Scheer v. The State Bar of California, et al. (In re Scheer)

Citation:
In re Scheer, No. 14-56622 (9th Cir. Apr. 15, 2016).
Tag(s):
Ruling:
An arbitration award against a debtor-attorney for an improperly collected client fee is dischargeable under 523(a)(7). Published.
Procedural context:
Client sought return of fees from lawyer-debtor under California’s mandatory attorney-fee arbitration program. When debtor failed to repay the entire fee, the California State Bar suspended her right to practice law until she repaid the balance of the fee. Debtor filed a chapter 7 petition and brought an adversary proceeding for a determination that her debt under the arbitration award was discharged and that her suspension violated 525(a) and 362. The bankruptcy and district courts ruled against debtor. On appeal, the Ninth Circuit reversed and remanded for consideration of debtor’s 525(a) and 362 claims.
Facts:
525(a) prohibits the government from revoking or refusing to renew a license “solely because” an individual has not paid a dischargeable debt. 523(a)(7), the only nondischargeability provision on which the bar relied, applies “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.” Here, the fee-arbitration award is not a fine or penalty, but compensation for actual loss. The court distinguished Kelly v. Robinson, 479 U.S. 36 (1986), which held that a restitution obligation imposed as a condition of probation in a state criminal proceeding is nondischargeable under 523(a)(7). The court also distinguished State Bar of Cal. v. Findley (In re Findley), 593 F.3d 1048, 1054 (9th Cir. 2010), which held nondischargeable costs or fees assessed against a lawyer for disciplinary reasons.
Judge(s):
Marsha S. Berzon and John B. Owens, Circuit Judges, and Algenon L. Marbley, District Judge for the Southern District of Ohio, sitting by designation.

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