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Banking & Finance Law Report

Conflict of Interest and Cognovit Judgment

Posted in Attorneys and Clients, Collection and Foreclosure, Commercial Law, Litigation

Does a conflict of interest arise under the Ohio Rules of Professional Conduct (“Rules”) when an attorney confesses judgment on a cognovit note? No, according to a recent opinion (Opinion 2014-3, August 8, 2014) issued by The Supreme Court of Ohio’s Board of Commissioners on Grievances & Discipline (“Board”), so long as the cognovit note contains a warrant of attorney that expressly waives a conflict and permits a creditor’s attorney to confess judgment pursuant to R.C. §2323.13. In issuing the Opinion, the Board reaffirmed and updated Advisory Opinion 93-3, which found no conflict existed under Ohio’s former Code of Professional Responsibility, which the current Rules replaced in 2007.

R.C. §2323.13 permits an attorney hired by a creditor to obtain cognovit judgment without notice or hearing in certain commercial transactions (typically loans and guaranties of loans) by producing in court a valid warrant of attorney that also contains a specific warning to the debtor of the rights being surrendered and otherwise complies with law. Ohio courts grant such cognovit judgments because the debtor consented in advance to the creditor obtaining a judgment upon the debtor’s default.

The Opinion specifically finds that confessing judgment does not create a conflict of interest under R. 1.7 of the Rules, which governs conflicts of interest, because the confessing attorney represents only the creditor and not the debtor under both contract law and statute. DiBenedetto v. Miller, 180 Ohio App.3d 69, 72, 2008-Ohio-6505, 904 N.E.2d 554 ¶15 (1st Dist.). In other words, there is no conflict of interest or violation of the Rules because the creditor’s attorney does not have an attorney-client relationship with the debtor.