In re: TERRY L. WIKE
- Summarized by Jonathan Batiste , Rensselaer Polytechnic Institute
- 6 months 4 weeks ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- No. 24-4402 (9th Circuit, Jul 31,2025) Published
- Tag(s):
-
- Ruling:
- The U.S. Court of Appeals for the 9th Circuit affirmed the Bankruptcy Appellate Panel’s (BAP) reversal of the bankruptcy court's decision finding that Creditor’s claims were nondischargeable. The pecuniary costs of attorney disciplinary hearings imposed on debtors are not exempt from discharge under 11 U.S.C. § 523(a)(7). Costs imposed on debtors under Nevada Supreme Court Rule 120 are not exempt from discharge. The Court of Appeals had jurisdiction as the BAP’s finding constituted a final decision. The § 523(a)(7) issue falls within the federal courts’ exclusive jurisdiction.
- Procedural context:
- The Nevada State Bar (Creditor) initiated disciplinary proceedings against Debtor. The Nevada Supreme Court automatically reviewed the matters and decided against Debtor, who then filed for chapter 7 bankruptcy and had the costs imposed on him discharged. The state court provisionally reinstated Debtor and required Debtor to pay the discharged debt to be fully reinstated. Debtor moved to reopen the bankruptcy proceedings and for sanctions against Creditor. The bankruptcy court denied Debtor’s motion for sanctions, and Debtor appealed the court’s decision to the BAP. The BAP reversed the bankruptcy court’s decision, and Creditor appealed the BAP’s decision to the U.S. Court of Appeals for the 9th Circuit.
- Facts:
- The Nevada State Bar (Creditor) initiated disciplinary hearings against Debtor in 2018 and 2019 for mishandling client funds. The Nevada Supreme Court automatically reviewed the matters, suspended Debtor, and ordered him to pay Creditor $21,138.15. The state court suspended Debtor until 2021, and Debtor filed for chapter 7 bankruptcy after the suspension expired. The bankruptcy court discharged the debt, and Debtor petitioned for reinstatement to the State Bar. The Southern Nevada Disciplinary Board and the Nevada Supreme Court conditioned Debtor’s full reinstatement on payment of the discharged debt. Debtor moved to reopen the bankruptcy proceedings and for sanctions against Creditor in 2023, alleging a violation of 11 U.S.C. § 525(a). The bankruptcy court reopened proceedings but denied Debtor’s motion for sanctions. Debtor appealed the court’s decision to the BAP, which decided in favor of Debtor. Creditor appealed the BAP’s decision to the U.S. Court of Appeals for the 9th Circuit. The Court of Appeals found that it had appellate jurisdiction over the BAP’s final decision under 28 U.S.C. § 158(d). The Rooker-Feldman doctrine did not preclude the court from deciding on the appeal because the state court’s decision surrounded the applicability of § 523(a)(7) to a particular debt, an issue falling within the exclusive jurisdiction of the federal courts. The court found the debt to constitute compensation for actual pecuniary losses and distinguished it from § 523(a)(7)’s fines, penalties, and forfeitures. The court scrutinized the relevant state statutes to make that determination, as it did for cases it referenced surrounding disciplinary proceedings under California’s laws. The costs imposed on Debtor under Nevada Supreme Court Rule 120 (Rule 120) are commensurate with the costs of disciplinary proceedings, a strong indication that the debt served as compensation for actual pecuniary loss. Rule 120 does not describe the debt imposed as a sanction. Nondischargeable debts incurred from criminal restitution cases are unique and distinct from debts incurred to pay for pecuniary losses associated with disciplinary hearings. The court remanded the case with instructions to grant Debtor’s motion for sanctions against Creditor.
- Judge(s):
- McKeown, de Alba, and Bennett
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