In re Richmond

• Decision Date: 28 September 2006
• Docket Number: Adversary No. 06-1007-JMD.,Bankruptcy No. 04-14346-JMD.
• Citation: 351 B.R. 6
• Parties: In re William McNeir RICHMOND, Debtor. New Hampshire Supreme Court Professional Conduct Committee, Plaintiff v. William McNeir Richmond, Defendant.
• Court: U.S. Bankruptcy Court — District of New Hampshire

351 B.R. 6

In re William McNeir RICHMOND, Debtor New Hampshire Supreme Court Professional Conduct Committee, Plaintiff v. William McNeir Richmond, Defendant.

Bankruptcy No. 04-14346-JMD.

Adversary No. 06-1007-JMD.

United States Bankruptcy Court, D. New Hampshire.

September 28, 2006.

Bruce A. Harwood, Esq., Sheehan, Phinney, Bass + Green, P.A., Manchester, NH, Attorney for Plaintif.

Joseph A. Foster, Esq., McLane Graf Raulerson & Middleton, P.A., Manchester, NH, Attorney for Debtor/Defendant.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.

I. INTRODUCTION

The New Hampshire Supreme Court Professional Conduct Committee (the "Committee") filed a complaint pursuant to 11 U.S.C. § 523(a)(7) seeking to except from the Debtor's discharge his obligations to the Committee arising out of two attorney disciplinary proceedings commenced by the Committee against the Debtor. The parties agreed at a pretrial hearing that the matter could be decided on a stipulated record. Toward that end the parties submitted a stipulation of undisputed material facts and the Committee filed a motion seeking summary judgment in its favor.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. FACTS

The undisputed facts are as follows. The New Hampshire Supreme Court established the Committee pursuant to Rule 37 ("Rule 37") of the Rules of the Supreme Court of the State of New Hampshire to assist the New Hampshire Supreme Court in administering its disciplinary function with respect to attorneys admitted to practice law in the State of New Hampshire. The Committee is funded through an annual assessment of attorneys imposed by an order of the New Hampshire Supreme Court. The remaining portion of the Committee's budget is funded by the Court's Character and Fitness Committee.

The Debtor was licensed by the New Hampshire Supreme Court to practice law in the State of New Hampshire. Prior to the Debtor filing chapter 7 bankruptcy, the Committee filed a petition ("Richmond I") on March 6, 2003, with the New Hampshire Supreme Court alleging that the Debtor violated the New Hampshire Rules of Professional Conduct (the "Professional Conduct Rules"). The New Hampshire Supreme Court referred the Committee's petition to a judicial referee for a hearing.

On August 29, 2004, the judicial referee issued his findings and recommendations (the "Richmond I Findings and Recommendations") pursuant to which he recommended that the New Hampshire Supreme Court find that the Debtor violated the Professional Conduct Rules. Pursuant to the Richmond I Findings and Recommendations, the judicial referee also recommended that the New Hampshire Supreme Court issue a variety of sanctions against the Debtor, including a suspension from the practice of law for six months, the appointment of an attorney (the "Appointed Attorney") to make an inventory of any client files and trust accounts of the Debtor, and that Richmond "be assessed all expenses incurred in the investigation and prosecution of this matter."

In its decision in In re Richmond's Case, 152 N.H. 155, 872 A.2d 1023 (2005), the New Hampshire Supreme Court found that the judicial referee applied the correct standards in evaluating Richmond's conduct and that the record supported the judicial referee's findings. The New Hampshire Supreme Court also agreed with the judicial referee's recommendation that Richmond (a) be suspended from the practice of law for six months, (b) surrender his client files for inventory by a court appointed attorney, and (c) "reimburse the committee for the costs of investigating and prosecuting the" matter. The Court then remanded the matter to the judicial referee "to determine the costs associated with this case."

The amounts the New Hampshire Supreme Court ordered to be reimbursed consisted of two elements: (a) costs incurred by the Committee in connection with the prosecution of the underlying petition (the "Richmond I Petition Expenses") and (b) the costs incurred or to be incurred by the Appointed Attorney (the "Richmond I Appointed Attorney Expenses"). As of April 17, 2006, the Richmond I Petition Expenses totaled $13,776.19, and the Committee had not yet received an invoice from the New Hampshire Supreme Court in connection with the Richmond I Appointed Attorney Expenses.

On or about November 13, 2003, the Committee filed a second petition ("Richmond II") with the New Hampshire Supreme Court alleging that the Debtor violated the Professional Conduct Rules in connection with a different matter. The New Hampshire Supreme Court referred the matter to a judicial referee.

On January 11, 2006, the judicial referee issued his findings and recommendations (the "Richmond II Findings and Recommendations") pursuant to which he recommended that the New Hampshire Supreme Court find that the Debtor violated the Professional Conduct Rules. The judicial referee also recommended that the New Hampshire Supreme Court disbar the Debtor from the practice of law. The judicial referee did not assess costs and expenses against the Debtor. The Committee believes this was an oversight. The Debtor disagrees.

On January 13, 2006, the New Hampshire Supreme Court issued the Richmond II Findings and Recommendations to the parties to that proceeding and invited the parties to submit responses in the event the parties wished to contest the Richmond II Findings and Recommendations. The Committee and the Debtor filed pleadings with the New Hampshire Supreme Court. In its pleadings, the Committee requested the assessment of costs and expenses against the Debtor in connection with Richmond II.¹

III. DISCUSSION

The Committee seeks summary judgment on its complaint under § 523(a)(7) of the Bankruptcy Code with respect to the Richmond I Petition Expenses, the Richmond I Appointed Attorney Expenses, the Richmond II Petition Expenses, and any other cost and expense assessment made by the New Hampshire Supreme Court in connection with Richmond I and Richmond II (collectively, the "Disciplinary Costs"). Summary judgment is appropriate under Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The parties agree that no genuine issues of material fact are in dispute and have submitted for the Court's review a stipulated record.

The legal issue before the Court is whether the Disciplinary Costs, which have been or will be assessed against the Debtor, are nondischargeable as a matter of law pursuant to § 523(a)(7) of the Bankruptcy Code. The issue is one of first impression in this district. Section 523(a)(7) provides in relevant part:

A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... to the extent that such debt is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss....

11 U.S.C. § 523(a)(7).

Exceptions to discharge under § 523(a) of the Bankruptcy Code are to be narrowly construed and construed in favor of the debtor. See Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir.1997). Creditors that object to the dischargeability of a debt must prove each element of the exception under § 523(a) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (stating the standard of proof under § 523(a) is preponderance of the evidence); Palmacci v. Umpierrez, 121 F.3d 781, 787 (1st Cir.1997) (same). Because exceptions to discharge are narrowly construed in order to further the Bankruptcy Code's "fresh start policy," a creditor must demonstrate that its claim comes squarely within an exception to discharge contained in § 523(a). Palmacci, 121 F.3d at 786 (quoting Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d 7, 9 (1st Cir.1994)).

To succeed on its complaint seeking to except the Debtor's obligations to it from discharge, the Committee must establish that the debt:

1. Constitutes a fine, penalty, or forfeiture;

2. Is to be paid to or for the benefit of a governmental unit; and

3. Is not compensation for actual pecuniary loss.

11 U.S.C. § 523(a)(7); see Attorney Grievance Comm'n of Maryland v. Smith (In re Smith), 317 B.R. 302, 306 (Bankr.D.Md. 2004). The parties agree that the money to be paid to the Committee is a debt and the Committee is a governmental unit within the meaning of § 523(a)(7) as the Committee is a regulatory board governed by the New Hampshire Supreme Court acting under the statutory and constitutional authority of the State of New Hampshire. The Court must determine, then, whether the debt "constitutes a fine, penalty, or forfeiture" and "is not compensation for actual pecuniary loss." The Committee has cited several cases from other jurisdictions all but one of which conclude that costs assessed against a disciplined attorney are not dischargeable. The Debtor argues that those cases are not determinative as the Court must make an individualized analysis based on the particular provisions of Rule 37 and New Hampshire's attorney disciplinary system.

A. Fine, Penalty, or Forfeiture?

The Court must first determine whether the Disciplinary Costs assessed by the New Hampshire Supreme Court are in the nature of a fine, penalty, or forfeiture within the meaning of § 523(a)(7). Rule 37 of the Rules of the Supreme Court of the State of New Hampshire...