Price v. Lehtinen (In re Lehtinen)
Ninth Circuit Court of Appeals, Case No. 05-15421
April 28, 2009
The Ninth Circuit panel addressed the source for and limitations on a bankruptcy court's inherent authority to suspend an attorney from practicing before it.
The Issues
1) Does a bankruptcy court have the inherent power to suspend an attorney from practicing before it, independent of its general civil contempt power under § 105(a)? If so, upon what is this power based? 2) What standards of due process must be accorded the attorney in the bankruptcy court's exercise of that power? 3) What is the role of local bankruptcy rules in this arena, and were those rules appropriately applied here?
The Holdings: the Shorthand Version
1) Yes, a bankruptcy court has the inherent power to sanction attorneys practicing before it, and this power includes the power to suspend since a suspension is not punitive in nature but rather maintains the integrity of the court and of the attorney profession.
2)) In the bankruptcy court's exercise of its inherent power, an attorney is entitled to procedural due process including notice and an opportunity to be heard, but not the procedures of criminal due process. Sanctions under this power require a finding of "bad faith" and "willful misconduct," but explicit findings are not necessary as long as the record supports a finding of bad faith.
3) With the pertinent local federal district court rule stating that a judge "may do any or all of the following," the bankruptcy court had no obligation to refer the matter to the court's Standing Committee on Professional Conduct, just one of the enumerated discretionary options.
The Facts
The summary of facts is longer here than usual for the benefit of attorneys who might be particularly interested in the specific conduct of this suspended attorney.
Attorney Price represented Lehtinen in a Chapter 13 case, one intended to allow for the sale of her house to pay her creditors in full. Price did not attend the § 341 meeting of creditors but sent a contract attorney instead, without informing his client. Price also failed to appear at the confirmation hearing, having instead agreed to appear elsewhere at a hearing for another client, and without requesting that either hearing be continued. Price did not inform Lehtinen about the confirmation hearing, although she received written notice of it and upon calling the trustee's office was informed that she needed to attend. She did attend and the plan paying all creditors 100% was confirmed.
Price referred Lehtinen to a friend to get a loan to repair the house to be able to sell it. The friend agreed to make the loan only if Lehtinen retained Price, who was also a real estate broker, as the realtor for the sale of the house. Price also directly pressured his client to hire him as her realtor, soliciting her five distinct times for that purpose. Nevertheless, she did not make the loan through this friend, and eventually sold the house without hiring the attorney as her realtor.
Price assumed that the case was dismissed because he understood Lehtinen had not been current on her plan payments. So on the day after the confirmation hearing he sent her a letter telling her that the case had been dismissed, that he could refile the case for her or help her sell her house, and that the mortgage holder could now proceed with foreclosure.
A few days after the confirmation hearing the bankruptcy court issued an order to show cause why it should not require Price to disgorge some of his fees for his failure to appear at the two hearings. After a hearing the court ordered Price to disgorge $300 of the $1,500 paid to him.
Lehtinen then sent a letter to the bankruptcy court about Price referring her to his friend for a loan and pressuring her to hire him as realtor. She attached his letter to her about the supposed dismissal. The court issued a second order to show cause why Price should not be "suspended or disbarred from practice in this court," citing its "inherent sanction power" and listing his alleged misconduct but not the particular rules of professional conduct or state statute at issue. After the hearing on this order to show cause, the court ordered Price to disgorge the rest of his fees and suspended him from practice in the bankruptcy court for the Northern District of California for three months. Price appealed.
The BAP Opinion
The Bankruptcy Appellate Panel determined that the bankruptcy court had the authority to sanction Price, and that it had "afforded him due process," but the BAP remanded to the bankruptcy court to discipline him with consideration of the American Bar Association Standards. Price appealed to the Ninth Circuit and stayed the suspension.
The Holdings Expanded, Rationale
1) Based on Supreme Court precedent as to federal courts in general, and Ninth Circuit precedent as to bankruptcy courts in particular, a bankruptcy court has the inherent power--independent of any express statutory basis-- to sanction attorneys practicing before it. This inherent power must be exercised with restraint because of its potential breadth and relatively low procedural safeguards, so the sanctions under this power may only be in the nature of civil contempt, NOT criminal contempt. On the question of first impression in the Ninth Circuit whether a bankruptcy court has the inherent power to suspend an attorney from practicing in its court, given that such a sanction may appear to be punitive akin to criminal contempt and not compensatory akin to civil contempt, the Ninth Circuit here held that the bankruptcy does have that power since a suspension is not punitive in that it maintains the integrity of the court and of the attorney profession.
2) An attorney is entitled to procedural due process including notice and an opportunity to be heard in the bankruptcy court's exercise of it inherent power, but it is not a criminal proceeding so criminal due process does not apply. Necessary notice includes advance notice of the alleged misconduct and notice of the basis for the court's sanctioning authority. The bankruptcy court's reference in its second order to show cause to its inherent sanctioning authority was adequate even though the final suspension order made reference to related bar rules of professional conduct and state statutes to which the order to show cause had made no mention. Sanctions under the bankruptcy court's inherent powers require a finding of "bad faith" and "willful misconduct," but explicit findings are not necessary as long as the record supports a finding of bad faith.
3) Because there is no overall federal procedure for attorney discipline in the federal court system, each federal district is permitted to create its own rules. Here the rules stated that a judge "may do any or all of the following," with five enumerated options, one of them being a referral to "the Court's Standing Committee on Professional Conduct," another being "other appropriate sanctions." Price's objection that the bankruptcy court did not refer the matter to the Standing Committee was not persuasive since the items on the list are discretionary not mandatory, even though an earlier BAP opinion had recommended that attorney discipline matters be referred to that committee. The open-ended "other appropriate sanctions" was sufficient to allow for suspension under the court's inherent authority.
Bottom Line
This Ninth Circuit Panel opinion, in a number of instances, seems to at least bend the prior rules in order to uphold this bankruptcy court's authority to sanction this attorney with a three month suspension. Although it made no mention of the appropriateness of the length of the suspension, the opinion leaves a strong impression that the Court believed that this attorney's conduct merited this degree of sanction, and the Ninth Circuit was not going to let legal niceties hinder the bankruptcy court from levying this sanction.
For Oregon Attorneys:
In the District of Oregon unlike in this Lehtinen opinion, attorney discipline is addressed in the Local Bankruptcy Rules (LBR) instead of the District's Local Rules of Civil Practice. But as in Lehtinen, the rules do not refer directly to attorney suspension, while here too providing an open-ended option, in this case subjecting an attorney to "[a]ny other appropriate sanction or remedy." Based on Lehtinen, this is no limit on a bankruptcy court's inherent authority to suspend an attorney from practicing before it. Note that the Oregon LBR's do make a direct reference to attorney suspension, but only in reaction to a suspension in another court.
Here are the pertinent subsections to Oregon LBR 9011-3:
New Litigation Reports on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.
The Issues
1) Does a bankruptcy court have the inherent power to suspend an attorney from practicing before it, independent of its general civil contempt power under § 105(a)? If so, upon what is this power based? 2) What standards of due process must be accorded the attorney in the bankruptcy court's exercise of that power? 3) What is the role of local bankruptcy rules in this arena, and were those rules appropriately applied here?
The Holdings: the Shorthand Version
1) Yes, a bankruptcy court has the inherent power to sanction attorneys practicing before it, and this power includes the power to suspend since a suspension is not punitive in nature but rather maintains the integrity of the court and of the attorney profession.
2)) In the bankruptcy court's exercise of its inherent power, an attorney is entitled to procedural due process including notice and an opportunity to be heard, but not the procedures of criminal due process. Sanctions under this power require a finding of "bad faith" and "willful misconduct," but explicit findings are not necessary as long as the record supports a finding of bad faith.
3) With the pertinent local federal district court rule stating that a judge "may do any or all of the following," the bankruptcy court had no obligation to refer the matter to the court's Standing Committee on Professional Conduct, just one of the enumerated discretionary options.
The Facts
The summary of facts is longer here than usual for the benefit of attorneys who might be particularly interested in the specific conduct of this suspended attorney.
Attorney Price represented Lehtinen in a Chapter 13 case, one intended to allow for the sale of her house to pay her creditors in full. Price did not attend the § 341 meeting of creditors but sent a contract attorney instead, without informing his client. Price also failed to appear at the confirmation hearing, having instead agreed to appear elsewhere at a hearing for another client, and without requesting that either hearing be continued. Price did not inform Lehtinen about the confirmation hearing, although she received written notice of it and upon calling the trustee's office was informed that she needed to attend. She did attend and the plan paying all creditors 100% was confirmed.
Price referred Lehtinen to a friend to get a loan to repair the house to be able to sell it. The friend agreed to make the loan only if Lehtinen retained Price, who was also a real estate broker, as the realtor for the sale of the house. Price also directly pressured his client to hire him as her realtor, soliciting her five distinct times for that purpose. Nevertheless, she did not make the loan through this friend, and eventually sold the house without hiring the attorney as her realtor.
Price assumed that the case was dismissed because he understood Lehtinen had not been current on her plan payments. So on the day after the confirmation hearing he sent her a letter telling her that the case had been dismissed, that he could refile the case for her or help her sell her house, and that the mortgage holder could now proceed with foreclosure.
A few days after the confirmation hearing the bankruptcy court issued an order to show cause why it should not require Price to disgorge some of his fees for his failure to appear at the two hearings. After a hearing the court ordered Price to disgorge $300 of the $1,500 paid to him.
Lehtinen then sent a letter to the bankruptcy court about Price referring her to his friend for a loan and pressuring her to hire him as realtor. She attached his letter to her about the supposed dismissal. The court issued a second order to show cause why Price should not be "suspended or disbarred from practice in this court," citing its "inherent sanction power" and listing his alleged misconduct but not the particular rules of professional conduct or state statute at issue. After the hearing on this order to show cause, the court ordered Price to disgorge the rest of his fees and suspended him from practice in the bankruptcy court for the Northern District of California for three months. Price appealed.
The BAP Opinion
The Bankruptcy Appellate Panel determined that the bankruptcy court had the authority to sanction Price, and that it had "afforded him due process," but the BAP remanded to the bankruptcy court to discipline him with consideration of the American Bar Association Standards. Price appealed to the Ninth Circuit and stayed the suspension.
The Holdings Expanded, Rationale
1) Based on Supreme Court precedent as to federal courts in general, and Ninth Circuit precedent as to bankruptcy courts in particular, a bankruptcy court has the inherent power--independent of any express statutory basis-- to sanction attorneys practicing before it. This inherent power must be exercised with restraint because of its potential breadth and relatively low procedural safeguards, so the sanctions under this power may only be in the nature of civil contempt, NOT criminal contempt. On the question of first impression in the Ninth Circuit whether a bankruptcy court has the inherent power to suspend an attorney from practicing in its court, given that such a sanction may appear to be punitive akin to criminal contempt and not compensatory akin to civil contempt, the Ninth Circuit here held that the bankruptcy does have that power since a suspension is not punitive in that it maintains the integrity of the court and of the attorney profession.
2) An attorney is entitled to procedural due process including notice and an opportunity to be heard in the bankruptcy court's exercise of it inherent power, but it is not a criminal proceeding so criminal due process does not apply. Necessary notice includes advance notice of the alleged misconduct and notice of the basis for the court's sanctioning authority. The bankruptcy court's reference in its second order to show cause to its inherent sanctioning authority was adequate even though the final suspension order made reference to related bar rules of professional conduct and state statutes to which the order to show cause had made no mention. Sanctions under the bankruptcy court's inherent powers require a finding of "bad faith" and "willful misconduct," but explicit findings are not necessary as long as the record supports a finding of bad faith.
3) Because there is no overall federal procedure for attorney discipline in the federal court system, each federal district is permitted to create its own rules. Here the rules stated that a judge "may do any or all of the following," with five enumerated options, one of them being a referral to "the Court's Standing Committee on Professional Conduct," another being "other appropriate sanctions." Price's objection that the bankruptcy court did not refer the matter to the Standing Committee was not persuasive since the items on the list are discretionary not mandatory, even though an earlier BAP opinion had recommended that attorney discipline matters be referred to that committee. The open-ended "other appropriate sanctions" was sufficient to allow for suspension under the court's inherent authority.
Bottom Line
This Ninth Circuit Panel opinion, in a number of instances, seems to at least bend the prior rules in order to uphold this bankruptcy court's authority to sanction this attorney with a three month suspension. Although it made no mention of the appropriateness of the length of the suspension, the opinion leaves a strong impression that the Court believed that this attorney's conduct merited this degree of sanction, and the Ninth Circuit was not going to let legal niceties hinder the bankruptcy court from levying this sanction.
For Oregon Attorneys:
In the District of Oregon unlike in this Lehtinen opinion, attorney discipline is addressed in the Local Bankruptcy Rules (LBR) instead of the District's Local Rules of Civil Practice. But as in Lehtinen, the rules do not refer directly to attorney suspension, while here too providing an open-ended option, in this case subjecting an attorney to "[a]ny other appropriate sanction or remedy." Based on Lehtinen, this is no limit on a bankruptcy court's inherent authority to suspend an attorney from practicing before it. Note that the Oregon LBR's do make a direct reference to attorney suspension, but only in reaction to a suspension in another court.
Here are the pertinent subsections to Oregon LBR 9011-3:
Rule 9011-3. Sanctions, Remedies, & Suspension/Disbarment.
(a) General Sanctions and Remedies. A party or attorney who without just cause fails to comply with any provision of an LBR, FRCP, FRBP, LR, statute, or order; fails timely to notify the court of withdrawal, lack of opposition, settlement or proposed continuance of any matter; presents to the court unnecessary contested matters or adversary proceedings, motions, or unwarranted opposition; fails to appear or prepare for presentation to the court; or otherwise multiplies the proceedings in a case to increase costs unreasonably or vexatiously, may be subject to one or more of the following remedies:
(1) Entry of an order or judgment of default on a specific issue or the entire matter.
(2) Payment of any expense, including filing fees, attorney fees, or reporter fees incurred by any party or the court because of the violation.
(3) Entry of an order of dismissal for lack of prosecution.
(4) Any other appropriate sanction or remedy.
(c) Suspension/Disbarment. An attorney suspended or barred from the practice of law before any court may be served with an order to show cause why the attorney should not similarly be suspended or barred from practice before this court until the attorney is reinstated as an active member in good standing of that other court.
New Litigation Reports on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.
by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com
PLEASE NOTE that this Litigation Report and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
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