This is a Commentary on a Recent Published Opinion of the 9th Circuit Bankruptcy Appellate Panel
Around 2001, attorney Pamela Lacher contracted with a vendor, ECI, for services, which resulted in about $3,000 charge to the attorney. For reasons that are unstated in the appellate opinion, Lacher refused to pay.
Later, attorney Lacher and her mother sued the vendor, and placed a lis pendens on the home of the owner of ECI. ECI sued to have the Lis Pendens removed, and this removal was upheld against multiple appeals by Lacher.
By the time this activity was over, the debt was around $50,000.
Years went by, and the judgment increased with interest. By around 2020, Ms. Lacher owed over $200,000.
Additionally, by this time the California State Bar got involved. It began disbarment proceedings. Ms. Lacher filed for Ch.7 bankruptcy, and argued that the Chapter 7 should end the disbarment proceedings, and cancel the debt.
ECI filed an adversary proceeding, arguing that the debt was the result of fraud or malice, and thus not amenable to cancellation (“discharge”) in the bankruptcy court.
But the BAP opinion focused on 3 issues:
1) Did the 11th Amendment, which leaves the states sovereign over items that are not reserved to federal government power, preclude any ruling by the bankruptcy court that related to the State Bar’s disciplinary procedures? No, the bankruptcy court is not infringing on the State Bar’s power by issuing rulings that may incidentally affect Ms. Lacher’s professional status. By going through bankruptcy, the bankruptcy court did not effect any coerciver power over the State;
2) Did the judicial abstention doctrine require the bankruptcy court to abstain from ruling on the issue of whether bankruptcy proceedings are pre-empted by federal law? No, the judge had full authority to rule on whether the State Bar action was stayed by the bankruptcy case. The BAP relied on previous cases to rule that “Bankruptcy courts simply cannot provide a fresh start without interfering to some degree with state court proceedings.”
3) Did the bankruptcy case bar (as in, discharge) any disciplinary action against the attorney? No, because 1) the disciplinary action was not strictly based on monetary debt; and 2) the vendor’s action (“adversary proceeding”) based on fraud or malice was pending, and could eventually hold that the debt based on Ms. Lacher’s refusals to pay, and appeals, going back to 2001, were non-dischargeable. It would make little sense to hold that the debt was dischargeable, before the court could rule on whether the debt resulted from fraud or malice.
In re: PAMELA LACHER, Debtor. BAP No. SC-25-1020-FLC Bk. No. 24-03882-CL7 PAMELA LACHER, Appellant, v. STATE BAR OF CALIFORNIA, Appellee.
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