In re William McNeir Richmond 06-CV-426-SM 09/27/07 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
In r e : William McNeir Richmond Debtor
New Hampshire Supreme Court Committee on Professional Conduct, Appellee
v. Civil No.06-cv-426-SM Opinion N o . 2007 DNH 121 William McNeir Richmond, Appellant
O R D E R
William McNeir Richmond (“Richmond”), a Chapter 7 debtor,
appeals the bankruptcy court’s (Deasy, J.) determination that the
costs assessed against him by the New Hampshire Supreme Court
Committee on Professional Conduct (“PCC”) at the conclusion of
each of two disciplinary proceedings are not dischargeable. The
PCC found Richmond guilty of misconduct in each case. He was
suspended from the practice of law initially and, after the
second proceeding, was disbarred. For the reasons given below,
the decision of the bankruptcy court is affirmed. Standard of Review
A bankruptcy court’s findings of fact are not set aside
unless clearly erroneous. Palmacci v . Umpierrez, 121 F.3d 7 8 1 ,
785 (1st Cir. 1997) (citing F E D . R . BANKR. P . 8013; Commerce Bank &
Trust C o . v . Burgess (In re Burgess), 955 F.2d 1 3 4 , 137 (1st Cir.
1992); F E D . R . C I V . P . 52(c), advisory committee’s note to 1991
Amendment). However, a “bankruptcy court’s legal conclusions,
drawn from the facts so found, are reviewed de novo.” Palmacci,
121 F.3d at 785 (citing Martin v . Bajgar (In re Bajgar), 104 F.3d
495, 497 (1st Cir. 1997)) “On an appeal the district court . . .
may affirm, modify, or reverse a bankruptcy judge’s judgment,
order, or decree or remand with instructions for further
proceedings.” F E D . R . BANKR. P . 8013.
Background
Richmond has been the subject of two P C C disciplinary
proceedings. See Richmond’s Case (Richmond I ) , 152 N . H . 155
(2005); Richmond’s Case (Richmond I I ) , 153 N . H . 729 (2006). In
Richmond I , the New Hampshire Supreme Court suspended Richmond
from the practice of law for six months and, among other things,
adopted the referee’s recommendation that Richmond be ordered to
“reimburse the committee for the costs of investigating and
prosecuting this matter.” 152 N . H . at 162. In Richmond I I , the
2 New Hampshire Supreme Court disbarred Richmond and, among other
things, ordered him to “reimburse the committee for all of its
expenses, including legal fees, incurred in investigating and
prosecuting this matter.” 153 N.H. at 746.
While his disciplinary proceedings were under way, Richmond
sought protection from creditors under Chapter 7 of the United
States Bankruptcy Code. The PCC “filed a complaint pursuant to
11 U.S.C. § 523(a)(7) seeking to except from [Richmond’s]
discharge his obligations to the [PCC] arising out of [his] two
attorney disciplinary proceedings.” N.H. Sup. C t . Prof’l Conduct
Comm. v . Richmond (In re Richmond), 351 B.R. 6, 7-8 (Bankr.
D.N.H. 2006). The bankruptcy court “conclude[d] that
[Richmond’s] obligation to pay the Disciplinary Costs to the
[PCC] falls within the provisions of § 523(a)(7) as it is a debt
‘for a fine, penalty or forfeiture payable to and for the benefit
of a governmental unit, and is not compensation for actual
pecuniary loss.’” Id. at 1 4 . This appeal followed.
Discussion
Under the Bankruptcy Code, “a discharge . . . does not
discharge an individual debtor from any debt . . . to the extent
such debt is for a fine, penalty, or forfeiture payable to and
3 for the benefit of a governmental unit, and is not compensation
for actual pecuniary loss.” 11 U . S . C . § 523(a)(7). Here, the
parties agree that the disputed P C C assessments are “payable to
and for the benefit of a governmental unit.” The two points of
dispute are whether a P C C assessment qualifies as “a fine,
penalty, or forfeiture” and whether such an assessment is
“compensation for actual pecuniary loss.” According to Richmond,
the bankruptcy court erroneously ruled against him on both
points.
To support his argument that the costs assessed against him
do not qualify as a “fine, penalty, or forfeiture,” Richmond
relies upon various dictionary definitions, points out that the
provision pertaining to P C C cost assessments, New Hampshire
Supreme Court Rule 37(16), is not found in that section of the
rules titled “Types of Discipline and Other Possible Actions,”
N . H . S U P . C T . R . 37A(1)(e), and opines that the possible
imposition of costs upon attorneys subject to P C C discipline is
generally treated as an afterthought by the P C C and the New
Hampshire Supreme Court, and, in any event, has little or no
deterrent effect. Moreover, Richmond argues, or at least argued
before the bankruptcy court, that the costs assessed against him
were not fines or penalties because “the New Hampshire attorney
4 disciplinary system is not penal in nature.” In re Richmond, 351
B.R. at 1 1 .
At the time of the disciplinary proceedings against
Richmond, costs were assessed pursuant to Supreme Court Rule
37(16), which provided that “[a]ll expenses incurred by the
committee and by bar counsel in the investigation and enforcement
of discipline shall be paid by the New Hampshire Bar Association
in the first instance but may, in whole or in part, be assessed
to a disciplined attorney to the extent appropriate.” The fact
that only a “disciplined attorney” is subject to an assessment of
expenses suggests that the assessment is in the nature of a fine
or penalty. Even more persuasive, however, is the following
observation by the New Hampshire Supreme Court:
We retain the ultimate authority to determine the appropriate sanction for a violation of the rules governing attorney conduct. Wood’s Case, 137 N.H. 6 9 8 , 701 (1993). In exercising our authority, we are mindful that discipline is not intended as a mode of inflicting punishment for an offense. Silverstein’s Case, 108 N.H. 4 0 0 , 401 (1967). Rather, “[t]he purpose of the court’s disciplinary power is to protect the public, maintain public confidence in the bar, preserve the integrity of the legal profession, and prevent similar conduct in the future.” Budnitz’ Case, 139 N.H. 489, 492 (1995) (quotation and ellipsis omitted). The sanction we impose must be sufficient to satisfy these goals, and must take into account the severity of the misconduct and any mitigating circumstances disclosed by the record. Welts’ Case, 136 N.H. 5 8 8 ,
5 592 (1993). . . . Every case is judged on its own facts and circumstances. Id.
The respondent committed serious infractions of the rules that regulate the handling of client funds by attorneys. . . . We conclude, however, that because of mitigating factors, a conditionally delayed two-year suspension, coupled with an obligation to pay costs, will protect the public, maintain public confidence in the bar, preserve the integrity of the legal profession, and prevent similar conduct in the future.
Morgan’s Case, 143 N.H. 475, 476-77 (1999) (parallel citations
omitted, emphasis added).
It may well be that “the New Hampshire attorney discipline
system is not penal in nature.” In re Richmond, 351 B.R. at 1 1 .
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In re William McNeir Richmond 06-CV-426-SM 09/27/07 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
In r e : William McNeir Richmond Debtor
New Hampshire Supreme Court Committee on Professional Conduct, Appellee
v. Civil No.06-cv-426-SM Opinion N o . 2007 DNH 121 William McNeir Richmond, Appellant
O R D E R
William McNeir Richmond (“Richmond”), a Chapter 7 debtor,
appeals the bankruptcy court’s (Deasy, J.) determination that the
costs assessed against him by the New Hampshire Supreme Court
Committee on Professional Conduct (“PCC”) at the conclusion of
each of two disciplinary proceedings are not dischargeable. The
PCC found Richmond guilty of misconduct in each case. He was
suspended from the practice of law initially and, after the
second proceeding, was disbarred. For the reasons given below,
the decision of the bankruptcy court is affirmed. Standard of Review
A bankruptcy court’s findings of fact are not set aside
unless clearly erroneous. Palmacci v . Umpierrez, 121 F.3d 7 8 1 ,
785 (1st Cir. 1997) (citing F E D . R . BANKR. P . 8013; Commerce Bank &
Trust C o . v . Burgess (In re Burgess), 955 F.2d 1 3 4 , 137 (1st Cir.
1992); F E D . R . C I V . P . 52(c), advisory committee’s note to 1991
Amendment). However, a “bankruptcy court’s legal conclusions,
drawn from the facts so found, are reviewed de novo.” Palmacci,
121 F.3d at 785 (citing Martin v . Bajgar (In re Bajgar), 104 F.3d
495, 497 (1st Cir. 1997)) “On an appeal the district court . . .
may affirm, modify, or reverse a bankruptcy judge’s judgment,
order, or decree or remand with instructions for further
proceedings.” F E D . R . BANKR. P . 8013.
Background
Richmond has been the subject of two P C C disciplinary
proceedings. See Richmond’s Case (Richmond I ) , 152 N . H . 155
(2005); Richmond’s Case (Richmond I I ) , 153 N . H . 729 (2006). In
Richmond I , the New Hampshire Supreme Court suspended Richmond
from the practice of law for six months and, among other things,
adopted the referee’s recommendation that Richmond be ordered to
“reimburse the committee for the costs of investigating and
prosecuting this matter.” 152 N . H . at 162. In Richmond I I , the
2 New Hampshire Supreme Court disbarred Richmond and, among other
things, ordered him to “reimburse the committee for all of its
expenses, including legal fees, incurred in investigating and
prosecuting this matter.” 153 N.H. at 746.
While his disciplinary proceedings were under way, Richmond
sought protection from creditors under Chapter 7 of the United
States Bankruptcy Code. The PCC “filed a complaint pursuant to
11 U.S.C. § 523(a)(7) seeking to except from [Richmond’s]
discharge his obligations to the [PCC] arising out of [his] two
attorney disciplinary proceedings.” N.H. Sup. C t . Prof’l Conduct
Comm. v . Richmond (In re Richmond), 351 B.R. 6, 7-8 (Bankr.
D.N.H. 2006). The bankruptcy court “conclude[d] that
[Richmond’s] obligation to pay the Disciplinary Costs to the
[PCC] falls within the provisions of § 523(a)(7) as it is a debt
‘for a fine, penalty or forfeiture payable to and for the benefit
of a governmental unit, and is not compensation for actual
pecuniary loss.’” Id. at 1 4 . This appeal followed.
Discussion
Under the Bankruptcy Code, “a discharge . . . does not
discharge an individual debtor from any debt . . . to the extent
such debt is for a fine, penalty, or forfeiture payable to and
3 for the benefit of a governmental unit, and is not compensation
for actual pecuniary loss.” 11 U . S . C . § 523(a)(7). Here, the
parties agree that the disputed P C C assessments are “payable to
and for the benefit of a governmental unit.” The two points of
dispute are whether a P C C assessment qualifies as “a fine,
penalty, or forfeiture” and whether such an assessment is
“compensation for actual pecuniary loss.” According to Richmond,
the bankruptcy court erroneously ruled against him on both
points.
To support his argument that the costs assessed against him
do not qualify as a “fine, penalty, or forfeiture,” Richmond
relies upon various dictionary definitions, points out that the
provision pertaining to P C C cost assessments, New Hampshire
Supreme Court Rule 37(16), is not found in that section of the
rules titled “Types of Discipline and Other Possible Actions,”
N . H . S U P . C T . R . 37A(1)(e), and opines that the possible
imposition of costs upon attorneys subject to P C C discipline is
generally treated as an afterthought by the P C C and the New
Hampshire Supreme Court, and, in any event, has little or no
deterrent effect. Moreover, Richmond argues, or at least argued
before the bankruptcy court, that the costs assessed against him
were not fines or penalties because “the New Hampshire attorney
4 disciplinary system is not penal in nature.” In re Richmond, 351
B.R. at 1 1 .
At the time of the disciplinary proceedings against
Richmond, costs were assessed pursuant to Supreme Court Rule
37(16), which provided that “[a]ll expenses incurred by the
committee and by bar counsel in the investigation and enforcement
of discipline shall be paid by the New Hampshire Bar Association
in the first instance but may, in whole or in part, be assessed
to a disciplined attorney to the extent appropriate.” The fact
that only a “disciplined attorney” is subject to an assessment of
expenses suggests that the assessment is in the nature of a fine
or penalty. Even more persuasive, however, is the following
observation by the New Hampshire Supreme Court:
We retain the ultimate authority to determine the appropriate sanction for a violation of the rules governing attorney conduct. Wood’s Case, 137 N.H. 6 9 8 , 701 (1993). In exercising our authority, we are mindful that discipline is not intended as a mode of inflicting punishment for an offense. Silverstein’s Case, 108 N.H. 4 0 0 , 401 (1967). Rather, “[t]he purpose of the court’s disciplinary power is to protect the public, maintain public confidence in the bar, preserve the integrity of the legal profession, and prevent similar conduct in the future.” Budnitz’ Case, 139 N.H. 489, 492 (1995) (quotation and ellipsis omitted). The sanction we impose must be sufficient to satisfy these goals, and must take into account the severity of the misconduct and any mitigating circumstances disclosed by the record. Welts’ Case, 136 N.H. 5 8 8 ,
5 592 (1993). . . . Every case is judged on its own facts and circumstances. Id.
The respondent committed serious infractions of the rules that regulate the handling of client funds by attorneys. . . . We conclude, however, that because of mitigating factors, a conditionally delayed two-year suspension, coupled with an obligation to pay costs, will protect the public, maintain public confidence in the bar, preserve the integrity of the legal profession, and prevent similar conduct in the future.
Morgan’s Case, 143 N.H. 475, 476-77 (1999) (parallel citations
omitted, emphasis added).
It may well be that “the New Hampshire attorney discipline
system is not penal in nature.” In re Richmond, 351 B.R. at 1 1 .
But that system, penal or not, does impose sanctions, and in
Morgan’s Case, the New Hampshire Supreme Court placed suspension
and the payment of costs on the same footing, as sanctions, that
“protect the public, maintain public confidence in the bar,
preserve the integrity of the legal profession, and prevent
similar conduct in the future.” 143 N.H. at 477. Suspension
from the practice of law is a serious penalty, and, because
suspension and the payment of costs were imposed in Morgan’s Case
in conjunction, and in furtherance of the same goals, it is
difficult to argue that the Supreme Court viewed only the
suspension as a penalty and considered the assessment of costs to
6 be something other than a penalty or fine. Finally, while not
dispositive, it is worth noting that a decided majority of courts
that have considered this issue have also held that when attorney
discipline includes an assessment of costs, those costs are in
the nature of a fine or penalty for purposes of 11 U.S.C. §
523(a)(7). See In re Richmond, 351 B.R. at 13 (collecting
cases). The costs assessed against Richmond as part of the
discipline imposed by the PCC are in the nature of a fine or
penalty for the purposes of 11 U.S.C. § 523(a)(7), and the
bankruptcy court did not err in so concluding.
Richmond also argues that the costs assessed against him by
the PCC were dischargeable because they constituted “compensation
for actual pecuniary loss.” 11 U.S.C. § 523(a)(7). He bases his
argument upon the fact that PCC assessments are not imposed at a
flat rate, but are based upon actual costs incurred by the PCC,
which vary from case to case. He also relies upon the New
Hampshire Supreme Court’s consistent reference to the cost
assessment as “reimbursement.” The bankruptcy court did not err
in ruling against Richmond on this issue.
The discussion of this issue in Attorney Grievance
Commission of Maryland v . Smith (In re Smith), 317 B.R. 302
7 (Bankr. D. Md. 2004), a case upon which the bankruptcy court
relied, is persuasive. There, the court first explained that
“[t]he mere fact that a penal sanction is calculated by reference
to actual costs does not, in and of itself, transform the penalty
into compensation for pecuniary loss.” Id. at 312. The court
further explained that as a governmental entity that “will carry
out its disciplinary functions regardless of whether it recovers
costs awarded to it,” id., and that “fulfill[s] a public function
of government in bringing attorney disciplinary proceedings,”
id., an attorney disciplinary committee is incapable of incurring
an “actual pecuniary loss” for purposes of 11 U.S.C. § 523(a)(7).
The bankruptcy court’s reliance upon In re Smith was not
misplaced, and the court did not err in determining that
Richmond’s PCC assessments were not reimbursements for actual
pecuniary losses.
Conclusion
Because the bankruptcy court did not err in concluding that
the costs assessed against Richmond were in the nature of a fine
or penalty and were not compensation for actual pecuniary loss,
its decision to deem Richmond’s disciplinary assessment
nondischargeable is affirmed.
8 SO ORDERED.
s/even J. McAuliffe 'S hief Judge
September 2 7 , 2007
cc: Joseph A . Foster, Esq. Cheryl C . Deshaies, Esq. Bruce A . Harwood, Esq. Michael S . Askenaizer, Esq. Geraldine L . Karonis, Esq.