State Bar of California v. Taggart

• Decision Date: 01 November 2000
• Docket Number: No. 99-56343,99-56343
• Citation: 249 F.3d 987
• Parties: (9th Cir. 2001) IN RE: TIMOTHY L. TAGGART, DEBTOR. THE STATE BAR OF CALIFORNIA, APPELLEE, v. TIMOTHY L. TAGGART, APPELLANT
• Court: U.S. Court of Appeals — Ninth Circuit

Page 987

249 F.3d 987 (9th Cir. 2001)

IN RE: TIMOTHY L. TAGGART, DEBTOR.

THE STATE BAR OF CALIFORNIA, APPELLEE, v. TIMOTHY L. TAGGART, APPELLANT.

No. 99-56343

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Submitted November 1, 2000^*

Filed May 10, 2001

[Copyrighted Material Omitted]

Timothy L. Taggart, Bloomington, California, pro se, for the appellant.

Marie M. Moffat, Lawrence C. Yee, Patricia D. Scotlan, and Robert M. Sweet, San Francisco, California, for the appellee.

Appeal from the United States Bankruptcy Appellate Panel of the Ninth Circuit Christopher M. Klein, Elizabeth L. Perris, and Terry L. Myers, Bankruptcy Judges, Presiding BAP Nos. CC-98-1716 KMyP RS-98-1277 MJ

Before: Betty B. Fletcher, Diarmuid F. O'Scannlain, and Ronald M. Gould, Circuit Judges.

B. Fletcher, Circuit Judge

The bankruptcy code excludes from discharge debt that 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). In this case, we must decide whether the costs of attorney disciplinary proceedings brought by the State Bar of California (State Bar) are dischargeable in Chapter 7 bankruptcy, or instead are excluded from discharge by §§ 523(a)(7). Because we conclude that, in California, such costs are compensation to the State Bar for "actual pecuniary loss" rather than "fine[s], penalt[ies], or forfeiture[s]," we reverse the decision of the Bankruptcy Appellate Panel and remand with instruction to discharge the appellant's debt to the State Bar.

BACKGROUND

Timothy Taggart is an attorney admitted to the Bar in California. As a result of disciplinary proceedings before the California State Bar Court (Bar Court), the California Supreme Court issued two orders which, among other things, temporarily suspended Taggart from the practice of law and placed him on probation for two years.¹ California law requires the California Supreme Court to order disciplined attorneys to pay the costs of their disciplinary proceedings. Cal. Bus. & Prof. Code §§ 6086.10. The court awarded costs to the State Bar, and, pursuant to Cal. Bus. & Prof. Code §§ 6140.7, ordered Taggart to pay the costs as part of his bar membership fees for the next year. The costs amounted to $6,894.00. Shortly after the court issued its orders, Taggart filed for bankruptcy protection under Chapter 7, scheduling the State Bar as holding an unsecured claim in the amount of $10,000 for restitution and court costs. After Taggart received his discharge, the State Bar filed an adversary proceeding in the bankruptcy court, alleging that the order to pay costs was nondischargeable under §§ 523(a)(7). The State Bar filed a motion for summary judgment. The bankruptcy court granted the motion after a hearing, based on its conclusion that the State Bar is a governmental agency or entity and that the costs imposed in a disciplinary procedure constitute a penalty or fine. Taggart appealed to the Bankruptcy Appellate Panel (BAP). The BAP affirmed, agreeing with the bankruptcy court that the State Bar is a governmental agency and that the award of costs was a fine or penalty for §§ 523(a)(7) purposes. Taggart now appeals the decision of the BAP.²

STANDARD OF REVIEW

"Because we are in as good a position as the BAP to review bankruptcy court rulings, we independently examine the bankruptcy court's decision, reviewing the bankruptcy court's interpretation of the Bankruptcy Code de novo and its factual findings for clear error." United States v. Hatton (In re Hatton), 220 F.3d 1057, 1059 (9th Cir. 2000). In reviewing the bankruptcy court's grant of summary judgment, we must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the bankruptcy court correctly applied the substantive law. Parker v. Cmty. First Bank (In re Bakersfield Westar Ambulance, Inc.), 123 F.3d 1243, 1245 (9th Cir. 1997). No questions of fact are at issue in this appeal; the parties disagree only about whether the bankruptcy court correctly interpreted §§ 523(a)(7). Thus, our review is entirely de novo.

DISCUSSION

A debt is exempted from discharge under §§ 523(a)(7) "to the extent 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). Taggart does not dispute that his debt for the costs of his disciplinary proceedings are payable to and for the benefit of the State Bar, a governmental unit. Instead, he argues that because the California Supreme Court ordered him to pay costs under Cal. Bus. & Prof. Code §§ 6086.10 rather than to pay a monetary sanction under Cal. Bus. & Prof. Code §§ 6086.13, his debt is compensation for the State Bar's expenses rather than a fine or penalty. As such, he concludes, his debt is not exempt from discharge under §§ 523(a)(7). We agree.

Two different sections of the California Business and Professional Code allow for the imposition of fees on disciplined attorneys. Section 6086.10 requires the imposition of the costs of an attorney's disciplinary proceedings on any member of the State Bar who is publicly reproved. Cal. Bus. & Prof. Code §§ 6086.10.³ By contrast, §§ 6086.13 permits the California Supreme Court to impose, in its discretion, a monetary sanction--in addition to any costs imposed under§§ 6086.10 --on any State Bar member who is suspended or disbarred. Id. §§ 6086.13.⁴ A comparison of the plain language of these two sections, a comparison of cost assessment in attorney disciplinary hearings with that in civil litigation, and a review of the legislative history of §§ 6086.13 demonstrate that while fees imposed under §§ 6086.13 constitute fines or penalties, those imposed under §§ 6086.10 do not.

First, the fees levied under §§ 6086.10 are denominated "costs" and are imposed to reimburse the State Bar for "actual expenses" and "reasonable costs" associated with disciplinary hearings. Id. §§§§ 6086.10(a), (b). By contrast, fees authorized by §§ 6086.13 are described as "monetary sanctions" and are not dependent on any expenditure by the State Bar for their imposition. All that is required is that the attorney suffer the sanction of suspension or disbarrment. Id.§§ 6086.13(a). It is also noteworthy that a disciplined attorney may be excused from paying costs under §§ 6086.10 on the grounds of "hardship, special circumstances, or other good cause. " Id. §§ 6086.10(c). No such exception exists for an attorney ordered to pay monetary sanctions under §§ 6086.13. See id. §§ 6086.13(e) (limiting collection of monetary sanctions to circumstances in which collection would "impair the collection of criminal penalties or civil judgments arising out of transactions connected with the discipline of the attorney"). This supports the impression that the California legislature intended monetary sanctions under §§ 6086.13, but not costs awards under §§ 6086.10, as punishment.⁵

Second, while §§ 6086.10 requires disciplined attorneys to pay the costs associated with their disciplinary hearings, that section also entitles exonerated attorneys to reimbursement for the costs of defending themselves. Id . §§ 6086.10(d). Section 6086.10 is therefore analogous to a section of the California Civil Procedure Code that provides prevailing parties in civil suits the right to recover from the other party the prevailing party's costs of litigation. See Cal. Civ. Proc. Code §§§§ 1032(a)(4), (b). The California Supreme Court has noted that disciplinary proceedings before the Bar Court"are sui generis, neither civil nor criminal in character. . . . [These proceedings] are administrative but of a nature of their own . . . . [They] are not governed by the rules of procedure governing civil or criminal litigation." In re Rose, 993 P.2d 956, 962 (Cal. 2000) (internal quotation marks and citation omitted). Section 6086.10 appears to import into the"sui generis" attorney disciplinary context the standard California civil principle that "prevailing parties" are entitled to recover their costs of litigation.⁶

Finally, the legislative history of §§ 6086.13 makes it clear that the section was enacted in order to create the possibility of fines in the context of attorney disciplinary proceedings, which did not exist under §§ 6086.10. See SENATE COMMITTEE ON JUDICIARY, COMMITTEE REPORT FOR 1991 CALIFORNIA ASSEMBLY BILL NO. 2300 (August 11, 1992) ("[Attorney d]iscipline includes orders of reprimand constituting a public or private reproval, suspension from practice, or disbarrment. Fines or similar monetary sanctions are not authorized, though [Bus. & Prof. Code] Sec. 6086.10 requires disciplined attorneys . . . to reimburse the Bar for costs incurred in the disciplinary process . . . . " (emphasis added)).⁷

We acknowledge that the few reported cases that consider whether the costs of attorney disciplinary proceedings are excepted from discharge under §§ 523(a)(7) have held that such costs are non-dischargeable.⁸ Those cases--all concerning attorney disciplinary systems in jurisdictions other than California--have, by and large, analogized the costs of attorney disciplinary proceedings imposed on disciplined attorneys to the costs of criminal litigation imposed on convicted defendants. See, e.g., Bd. of Attorneys Prof'l Responsibility v. Haberman (In re Haberman), 137 B.R. 292, 296 (Bankr. E.D. Wisc. 1992).⁹ However, where, as here, the structure of the statutes imposing fees on disciplined attorneys, the existence of mandatory fees in the civil context, and the legislative history of the statute imposing monetary sanctions on disciplined attorneys all indicate that California does not view the assessment of costs on disciplined attorneys as penal in nature, analogy to the criminal context is inapt.

The stated purpose of §§ 6086.10, the existence of a separate statute...