In re Sheridan

• Decision Date: 29 March 2004
• Docket Number: No. 02-9007.,02-9007.
• Citation: 362 F.3d 96
• Parties: In re William C. SHERIDAN, William C. Sheridan, Defendant, Appellant, v. Nancy Michels, Plaintiff, Appellee.
• Court: U.S. Court of Appeals — First Circuit

362 F.3d 96

In re William C. SHERIDAN,

William C. Sheridan, Defendant, Appellant, v. Nancy Michels, Plaintiff, Appellee.

No. 02-9007.

United States Court of Appeals, First Circuit.

Heard May 6, 2003.

Decided March 29, 2004.

COPYRIGHT MATERIAL OMITTED

William C. Sheridan, pro se.

Nancy H. Michels, with whom the Law Offices of Michels & Michels and Carole A. Mansur were on the brief for appellee.

Before SELYA, Circuit Judge, CYR, Senior Circuit Judge, and LYNCH, Circuit Judge.

CYR, Senior Circuit Judge.

William C. Sheridan, Esquire, appeals from a bankruptcy court order which suspended him from the practice of law before the United States Bankruptcy Court for the District of New Hampshire and directed him to remit the fees due the special counsel appointed to investigate the various violations of the District of New Hampshire Rules of Professional Conduct for which Sheridan allegedly is responsible. We now vacate the bankruptcy court order, and remand for further proceedings.

I. BACKGROUND

In June 2000, the bankruptcy judge appointed Attorney Nancy Michels as Special Counsel to investigate the ethical violations alleged against Sheridan, an attorney and member of the bankruptcy court bar. Following an extensive investigation into Sheridan's representation of various clients between 1999 and 2000, Special Counsel lodged a complaint charging Sheridan with rendering incompetent representation in violation of N.H. Rule of Professional Conduct 1.1(a).

Although Sheridan, acting pro se, eventually stipulated to most of the allegations in the complaint, he contended that his conduct had been due either to a dopamine deficiency resulting in severe attention deficit disorder or to the uncooperativeness and obstinacy of the affected clients. Following a disciplinary hearing in June 2001, the bankruptcy court determined that Sheridan had committed eighty-eight ethical violations, most involving the failure to comply with such basic requirements as the timely filing of chapter 13 plans and motions for continuance.

In due course, Sheridan was suspended from practice before the bankruptcy court for one year; readmission contingent upon satisfactory proof that he was competent to represent clients before the bankruptcy court. Subsequently, the bankruptcy court approved an application for a $30,377.50 attorney fee to Special Counsel, then directed that Sheridan — as a precondition to his readmission to the bankruptcy bar — reimburse the bankruptcy court in that amount. Sheridan then appealed to the Bankruptcy Appellate Panel ("BAP"), which affirmed. Sheridan v. Michels (In re Disciplinary Proceedings), 282 B.R. 79 (1st Cir. BAP 2002).

II. DISCUSSION

Sheridan contends that (i) the bankruptcy court, unlike Article III courts, lacks either the inherent or statutory power to suspend or discipline counsel who practice before it, see Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 86-87, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); (ii) moreover, even assuming the bankruptcy court possesses such disciplinary power, it cannot exercise it absent an explicit local court rule, but see U.S. Dist. Ct. Local Rule (D.N.H.) 83.5, and then only if the bankruptcy court were to determine that counsel acted in "bad faith," see Chambers v. NASCO, Inc., 501 U.S. 32, 45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); (iii) Bankruptcy Code § 105 applies exclusively to such disciplinary proceedings against an attorney as arise in a particular, ongoing bankruptcy case, not to the instant type of omnibus investigation into alleged attorney misconduct spanning multiple bankruptcy cases no longer pending before the court;¹ (iv) Administrative Order 2090-2, issued by the bankruptcy court below, explicitly authorizing such disciplinary hearings, is invalid due to the fact that it was promulgated without either advance notice or an opportunity for public comment, notwithstanding the rule-making provisions enunciated in Federal Rule of Civil Procedure 83, cf. U.S. Dist. Ct. Local Rule (D.N.H.) 77.4(b) ("Pursuant to [Fed. R. Bankr.P] 9029, the bankruptcy judges of this district are authorized to make such rules of practice and procedure as they may deem appropriate, subject to the requirements of Fed.R.Civ.P. 83."); (v) in all events, Administrative Order 2090-2, which was not in effect at the time the bankruptcy court initiated the Sheridan investigation, cannot be applied retroactively; and (vi) the disciplinary power wielded by the bankruptcy court in the instant case offends the doctrine of separation of powers, in that the bankruptcy court itself thereby assumes the inherently conflicting roles of accuser, investigator, prosecutor, and judge.

In the particular circumstances of the instant case, due to the fact that the BAP lacked appellate jurisdiction to address Sheridan's claims on the merits, the case must be remanded to the bankruptcy court for further proceedings. We explain.

The BAPs are authorized to review only the "final judgments, orders and decrees" issued by the bankruptcy courts. 28 U.S.C. § 158(b)(1), (a)(1). Consequently, in the instant context the dispositive jurisdictional issue is whether the disciplinary orders issued by the bankruptcy court against Sheridan were "final." See Stanley v. S.S. Retail Shoes Corp. (In re S.S. Retail Shoes Corp.), 162 F.3d 1230, 1232 (9th Cir.1998) ("In making the [jurisdictional] determination, we must focus on the nature of the bankruptcy court's order. If that decision was not a final order, then the BAP's order also lacks finality.").

The finality of a bankruptcy court order depends, inter alia, upon whether the proceeding in which it was entered constitutes a "core" or "non-core" proceeding. Although the district court, as a tribunal established under Article III of the United States Constitution, possesses broad jurisdiction to adjudicate all proceedings which even tangentially "aris[e] under," or are "related to," a bankruptcy case [hereinafter: "related to" proceedings], the district court may opt to refer such cases or proceedings to the bankruptcy courts for hearing or adjudication. See 28 U.S.C. § 157(a). Of course, unlike the district court, the bankruptcy court is established pursuant to Article I, rather than Article III, and its jurisdiction is delimited accordingly. Although the bankruptcy court may hear all "related-to" proceedings which have been referred to it, whether core or non-core, it may enter a final appealable judgment only if (i) the proceeding itself is core, viz., closely intertwined with and integral to the bankruptcy court's mandate to administer a bankruptcy case; or (ii) the case or proceeding is non-core, but the litigants nonetheless have consented to the entry of a final disposition by the bankruptcy court, rather than by the district court. See Northern Pipeline, 458 U.S. at 86-87, 102 S.Ct. 2858.

If the proceeding is core, the bankruptcy court's final judgment is immediately appealable either to the district court or, with the consent of the parties, to the BAP. 28 U.S.C. § 158(b)(1); § 157(b)(1). In either instance, the appellate tribunal applies a deferential standard of review to the bankruptcy court's findings of fact, and will upset those findings only if clearly erroneous. See In re Spadoni, 316 F.3d 56, 58 (1st Cir.2003).

In a non-core proceeding, however, the bankruptcy court is not empowered to enter final, appealable orders without the parties' consent. Instead, after it has conducted the required proceedings, it must submit its proposed findings of fact and conclusions of law for consideration by the district court. See 28 U.S.C. § 157(c)(1); Cong. Credit Corp. v. AJC Int'l, Inc., 42 F.3d 686, 690 (1st Cir.1994). The role of the district court in turn is to conduct de novo review of the findings of fact and the conclusions of law submitted by the bankruptcy court. In so doing, the district court may receive further evidence, modify the findings proposed by the bankruptcy court, and/or remand to the bankruptcy court with instructions. See Fed. R. Bankr.P. 9033(d). At that stage, any appeal from the "final" district court order may be taken only to the court of appeals, which applies a deferential standard of review. Id. § 158(d).

In the instant case, the BAP did not address the core/non-core distinction in its decision, Sheridan, 282 B.R. at 86-89, perhaps because Sheridan's reference to it — included amongst other objections, in his appellate briefs, to the bankruptcy court's authority to impose sanctions — simply was not prominently advanced or distinguished. Unlike the issue of subject matter jurisdiction, which may neither be waived nor forfeited by the parties, see Quinn v. City of Boston, 325 F.3d 18, 26 (1st Cir.2003), and into which the courts are duty-bound to inquire, sua sponte, even absent objection by any party, see Hicks, Muse & Co. v. Brandt (In re Healthco Int'l, Inc.), 136 F.3d 45, 50 n. 4 (1st Cir.1998), the protections afforded by the Northern Pipeline core/non-core distinction may be waived or forfeited, either by (i) consenting to the bankruptcy court's treatment of an otherwise non-core proceeding as core, or (ii) failing to raise or pursue the issue adequately on appeal. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848-49, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986).

Although normally the proper designation of a proceeding as either core or non-core presents a pure question of law, subject to plenary review on appeal, see In re V & M Mgmt., Inc., 321 F.3d 6, 7 (1st Cir.2003); In re Graves, 279 B.R. 266, 270 (9th Cir. BAP 2002), if Sheridan failed to preserve his contention before the bankruptcy court or on appeal, we would review for plain error only, see Rivera-Torres v. Ortiz Velez, 341 F.3d 86, 102 (1st Cir.2003) ("[C]laims `forfeit[ed] through ignorance or neglect' are subject to plain error review.") (citation omitted). We now turn to these threshold issues.

A. Consent

Before the...