Wednesday, April 15, 2009

Lawyer Loses License for Failure to Pay Student Loans

The National Law Journal reported yesterday that a Texas lawyer lost his law license because he defaulted on his student loan. I'd heard of lawyers losing their licenses for failure to pay child support, but student loan debt-- that's hitting close to home. It turns out that there's a little more to this story than the NLJ reported.

Attorney Frank Santulli first ran into trouble with the Texas Bar in 2001. Five years earlier, in 1996, the Supreme Court of Texas adopted Rules for Suspension of Attorneys in Default of Guaranteed Student Loans under which the Texas Guaranteed Student Loan Corporation (TGSCL) can inform the State Bar that a lawyer is in default. The Bar then notifies the lawyer of the report and the lawyer has sixty days to obtain certification from the TGSLC that he has entered into a repayment agreement or that he is otherwise not in default. On the sixty-first day following the notice, if the lawyer cannot produce the requisite certificate, he is automatically suspended from the practice of law. (The New Jersey Bar has adopted a similar rule).

In 2001, after TGSLC informed the Bar of Santulli's default, he appealed his suspension before the Board of Law Examiners. Santulli was in a swamp of credit card and student loan debt. He had worked out a debt management plan with Consumer Credit Counseling Services (CCCS). The Board entered an agreed order granting Santulli a two-year probationary license. He agreed to make payments under the CCCS plan and provide proof of payments to the Board.

Santulli defaulted on the payments due under the plan and in December 2002, the Board held a hearing on revocation of his probationary license. Santulli explained that he had experienced financial setbacks and indeed had not made the agreed payments on his student loan since December 2001. The Board was concerned with the professional implications of his financial problems, in particular that Santulli could find himself "in so much debt and under so much pressure that there are opportunities and temptation either to short-shrift . . . clients, or . . .convert money [from clients] to take care of those debts."

The Board granted Santulli a six-month extension of his probationary license subject to conditions including one that required him to "make suitable arrangements for payment or discharge of all his past due debts." Moreover, the order stated that Santulli's failure to comply with this payment condition would conclusively indicate a lack of trustworthiness and support the inference that Santulli posed an unreasonable risk of harm to his clients. Santulli did not object to the order.

A year later, in December 2003, Mr. Santulli appeared again before the Board and admitted that he had not made any payments on his debt. He had made arrangements with a bankruptcy lawyer to swap family-law work for bankruptcy represenation. But, the bankruptcy lawyer didn't deliver. Santulli hired another bankruptcy lawyer in October, but still no bankruptcy petition. Santulli asked the Board for another month to file for bankruptcy.

The Board rejected Santulli's request for an extension and found him in violation of the condition of his probationary license -- that he make arrangements to pay or discharge his debts. Pursuant to the 2002 agreement, Santulli's failure indicated the lack of good moral character required for the privilege of practicing law. In particular, it found that his failure to make arrangements to pay or discharge his debt presented a clear likelihood that he would harm a client, obstruct justice or violate the lawyer disciplinary rules.

Santulli sought judicial review of the revocation of his license. The trial court affirmed the Board. Santulli appealed arguing that the trial court's order did not rest on substantial evidence, that the condition of his probationary license requiring him to pay or discharge his loans was arbitrary and capricious, and that the Board erred in concluding that his behavior justified a conclusion that he was unfit for the practice of law.

The Texas Court of Appeals (3d Dist.) noted that Santulli did not object to or appeal the Board's 2002 order that imposed the payment condition. The condition was not ambiguous or otherwise inappropriate, and Santulli fully understood it. Although Santulli had filed for bankrutpcy relief in 2004, after entry of the Board's 2003 order, his bankruptcy case and ultimate discharge was not before the Board in 2003. The court held that based on the record before the Board, its decision to revoke Santulli's law license was not erroneous. "[T]he evidence shows that two and one-half years after being given a probationary license conditioned in part on paying or discharging his debts to satisfy the Board's concerns, Santulli had not made any progress . . . other than to develop a more concrete intention to file for bankruptcy within a month."

As for the connection between Santulli's failure to pay his debts and his moral character, the court found that the Board's order was supported by reliable evidence "such that a reasonable man could find that there were substantial doubts about [Santulli's] 'honesty, fairness and respect for the rights of others and for the laws of the state and nation.'" (citing Koningsberg v. State Bar of Cal., 353 U.S. 252 (1957).


Ray Campbell said...

I have a problem with using bar membership as a way to put leverage on people who owe on student loans.

The system for disciplining lawyers ought to be concerned, first and foremost, with making sure that those licensed to practice are competent and ethical. To the extent other socially desirable goals get mixed in, it muddies the water.

Here, Texas seems not to care if other loans are not paid. This is not a provision principally concerned with making sure attorneys make prudent financial decisions and pay those to whom they owe money; it doesn't look to the larger issues of character that might be implied by being a deadbeat. It focuses only on one kind of debt, student loans. Beyond that, it applies only to loans owed to the Texas student loan agency. So far as I can tell, if you move to Texas from out of state and default on loans to your home state agency, you have no problems with the Texas bar (cf. New Jersey, which automatically and immediately suspends your license upon representation from any lender that you are in default on your student loans).

I wonder if Texas strips doctors of their licenses if they default on their student loans?

John A said...

The rationale is that a lawyer in that much debt and default poses an unreasonable risk to clients whose money is held in trust accounts. There's a long history of lawyers stealing from clients. It's the job of the State Bar to prevent this from happening and to improve the image of the profession.

And the State Bar *does* care about other loans not being paid, but it is administratively impracticable for the Board to learn about one's personal financial affairs; although they would become relevant if known.

In the case of student loans guaranteed *regardless of credit* by TG, it's TG that notifies the State Bar. Otherwise, the Board would have no way of knowing.

Hypothetically speaking, any creditor could complain of abuse or default to the State Bar, but again, the focus in on the fact that these loans were guaranteed regardless of credit. Because the student loan systems runs on an honor system rather than credit system, there's a much more pressing need for enforcement, especially on the part of attorneys who are supposed to be ethical.