Baxter v. Bressman (In Re Bressman)

874 F.3d 142, 2017 WL 4657408, 2017 U.S. App. LEXIS 20340
CourtCourt of Appeals for the Third Circuit
DecidedOctober 18, 2017
Docket16-3244
StatusPublished
Cited by40 cases

This text of 874 F.3d 142 (Baxter v. Bressman (In Re Bressman)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Baxter v. Bressman (In Re Bressman), 874 F.3d 142, 2017 WL 4657408, 2017 U.S. App. LEXIS 20340 (3d Cir. 2017).

Opinion

OPINION

ROTH, Circuit Judge

In this appeal we are asked to decide whether Max Folkenflik, Esq., committed fraud on the court. The Bankruptcy Court determined that Folkenflik had intentionally deceived the court. As a result, the court vacated the default judgment it had previously entered in favor of Folkenflik’s clients. The District Court affirmed. Finding no error, we will affirm.

I.

This action was commenced as an adversary complaint in a Chapter 11 bankruptcy proceeding brought by Andrew Bressman. The Plaintiffs are victims of fraudulent activities by Bressman. In the 1990’s, Bressman and others had engaged in manipulation of stock prices. The Plaintiffs brought civil securities fraud and Racketeer Influenced and Corrupt Organizations Act (RICO) claims against Bressman and his co-defendants in the United States District Court for the Southern District of New York. The Plaintiffs were represented by Folkenflik. These civil actions against Bressman were stayed when Bressman filed for bankruptcy in the Bankruptcy Court for the District of New Jersey. In response, the Plaintiffs filed the adversary complaint against Bressman.

The civil securities fraud and RICO claims continued against Bressman’s co-defendants before Judge John Koeltl in the Southern District of New York. On August 13, 1998, claims against the co-defendants in one of the suits were settled for [Redacted], On August 28, Folkenflik, as attorney for Plaintiffs, received the full settlement amount, minus a $75,000 prompt payment discount. The parties’ Settlement Agreement, approved by Judge Koeltl, was subject to a confidentiality order, which incorporated the following language from the parties’ stipulated confidentiality agreement:

It is hereby stipulated, consented and agreed to by counsel for the parties in this action, that they will not disseminate and/or publicize the existence of or disclose the financial terms of any settlement agreement with any defendants, except as further set forth in this Stipulation and order; that this confidentiality provision does not prohibit or restrict the parties from responding to any inquiry about the documents produced or their underlying facts and circumstances by any state or federal regulatory agency, including the Securities and Exchange Commission or any self-regulatory organization.... 1

The adversary proceeding continued against Bressman in the Bankruptcy Court.

Several months after the Settlement Agreement was reached and the funds received, the Plaintiffs sought a default judgment in the Bankruptcy Court against Bressman. The court ordered them to submit an affidavit detailing their damages. In March 1999, Folkenflik, as their attorney, submitted an affidavit that recounted the history of the proceedings against Bress-man and his co-defendants. The affidavit indicated that the damages totaled $5,195,081 plus interest. Although Folkenf-lik’s affidavit provided a comprehensive account of the underlying proceedings, it made no mention of the $[Redacted] million settlement that he had obtained against Bressman’s co-defendants or even of the fact of the settlement. Explicitly noting its reliance on Folkenflik’s affidavit, the Bankruptcy Court entered a default judgment against Bressman for $5,195,081 on February 7, 2000. The Bankruptcy Court ordered Folkenflik to submit a separate application for RICO damages. In September 2002, the Plaintiffs filed an application for RICO damages and attorneys’ fees. No mention was made in that application that the Plaintiffs had already been paid [Redacted] on account of their losses. In July 2003, still unaware of the Settlement Agreement, the Bankruptcy Court entered a RICO judgment for treble damages, totaling $15,585,243, The court noted that this “amount constitute^] treble the damages found and awarded by this Court as Plaintiffs out-of-pocket losses..,. ” 2 The court also awarded $910,855.93 in attorneys’ fees, 3

Bressman was incarcerated from 2003 until 2006 in connection with his conviction in New York state court for enterprise corruption and grand larceny. During that time and the seven years that followed, Folkenflik made no attempt to recover on the default judgment because, in his view, the likelihood of Bressman having substantial assets was remote. In 2013, however, Folkenflik learned that Bressman was going to receive a potential payment of $10 million, so Folkenflik set out to have the $15,585,243 judgment satisfied. He filed ex parte applications on behalf of the Plaintiffs in the Southern District of New York and in the District of New Jersey to appoint a receiver to search for and seize Bressman’s assets.

The court in New Jersey expressed skepticism that emergency ex parte relief was warranted, given Folkenflik’s failure to collect for ten years. The application was denied in open court and was withdrawn the same day. In New York, Judge Ramos granted the application on September 26, 2013. On October 2, Folkenflik filed a new application in the District of New Jersey asking the court to authorize the receiver, who had been appointed by the Southern District of New York, to act in New Jersey. Contrary to Local Rule, Folk-enflik did not mark on the civil cover sheet that this action was related to the unsuccessful application that he had filed in the District of New Jersey several days earlier. 4 As a result, the case was assigned to a different judge who granted the ex parte application. Searches and seizures were executed in New York and New Jersey on October 11.

. In declarations appended to Plaintiffs’ ex parte applications, Folkenflik indicated that, as a result of post-judgment interest, the judgment against Bressman totaled $30,895,913.39. Nothing in these submissions indicated that Folkenflik had already collected $[Redacted] million on behalf of the Plaintiffs. Indeed, in his brief in support of his application in the Southern District of New York, Folkenflik stated: “With post judgment interest, the Judgment’s current value is $30,895,913.39. To date—more than ten years later—Plaintiffs have not seen a dime of this amount.” 5

Then, on October 13, 2013, Bressman’s attorney, David Wander, wrote to Folkenf-lik, asking if anyone had made payments on the judgment. 6 Folkenflik certified that it was not until then that he looked at the docket sheet and saw that the settlement was listed. On October 16, Folkenflik replied to Wander, stating “[t]he complete and accurate response to your specific question is no, there have not been any payments from any source regarding the Bressman Judgment.” 7 Folkenflik added, in connection with this letter: “I ... advised him of all of the facts I thought I was allowed!to advise him of, given the public disclosure of the existence of the settlement, and that was what I was able to say,” 8 namely, that certain defendants were dismissed from one of the.

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Bluebook (online)
874 F.3d 142, 2017 WL 4657408, 2017 U.S. App. LEXIS 20340, Counsel Stack Legal Research, https://law.counselstack.com/opinion/baxter-v-bressman-in-re-bressman-ca3-2017.