Wade, In re

• Decision Date: 08 November 1991
• Docket Number: No. 90-15980,90-15980
• Citation: 948 F.2d 1122
• Parties: , 25 Collier Bankr.Cas.2d 1287, 22 Bankr.Ct.Dec. 408, Bankr. L. Rep. P 74,331 In re E. Gene WADE; Joyzelle I. Wade, Debtors. E. Gene WADE; Joyzelle I. Wade, Appellants, v. STATE BAR OF ARIZONA, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1122

948 F.2d 1122

60 USLW 2371, 25 Collier Bankr.Cas.2d 1287,

22 Bankr.Ct.Dec. 408, Bankr. L. Rep. P 74,331

In re E. Gene WADE; Joyzelle I. Wade, Debtors E. Gene WADE; Joyzelle I. Wade, Appellants, v. STATE BAR OF ARIZONA, Appellee.

No. 90-15980.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 13, 1991.

Decided Nov. 8, 1991.

E. Gene Wade and Joyzelle I. Wade, in pro. per.

Margaret D. White, Phoenix, Ariz., for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before GOODWIN, SCHROEDER and NOONAN, Circuit Judges.

PER CURIAM:

E. Gene Wade and Joyzelle I. Wade appeal from the judgment of the Bankruptcy Appellate Panel ("BAP") of the Ninth Circuit. The main issue on appeal is whether the disciplinary proceedings brought against Mr. Wade by the State Bar of Arizona are excepted from the automatic stay under 11 U.S.C. § 362(b)(4). The BAP held that such proceedings are excepted. Wade v. State Bar of Arizona (In re Wade), 115 B.R. 222 (9th Cir.BAP 1990). We affirm.

E. Gene Wade, an attorney and a member of the Arizona Bar, and his wife Joyzelle Wade filed a Chapter 11 bankruptcy petition on October 1, 1987. On October 2, 1987, the Bar initiated disciplinary proceedings against Mr. Wade alleging that he had violated certain ethical rules promulgated by the Arizona Supreme Court. On June 9, 1988, the Bar filed a motion for relief from the automatic stay imposed under 11 U.S.C. § 362(a)(1). This is a case of first impression, and the Arizona Bar apparently does not routinely find it necessary to file such motions. What prompted the motion in this case is not clear from the record.

In its motion the Bar argued that the disciplinary proceedings against Mr. Wade were proceedings brought by a governmental unit to enforce its police or regulatory power and therefore were excepted from the automatic stay under 11 U.S.C. § 362(b)(4). Both the Bankruptcy Court and the BAP held that the Bankruptcy Code's provisions for automatic stay under 11 U.S.C. § 362(a) do not apply to the Bar's attorney disciplinary proceedings because of the exception for regulatory proceedings of a governmental unit contained in 11 U.S.C. § 362(b)(4).

The principal question before us is whether the BAP's ruling was correct as a matter of law. The Wades contend that the Bar is not a governmental unit enforcing its police or regulatory power within the meaning of section 362(b)(4) and that, therefore, the Bar's disciplinary proceedings against Mr. Wade are not excepted from the automatic stay. The Bar counters that, although it is not a governmental unit for all purposes, it is an instrumentality of the Arizona Supreme Court for the purpose of prosecuting attorney disciplinary proceedings, and that therefore such proceedings are excepted from the automatic stay. The Bar's contention is correct.

As a general rule, the filing of a Chapter 11 bankruptcy petition operates as an automatic stay of administrative proceedings against the debtor. 11 U.S.C. § 362(a)(1). Nevertheless, 11 U.S.C. § 362(b) sets forth several exceptions to the automatic stay. Section 362(b)(4) provides that:

(b) The filing of a petition ... does not operate as a stay--

(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power[.]

The definition of the term "governmental unit" includes a "department, agency, or instrumentality" of a state. 11 U.S.C. § 101(27) (West Supp.1991) (formerly designated section 101(26)). The legislative history of section 101(27) states that:

"Department, agency, or instrumentality" does not include entities that owe their existence to state action such as the granting of a charter or a license but that have no other connection with a State or local government or the Federal Government. The relationship must be an active one in which the department, agency, or instrumentality is actually carrying out some governmental function.

H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 311, U.S.Code Cong. & Admin.News 1978, 5787 (1977).

Under Arizona law, the Bar is an instrumentality of the Arizona Supreme Court for the purpose of conducting disciplinary proceedings. As the Arizona Supreme Court has said:

[T]he Supreme Court of Arizona has the exclusive jurisdiction to regulate the admission to the practice of the law and the discipline of those admitted. In the instant case, while we are dealing with the power of the State Bar Disciplinary Board, we are actually talking about our own authority because the Bar Disciplinary Board and its committees are mere arms of this court and can have no greater jurisdiction or authority than this court.

In re Riley, 142 Ariz. 604, 607-08, 691 P.2d 695, 698-99 (1984). See also Drummond v. Stahl, 127 Ariz. 122, 126, 618 P.2d 616, 620 (Ct.App.1980) ("The State Bar acts in a judicial capacity in dealing with the conduct of attorneys."), cert. denied, 450 U.S. 967, 101 S.Ct. 1484, 67 L.Ed.2d 616 (1981).

The State Bar of Arizona exists by virtue of a rule promulgated by the Arizona Supreme Court that authorizes the Bar to "provide for the regulation and discipline of persons engaged in the practice of law." Ariz.R.S.Ct. 31(a)(1). ¹ The Bar exercises this delegated authority under the "direction and control" of the Arizona Supreme Court. Id. Disciplinary actions are brought by the Bar to enforce the ethical rules established by the Arizona Supreme Court. Ariz.R.S.Ct. 41 et seq. The Court also has established the procedures that the Bar must follow in investigating and prosecuting attorney disciplinary actions, Ariz.R.S.Ct. 53 et seq., and has specified the sanctions that the Bar can impose. Ariz.R.S.Ct. 52. Moreover, in formal disciplinary proceedings, the Disciplinary Commission of the Supreme Court reviews the Bar's decisions. Ariz.R.S.Ct. 47 and 53(d). These rules demonstrate that the Arizona Supreme Court exercises a significant degree of control over the Bar's disciplinary proceedings, and support the BAP's conclusion that, in conducting such proceedings, the Bar is an instrumentality of the Arizona Supreme Court within the meaning of section 362(b)(4).

Indeed, given the close relationship between the Arizona Supreme Court and the Bar, the U.S. Supreme Court has held that the Bar engages in state action when it conducts disciplinary proceedings. Bates v. State Bar of Arizona, 433 U.S. 350, 359, 97 S.Ct. 2691, 2696, 53 L.Ed.2d 810 (1977). The Court explained the roles of the parties when the Bar's disciplinary enforcement is challenged:

[T]he appellants' claims are against the State. The Arizona Supreme Court is the real party in interest; it adopted the rules, and it is the ultimate trier of fact and law in the enforcement process. In re Wilson, 106 Ariz. 34, 470 P.2d 441 (1970). Although the State Bar plays a part in the enforcement of the rules, its role is completely defined by the court; the [State Bar] acts as the agent of the court under its continuous supervision.

Id. at 361, 97 S.Ct. at 2697. See also Hass v. Oregon State Bar, 883 F.2d 1453, 1461 (9th Cir.1989) ("The Arizona State Bar [in Bates ], like the Oregon State Bar, was an instrumentality of the state supreme court."), cert. denied, 494 U.S. 1081, 110 S.Ct. 1812, 108 L.Ed.2d 942 (1990).

In conducting disciplinary proceedings, the Bar is enforcing its police or regulatory power. The purposes of the Bar's disciplinary proceedings are (1) "to protect the...