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In re Selenberg

United States Court of Appeals, Fifth Circuit

May 8, 2017

In the Matter of CARL J. SELENBERG, Debtor.

         Appeal from the United States District Court for the Eastern District of Louisiana

          Before PRADO, HIGGINSON, and COSTA, Circuit Judges.

          EDWARD C. PRADO, Circuit Judge:

         This appeal involves a bankruptcy dispute between Debtor and Appellant Carl J. Selenberg and Appellee Dianne P. Bates. The bankruptcy court held that a promissory note Selenberg gave to Bates was a nondischargeable debt under 11 U.S.C. § 523(a)(2)(A). The district court affirmed. On appeal, Selenberg argues that the bankruptcy court erred in concluding that the requirements for nondischargeability under § 523(a)(2)(A) were met. We AFFIRM.

         I. BACKGROUND

         In 2008, Bates was seriously injured in an accident. Bates retained an attorney, Robert Faucheux, to represent her in bringing a personal injury lawsuit, but Faucheux failed to file the suit before the prescriptive period had run. Bates then retained another attorney, Selenberg, to represent her in bringing a malpractice claim against Faucheux. But in another unfortunate series of events, Selenberg failed to properly file Bates's malpractice suit against Faucheux before the prescriptive period had run, and the case was ultimately dismissed.

         In early December 2011, Selenberg informed Bates that her case had been dismissed, and he told her that he had no malpractice insurance and no money with which to compensate her. On December 15, 2011, Selenberg met with Bates to discuss her potential malpractice claim against him. He only agreed to this meeting after Bates assured him that she did not intend to hire another attorney. Selenberg offered to give Bates a promissory note in the amount of $275, 000 plus attorneys' fees of up to 25% of the value of the note. He explained that one of his cases might pay out in the future and that he might be able to compensate Bates for her loss at that point. According to Selenberg, Bates would have five years to file suit to collect on the note, whereas she would only have one year to bring a malpractice claim against him. Selenberg also told Bates that if she filed an attorney disciplinary complaint against him, she would never recover anything from him. Bates accepted the offer, and shortly thereafter, Selenberg sent her the promissory note.

         Selenberg never made any payments on the note. On June 19, 2012, Bates filed a disciplinary complaint against Selenberg with the Louisiana Office of Disciplinary Counsel. On November 19, 2013, almost two years after she received the promissory note from Selenberg, Bates filed suit to collect on the note in Louisiana state court. At that point, the prescription period for her malpractice claim against Selenberg had run. On February 25, 2014, Selenberg filed for Chapter 7 bankruptcy, staying the state court case. Bates then filed this adversary proceeding seeking to have the promissory note declared nondischargeable under 11 U.S.C. § 523(a)(2)(A)-(B). Following a bench trial, the bankruptcy court held that the debt was nondischargeable under § 523(a)(2)(A). The district court affirmed, and Selenberg timely appealed.


         "When a court of appeals reviews the decision of a district court, sitting as an appellate court, it applies the same standards of review to the bankruptcy court's findings of fact and conclusions of law as applied by the district court." In re Jacobsen, 609 F.3d 647, 652 (5th Cir. 2010) (quoting Kennedy v. MindPrint (In re ProEducation Int'l, Inc.), 587 F.3d 296, 299 (5th Cir. 2009)). "Accordingly, we review conclusions of law de novo and findings of fact for clear error." In re Ritz, 787 F.3d 312, 315 (5th Cir. 2015), rev'd and remanded on other grounds sub nom. Husky Int'l Elecs., Inc. v. Ritz, 136 S.Ct. 1581 (2016). "Under a clear error standard, this court will reverse only if, on the entire evidence, we are left with the definite and firm conviction that a mistake has been made." In re Am. Hous. Found., 785 F.3d 143, 152 (5th Cir. 2015) (quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 480 (5th Cir. 2009)). In reviewing the bankruptcy court's findings of fact, we must also bear in mind that "the standard of proof for the dischargeability exceptions in 11 U.S.C. § 523(a) is the ordinary preponderance-of-the-evidence standard." Grogan v. Garner, 498 U.S. 279, 291 (1991).


         Section 523(a)(2)(A) provides that an individual debtor will not be discharged "from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." The bankruptcy court found that when Selenberg gave Bates the promissory note, the parties entered into an "agreement or settlement that bought [Selenberg] almost two years of time without being sued by Mrs. Bates." The court also held that Selenberg had a duty under Louisiana Rule of Professional Responsibility 1.8(h) to inform Bates of the desirability of seeking independent legal counsel before entering into this agreement. According to the bankruptcy court, by failing to disclose this information to Bates, Selenberg engaged in actual fraud within the meaning of § 523(a)(2)(A). Selenberg appears to make two basic contentions on appeal: (1) he did not receive an extension of credit from Bates; and (2) he did not use actual fraud to obtain any such extension of credit.

         A. Extension of Credit

         Selenberg first argues that he did not receive an extension of credit from Bates. Courts have stated that "[a]n extension, within the meaning of § 523(a)(2), is 'an indulgence by a creditor giving his debtor further time to pay an existing debt.'" In re Gerlach, 897 F.2d 1048, 1050 (10th Cir. 1990) (quoting Takeuchi Mfg. (U.S.), Ltd. v. Fields (In re Fields), 44 B.R. 322, 329 (Bankr. S.D. Fla. 1984)); accord In re Rollins, No. 06-10549, 2007 WL 2319778, at *6 (Bankr. E.D. La. Aug. 10, 2007). In other words, the Bankruptcy Code "protects the creditor who is deceived into forbearing collection ...

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