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. Proffl 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 Mend, he was my attorney, I relied on him.” ApltApp. 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 an-num 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 Riebe-sell 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.
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, Riebe-sell 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 Riebe-sell’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),
2. False Representation
The bankruptcy court concluded the debt was non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) because Riebesell had made a false representation to Johnson in connection with the loan. The pertinent statute reads as follows:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt — ■
(2)for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition[.]
11 U.S.C. § 523(a)(2)(A).
In order to establish a non-dis-chargeable claim under this subsection, a creditor must prove the following elements by a preponderance of the evidence: “The debtor made a false representation; the debtor made the representation with the intent to deceive the creditor; the creditor relied on the representation; the creditor’s reliance was reasonable; and the debtor’s representation caused the creditor to sustain a loss.”
Fowler Bros. v. Young (In re Young),
(1) he had no attorney-client relationship with Johnson when the loan was negotiated or completed and, hence, he had no duty to make the Rule 1.8(a) disclosures;
(2) the transaction falls into an exception contained in the official commentary to Rule 1.8(a) exempting standard commercial transactions between a lawyer and a client;
(3) he did not make a false representation in connection with the loans with the intent of deceiving Johnson; and
(4)there was no showing that Johnson justifiably relied on the attorney-client relationship in making the loans.
We consider each of these arguments in turn.
A. Attorney-Client Relationship
Under Colorado law,
An attorney-client relationship is established when it is shown that the client seeks and receives the advice of the lawyer on the legal consequences of the client’s past or contemplated actions. The relationship may be inferred from the conduct of the parties. The proper test is a subjective one, and an important factor is whether the client believes that the relationship existed.
Further, the attorney-client relationship is an ongoing relationship giving rise to a continuing duty to the client unless and until the client clearly understands, or reasonably should understand, that the relationship is no longer to be depended on.
People v. Bennett,
Riebesell says an attorney-client relationship did not exist at the time of the first (1999) loan because his legal services relating to the consulting agreement and stock subscription agreement were complete by the time Johnson made the loan. But we agree with the bankruptcy court, which held otherwise' — an attorney-client relationship did exist because (1) the relationship did not formally terminate until March or April 2003, when Johnson terminated it; (2) in his Conditional Admission of Misconduct, Riebesell recognized an attorney-client relationship with a different client on facts less compelling than those
Riebesell also says no attorney-client relationship should be recognized at the time of the 2000 note because, although he was representing Mr. Johnson on other matters at that time, the new note merely capitalized the accrued interest and thus did not amount to a new loan. But § 523(a)(2)(A) reaches a “renewal, or refinancing of credit, to the extent obtained by ... a false representation,” as well as an original extension of credit. 4 He further argues that Johnson did not depend on the attorney-client relationship in connection with the execution and delivery of the note. But at this stage of inquiry the existence of an attorney-client relationship is the issue, not Johnson’s “dependence” on that relationship. The requisite attorney-client relationship existed when the 2000 note was negotiated, executed and delivered. 5
B. “Standard Commercial Transaction” Exception
Riebesell contends he was not obligated to make the disclosures required by Rule 1.8(a) because the loans from Johnson were “standard commercial transactions.” He relies on Official Commentary to the Rule indicating it
does not apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others, for example, banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities’ services. In such transactions, the lawyer has no advantage in dealing with the client, and the restrictions in paragraph (a) are unnecessary and impracticable.
Colo. R. Profl Conduct 1.8, cmt. 1 (1993).
We find the BAP’s reasoning on this point compelling: 6
[Riebesell] attempts to characterize several transactions throughout which he represented [Johnson] as “making loans;” i.e., the purchase of stock in the small technology-based management consulting company in 1999, and the real estate investment in 2000. These transactions hardly elevate [Johnson] to the position of being in the banking or brokerage business. Further, [Johnson] testified that he had never loaned money to anyone personally prior to making the loan to [Riebesell], [Riebesell’s] argument regarding the standard commercial transaction exception is without merit, and little more than wishful thinking.
Aplt.App. at 330.
The loans to Riebesell were not “standard commercial transactions” exempt
C. Intent to Deceive
Riebesell next argues his intent to deceive Johnson was not proved by a preponderance of the evidence. Riebe-sell’s failure to make the disclosures required by Rule 1.8 constitutes a “false representation” within the meaning of § 523(a)(2)(A).
See Young,
His argument is too simplistic. The intent to deceive “may be inferred from the totality of the circumstances.”
Id.
(quotation omitted). And that is precisely the inference drawn by the bankruptcy court. It concluded that Johnson’s trust in Riebe-sell, his attorney, caused him, like so many others, to fall for Riebesell’s scheme of borrowing money from clients. Riebesell ensnared several other clients and he continued to do so until just three months before he filed his bankruptcy petition.
See Johnson v. Riebesell (In re Riebesell),
D. Justifiable Reliance
The fourth element of the § 523(a)(2)(A) test requires the creditor’s reliance to be “reasonable.” The appropriate standard is not “reasonableness” in the sense of whether an objectively reasonable person would have relied upon the debtor’s false representations. Rather, the inquiry is whether the actual creditor’s reliance was “justifiable” from a subjective standpoint.
Field v. Mans,
Although his argument on this point is not easy to follow, Riebesell appears to contend the bankruptcy court and the BAP applied a purely subjective standard of justifiable reliance, abandoning the measuring stick of reasonableness altogether. He says Johnson could not have actually and justifiably relied on the attorney-client relationship as a basis for lending him money, noting Johnson “is an astute businessman who was well-educated. He was interested in making loans as an investment. He had access to other attorneys.” Aplt. Opening Br. at 17-18. And, he argues, Mr. Johnson knew of his declining financial condition, but kept loaning him money anyway.
The bankruptcy court was not insensitive to these considerations. By the time Johnson lent Riebesell the final $45,000, the bankruptcy court decided his reliance on Riebesell as his attorney was no longer justifiable, saying Johnson “was not a naif, but was, instead a competent business man” who was well aware that Riebesell’s declining financial condition made it unlikely that he would be repaid.
Riebesell,
3. Bankruptcy Court’s Jurisdiction to Enter Money Judgment 10
As part of its order denying discharge of the debt, the bankruptcy court
Pursuant to § 1334(b), the district courts have exclusive jurisdiction of all bankruptcy cases under Title 11 of the United States Code, and “original but not exclusive jurisdiction of all civil proceedings arising under Title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). In accordance with this grant of jurisdiction, district courts may refer “core” and “related-to” proceedings to the bankruptcy courts for adjudication.
See
28 U.S.C. § 157. As Riebesell acknowledges, a proceeding to determine non-discharge-ability of a debt under § 523 is a core proceeding arising under the bankruptcy code and may be determined by a bankruptcy court.
See Morrison v. W. Builders of Amarillo, Inc. (In re Morrison),
According to the circuit courts that have considered this issue, bankruptcy courts do possess such jurisdiction.
See, e.g., Morrison,
4. Interest Rate
Finally, Riebesell challenges the bankruptcy court’s decision to award post-judgment interest at twenty-four percent (24%), the penalty rate contained in the 2003 note. According to him post-judgment interest should have been awarded at the statutory rate contained in 28 U.S.C. § 1961 rather than at the rate set in the note. Section 1961 provides in pertinent part that
Interest shall be allowed on any money judgment in a civil case recovered in a district court.... Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment. The Director of the Administrative Office of the United States Courts shall distribute notice of that rate and any changes in it to all Federal judges.
28 U.S.C. § 1961(a) (footnote omitted).
We review de novo the bankruptcy court’s interpretation and application of § 1961.
Society of Lloyd’s v. Reinhart,
The judgment here was entered in federal court and is a federal judgment. In upholding the bankruptcy court’s application of a post-judgment interest rate of twenty-four percent (24%) however, the BAP reasoned that Johnson’s entitlement to “a judgment measured by the ‘benefit-of-the-bargain rule’ ” entailed post-judgment interest at the contractual rate rather than the federal judgment rate in § 1961. Aplt-App. at 335-36. We cannot agree.
"[P]arties may contract to, and agree upon, a post-judgment interest [rate] other than that specified in § 1961.”
Reinhart,
No such language is present in the promissory note before us. The general provision in the note that Colorado law will apply is insufficient to avoid § 1961.
See Reinhart,
CONCLUSION
The judgment of the BAP is AFFIRMED, with the exception of that portion of the judgment affirming the bankruptcy court’s award of post-judgment interest at the rate of twenty-four percent. That portion of the BAP’s judgment is REVERSED, and this case is REMANDED with instructions to remand to the bankruptcy court to vacate its award of twenty-four percent interest and to enter an amended judgment awarding post-judgment interest at the rate provided in 28 U.S.C. § 1961.
Notes
. Our jurisdiction derives from 28 U.S.C. § 158(d).
. Rule 1.8(a) was amended in 2007 but the amendments were minor and do not impact our analysis or decision in this case.
. As discussed further, infra, the Supreme Court later clarified that the proper standard is "justifiable reliance" rather than "reasonable reliance.”
. Riebesell rather callously claims his execution of the second note was an “action[] favorable to [Johnson]” rather than a sign of Johnson’s dependence on the attorney-client relationship. Aplt. Opening Br. at 12. This argument ignores other consideration for the 2000 note — the extension of the obligation's due date and forbearance of litigation as well as capitalization of interest.
. Although the attorney-client relationship appears to have been severed by the time of the third note, executed in 2003, the damage had already been done with regard to the portion of the debt the bankruptcy court found to be non-dischargeable. Johnson had advanced the money to his attorney and he had not been repaid.
.The bankruptcy court did not reach a conclusion on this issue. Nevertheless, the BAP addressed it on the merits.
. Riebesell argues that the BAP failed to provide any record evidence for its conclusion that Johnson had not previously made personal loans prior to his loan to Riebesell. At trial, Johnson was asked, "Prior to making that loan [to Riebesell] did you have any practice with making personal loans from your own funds?” to which he replied "No.” Aplt. App. at 40.
. Riebesell argues that his treatment of other client debtors is not probative of his intent to deceive Johnson, because they loaned him money after Johnson did and because they were sophisticated business and professional people, and many of them were represented by counsel. Aplt. Opening Br. at 16. These arguments do not defeat the bankruptcy court’s finding that the treatment of other client debtors was quite probative of Riebe-sell's intent to deceive Johnson.
.Riebesell also argues that if his conduct toward the other client debtors had truly been deceitful, more of them would have sued him. Aplt. Opening Br. at 16. The bankruptcy court gave numerous reasons for rejecting this argument, and we find all of them persuasive.
See Riebesell,
. Johnson contends, without citation to any authority, Riebesell has waived appellate review of his issues involving the bankruptcy court’s jurisdiction to enter a money judgment and the appropriate interest rate. According to Johnson, in order to raise these issues, Riebesell should have (1) filed a separate notice of appeal to the BAP from the final judgment issued on July 29, 2008, and (2) submitted a transcript to the BAP of the final judgment hearing that occurred on July 29, 2008.
The BAP addressed both of the allegedly waived issues on the merits. If it
lacked jurisdiction to do so,
however, this would not permit us to exercise appellate review.
See Lang v. Lang (In re Lang),
First, in its Findings of Fact, Conclusions of Law and Order of May 23, 2008, from which Riebesell pursued a timely appeal, the bankruptcy court both entered judgment against him and set an interest rate of twenty-four percent (24%), the exact actions of which he complained on appeal to the BAP and now complains to this court.
Riebesell,
Second, any defect in the appellate record before the BAP was not a jurisdictional defect. See Bankr.R. 8001 ("An appellant’s failure to take any step other than timely filing a notice of appeal does not affect the validity of the appealf]”). It therefore does not affect our ability to hear the issues on appeal.
. In reaching its decision that a rate of twenty-four percent (24%) should prevail, the BAP cited Colorado statutes pertaining to post-judgment interest rates that apply the rate specified in the contract or writing.
See
Colo. Rev.Stat. § 5—12—102(4)(a) (1984). But even in cases founded on diversity jurisdiction, the post-judgment interest rate on a federal court judgment is established by federal law, not state law.
See Youngs v. Am. Nutrition, Inc.,