ANTHONY KASSAS V. STATE BAR OF CALIFORNIA, No. 21-55900 (9th Cir. 2022)
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Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge.
The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any 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.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7).
Court Description: Bankruptcy. The panel affirmed in part and reversed in part the bankruptcy court’s judgment in an adversary proceeding in which the bankruptcy court found nondischargeable (1) indebtedness arising from a disbarred attorney’s obligation to reimburse the State Bar for payments made by the Bar’s Client Security Fund to victims of his misconduct and (2) the costs for the disciplinary proceedings conducted against the attorney, a Chapter 7 debtor. Reversing in part, the panel held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. § 523(a)(7), which provides that a debtor is not discharged from any 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.” Considering the totality of the Client Security Fund program, the panel concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part, the panel held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated KASSAS V. STATE BAR OF CALIFORNIA 3 with the attorney’s disciplinary proceedings were nondischargeable under § 523(a)(7).
The court issued a subsequent related opinion or order on September 26, 2022.
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