Virginia Lawyers Weekly VA Lawyers Weekly
A former Virginia attorney who consented to a revocation of his license in 2021 had most of the costs associated with the revocation discharged by the U.S. Bankruptcy Court for the Eastern District of Virginia.
Stemming from the revocation, the Virginia State Bar assessed costs against the former attorney of nearly $5,000 — the majority of which were found dischargeable by the bankruptcy court.
U.S. Bankruptcy Judge Brian F. Kenney authored the opinion in Commonwealth v. Francis (VLW 022-4-029) for the court’s Alexandria division on Dec. 1.
Background
In January 2021, Ernest Paul Francis consented to a revocation of his license to practice law in Virginia. The clerk of the Virginia State Bar, or VSB, then assessed costs against the defendant, including an administrative fee, certified mailing fees, copying invoices and court reporting fees.
Francis and the VSB agreed to a payment plan in February 2021. Per the opinion, Francis made two payments pursuant to the plan’s terms, leaving a balance of just under $3,300.
In November 2021, Francis filed a Chapter 7 petition with the Eastern District bankruptcy court and received a discharge in his case in September 2022. In the interim, the VSB filed a timely complaint “commencing this adversary proceeding.”
Discharges
“This Opinion addresses whether costs assessed by the Virginia State Bar in a disciplinary proceeding against the Debtor… are excepted from the Debtor’s discharge under Bankruptcy Code Section 523(a)(7),” Kenney wrote in the opinion’s opening.
The judge noted that 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.’”
It was uncontested that the VSB — which is an administrative agency of the Virginia State Bar — qualifies as a governmental unit.
What remained at issue before the court were two elements: if the debt is a “fine, penalty, or forfeiture” and whether the debt is “compensation for actual pecuniary loss.”
To the first point, Kenney said most other courts have found that costs levied by state bar associations stemming from disciplinary matters are “fines, penalties, or forfeitures” under § 523(a)(7). He looked to the 1986 U.S. Supreme Court case Kelly v. Robinson and the Fourth U.S. Circuit Court of Appeals’ 1995 decision in U.S. Department of Housing and Urban Development v. CCMV, Inc.
“On balance, the Court finds, consistent with Kelly, CCMV, and the majority of cases addressing the issue, that the State Bar’s costs constitute a ‘penalty’ within the meaning of § 523(a)(7),” Kenney wrote.
Arguments by Francis citing the Fourth Circuit’s 2018 decision in Gonzalez v. Sessions and Virginia Supreme Court cases that state the “‘primary purpose’ of a disciplinary proceeding ‘is to protect the public, not punish the attorney,’” were rejected.
“These cases, of course, did not address § 523(a)(7),” Kenney wrote on the Virginia Supreme Court cases. The judge further noted that “it could also be said” the judgment against the defendants in CCMV was primarily to protect the public.
As to whether the costs are “compensation for actual pecuniary loss,” Kenney found that all costs were compensation for the VSB’s “pecuniary losses,” less the $1,000 administrative fee assessed.
“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.”
— U.S. Bankruptcy Judge Brian F. Kenney
Kenney pointed out that the court reporting fees — totaling more than $3,000 — would have been paid to a court reporter and compensates the VSB for the 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 judge explained. “The Court cannot see how these costs are anything other than compensation for actual pecuniary losses.”
And under § 523(a)(7), those costs are dischargeable.
The $1,000 administrative fee was a different story. Kenney said the fee is a “penalty” and did not compensate the VSB for expenses.
Kenney rebuffed an argument by Francis that the fee “compensates the State Bar for its staff time in bringing the proceedings,” citing precedent from 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,” Kenney wrote.
Taking into account the two payments already made by Francis — and that the administrative fee “constitutes 20% of the total assessed costs” — the court allocated 20% of the prior payments to the administrative fee. The decision left a non-dischargeable balance of $667.20, with the other costs discharged.
“The Court will grant partial summary judgment, sua sponte, to the Debtor on the dischargeable costs and will grant partial summary judgment to the State Bar on $667.20 of the Administrative Fee,” Kenney concluded.
