in his sworn schedules, the meeting of creditors or thereafter because the trustee had not proven such elements as the lawyer’s intent to defraud or failure to investigate properly.

Dozier can be found here


Facing massive medical bills, the debtor hired bankruptcy counsel in March 2015. In early April, his mother died, naming him as her sole heir. The day after, in response to a question from a friend of the debtor, the debtor’s counsel told her that her that the mother’s death would not “impact” the bankruptcy the debtor was planning to file. On May 21, the debtor filed his Chapter 7 petition, schedules and statements under penalty of perjury. In signing the petition, counsel certified under Bankruptcy Code (the “Code”) section 707(b)(4)(1) that, after inquiry, to his knowledge the information in it was correct. In response to a question on the schedules that called for the information, the debtor did not mention his mother’s recent death leaving him as her sole heir. In response to a question on the schedules whether he expected a change in his expenses the following year, the debtor “implied” that his mother was still alive by providing information that indicated he was sharing expenses with and paying rent to her. At his July meeting of creditors, the debtor again affirmed the accuracy of his initial filings and stated he was not the beneficiary of any probate proceeding. The trustee reported in mid-July that there were no nonexempt assets. The debtor was discharged on September 1 and the case was closed on October 5.

In the spring of 2017, the debtor hired the same counsel to help administer his mother’s estate. The debtor died in October of 2017, while his mother’s probate was still pending. A late 2018 inventory in the probate reflected a house worth just over $200,000 and some other, less material assets. The probate for the debtor’s estate indicated just over $1 million in debts that had already been paid, presumably a reference to the debtor’s Chapter 7 discharge. The house went from the debtor’s mother’s estate, to his estate and then to his daughter. Some other, de minimis assets followed the same path to the daughter and to her brother. At no time did the debtor or counsel advise the trustee or Court of the debtor’s interest in his mother’s estate as sole heir. Counsel later claimed he had no fiduciary duty to the bankruptcy court.

In 2020, the trustee reopened the case to sue counsel on various theories. Eventually, the trustee moved for summary judgment on three claims which survived counsel’s motion to dismiss: fraud on the trustee, fraud on the court and violation of Bankruptcy Rule 9011 (“Rule 9011”) (the bankruptcy cognate of Federal Rule 11) as also augmented by Code section 707(b). The Court denied the motion on the grounds that there were material facts in dispute even though there was no dispute that counsel never disclosed the mother’s probate proceedings or the debtor’s interest in her estate (even though he knew about the mother’s death in April of 2015, before filing the debtor’s bankruptcy, and about the particulars of the mother’s probate by 2017).


The Court systematically laid out the standards for summary judgment, including that the presiding court cannot weigh evidence, make credibility assessments and must limit inferences to those that favor the opponent. Based on these standards, the Court found that the trustee’s supporting evidence fell short on such issues as whether counsel had any disclosure obligation to the trustee (as contrasted with to the Court itself), whether counsel had the requisite intent to deceive by statement or omission and whether counsel had failed to conduct an appropriate inquiry before signing the petition. The Court also found that counsel’s preparation of the schedules, silence at the meeting of creditors and continued silence after he certainly knew the particulars of the mother’s estate as counsel in that probate matter did not establish fraud on the court or similar claims.


This seems a strained and unfortunate result. The pattern of dissembling by the debtor and by counsel is strong evidence of intentional and knowing misconduct by the debtor and by counsel. For example, we know that the debtor knew of his mother’s death before he filed his bankruptcy, and from his answer on his petition regarding income and expense it is equally clear that when he filed his petition both he and counsel knew the debtor’s mother had died, owned a house and no doubt had other assets because he stated he lived in the house and paid rent on it. These assets would be easily discoverable in the probate proceeding to follow, if not by rigorous questioning of the debtor himself. That does not prove the debtor or counsel knew the debtor would inherit those assets, but it surely put them both on notice to investigate further, an investigation that surely would have turned up the assets and his place in the will.

It is almost as though only a smoking gun admission by counsel would be the kind of proof that the Court demanded. Such proof not only is rare, but not by any means the kind of proof that will suffice. Though more of it may be needed to establish a claim, circumstantial evidence is certainly perfectly viable and permissible. Indeed, even some murder cases, requiring proof beyond a reasonable doubt, are established in the absence of a body when circumstantial evidence is convincing that there has been a killing. (Note, too, that the opinion sometimes does little more than say baldly and conclusively that the trustee did not provide the requisite proof.) In the author’s opinion, a decision like this undermines the need for candor by officers of the court that is vital to the judicial system. If counsel knows at the time or later finds out that his client misrepresented something by commission or omission, it is hard to accept that counsel can just remain silent. Perhaps the Court focused on a failure by the trustee to introduce evidence from the probate itself that would have established that it was a public record that was easily accessible through a simple inquiry. Alternatively, the trustee, assuming the result would be obvious, may have presented a lazy case; from the opinion, the scope of evidence the trustee offered is unclear.

For the claim of fraud on the trustee, Court probably is right to focus on the potential conflict between counsel’s fiduciary duty to his client and any such duty to the trustee, but even then there is another side to that coin. All counsel have clients, and yet all counsel also have a duty of candor to the court that may well require counsel to correct misinformation purveyed by the client, and that latter duty is not only prospective to making misrepresentations, but retrospective to correcting them.

These materials were authored by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLP, a member of the ad hoc group, with editorial assistance by Meredith Jury, (bankruptcy judge, C.D. Cal. (Ret.)), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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