Christopher Trowbridge credits the shift from state district court to federal bankruptcy court for the win he achieved for his client, the Ward Family Foundation. Rarely do clients want to spend the money to pursue defendants who file for liquidation, because debtors clearly don’t have the means to pay. But the foundation wanted to make a point, so Trowbridge, a partner in Dallas’ Bell Nunnally & Martin, came up with a plan.

On June 7, the Alexandria, Va.-based nonprofit saw the switch pay off when U.S. Bankruptcy Judge Barbara J. Houser of Dallas issued a memorandum and accompanying judgment in favor of the foundation. In her memorandum in Ward Family Foundation v. Arnette, Houser wrote that defendant Christopher Adam Arnette is personally liable to the foundation for $1.2 million in actual damages and that the amount is “nondischargeable” in accordance with §§523(a)(2)(A) and (a)(6) and §523(a)(4) of the Bankruptcy Code.

As set out in Houser’s memorandum, the foundation agreed to invest in real estate with Arnette’s two companies and expected to receive what Arnette pledged would be an 18 percent return in most of the investments. But the foundation’s chief financial officer learned that Arnette had used the money the foundation invested to pay other investors and for personal expenses, not for the repair and maintenance of real estate properties as Arnette had represented to the foundation.

On May 12, 2009, the foundation sued Arnette and his two companies in state district court in Dallas alleging fraud, breach of contract and unjust enrichment, among other things.

On Dec. 22, 2009, Arnette filed for Chapter 7 bankruptcy protection in the U.S. Bankruptcy Court in Dallas, a move that stayed the state court suit the foundation had filed against Arnette and his two companies. As a result, the foundation removed the state court suit to Houser’s bankruptcy court and dropped the two companies as defendants. In its March 29, 2010, complaint against Arnette, the foundation objected to him discharging the debt he owed, among other things.

Houser noted that Arnette had made material misrepresentations to the foundation, specifically that he had completed more than $10 million in residential real estate transactions and invested in more than 40 properties in 2005 and was on track to complete more than 50 in 2006 and that he knew he would not use the foundation’s investments as he had represented. “In short, Arnette was in way over his head. He knew he needed to bring in more investors to keep his companies and himself afloat. To entice the Foundation into investing with him, Arnette continued to make certain promises that he never intended to keep,” Houser wrote.

Howard Marc Spector, a partner in Dallas’ Spector & Johnson who represents Arnette and his two companies, says his clients are not happy with Houser’s decision, but he declines further comment. In their May 3, 2010, answer to the foundation’s complaint filed in the bankruptcy, Arnette denied the allegations and alleged the foundation lacked standing.

Trowbridge is not sure his client will see any of the $1.2 million, but he believes the win will protect future investors.

Previous Litigators of the Week:

* “Litigator of the Week: Victory Is Sweet
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* “Litigator of the Week: Do-Over More Than Doubles Award
* “Litigator of the Week: Aftermath of Hurricane Ike
* “Litigator of the Week: Gone, But Not Forgotten
* “Litigators of the Week: $60 Million More
* “Litigator of the Week: Patent War Chest
* “Litigator of the Week: A Pound of Flesh