Where a former attorney was assessed various costs by the Virginia State Bar incurred in connection with the revocation of his license, the certified mailing fees, copying invoices and court reporting fees were dischargeable. However a $1,000 administrative fee was a penalty that was nondischargeable.
This opinion addresses whether costs assessed by the Virginia State Bar in a disciplinary proceeding against the debtor, Ernest Paul Francis, a former attorney, are excepted from the debtor’s discharge under Bankruptcy Code § 523(a)(7).
On Jan. 12, 2021, Francis consented to a revocation of his license to practice law in the Commonwealth of Virginia. The Clerk of the State Bar then assessed the following costs against the defendant in connection with the disciplinary proceedings: (1) administrative fee ($1,000.00); (2) certified mailing fees ($122.37); (3) copying invoices ($576.61) and (4) court reporting fees (3,263.98), for a total of $4,961.98.
Pursuant to the terms of a payment plan, the defendant made two payments, totaling $1,664.00. The balance of the costs now stands at $3,297.98. The defendant filed a Chapter 7 petition with this court on Nov. 24, 2021.
Section 523(a)(7) provides an exception to the debtor’s discharge for debts “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[.]” The debtor does not contest that the State Bar is a governmental unit.
Fine, penalty or forfeiture
In Kelly v. Robinson, 479 U.S. 36 (1986), the Supreme Court held that restitution obligations imposed as a part of a criminal sentence constitute fines, penalties or forfeitures, and are not dischargeable under § 523(a)(7). Most other courts have found costs imposed by state bar associations in connection with disciplinary proceedings to be fines, penalties or forfeitures within the meaning of § 523(a)(7).
The debtor relies heavily on Gonzalez v. Sessions. 894 F.3d 131 (4th Cir. 2018). The court finds the Gonzalez opinion to be distinguishable from the case at hand. First and most obviously, Gonzalez did not address Bankruptcy Code § 523(a)(7) at all. The Act’s definition at issue in Gonzalez (“some form of punishment, penalty or restraint on the alien’s liberty”) is different from § 523(a)(7)’s use of the phrase “fine, penalty or forfeiture.” There is no indication that Congress meant the two statutes to be interpreted in the same way, particularly when each addresses different problems and arises in different contexts.
The defendant also cites a number of Virginia Supreme Court cases that have stated that the “’primary purpose’ of a disciplinary proceeding ‘is to protect the public, not punish the attorney.’” These cases, of course, did not address § 523(a)(7). On balance, the court finds that the State Bar’s costs constitute a “penalty” within the meaning of § 523(a)(7).
The court turns to the issue of whether the costs assessed in this case are “compensation for actual pecuniary loss.” The court reporting fees would have been paid to a court reporter. This assessment compensates the State Bar for that expense. Likewise, the certified mailing fees and the copying invoices, whether done in-house or sent to outside vendors, would compensate the State Bar for its actual expenses in its prosecution of the disciplinary proceedings against the debtor. The court cannot see how these costs are anything other than compensation for actual pecuniary losses.
The $1,000.00 administrative fee, on the other hand, is a penalty and does not compensate the State Bar for any expenses incurred. The debtor argues that the administrative fee compensates the State Bar for its staff time in bringing the proceedings. This argument was rejected by the Seventh Circuit. The court finds that any connection between the administrative fee and the internal operating costs of the State Bar is too attenuated to conclude that the administrative fee is compensation for a pecuniary loss.
Finally, the court notes that the debtor has paid $1,664.00 in partial payments. The non-dischargeable administrative fee constitutes 20 percent of the total assessed costs. The court, therefore, will allocate 20 percent of the amounts paid by the debtor, or $332.80, to the administrative fee, leaving a non-dischargeable balance of $667.20.3
State Bar’s partial motion for summary judgment granted in part, denied in part.
Commonwealth v. Francis, Case No. 22-01008, Dec. 1, 2022. EDVA Bankr. at Alexandria (Kenney). VLW No. 022-4-029. 11 pp.