In re Riebesell

• Citation: 586 F.3d 782
• Decision Date: 28 October 2009
• Docket Number: No. 09-1072.,09-1072.
• Parties: In re Harold Frederick RIEBESELL, Jr., a/k/a Rick Riebesell, officer, director, shareholder of HFR, Inc.; formerly doing business as The Riebesell Law Firm, P.C.; member of Perigee Group LLC and Strategem Company, Debtor. W.A. Johnson, Jr., Plaintiff-Appellee, v. Harold Frederick Riebesell, Jr., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

586 F.3d 782

In re Harold Frederick RIEBESELL, Jr., a/k/a Rick Riebesell, officer, director, shareholder of HFR, Inc.; formerly doing business as The Riebesell Law Firm, P.C.; member of Perigee Group LLC and Strategem Company, Debtor.

W.A. Johnson, Jr., Plaintiff-Appellee, v. Harold Frederick Riebesell, Jr., Defendant-Appellant.

No. 09-1072.

United States Court of Appeals, Tenth Circuit.

October 28, 2009.

Submitted on the briefs:^*

Harold Frederick Riebesell, Jr., Pro Se.

D. Bruce Coles, Esq., Law Office of D. Bruce Coles, Denver, CO, for Plaintiff-Appellee.

Before O'BRIEN, PORFILIO, and TYMKOVICH, Circuit Judges.

O'BRIEN, Circuit Judge.

Plaintiff W.A. Johnson, Jr. brought this adversary proceeding seeking to prevent the discharge of a debt owed to him by his attorney, Harold Frederick Riebesell (the debtor). Johnson claimed the debt was not dischargeable because it was the product of Riebesell's false representations, specifically Riebesell's failure to meet disclosure obligations imposed upon him by the Colorado Rules of Professional Responsibility. After a trial, the bankruptcy court decided most of Riebesell's debt was not subject to discharge. It entered judgment in favor of Johnson on the non-discharged portion of the debt. It further awarded Johnson post-judgment interest at the rate of twenty-four percent (24%), as provided for in the promissory note securing the debt. Riebesell appealed from the bankruptcy court's order to the Tenth Circuit Bankruptcy Appellate Panel (BAP), which affirmed. He now appeals from the BAP decision.¹

BACKGROUND

Riebesell is an attorney licensed in Colorado since 1972. Johnson is a retired computer information consultant who worked primarily in the health care field. The two men have known each other since the early 1960s, when they went to high school together. Later they lived in the same neighborhood where they socialized on occasion and their children sometimes played together.

In July 1999, Johnson hired Riebesell as his attorney to prepare a consulting agreement and stock subscription agreement between Johnson and a small technology-based management consulting company. Riebesell prepared and delivered the requested agreements. They were executed in October 1999. Johnson did not formally engage Riebesell to perform any further legal services at that time, but neither did the parties formally terminate the attorney-client relationship.

Less than two months after the documents were executed, Riebesell asked Johnson for a personal loan of $90,000 for a period of one year. Riebesell told Johnson his move from one law firm to another had left him temporarily short of cash, but he was confident in the prospects for his future financial success at the new firm. He needed the loan to serve as a bridge between the two practices.

Johnson agreed to make the loan. On December 14, 1999, he issued a personal check to Riebesell in the requested amount. In return, Riebesell prepared and delivered an unsecured promissory note with a one-year term, bearing interest at the rate of twelve percent (12%) per annum (the "1999 note").

At the time Johnson made the loan, the Colorado Rules of Professional Conduct provided as follows:

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client;

(2) the client is informed that use of independent counsel may be advisable and is given a reasonable opportunity to seek the advice of such independent counsel in the transaction; and (3)the client consents in writing thereto.

Colo. R. Proff'l Conduct 1.8(a) (1993).²

Riebesell made none of the disclosures required by Rule 1.8(a) in connection with the $90,000 loan transaction. And Johnson did not investigate Riebesell's financial condition or consult with outside counsel in connection with the loan transaction. According to his later testimony, Johnson agreed to make the loan because Riebesell "was a long-term friend, he was my attorney, I relied on him." Aplt.App. at 42.

In April 2000, before the 1999 note was due, Johnson again hired Riebesell to perform legal work in the form of a comprehensive estate plan. The plan included a family limited partnership agreement involving a limited liability company (LLC). In August 2000, while working on the operating agreement for the LLC, Riebesell informed Johnson that his financial affairs had not gone as planned and he would be unable to pay the 1999 note when it fell due in December 2000. Johnson agreed to a one-year extension of the due date. Riebesell later delivered the operating agreement, which was executed on November 13, 2000.

Riebesell prepared a new unsecured promissory note, dated August 29, 2000; it incorporated the principal and accrued interest on the December 1999 note (the "2000 note"). The new principal balance was $97,663.56. The note bore interest at the rate of twelve percent (12%) per annum and the entire amount was due no later than January 31, 2001. According to the terms of the new note, in the event of default Johnson could opt to accelerate the loan, in which case it would become immediately due and payable and bear interest at the rate of twenty-four percent (24%). Again, no disclosures under Rule 1.8(a) were made in connection with this loan, and Riebesell made no payments on it.

Following execution of the 2000 note, the parties' attorney-client relationship continued. In late 2000, Johnson asked Riebesell for legal advice concerning real estate investments; in 2001, he asked him to draft a revised will; and in 2002, he directed Riebesell to prepare an irrevocable insurance trust.

By 2002, the 2000 note was in default and Riebesell told Johnson he had no funds with which to pay it. In an attempt to generate funds to pay the note, Johnson agreed to help Riebesell form a consulting business called Perigee Group LLC ("Perigee"). Perigee would share office space with Riebesell's new law firm, the Riebesell Law Firm, P.C., and Johnson would provide consulting services to Perigee.

Johnson agreed to loan Riebesell an additional $45,000 as seed money for the new endeavor. He advanced $20,000 in December 2002, $10,000 in February 2003, and $15,000 in April 2003. In exchange for these advances on April 22, 2003, Riebesell executed a new unsecured note in favor of Johnson in the amount of $194,303.94 (the "2003 note"). The 2003 note represented the sum of three items: the principal of the 2000 note ($97,663.56); the accrued interest on the 2000 note ($51,640.38); and the amounts lent for the Perigee business ($45,000). The entire sum was due and payable on or before January 31, 2005. The 2003 note bore interest at twelve percent (12%) per annum and contained a default interest rate of twenty-four percent (24%) per annum.

By March or April 2003, the parties' personal and business relationship had soured. Johnson left the office space, refused to provide consulting services to Perigee, and terminated Riebesell's legal representation.

Riebesell defaulted on the 2003 note when it came due. In May 2006, Johnson filed a collection action against Riebesell in state court. That same month, on May 26, 2006, Riebesell filed for Chapter 7 relief.

Riebesell's Schedule of Creditors Holding Unsecured Nonpriority Claims identified thirty-nine creditors. About a third of these, including Johnson, were individuals, many of them current or former clients of his law practice. Riebesell had borrowed nearly $1 million from these individuals.

Johnson filed this adversary proceeding in November 2006, seeking judgment in the principal amount of the 2003 note, interest at the default rate of twenty-four percent (24%), and to except the debt from discharge. On September 20, 2007, Riebesell signed a Conditional Admission of Misconduct with the Colorado State Bar involving one of his debts to another former client. He admitted to violating Colorado Rule of Professional Conduct 1.8(a) by borrowing money from a client on terms that were not fair and reasonable to the client under the circumstances and by failing to inform the client that the use of independent counsel might be advisable.

Johnson's claims were tried to the bankruptcy court. It: 1) granted judgment in favor of Johnson for the full amount of the 2003 note and accrued interest to the date the adversary proceeding was filed, less the $45,000 he had loaned Riebesell as part of the Perigee business and any interest attributable to the Perigee debt, 2) declared the portion of the debt for which it had granted judgment non-dischargeable, and 3) provided the judgment would bear interest at the rate of twenty-four percent (24%). Johnson submitted a proposed order calculating the amount of the non-dischargeable judgment at $300,475.13, which the district court signed over Riebesell's objection.

Riebesell appealed to the BAP, which affirmed the bankruptcy court's order. Johnson did not cross-appeal from the bankruptcy court's decision determining that the $45,000 was dischargeable.

ANALYSIS

1. Standard of Review

This is an appeal from a BAP decision. See 28 U.S.C. § 158(d)(1). But, "we review only the Bankruptcy Court's decision." Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1204 (10th Cir.2005); Johnson v. Smith (In re Johnson), 575 F.3d 1079, 1082 (10th Cir. 2009). "By this we do not mean that we ignore the procedural posture of the case before us-an appeal from a BAP decision. Rather, we mean that we treat the BAP as a subordinate appellate tribunal whose rulings are entitled to no deference (although they certainly may be persuasive)." Mathai v. Warren (In re Warren), 512 F.3d 1241, 1248 (10th Cir.2008). We...