U.S. Fifth Circuit Finds Attorney’s Promissory Note to Former Client Non-Dischargeable Where Attorney Violated Rule 1.8(h)

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Mr. Selenberg, an attorney, filed for Bankruptcy, and sought to discharge, among other things, a promissory note that was provided to a former client whose case Mr. Selenberg allowed to prescribe.  He argued that the debt should be discharged, as he did not make any “false representations” to his former client, Mrs. Bates.

“For one, he notes that he accurately stated that he had no funds or assets to pay Bates. But the bankruptcy court based its decision on Selenberg’s failure to disclose material information, not on overt statements he made. This Court and others have overwhelmingly held that a debtor’s silence regarding a material fact can constitute a false representation actionable under section 523(a)(2)(A)….  The bankruptcy court found that Selenberg was Bates’s attorney, and as such, he was required to abide by the Louisiana Rules of Professional Conduct.  Rule 1.8(h)(2) provides that a lawyer shall not ‘settle’ an actual or potential malpractice claim ‘with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.’ The bankruptcy court found that Selenberg concocted an agreement or settlement that bought him almost two years of time without being sued by Mrs. Bates. Because there was absolutely no evidence that Selenberg ever advised Mrs. Bates, either orally or in writing, to seek independent counsel prior to entering this agreement, the court held that Selenberg failed to fulfill his duty to disclose under Rule 1.8(h) and thereby made a false representation for purposes of § 523(a)(2).”

 

Selenberg v. Bates, No.16-30649, 2017 WL 1822310 (5th Cir. May 8, 2017).

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