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Sunday, April 26, 2009

Law License Revoked Due To Failure To Repay Student Loans

Last week, I reported on Matter of Anonymous, 2009 NY Slip Op 02883, ___A.D.3d____(3rd Dep't. April 16, 2009), a New York Appellate Division decision which refused to admit a law school graduate who passed the NYS Bar examination to the New York Bar because he failed to repay his student loans. That posting is available here. Now, in Santulli v. Texas Board of Law Examiners, No. 03-06-00392 (Texas Ct. App. 3rd Dist. April 10, 2009),  a Texas appellate court pulled an attorneys license because he failed to pay back student loans. The lawyer had been granted a probationary license and given several opportunities to pay the loan or declare bankruptcy. He did neither. In agreeing with the lower tribunal which held that the attorneys license should be revoked, the court reasoned:

In its 2003 order, the Board found that Santulli's violation of his amended probationary license was "indicative of a lack of trustworthiness in carrying out responsibilities, especially given his prior failure to comply with the conditions of his agreed order with the Board," and concluded that there was "a clear and rational connection between Mr. Santulli's lack of trustworthiness in carrying out responsibilities, as evidenced by his failure to comply with condition 1 of his probationary license as amended, . . . and the likelihood that he would harm a client, obstruct the administration of justice, or violate the Texas Disciplinary Rules of Professional Conduct," and that his "failure to comply with condition 1 of his probationary license as amended is indicative of a lack of the good moral character required for admission." We must give appropriate deference to the Board's determination of whether there is a clear and rational connection between Santulli's financial irresponsibility and failure to meet his obligations under previous Board orders and the substantial possibility of harm to future clients or the obstruction of justice and must affirm if there is substantial evidence supporting the Board's decision. See Stevens, 868 S.W.2d at 776, 778 (Board has "considerable discretion" in applying admission standards).

The supreme court has held that the ethical standards required for admission to the Texas Bar demand more than "an absence of convictions involving serious crimes and crimes of moral turpitude" or the "mere absence of gross misbehavior." Id. at 776. Instead, the Board must affirmatively determine that an applicant has the good moral character and is fit to practice law. Id.; see Tex. R. Govern. Bar Adm'n IV(a) (West Supp. 2008). Under the rules governing admission to the Texas Bar, "[g]ood moral character is a functional assessment of character and fitness of a prospective lawyer," and the purpose of requiring present good moral character is to exclude from bar admission persons with character traits that "are likely to result in injury to future clients, in the obstruction of the administration of justice, or in a violation" of the rules of professional conduct. Tex. R. Govern. Bar Adm'n IV(b). "These character traits usually involve either dishonesty or lack of trustworthiness in carrying out responsibilities." Id. The supreme court has held that evidence of a "longstanding lack of financial responsibility" may be, on a case-by-case basis, "substantial evidence that [an applicant] suffers from a 'persistent inability to discharge, or unreliability in carrying out, significant obligations.'" Stevens, 868 S.W.2d at 781 (quoting Tex. Disciplinary R. Prof'l Conduct Terminology, reprinted in Tex. Gov't Code Ann., tit. 2, subtit. G, app. A, art. X, § 9 (West 2005) (defining "fitness")). "[T]here is a 'clear and rational connection' between . . . financial irresponsibility on the one hand, and 'the likelihood that [an] applicant would injure a client,' on the other." Id. (quoting Tex. Gov't Code Ann. § 82.028(c)(1)).

The 2003 hearing was held more than two years after Santulli agreed to the original order that required him to make payments under his CCCS and student loan debt-management plans. At the time of the hearing, Santulli could do no more than tell the Board that he planned to file for bankruptcy in the next month, which is essentially the same thing he told the Board a year earlier, during the 2002 hearing. In the intervening year, Santulli had not made any payments or made any arrangements to pay or discharge his debts; he "made arrangements" with one lawyer, whom he attempted to contact months later only to discover the attorney had moved away; and he testified that he had hired another attorney one to two months before the hearing but had not yet drawn up a petition or filed for bankruptcy. Santulli did not bring any documentation to the hearing showing that he was in the midst of filing or even preparing to file for bankruptcy, nor did he bring a contract or other proof that he had actually hired the second attorney or that the attorney was in the process of filing for bankruptcy on Santulli's behalf. We agree with the trial court that substantial evidence supported the Board's determination that there is a clear and rational connection between Santulli's lack of trustworthiness or reliability in carrying out responsibilities and the likelihood that he will harm a client, obstruct the administration of justice, or violate the disciplinary rules.

The sad thing about all this is that after the petition to revoke his license was filed, the attorney did file for bankruptcy. The court did not consider that because it dehors the record. A National Law Journal article about this case reports that the former attorney is a 1998 graduate of Texas Southern University Thurgood Marshall School of Law and the amount of loan debt was $67,000. The former attorney reportedly plans to appeal.

Is this another extreme case? Perhaps, it is because the dispute over repayment went on for several years. On the other hand, the amount is only $67,000 and the attorney did eventually file for bankruptcy. I am not even sure why the attorney filing for bankruptcy is material as student loans are generally not dischargeable. Additionally, I am not sure why this attorney was on probation in the first place. This may be one of those cases that raises more questions than it answers.

Mitchell H. Rubinstein


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Comments

I imagine that the bankruptcy filing was considered relevant because he may have qualified to discharge his student loans. Under 11 U.S.C. 5232(a)(8), student loans are nondischargeable, unless nondischargeability would work a substantial hardship upon the debtor.

Summarizing mounds of case law into a single sentence, a substantial hardship occurs if the debtor is at or near the federal poverty line, they tried to profitably utilize the degree, they failed to profitably utilize the degree, and it is unlikely that they will be able to profitably utilize the degree. If a debtor was disbarred for some malfeasance like stealing from clients, sleeping with clients, or rank incompetence, the bankruptcy court would probably reject a substantial hardship finding on the basis that the hardship was of the debtor's own making.

If, as it seems in this case, the debtor was attempting to maximize the value of the degree but could not because the license was stripped for not making enough to pay back the loan, then the court might find that the the substantial hardship was not of the debtor's making and grant discharge on the student loans to restore the debtor's law license and give the fresh start in bankruptcy. This is assuming that the debtor was not earning enough to payback the loans and then diverting the earnings to some frivolous pursuit.

Posted by: David Fuller | Apr 28, 2009 5:57:40 PM

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