Kassas v. State Bar of Cal.

• Decision Date: 01 August 2022
• Docket Number: 21-55900
• Citation: 49 F.4th 1158
• Parties: Anthony J. KASSAS, Plaintiff-Appellant, v. STATE BAR OF CALIFORNIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

49 F.4th 1158

Anthony J. KASSAS, Plaintiff-Appellant,
v.
STATE BAR OF CALIFORNIA, Defendant-Appellee.

No. 21-55900

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 12, 2022 San Francisco, California
Filed August 1, 2022
Amended September 26, 2022

Matthew D. Resnik (argued) and M. Jonathan Hayes, RHM Law LLP, Encino, California, for Plaintiff-Appellant.

Suzanne C. Grandt (argued), Vanessa L. Holton, Robert G. Retana, and Ellin Davtyan, Office of General Counsel, State Bar of California, San Francisco, California, for Defendant-Appellee.

Before: Jay S. Bybee and Ryan D. Nelson, Circuit Judges, and Jed S. Rakoff,^* District Judge.

49 F.4th 1160

ORDER

The panel judges have unanimously voted to deny Appellant's petition for rehearing. Judge Nelson voted to deny Appellant's petition for rehearing en banc, and Judges Bybee and Rakoff recommended denying Appellant's petition for rehearing en banc.

The panel judges have unanimously voted to grant Appellee's petition for rehearing. Accordingly, the panel will file an amended opinion correcting the factual issue Appellee has raised. Judge Nelson voted to deny Appellee's petition for rehearing en banc, and Judges Bybee and Rakoff recommended denying Appellee's petition for rehearing en banc.

The full court has been advised of the petitions for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35.

Appellant's petition for rehearing and petition for rehearing en banc, filed August 26, 2022, are DENIED.

Appellee's petition for rehearing, filed August 26, 2022, is GRANTED. Appellee's petition for rehearing en banc, filed August 26, 2022, is DENIED.

The motion to become amicus curiae filed by the Law Offices of Lenore Albert on September 6, 2022, is DENIED as moot.

No subsequent petitions for rehearing or rehearing en banc will be permitted in this matter.

BYBEE, Circuit Judge:

Appellant Anthony J. Kassas, a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Kassas to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar's Client Security Fund (CSF) to victims of his conduct. Kassas subsequently filed for Chapter 7 bankruptcy and received a discharge.

Kassas sought a declaration that all of his debts to the State Bar were discharged in the bankruptcy. The State Bar argued that Kassas's disciplinary costs and reimbursements to the CSF were excepted from discharge pursuant to 11 U.S.C. § 523(a)(7) as "a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and ... not compensation for actual pecuniary loss." The bankruptcy court granted summary judgment for the State Bar. In re Kassas , 631 B.R. 469 (Bankr. C.D. Cal. 2021). The court concluded that while the restitution payments were discharged, the disciplinary costs and reimbursements paid from the CSF were not. Finding that the dischargeability of reimbursements from the CSF is a matter of public importance, the bankruptcy court certified the following question to us: "Is indebtedness arising from a disbarred attorney's obligation to reimburse the State Bar for payments made by the CSF to victims of that attorney's misconduct while practicing law non-dischargeable under 11 U.S.C. § 523(a)(7) ?"

49 F.4th 1161

In re Kassas , 2021 WL 2446270, at *2 (Bankr. C.D. Cal. June 15, 2021). We answer that such indebtedness is dischargeable, and we reverse the judgment in part.

I. BACKGROUND AND PROCEEDINGS

A. Background

1. The Statutory Framework

In 1971, the California Assembly created a CSF "to relieve or mitigate pecuniary losses caused by the dishonest conduct of licensees of the State Bar ... arising from or connected with the practice of law." Cal. Bus. & Prof. Code § 6140.5(a) (West 2011). Under the California State Bar's CSF Rules, "[t]o qualify for reimbursement, an applicant must establish a loss of money or property that was received by an active attorney who was acting as an attorney or in a fiduciary capacity customary to the practice of law." Cal. State Bar Rule 3.430(A). "The loss must have been caused by dishonest conduct" and the attorney must have "been disbarred, disciplined, or voluntarily resigned from the State Bar; died or been adjudicated mentally incompetent; or ... become a judgment debtor of the applicant in a contested proceeding or been convicted of a crime." Id. at 3.430(B), (C), 3.432(A). Decisions "to deny or limit reimbursement" are ultimately made by the CSF Commission, a five-member body. Id. at 3.421(A), 3.430(D).

When an application is received, the CSF Commission can investigate the application "as it deems appropriate," including requiring the submission of declarations, holding evidentiary hearings, and compelling witnesses and documents by subpoena. Id. at 3.441(A), (C). The Commission's decision to reimburse an applicant "must be based on a preponderance of the evidence." Id. at 3.441(I). The maximum reimbursement allowed per applicant is $100,000. Id. at 3.434(A).

The CSF Commission may serve a Notice of Intention to Pay on the attorney responsible for the conduct in an application. Id. at 3.442(C), 3.445(A). If a Notice of Intention to Pay is served, the attorney has thirty days to submit an objection. Id. at 3.442(D). If an objection is received, the Commission will conduct further review, and if no objection is received, the CSF may pay the applicant. Id. The CSF Commission may also issue a Tentative Decision, which includes a statement of the findings or reasons on which the decision is based, to the attorney and applicant, who have thirty days to lodge a written objection. Id. at 3.443(A), (B), 3.445(B). Only after the parties have an opportunity to submit objections, requests, or declarations in response to the Tentative Decision can the CSF...