Bankruptcy Law

9th Circuit discharges $6K that bankrupt attorney owed ex-client

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A suspended California lawyer fighting to get her law practice privileges reinstated has at least one less obstacle to contend with.

In a Thursday ruling, a federal appeals court agreed with Marilyn Scheer—who handled the appeal pro se—that a debt of nearly $6,000 she owed a former client for unearned fees was dischargeable in her Chapter 7 bankruptcy. Hence, the unpaid state bar court judgment for that amount is no longer a roadblock to Scheer’s effort to get back into active law practice.

Other obstacles, however, may remain, according to a footnote in the decision (PDF) by the San Francisco-based 9th U.S. Circuit Court of Appeals.

Scheer had initially demanded reinstatement of her law license from the California State Bar and, when it ignored her demand, filed suit in bankruptcy court against the bar, the opinion explains. A bankruptcy judge ruled in the bar’s favor, but it was reversed by the 9th Circuit.

In rendering its Thursday decision in Scheer’s favor, the 9th Circuit distinguished a 2010 case, State Bar of Cal. v. Findley (In re Findley).

In Findley, the 9th Circuit agreed with the state bar in a bankruptcy court case that a $14,054 fee imposed for the cost of proceedings in an attorney disciplinary case was not dischargeable in bankruptcy.

However, the amount due from Scheer was not a penalty but simply what she owed her former client in compensation for an actual loss, the 9th Circuit said.

“Scheer’s performance as an attorney leaves much to be desired, and it is unsettling that she can use bankruptcy to avoid refunding her client’s improperly collected fees,” the appeals court wrote. “But our moral take on Scheer’s conduct does not control—the statutory language and policies underlying Section 523(a)(7) do. And under the current state of the law, the debt to her client does not fall within the Section 523(a)(7) nondischargeability exception.”

The Legal Information Institute provides a copy of the federal bankruptcy code provision.

Hat tip: Courthouse News.

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