Thursday, April 14, 2016

In Re Marilyn Scheer (9th Cir. - April 14, 2016)

Judge Owens gets colloquial in today's opinion.  It's definitely one worth reading.  Even wholly apart from the cultural references.

It involves a situation every one of us hopes we'll never encounter personally.  Marilyn Scheer is a California attorney.  She does some home modification work, charges an illegal up-front fee, and then loses a State Bar arbitration proceeding against her filed by a client.  She makes a couple of payments on the award but then stops.  The State Bar gets miffed, involuntarily enrolls her as inactive, and tells her that she can't get her license back until she pays back the client and asks to be reinstated.

A fairly common occurrence.

Sheer responds by filing bankruptcy.  Once she obtains her discharge, she then orders the State Bar to give her license back, saying that restitutionary obligation under the Bar's order was now gone.  The Bar refuses to reinstate her, and Scheer sues the Bar.

Scheer's basic argument is that she's entitled to her license because  11 U.S.C. § 525(a) says you can't revoke or refuse to renew a license solely because an individual has not paid a debt discharged in bankruptcy.  But both the bankruptcy court and the district court say that her obligation to repay the client pursuant to the State Bar's order wasn't dischargeable, since Section 523(a)(7) says that you don't get a discharge if a 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.”

The Ninth Circuit, however, reverses.

Judge Owen's opinion in this regard is exactly right on one point.  If you look solely at the words of the statute, it's hard to see how Scheer's debt falls under Section 523(a)(7).  It doesn't seem like it's a fine payable to a governmental unit -- it's payable to the client -- and it seems like it's compensation for an actual loss; i.e., the illegal fees that the client previously paid to Scheer.  How could anyone go the other way?

Like I said:  I agree.  But here's the thing.  There's actual precedent about this.  And the precedent is pretty darn bad for Scheer.  There's this case called Kelly v. Robinson.  From a little tribunal called the Supreme Court.  That case is very much like the present one.  Kelly involved a restitution order entered in a criminal case.  There, like here, the money would go to a particular damaged party, and there, like here, the amount of the restitution was based on the actual damages that person suffered.  So if you look solely at the words of Section 523(a)(7), it doesn't look like that exception would apply, and the restitution order in Kelly would be discharged.

But the Supreme Court said otherwise.  It's a restitution order.  Entered at the request of the government.  Hence it's not subject to discharge.  So holds the Supreme Court.

Well now.

Judge Owens has a response.  This is what he says about that decision:  "The Court’s approach in Kelly -- to untether statutory interpretation from the statutory language -- has gone the way of NutraSweet and other relics of the 1980s."

Okay, I love the cultural reference.  Now, I'm not quite sure that the underlying factual predicate is what Judge Owens thinks it is, since NutraSweet actually continues to be used in literally thousands of products to the present day.  But I get what Judge Owens is saying.  The kind of analysis displayed in Kelly is as dead as a product that we know used to exist back but then don't think exists now.

Wholly beyond the whole NutraSweet thing, however, there are two big problems with Judge Owen's attempt to avoid Kelly.  One:  It's the Supreme Court.  Last I checked, the Ninth Circuit didn't have the ability to overrule Supreme Court precedent that it didn't like merely on the grounds that it was "outdated".  The Supreme Court says that Kelly remains good law.  So we've got to follow it.  Warts and all.

Second, yeah, I get it, Kelly displays a type of statutory interpretation that not every member of the current Court gets excited about these days.  But lots of members of the Court are, in fact, on board.  Plus, it's not like Kelly is some 5-4 relic of a bygone era.  It was a 7-2.  Oh, yeah.  And guess who was part of the 7-2?  Justice O'Connor.  Chief Justice Rehnquist.  Even Justice Scalia, for goodness sakes.  If even the absolute King of Textualism joined the opinion, it's darn hard to say that opinion doesn't stand the test of time because it reaches a conclusion that couldn't possibly be squared with textualism.

Seven members of the Court, including all the textualists, agreed that restitution orders aren't dischargeable in bankruptcy.  (The only dissenters were Justices Marshall and Stevens -- hardly justices hell-bent on textualism and two whom Judge Owens wants to strap his contemporary analysis.)  The current order looks, smells, and quacks like a restitution order.  So there's a darn strong argument, in my view, that you've got to follow the relevant Supreme Court precedent.

Even if -- as I do -- you personally don't think the text, standing alone, would compel such a result.  Precedent means something.  Especially Supreme Court precedent.

I get that the Supreme Court's decision in Kelly leads to some uncertainty.  And Judge Owens is surely right when he lists a plethora of post-Kelly cases -- although none of them involve State Bar orders -- to establish his point that "[i]t is fair to say that the 'I know it when I see it approach' of Kelly has led to predictably unpredictable results."

But that you don't like a Supreme Court case, or that it has created unpredictable results, isn't a basis for lower courts to stop following its dictates.  There are lots of Supreme Court cases I don't like and the analysis of which I find confusing, unhelpful, or downright wrong.  But if I'm on a lower court, I've got to follow 'em.  And that also means following them in analogous settings.  It's a dirty job, to be sure.  Filled, at least sometimes, with uncertainty.

But that's still my job.

Sure, the Supreme Court's prior case involved a criminal restitution order, and this one involves what essentially amounts to a State Bar restitution order.  But that prior case also involved someone named Kelly, whereas this one involves someone named Scheer.  What matters is not whether the cases are different in some way.  It's rather whether those differences are material.  If the analytical reasoning of Kelly extends to the present case, then the result should be the same.  Even if you're not persuaded by that reasoning.  That's what it means to follow precedent.

At least in my view.

(Nor, by the way, does it answer the question to say that a subsequent Ninth Circuit case, which post-dated Kelly, "answers the question," since that prior circuit precedent (1) followed Kelly, and (2) found the debt to the State Bar nondischargeable, thereby providing scant support for today's contrary holding on both points.  At the absolute most, that prior circuit precedent is distinguishable from the case at issue today; it certainly doesn't provide affirmative support for it.  Again:  At least to me.)

So, in the end, I'm not sure that saying that application of statutory purpose, context, and history went out the window with NutraSweet really answers the dispositive question here.  I think you've got to do much more work than that.  Work that could have been, but isn't, present here.