Albert-Sheridan v. State Bar of Cal. (In re Albert-Sheridan)

658 B.R. 516

IN RE: Lenore L. ALBERT-SHERIDAN, Debtor.

Lenore L. Albert-Sheridan, dba Law Offices of Lenore Albert, Appellant, v. State Bar of California; Maricruz Farfan;

Brandon Tady; Alex Hackert;

Paul Bernardino; Hon. Yvette Roland, Appellees.

BAP No. CC-23-1024-SFL

Bk. No. 8:18-bk-10548-SC

Adv. No. 8:18-ap-01065-SC

United States Bankruptcy Appellate Panel of the Ninth Circuit

Filed April 2, 2024

Appeal from the United States Bankruptcy Court for the Central District of California, Scott C. Clarkson, Bankruptcy Judge, Presiding

Appellant Lenore L. Albert-Sheridan argued pro se.

Suzanne C. Grandt argued for appellees.

Before: SPRAKER, FARIS, and LAFFERTY, Bankruptcy Judges.

OPINION

SPRAKER, Bankruptcy Judge:

INTRODUCTION

Lenore L. Albert-Sheridan ("Albert") sued the State Bar of California ("State Bar"), its employees, and its representatives on various claims relating to her suspension from the practice of law. Her claims included violations of the automatic stay under § 362¹ and violations of the discharge injunction under § 524. The bankruptcy court dismissed some of Albert's claims and granted partial summary judgment as to others. Ultimately, the court held trial on the narrow remainder of her claims and entered judgment in Albert's favor for $21,627.48. Albert appeals this judgment together with the dismissal and summary judgment rulings.

This appeal is but one chapter in the drawn-out litigation between Albert and the State Bar. The State Bar suspended Albert's law license and ordered that, after a minimum period of suspension, she could reinstate her license by paying certain discovery sanctions, restitution, and costs. After Albert filed a chapter 13 bankruptcy petition, the State Bar eventually (but tardily) reinstated her license. When the bankruptcy court converted Albert's case to chapter 7, the State Bar suspended her again.

In earlier chapters of the litigation saga, Albert established that her obligations to pay discovery sanctions, restitution, and the amounts owed to the State Bar's Client Security Fund ("CSF") were dischargeable. Prior chapters also established that the disciplinary costs assessed against her in her disciplinary proceedings were non-dischargeable in a chapter 7 case under § 523(a)(7).

In the current chapter, Albert reprises these claims and argues that the State Bar violated the automatic stay while Albert was in bankruptcy. The bankruptcy court rejected these claims. We hold that the court was correct in most respects but erred in others. The disciplinary proceedings were valid regulatory proceedings excepted from the automatic stay by § 362(b)(4). But Albert originally filed her bankruptcy in chapter 13, in which all debts owed to the State Bar were dischargeable under § 1328(a). The State Bar's efforts to collect discovery sanctions and disciplinary costs violated the stay during this period. Upon conversion of her case to chapter 7, the disciplinary costs became nondischargeable as a matter of law. Yet, § 362(a)(6) still precluded the State Bar from taking any further actions to collect those costs during the pendency of her bankruptcy case. We hold that the bankruptcy court erred in dismissing Albert's claims that the State Bar's alleged collection efforts violated the automatic stay and remand for further proceedings on those claims.

Upon the entry of the discharge, the State Bar was enjoined from collecting any discovery sanctions, restitution, and the CSF obligation. It was not enjoined, however, from collecting the outstanding disciplinary costs or reinstating her suspension until she paid such costs. The State Bar was entitled to suspend her license because she did not pay the nondischargeable disciplinary costs. It is true that the State Bar also suspended her license because she did not pay discharged debts and that this violated the discharge injunction. But Albert failed to plausibly allege or credibly prove that she suffered additional compensable injury because the State Bar suspended her license post-discharge for both proper and improper reasons.

Moreover, the State Bar had an objectively reasonable basis to believe that it legally could pursue the discovery sanctions, the client restitution, and the CSF debt after Albert received her discharge. At the time, this Panel had ruled, based on a Supreme Court decision, that these types of debts were nondischargeable. The Ninth Circuit later reversed our decision, but it was objectively reasonable for the State Bar to rely on decisions, including ours, holding that such debts were nondischargeable in the meantime. This means that the State Bar was not liable for contempt of the discharge injunction.

We find no error in the court's disposition on summary judgment or at trial. However, mindful of the stringent legal standards governing motions to dismiss, we hold that the court erred in dismissing Albert's claims for violation of the automatic stay under Civil Rule 12(b)(6)—but only as to her allegations that the State Bar failed to reinstate her license timely while she was in chapter 13 and reimposed the suspension after the conversion to chapter 7. We also hold that the bankruptcy court erred when it held that it lacked subject matter jurisdiction of Albert's claims under the California constitution. We, therefore, AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this decision.

FACTS²

A. The disciplinary proceedings leading to the 2017 Suspension Order.

Albert is an attorney licensed to practice in California. In 2015 and 2016, the State Bar commenced disciplinary proceedings against Albert by filing Notices of Disciplinary Charges ("NDCs") in the State Bar Court alleging that she had failed to (1) cooperate with its investigations, (2) pay court-ordered discovery sanctions, (3) perform competent legal services, (4) account for client funds, and (5) refund unearned attorney's fees.³

On June 30, 2017, the Review Department of the State Bar Court found that Albert had received a fair trial, failed to cooperate with the investigation of her misconduct, and failed to comply with three discovery sanctions orders totaling $5,738 ("2017 Discovery Sanctions"). In December 2017, the California Supreme Court entered an order ("2017 Suspension Order") in which it adopted most of the State Bar's recommendations and suspended Albert from the practice of law for at least 30 days, but continuing until she paid the 2017 Discovery Sanctions, as well as $18,714 in disciplinary costs awarded to the State Bar under California Business and Professions Code § 6086.10(b)(3) ("Disciplinary Costs").

B. Albert's bankruptcy and the first adversary proceeding against the State Bar.

Albert did not immediately pay either the 2017 Discovery Sanctions or the Disciplinary Costs. Instead, on February 20, 2018, she filed a chapter 13 petition.

In March 2018, she moved for sanctions against the State Bar and others. She claimed that the State Bar violated the automatic stay when it refused to terminate her suspension and reinstate her as a licensed California attorney. She claimed that the continuation of her suspension was an impermissible attempt to collect dischargeable debts during the pendency of her bankruptcy stay.

The State Bar opposed the sanctions motion. It contended that it was acting under its police or regulatory power and not merely enforcing a monetary obligation. It further maintained that Albert was not entitled to injunctive relief and that she had not demonstrated that the alleged stay violation had injured her.

In April 2018, before the bankruptcy court held a hearing on the sanctions motion, Albert filed her first adversary complaint ("First Adversary") against the State Bar and several of its employees. Among other things, she alleged that her debts to the State Bar were dischargeable and fell outside the scope of § 523(a)(7) and that the State Bar violated her rights under § 525(a)'s anti-discrimination provision.

After a hearing on May 3, 2018, the bankruptcy court deferred a final ruling on the motion but noted that the State Bar's "30-day actual suspension of Debtor's license to practice law as determined by the California Supreme Court commenced on February 14, 2018 and ran through and including March 16, 2018." The court observed that this "portion of the suspension [was] not based on condition of any payment of sanctions or disciplinary costs." The court further noted: "[w]hether the suspension continues past March 16, 2018 based on certain reinstatement conditions is the subject of an adversary proceeding which will be adjudicated in due course."

Four days later, on May 7, 2018, the State Bar moved to dismiss the First Adversary. The State Bar argued that the 2017 Discovery Sanctions and Disciplinary Costs were nondischargeable debts under § 523(a)(7) and that it properly continued Albert's suspension after the initial 30 days based on her failure to pay those debts. The State Bar also sought to dismiss Albert's other claims for relief.

While its motion to dismiss was pending, on June 1, 2018, the State Bar reinstated Albert effective as of March 16, 2018. It did not explain why it changed its position.

Shortly thereafter, on June 26, 2018, the bankruptcy court converted the bankruptcy case to chapter 7. The State Bar then reimposed Albert's suspension pending payment of the 2017 Discovery Sanctions and Disciplinary Costs.

On August 9, 2018, the bankruptcy court granted the defendants' motion to dismiss the First Adversary. Albert appealed. This Panel affirmed the dismissal. We interpreted the Supreme Court's decision in Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), to mean that the 2017 Discovery Sanctions and Disciplinary Costs were nondischargeable under § 523(a)(7). Albert-Sheridan v. State Bar (In re Albert-Sheridan), 2019 WL 1594012, at *5-7 (9th Cir. BAP Apr. 11, 2019) ("Albert I"), aff'd in part, rev'd in part and remanded, 960 F.3d 1188 (9th Cir. 2020) ("...