On Monday, the Ninth Circuit ruled that disciplinary fees assessed by the California State Bar are non-dischargeable in bankruptcy. A three-judge panel overruled a Ninth Circuit Bankruptcy Appellate Panel (BAP) decision that found John William Findley III could discharge his $14,000 debt to the State Bar in his Chapter 7 bankruptcy case.
Findley is a suspended Ventura attorney who the State Bar disciplined in 2005 for failing to perform legal services competently, communicate with clients, and obey court orders. Pursuant to Business and Professions Code section 6086.10, the State Bar assessed a fee of $13,463 to cover the cost of Findley's disciplinary proceedings, $406.80 to cover certification costs of court documents, $128.25 for transcript costs, and $56.89 in witness fees.
The State Bar argued that under 11 U.S.C. section 523(7) its fee assessment could be excepted from discharge because the debt is "a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss." The District Court agreed, but the BAP overruled citing State Bar of California v. Taggart , 249 F.3d 987 (9th Cir. 2001), which held that attorney disciplinary costs imposed under a previous version of section 6086.10 were eligible for discharge because those cost awards were not intended as punishment.
However, the California Legislature in 2003 amended the section and added subsection (e), which states that "costs imposed pursuant to this section are penalties, payable to and for the benefit of the State Bar of California...to promote rehabilitation and to protect the public." The Ninth Circuit believes that the amendment evidences the Legislature's disagreement with Taggart and its intention to undermine the result in Taggart.
The case is In re Findlay, 08-60024.
