Lawyer’s Misconduct Costs Defrauded Investors $30M Judgment

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By Phyllis Diamond

Customers of failed New York brokerage A.R. Baron & Co. can’t collect on a judgment now worth approximately $30 million against former Baron president Andrew Bressman, a federal appeals court held Oct. 18.

The lower courts properly threw out the default judgment after learning that the investors’ lawyer already had collected damages in a confidential settlement with Bressman’s two co-defendants, the U.S. Court of Appeals for the Third Circuit said ( Baxter v. Bressman (In re Bressman) , 2017 BL 372998, 3d Cir., No. 16-3244, 10/18/17 ).

According to Judge Jane Roth, attorney Max Folkenflik intended to defraud the court when he tried to recover the full amount of the default judgment without any offset for the settlement funds.

In honoring their duty of loyalty to their clients, “attorneys must not—and in most cases do not—disregard their inherent obligation to the system of justice,” the appeals court said.

Lawsuits Stayed

Baron and 13 former employees were indicted in 1997 for cheating thousands of investors that included New York University and a late Scottish aristocrat out of more than $75 million, according to the New York Times.

Former Baron customers, represented by Folkenflik, subsequently sued Bressman and two other Baron executives for securities fraud and other misconduct. The allegations were stayed against Bressman when he sought bankruptcy protection, but the suit against the other executives continued. Ultimately, the parties resolved their differences, agreeing not to disclose the financial terms of the settlement.

In 2000, the bankruptcy court entered a default judgment against Bressman totaling approximately $15.6 million, but Folkenflik never attempted to recover because he didn’t believe Bressman could satisfy the judgment, the appeals court said.

In 2013, Folkenflik learned that Bressman stood to receive a $10 mllion payout and set out to have the default judgment—which he claimed was now worth approximately $30.9 million—satisfied. Nothing in his submissions indicated that Folkenflik had already collected an undisclosed amount on his client’s behalf, the appeals court said.

Ultimately, the lower courts learned that Folkenflik had negotiated a settlement with Bressman’s co-defendants and threw out the default judgment. Affirming, the Third Circuit said Folkenflik intentionally defrauded the court by failing to disclose the settlement agreement. “While Folkenflik claims that he never intended to collect on the judgment without first ensuring that the appropriate offset would be applied, the record provides strong support for a conclusion to the contrary,” the appeals court said.

To contact the reporter on this story: Phyllis Diamond in Washington at

To contact the editor responsible for this story: Seth Stern at

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