Albert-Sheridan v. State Bar of Cal. (In re Albert-Sheridan)

Decision Date11 April 2019
Docket NumberAdv. No. 8:18-ap-01065-SC,BAP No. CC-18-1222-LSF
PartiesIn re: LENORE L. ALBERT-SHERIDAN, DBA Law Offices of Lenore Albert, Debtor. LENORE L. ALBERT-SHERIDAN, Appellant, v. STATE BAR OF CALIFORNIA; MARICRUZ FARFAN; BRANDON TADY; ALEX HACKERT; YVETTE ROLAND; PAUL BERNARDINO, Appellees.
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit

NOT FOR PUBLICATION

MEMORANDUM*

Argued and Submitted on February 21, 2019 at Pasadena, CaliforniaAppeal from the United States Bankruptcy Court for the Central District of California

Honorable Scott C. Clarkson, Bankruptcy Judge, Presiding

Appearances: Lenore L. Albert-Sheridan argued pro se; Suzanne C. Grandt argued for Appellees.

Before: LAFFERTY, SPRAKER, and FARIS, Bankruptcy Judges.

INTRODUCTION

Debtor Lenore Albert-Sheridan appeals the bankruptcy court's order dismissing her adversary proceeding against Appellees State Bar of California and its employees Maricruz Farfan, Brandon Tady, Alex Hackert, Yvette Roland, and Paul Bernardino. In that adversary proceeding, Ms. Albert1 sought, among other things, a declaration that sanctions and costs ordered paid by the California Supreme Court as a condition of reinstatement of her law license were dischargeable. The bankruptcy court did not err in concluding that sanctions and costs were nondischargeable under § 523(a)(7).2 The remaining causes of actionpleaded in Ms. Albert's complaint were reliant on the premise that the entire amount was dischargeable. Because it found otherwise, the bankruptcy court did not err in dismissing the balance of Ms. Albert's complaint.

Accordingly, we AFFIRM.

FACTUAL BACKGROUND

Ms. Albert was an attorney licensed to practice in the state of California. In 2015 and 2016, the State Bar of California ("State Bar") filed Notices of Disciplinary Charges in State Bar Court alleging that Ms. Albert had failed to cooperate with State Bar investigations, disobeyed superior court orders ordering Ms. Albert to pay discovery sanctions, failed to perform competent legal services, failed to render accounts of client funds, and failed to refund unearned fees.

After a trial, the State Bar Court found Ms. Albert culpable on all but one count and recommended a minimum 30-day suspension, after which Ms. Albert would remain suspended until she provided to the State Bar proof of payment of four court-ordered discovery sanctions. The State Bar Court also recommended that costs be awarded to the State Bar under California Business & Professions Code ("CBP") § 6086.10.

Ms. Albert appealed the recommendation to the State Bar Review Department, which found Ms. Albert culpable on two counts but dismissed the other two for insufficient evidence. The Review Department agreed with the recommendation of a 30-day suspension, proof of payment of three of the four discovery sanctions totaling $5,735 plus interest, and an award of costs to the State Bar.

Ms. Albert sought review of these determinations with the Supreme Court of California. On December 13, 2017, that court issued a final order of discipline reflecting the recommendation of the Review Department, including suspension. Ms. Albert sought rehearing, which the supreme court denied on February 14, 2018.

Ms. Albert filed for chapter 13 relief on February 20, 2018. She then moved the State Bar and the supreme court to reinstate her license and waive costs based on her inability to pay. The State Bar, believing the monetary sanctions were dischargeable in chapter 13, reinstated Ms. Albert's license retroactive to March 16, 2018.

On June 26, 2018, the bankruptcy court converted Ms. Albert's chapter 13 case to chapter 7 based on ineligibility under § 109(e) and Ms. Albert's inability to fund a confirmable plan. Thereafter, the State Bar sent a letter to the supreme court explaining that the case had been converted and requesting that the court deny Ms. Albert's motion for reinstatement. Ms. Albert also sent a letter to the supreme court arguingthat the debt remained dischargeable despite conversion. On July 25, 2018, the supreme court denied Ms. Albert's motion for reinstatement.

In the meantime, Ms. Albert filed an adversary proceeding against Appellees. The complaint alleged five causes of action: (1) dischargeability of debt under § 523(a)(7); (2) violation of § 525(a); (3) violation of 42 U.S.C. § 1983; (4) violation of Rosenthal Act/Fair Debt Collection Practices Act ("FDCPA"); and (5) unconstitutionality of CBP §§ 6103, 6086.10, and 6140.7. Ms. Albert sought: (1) declarations that (a) the debt to the State Bar is dischargeable; and (b) the statutes under which she was sanctioned and disciplined are unconstitutional as applied; (2) injunctive relief requiring the State Bar to reinstate her license based on its violations of § 525 and 42 U.S.C. § 1983; and (3) damages for violations of the Rosenthal Act/FDCPA. Ms. Albert concurrently filed an emergency motion for a temporary restraining order, which the bankruptcy court denied "due to insufficient grounds stated."

Appellees moved to dismiss the adversary proceeding for failure to state a claim. Appellees also asserted that the bankruptcy court should abstain pursuant to the Younger abstention and Rooker-Feldman doctrines. Lastly, they argued that the State Bar was entitled to Eleventh Amendment immunity and the individual defendants to judicial immunity. Ms. Albert filed an opposition, and the State Bar a reply. In the meantime, Ms. Albert filed a new Application for TRO and Order to Show Cause Why aPreliminary Injunction Should Not Issue.

The bankruptcy court heard both matters on August 1, 2018. It denied Ms. Albert's motion for a TRO and granted the State Bar's motion to dismiss by separate orders entered August 9, 2018.

Ms. Albert timely appealed both orders.3

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A), (I), and (O). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

Did the bankruptcy court err in dismissing the adversary proceeding?

Did the bankruptcy court abuse its discretion in denying Ms. Albert's motion for a TRO and order to show cause?

STANDARDS OF REVIEW

We review de novo a bankruptcy court's order granting a motion to dismiss for failure to state a claim. Movsesian v. Victoria Versicherung AG, 670 F.3d 1067, 1071 (9th Cir. 2012) (en banc); Cedano v. Aurora Loan Servs., LLC (In re Cedano), 470 B.R. 522, 528 (9th Cir. BAP 2012). Under de novoreview, we look at the matter anew, as if it had not been heard before, and as if no decision had been rendered previously, giving no deference to the bankruptcy court's determinations. Freeman v. DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir. 2006).

We review an order denying injunctive relief for an abuse of discretion. See Pac. Radiation Oncology, LLC v. Queen's Med. Ctr., 810 F.3d 631, 635 (9th Cir. 2015). To determine whether the bankruptcy court abused its discretion, we conduct a two-step inquiry: (1) we review de novo whether the bankruptcy court "identified the correct legal rule to apply to the relief requested" and (2) if it did, whether the bankruptcy court's application of the legal standard was illogical, implausible, or "without support in inferences that may be drawn from the facts in the record." United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).

DISCUSSION

In reviewing the bankruptcy court's decision on a motion to dismiss, we apply the same standards to Civil Rule 12(b)(6) dismissal motions that all other federal courts are required to apply. Barnes v. Belice (In re Belice), 461 B.R. 564, 572-73 (9th Cir. BAP 2011). Under Civil Rule 12(b)(6), made applicable in adversary proceedings by Rule 7012, we may dismiss a complaint for "failure to state a claim upon which relief can be granted." To survive a Civil Rule 12(b)(6) dismissal motion, a complaint must present cognizable legal theories and sufficient factual allegations to support thosetheories. See Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121-22 (9th Cir. 2008). As the Supreme Court has explained:

a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. . . . Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations and internal quotation marks omitted). In reviewing the sufficiency of a complaint under Civil Rule 12(b)(6), we must accept as true all facts alleged in the complaint and draw all reasonable inferences in favor of the plaintiff. See Newcal Indus., Inc. v. Ikon Office Sols., 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). However, we do not need to accept as true conclusory allegations or legal characterizations cast in the form of factual allegations. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

We may use judicially noticed facts to establish that a complaint does not state a claim for relief. Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1016 n.9 (9th Cir. 2012).

A. The bankruptcy court did not err in granting Appellees' motion to dismiss.

The California Supreme Court ordered Ms. Albert to pay, as a condition to her license reinstatement: (1) costs of $18,714 incurred by theState Bar in prosecuting Ms. Albert's misconduct pursuant to CBP § 6086.10(b)(3); and (2) unpaid discovery sanctions ordered by the superior court in the amount of $5,738 plus interest, payable to 10675 Orange Park Blvd LLC. The bankruptcy court found that both of these awards were nondischargeable under § 523(a)(7).

1. The bankruptcy court did not err in dismissing the first cause of action for a declaration of dischargeability.

Section 523(a)(7)(A) provides that a...

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