Summary
The Ninth Circuit affirmed the Bankruptcy Appellate Panel's reversal of the bankruptcy court's denial of Terry Wike's motion for sanctions against the State Bar of Nevada. The court held that fees and costs assessed under Nevada Supreme Court Rule 120 for attorney disciplinary proceedings were compensation for actual pecuniary loss, rather than a nondischargeable fine or penalty under 11 U.S.C. § 523(a)(7), and remanded for the bankruptcy court to grant Wike's motion.
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Practice areas
Questions Presented
- Whether the Ninth Circuit had appellate jurisdiction over the BAP's remand order under 28 U.S.C. § 158(d).
- Whether the Rooker-Feldman doctrine barred the bankruptcy court from determining the dischargeability of Wike's debt under 11 U.S.C. § 523(a)(7).
- Whether fees and costs assessed against Wike under Nevada Supreme Court Rule 120 constituted a fine, penalty, or forfeiture not subject to discharge under 11 U.S.C. § 523(a)(7).
- Whether the case should be remanded for the bankruptcy court to determine whether other conditions prevented Wike's reinstatement under 11 U.S.C. § 525(a).
Holdings
- The BAP's remand decision constituted a final order appealable under 28 U.S.C. § 158(d).
- Rooker-Feldman did not bar the federal bankruptcy court from determining whether the debt was dischargeable under 11 U.S.C. § 523(a)(7).
- The fees and costs assessed against Wike under Nevada Supreme Court Rule 120 were not a fine, penalty, or forfeiture under § 523(a)(7) and therefore were not exempt from discharge.
- The bankruptcy court was instructed to grant Wike's motion for sanctions against the State Bar.
Key quotations
“We affirm the BAP and conclude that the debt was not exempt from discharge because the money Wike owed to the State Bar was for compensation allocable to the cost of his attorney discipline hearings and not for a fine or penalty.” (4)
“The applicability of § 523(a)(7) to a particular debt is an issue that falls within the “exclusive jurisdiction” of the federal courts, and so this case is not barred by Rooker-Feldman.” (11)
“Wike’s debt for costs assessed under Rule 120 was not exempt from discharge under § 523(a)(7).” (19)
Factual background
The Nevada State Bar initiated two disciplinary proceedings against Wike, and the Nevada Supreme Court suspended him and ordered him to pay $21,138.15 in fees and costs under Nevada Supreme Court Rule 120. Wike subsequently filed chapter 7 bankruptcy and listed the debt as an unsecured claim; his debts were discharged under 11 U.S.C. § 727. After bankruptcy, the Nevada Supreme Court provisionally reinstated Wike but conditioned full reinstatement on payment of the disciplinary costs. The State Bar stipulated on appeal that payment of those costs was the only remaining condition of reinstatement.
Procedural history
Wike filed a chapter 7 petition and listed his debt to the State Bar for disciplinary fees and costs. After his debts were discharged, the State Bar conditioned his full reinstatement on payment of those costs. Wike reopened the bankruptcy case and moved for sanctions, but the bankruptcy court denied the motion, concluding that the debt was nondischargeable under 11 U.S.C. § 523(a)(7) and suggesting that Rooker-Feldman might apply. The BAP reversed and remanded; the Ninth Circuit affirmed the BAP's result but remanded with instructions that the bankruptcy court grant Wike's sanctions motion.
Remand instructions
Remand to the bankruptcy court with instructions to grant Wike's motion for sanctions against the State Bar of Nevada.