This Ninth Circuit opinion is somewhat bold.
The issue is one of line-drawing, so reasonable people could go various ways. The question is whether a particular debt can be discharged in bankruptcy. The relevant bankruptcy statute says that most private debts can be discharged but most debts to the government cannot. That's the general rule, sure -- but as usual, the toughest cases are at the margins.
So what about criminal restitution orders? Say that I get drunk, smash into someone's car, cause $4,000 worth of damage, get convicted of DUI, and as part of my sentence, the judge enters a restitution order that requires me to pay the vehicle's owner the $4,000 damage that I caused. Can I declare bankruptcy and get out of the restitution order?
The order isn't a debt to the "government" since I have to pay the car's owner, not the prosecutor. It also looks a lot like a judgment that the car owner might have been able to get against me in a civil lawsuit for damage to his car, which would (absent wilfulness) be dischargeable.
Nonetheless, the Supreme Court held in a decision called Kelly that restitution orders like these aren't dischargeable. They're part of a "government-like" decision to punish someone (e.g., a prosecution), and as part of that, the government can make you pay back the victim. You can't get out of that just by declaring bankruptcy.
Okay. That's the law.
So now we get to follow-on cases. What about, say, arbitration awards against lawyers? Say an attorney steals $4000 from a client, and the client files a fee arbitration proceeding and obtains a $4000 award. Is that dischargeable in bankruptcy?
The Ninth Circuit, back in 2016, said it was. Which seems right. Arbitration proceedings are very similar to lawsuits. Those judgments are dischargeable. So ditto for these. That seems like a correct reading of precedent, text, structure and purpose. We're all good.
Now fast forward to 2020. And the hardest case:
Lenore Albert-Sheridan is a California attorney and does some very bad things. She repeatedly gets sanctioned for misconduct. She doesn't pay the sanctions. The State Bar investigates her, and she's far from apologetic; for example, she files a motion that requests an extension of time to respond to the Bar's complaint to "the eternity of time." Ultimately, in 2017, her disciplinary proceeding gets up to the California Supreme Court. Which says that the appropriate penalty is to suspend Ms. Albert-Sheridan for at least 30 days, said suspension to be lifted once she paid the discovery sanctions that were entered against her.
Ms. Albert-Sheridan didn't pay. Instead, she simply filed bankruptcy. Then she filed a suit against the State Bar saying that her suspension was over since all her debts were discharged. And that her post-disciplinary bankruptcy filing essentially invalidated the California Supreme Court's order that she be suspended until she paid the sanctions.
Is she right?
Is the California Supreme Court's order more like a restitution order, which is nondischargeable? Or is it more like a fee arbitration award, which are dischargeable?
(There's a separate part of the opinion about whether the award of the State Bar's disciplinary costs is nondischargeable, but I think it's very clear -- as the panel holds -- that those are not dischargeable. So I'm not going to talk about that. To me, the tough -- and interesting -- part of the case is about the requirement to pay the sanctions.)
Remember: All of these require the party to write a check to another private party. That doesn't distinguish restitution payments, sanction orders, and fee arbitration awards. Some of those are dischargeable and some aren't. So it's not sufficient just to say that the check's written to a private party so it's dischargeable: that won't work. We've instead got to draw the relevant and doctrinally principled line.
So what result?
My personal take is that there's a decent argument that the California Supreme Court's order is more like a restitution order. "You did some bad, we're punishing you, and we're not willing to let you off that punishment until you make things right." That's the sentiment behind restitution orders, and it's the exact same sentiment behind the California Supreme Court's disciplinary order. Which means the financial obligation is like the debt in Kelly and is nondischargeable.
That's what the bankruptcy court thought (and held). But the Ninth Circuit disagrees, and reverses.
What I thought was most bold about Judge Bumatay's opinion for the panel was the extraordinarily dismissive way it treats the holding in Kelly. The opinion slams that opinion as a "relic[] of the 1980s,
such as big hair, jam shorts, and acid-wash jeans," and suggests that it should go the same way, since it reached the result it did by analyzing (inter alia) the purposes of the statute rather than its mere text.
Now, you might expect such a critique of a prior "liberal" Ninth Circuit opinion from a conservative judge in the modern era. But remember: This is a critique of an opinion of the Supreme Court, not a Ninth Circuit panel. We generally follow those things, and when we slam them, we do it in a dissent or concurrence, not in a majority opinion.
And it's not just any Supreme Court opinion. It's a 7-2. So it's not like that opinion was especially close. Yes, it was rendered in the 1980s, when we cared a lot more about policy and purposes and (rightly or wrongly) didn't slavishly follow statutory text. But guess who (amongst others) joined that 7-2 opinion? Chief Justice Rhenquist, for one. Justice Scalia, for another. Hardly jurists who don't care about the primacy of statutory text and who willy-nilly draw whatever lines they feel. (Indeed, the two dissenters in that case were Justices Marshall and Stevens -- far from your usual textualists.)
So slamming Rhenquist and Scalia as relics from the '80s insufficiently concerned with the centrality of statutory text seems bold. Wholly apart from the fact that it's an attack on the reasoning of a higher court that you're obligated to follow.
Now, admittedly, Judge Bumatay wasn't the first one to assert this critique. Judge Owens said some of the same things in the fee arbitration case in the fee arbitration case in 2016. (Though isn't it funny that the "relic of the 1980s" that Judge Owens listed was NutraSweet, whereas Judge Bumatay says it's "big hair, jam shorts, and acid-wash jeans.")
(Parenthetically: I agree with Judge Bamatay about the "big hair" part, but I'm not really sure about the other two. I see lots of people with acid-wash jeans these days; in the modern incarnation, we also seem to "distress" and rip them -- here are the current Forever 21 styles. As for jam shorts, I'm starting to see a ton of those, particularly here in Southern California beach communities. And if the clothing choices of my 16-year old surfer-and-water-polo son are any indication, that particular style is making a huge comeback these days. For better or worse.)
Back to the point. Maybe it was a bit bold for Judge Owens to offer a critique of Kelly back in 2016. But at least he was doing so in the context of a case (fee arbitration awards) that wasn't analogous to the Supreme Court's restitution opinion anyway. In 2020, we've got a case that's (IMHO) very close to the Supreme Court's restitution opinion. And to largely say "Well, that case was stupid, so we're going to pretty much limit that Supreme Court holding to its facts, even if restitution orders and disciplinary orders are indeed somewhat analogous" seems a fair piece bolder than what we've done before.
I get the critique. And I get that someone might think, for principled reasons, that restitution orders are potentially different than disciplinary "pay your sanctions" orders.
But still. Bold.
