In re Williams
| Decision Date | 06 April 1993 |
| Docket Number | Bankruptcy No. 89-03343. |
| Citation | 158 BR 488 |
| Parties | In re Joseph Leon WILLIAMS II, aka Joseph L. Williams II, aka Joe Williams, aka Williams Legal Services, dba Law Offices, aka Legal Services Center, aka Legal Services, Debtor. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Joseph Leon Williams, pro se.
Stephen T. Woychick, Quane Smith Howard & Hull, Boise, ID, for the Idaho State Bar and Michael J. Oths.
(RE IDAHO STATE BAR)
Debtor Williams has filed a Motion for Contempt, Sanctions and Costs directed against the Idaho State Bar Association and Michael J. Oths, its counsel, seeking a declaration that these parties are in "contempt of the stay order." More particularly, Debtor alleges that the Bar1 has violated either the automatic stay against collection activities in Section 362(a) of the Bankruptcy Code, or the discharge injunction found at Section 524(a) of the Code, by insisting that he reimburse the Bar for certain costs incurred in connection with proceedings wherein Debtor's license to practice law in Idaho was suspended. The Court concludes Debtor is not entitled to relief.
Facts.
On December 1, 1989, Debtor filed for bankruptcy relief. Debtor was eventually granted a discharge under Chapter 7 of the Bankruptcy Code on January 29, 1992. Meanwhile, on July 27, 1990, the Idaho Supreme Court had entered its order suspending Debtor as a lawyer for a period of one year, or until such time as he was reinstated. The conditions adopted by the Supreme Court for Debtor's reinstatement included his payment of the costs and expenses incurred by the Bar in the disciplinary proceedings. By Order entered on February 12, 1991, the Supreme Court fixed those costs and expenses at $10,256.17.
Debtor petitioned for reinstatement after a year had passed, which petition was evidently opposed by the Bar in part because he had not repaid the costs and expenses earlier awarded by the Court. This petition was later dismissed by the Court for lack of prosecution. See In re Williams, 122 Idaho 902, 841 P.2d 432 (1992). Debtor alleges that the Bar has indicated it will continue to resist his reinstatement based on his failure to reimburse the expenses. It is this conduct Debtor cites as contemptuous.
Discussion of the Issues.
Initially, it would appear that Debtor should properly seek relief by way of an adversary proceeding, rather than through a motion. See F.R.B.P. 7001(6), (7), or (9). Because the Bar has fully responded to Debtor's motion and has not raised a procedural objection, in the interests of economy, the Court will consider the issues raised by Debtor's motion in this procedural context.
The Bar's claim for costs and expenses against Debtor arose in large part during the pendency of his bankruptcy case, culminating in the Supreme Court's Order entered February 12, 1991. While the disciplinary proceedings were pending, Debtor had sought reorganization of his financial affairs under Chapter 13, and then later Chapter 11 of the Bankruptcy Code. His case was converted to a Chapter 7 liquidation case at Debtor's request on January 7, 1991 when he was unable to propose a confirmable plan. By this time, the disciplinary proceedings had basically concluded.
Under Section 348(d) of the Code, there is little doubt that Debtor's liability for costs and expenses associated with the disciplinary proceedings conducted while he was in bankruptcy would constitute a "claim" for bankruptcy law purposes, potentially subject to discharge under Section 727(a). The Bar argues its claim is excepted from discharge by Section 523(a)(7) of the Code, which provides:
If the Bar is correct in its argument, and Debtor's obligation for the costs is not discharged, there is no injunction against actions to collect that debt afforded by the discharge.
Debtor argues that the Idaho State Bar is not a "governmental unit" as that term is used in Section 523(a)(7). The Court disagrees. The Bar is a self-governing state agency established by statute to supervise the granting, and to regulate the exercise of, the privilege of practicing law in the State of Idaho. See Idaho Code §§ 3-401-420. The Idaho Supreme Court holds ultimate authority concerning the admission and practice of attorneys in this State's courts. While the Bar is not necessarily an arm of the Idaho Supreme Court, it satisfies the Bankruptcy Code's definition of a governmental unit in its own right as an agency of the State of Idaho, see 11 U.S.C. § 101(27),2 in that the Bar carries out many functions normally associated with the government, including protecting the public from the unprofessional, improper and unauthorized practice of law.
Case law has likewise construed the Code definition of a governmental unit to include state bar associations and disciplinary bodies. See In re Wade, 948 F.2d 1122 (9th Cir.1991); In re Haberman, 137 B.R. 292 (Bankr.E.D.Wis.1992); In re Shaw, 86 I.B.C.R. 308 (dictum). Clearly, the Bar is a governmental unit as defined by the Bankruptcy Code.3
Debtor next contends that the costs awarded against him by the Supreme Court in the disciplinary action are not in the nature of a fine or penalty as required by Section 523(a)(7). The Bar does not depend upon such reimbursement awards in disciplinary actions for its financial vitality. See Idaho Code § 3-409. Costs and expenses are only awarded in cases where a violation of professional practice rules has been found. See Idaho Bar Commission Rules 505, 506. The record of the disciplinary proceedings shows that in this case the expense award is a sanction against Debtor based upon his improper conduct. Sanctions imposed in attorney disciplinary proceedings not only serve a compensatory function, but they also serve to deter attorney misconduct, and in this sense are similar to restitution obligations imposed in criminal prosecutions. See Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986) (). It would be a poor policy indeed to suggest that an attorney could elude punishment for professional improprieties by resorting to the Bankruptcy Code.
The Court concludes that Debtor's obligation for the disciplinary costs and expenses are excepted from discharge pursuant to Section 523(a)(7). As a result, it was not and is not a violation of Debtor's discharge to pursue collection of these amounts.4
The Court will also not find the Bar in contempt for violating the automatic stay under Section 362(a). First of all, the stay terminated by operation of law upon entry of Debtor's discharge on January 29, 1992. 11 U.S.C. § 362(c)(2)(C). Acts taken after that date were not restricted by the stay.
More importantly, it would appear the Bar's actions are excepted from the scope of the automatic stay by virtue of Section 362(b)(4) which allows "continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power." As indicated above, the Bar is a governmental unit for bankruptcy law purposes, and its conduct in enforcement of the Idaho rules of professional practice are classic police or regulatory functions. See In re Wade, 948 F.2d 1122 (9th Cir.1991); In re Fitch, 91 I.B.C.R. 8.
Finally, even to the extent that the Bar was subject to the automatic stay, the Court would, upon consideration of the findings and conclusions of the Supreme Court in Debtor's case, exercise its discretion in retroactively annulling the automatic stay for "cause". 11 U.S.C. § 362(d)(1). At least some of the alleged professional violations were directly or indirectly connected to Debtor's bankruptcy law practice. Membership in this Court's bar is conditioned upon an attorney's good standing as a member of the Idaho State Bar Association, D.Id.L.R. 83.5, and observance of the standards of professional conduct required of members of that Bar, D.Id.L.R. 83.6(a). In the event an attorney violates the professional rules, the Court may refer the matter to the disciplinary body of the State Bar. D.Id.L.R. 83.6(b). While the Court understands that Debtor vehemently denies any improprieties, and without regard to the merits of the Bar's allegations, it is important to the operation of this Court that an adjudicative process be available for the resolution of such complaints. The statutes and rules governing adjudication of attorney disciplinary actions provide such a system, and good "cause" existed in this...
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