Richmond v. New Hampshire Supreme Court Committee on Professional Conduct

United States Court of Appeals
For the First Circuit
____________________

No. 07-2671

WILLIAM MCNEIR RICHMOND,

Appellant,

v.

NEW HAMPSHIRE SUPREME COURT COMMITTEE
ON PROFESSIONAL CONDUCT,

Appellee.
____________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Steven J. McAuliffe, U.S. District Judge]
____________________

Before

Torruella, Cudahy,* and Lipez, Circuit Judges.
____________________

Ralph P. Holmes, with whom Joseph A. Foster, Cheryl C.
Deshaies, and McLane, Graf, Raulerson & Middleton, P.A., was on
brief for the appellant.
Bruce A. Harwood, with whom Jeana Kim Reinbold and Sheehan
Phinney Bass & Green, P.A., was on brief for the appellee.

____________________

September 19, 2008
____________________

*
Of the Seventh Circuit, sitting by designation.
 CUDAHY, Senior Circuit Judge. The New Hampshire Supreme Court

twice disciplined attorney William Richmond for violating

provisions of the New Hampshire Rules of Professional Conduct (the

Rules). The New Hampshire Supreme Court first suspended Richmond

and later disbarred him; it also ordered him to reimburse the New

Hampshire Supreme Court Committee on Professional Conduct (the

Committee) for the costs of bringing the disciplinary proceedings

against him.

While his second disciplinary proceeding was still pending,

Richmond filed for Chapter 7 bankruptcy. The Committee filed a

complaint in the bankruptcy court, arguing that the cost

assessments were excepted from discharge under 11 U.S.C. §

523(a)(7) (2006), which makes non-dischargeable any debt that is “a

fine, penalty or forfeiture payable to and for the benefit of a

governmental unit, and is not compensation for actual pecuniary

loss.” Richmond likened the assessments to cost awards that are

automatically granted to prevailing parties. The Committee argued

that the cost assessments were sanctions and that their primary

purpose was to deter attorney misconduct and protect public faith

in the judicial system. Both the bankruptcy court and the district

court sided with the Committee and found the debts non-

dischargeable. We affirm.

- 2 -
 I.

Attorneys in New Hampshire are “officers of the court,” and

they play a critical role in the “administration of justice” in

that state. N.H. SUP . CT. R. 37(1)(b); accord Bryant's Case, 24

N.H. 149, 154, 4 Fost. 149 (1851). “The power to discipline and

control the actions of officers of the court . . . [is] absolutely

necessary for [New Hampshire courts] to function effectively and to

carry out [their] mandate to preserve the judicial system.”

Coffey's Case, — N.H. —, 949 A.2d 102, 113 (2008) (citations and

quotations omitted). Because the proper practice of law is

“intimately connected with the exercise of judicial power,” the New

Hampshire Supreme Court has inherent power to regulate the legal

profession. In re Petition of New Hampshire Bar Ass'n, 151 N.H.

112, 855 A.2d 450, 454 (2004) (quoting Wallace v. Wallace, 225 Ga.

102, 166 S.E.2d 718, 723 (1969)); accord In re Ricker, 66 N.H. 207,

29 A. 559, 562 (1890). It also has the statutory and constitutional

power to do so. See N.H. Const. pt.2, art. 37-a; N.H. REV . STAT . §

490:4 (2007).

Pursuant to its authority to regulate the legal profession,

the New Hampshire Supreme Court promulgated the New Hampshire Rules

of Professional Conduct, which “establish the boundaries of

permissible and impermissible lawyer conduct.” See N.H. R. PROF .

CONDUCT, Statement of Purpose. The Rules cover everything from

diligence and candor toward the tribunal to confidentiality and

- 3 -
conflicts of interest. See, e.g., N.H. R. PROF . CONDUCT 1.3, 1.6,

1.8, 3.3. With the privilege of practicing law in New Hampshire

comes the concomitant responsibility of abiding by the standards of

professional responsibility embodied in the Rules.

The New Hampshire Supreme Court enforces these Rules. To

assist it with the task of administering its disciplinary function,

the New Hampshire Supreme Court created the Committee. See N.H.

SUP. CT. R. 37(3). The Committee investigates complaints against

lawyers and makes recommendations to the New Hampshire Supreme

Court regarding appropriate disciplinary actions. See id., Rule

37(3)(d)(1). The Committee is funded through both an annual

assessment of attorneys imposed by an order of the New Hampshire

Supreme Court and by the Court’s Character and Fitness Committee.

See id., Rule 37(1)(16).

An attorney who fails to abide by the standards of

professional conduct is subject to discipline, including

disbarment, suspension, public censure and reprimand. See id. Rule

37A(1)(e)(1). Rule 37(16) also provides 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.”

See id., Rule 37(16). Sanctions are “not intended as a mode of

inflicting punishment.” Kersey’s Case, 150 N.H. 585, 842 A.2d 121,

- 4 -
122 (2004); O’Meara’s Case, 150 N.H. 157, 834 A.2d 235, 237 (2003).

Instead, they serve an important public function in that they

“protect the public, maintain public confidence in the bar,

preserve the integrity of the legal profession, and to prevent

[unprofessional] conduct in the future.” Kersey’s Case, 150 N.H.

585, 842 A.2d at 586.

Although the sanctions can be harsh, the New Hampshire Supreme

Court has consistently stated that attorney disciplinary

proceedings are not criminal proceedings. Kersey’s Case, 150 N.H.

585, 842 A.2d at 122; O’Meara’s Case, 150 N.H. 157, 834 A.2d at

237. At the same time, the New Hampshire Supreme Court has

recognized that attorney disciplinary proceedings are not civil or

administrative either: they are “special in character.” In re

Burling, 139 N.H. 266, 651 A.2d 940, 942 (1994).

II.

William Richmond was admitted to the practice of law in New

Hampshire in 1996. The Committee has twice filed petitions with

the New Hampshire Supreme Court requesting that Richmond be

disciplined for committing professional misconduct.

The Committee filed its first petition on March 6, 2003. The

petition alleged, inter alia, that Richmond had failed to recognize

plain conflicts of interest and negligently held himself out to be

an expert in security law issues. The Court referred the petition

to a judicial referee, who found that Richmond had violated

- 5 -
numerous Rules and recommended suspension. After considering both

mitigating and aggravating factors, the New Hampshire Supreme Court

upheld the referee’s findings and suspended Richmond from the

practice of law for six months. It also ordered Richmond to

“reimburse the committee for the costs of investigating and

prosecuting this matter.” See Richmond's Case (Richmond I), 152

N.H. 155, 872 A.2d 1023, 1031 (2005). This sum totaled more than

$13,776.19.

The Committee filed its second petition on November 13, 2003,

again alleging that Richmond had committed numerous Rules

violations. The matter was again referred to a judicial referee,

who recommended that Richmond be disbarred. The New Hampshire

Supreme Court disbarred Richmond and again ordered him to

“reimburse the committee for all of its expenses, including legal

fees, incurred in investigating and prosecuting this matter.”

Richmond's Case (Richmond II), 153 N.H. 729, 904 A.2d 684, 697

(2006).

Richmond went bankrupt and sought Chapter 7 protection. The

Committee filed a complaint in bankruptcy court pursuant to §

523(a)(7), seeking to except from Richmond’s discharge the cost

assessments owed to the Committee from Richmond I and Richmond II.

The parties were able to stipulate to the great majority of

material facts. The Committee filed a motion for summary judgment,

and the bankruptcy court found that the cost assessments were non-

- 6 -
dischargeable. Following the Supreme Court’s decision in Kelly v.

Robinson, 479 U.S. 36, 43, 50 (1986), the bankruptcy court

analogized the cost assessments in the attorney disciplinary

proceedings to restitution awards and cost assessments in the

criminal setting. The bankruptcy found that the primary purpose of

the costs sanction was to further the state’s interest in

protecting the public, to deter unprofessional conduct and to

rehabilitate the offending attorney. The cost assessments were,

thus, non-dischargeable under § 523(a)(7). The district court

affirmed, and this appeal followed.

III.

Under the Bankruptcy Code, a Chapter 7 debtor is generally

discharged from all debts except those that are designated as non-

dischargeable under § 523(a)(7). Section 523(a)(7) makes non-

dischargeable any “fine, penalty or forfeiture payable to and for

the benefit of a governmental unit, and [which] is not compensation

for actual pecuniary loss.” 11 U.S.C. § 523(a)(7). We have

interpreted this statutory provision to create a three-part test:

the Committee must show that a cost assessment in a New Hampshire

attorney disciplinary proceedings is (1) “a fine, penalty, or

forfeiture,” (2) “payable to and for the benefit of a governmental

unit,” and (3) “not compensation for actual pecuniary loss.”

Whitehouse v. Laroche, 277 F.3d 568, 573 (1st Cir. 2002).

Because the language of § 523(a)(7) is “subject to

- 7 -
interpretation,” the “text is only the starting point” of our

analysis. Kelly, 479 U.S. at 43, 50. “In expounding a statute, we

must not be guided by a single sentence or member of a sentence,

but look to the provisions of the whole law, and to its object and

policy.” Id. at 43-44 (quoting Offshore Logistics, Inc. v.

Tallentire, 477 U.S. 207, 222 (1986)). Exceptions to discharge

under the Bankruptcy Code are often narrowly construed to further

the Code’s purpose of giving a “fresh start” to honest debtors.

See Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997). The

Code, however, is “not intended to be a haven for wrongdoers.”

U.S. Dept. Of Hous. & Urban Dev. v. Cost Control Mktg. & Sales

Mgmt. of Va., Inc., 64 F.3d 920, 927 (4th Cir. 1995). We review the

factual findings of the bankruptcy court for clear error and its

legal conclusions de novo. See Palmacci, 121 F.3d at 785. Because

the factual basis of this case has been stipulated by the parties,

our review is largely de novo.

The parties have stipulated that the cost assessments are

“payable to and for the benefit of a governmental unit.” The only

points in dispute are whether the cost assessment qualifies as “a

fine, penalty, or forfeiture” and whether it is “compensation for

actual pecuniary loss.” We discuss the two disputed questions in

turn

.

- 8 -
 A. FINE, PENALTY, OR FORFEITURE

Richmond first contends that a cost assessment levied in a New

Hampshire attorney disciplinary proceedings is not “a fine,

penalty, or forfeiture” within the meaning of § 523(a)(7).

Instead, Richmond argues, the cost assessment is similar to costs

awarded to prevailing parties under fee-shifting statutes. The

disciplinary assessments are, Richmond claims, imposed

automatically. Further, Richmond argues that the disciplinary

costs are not “fines” or “penalties” because they are not punitive

in nature. He notes that cost assessments are not found in the

same section of the Supreme Court Rules as other “sanctions” such

as disbarment, suspension and censure. More importantly, Richmond

notes that the New Hampshire Supreme Court has repeatedly stated

that attorney disciplinary proceedings are not intended to “punish”

the disciplined attorney.

Despite Richmond’s assertions, however, cost assessments are

not automatically awarded in New Hampshire attorney disciplinary

proceedings. Rule 37(16) makes it unmistakably clear that they are

discretionary: the costs of investigating and enforcing Rules

violations “may, in whole or in part, be assessed to a disciplined

attorney to the extent appropriate.” See N.H. SUP . CT . R. 37(16).

All the tell-tale signs of discretion are present here: not only

does Rule 37(16) state that the Court “may” assess the costs, it

states that the Court may do so “in whole or in part” and only “to

- 9 -
the extent appropriate.”

The discretionary nature of New Hampshire cost assessments

strongly suggests that they should be viewed as penalties. While

Richmond believes that the costs are awarded in a perfunctory

manner, the New Hampshire Supreme Court has stated on several

occasions that the cost assessments are viewed as part of the

sanction. See, e.g., Morgan’s Case, 143 N.H. 475, 477, 727 A.2d

985 (1999) (noting that “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”). Further, the New Hampshire Supreme Court has made

clear that the “appropriateness” of the costs sanction is based on

the disciplined attorney’s conduct. See, e.g., Astles’ Case, 134

N.H. 602, 607, 594 A.2d 167, 170-71 (1991) (“the respondent's

misconduct warrants the assessment of costs incurred by the

Committee in pursuing this matter”). This is strong evidence that

the cost assessments are being imposed as part of a sanction. Cf.

Kelly, 479 U.S. at 52 (“[T]he decision to impose restitution

generally does not turn on the victim’s injury, but on the penal

goals of the State and the situation of the defendant.”); see also

In re Bertsche, 261 B.R. 436, 438 (Bankr. S.D. Ohio 2000).

The discretionary nature of the cost assessments also

distinguishes this case from In re Taggard, 249 F.3d 987 (9th Cir.

- 10 -
2001), on which Richmond relies. In that case, costs were assessed

pursuant to a provision that required cost awards in all cases in

which an attorney had been disciplined. Id. at 991-92. The Ninth

Circuit distinguished this provision from a separate provision that

made the cost assessments discretionary, and it found that costs

assessed automatically under the first provision were

dischargeable. Id. In re Taggard, then, is inapposite here.

We also believe that it is irrelevant that the New Hampshire

Supreme Court has, in other contexts, stated that attorney

disciplinary proceedings are not, strictly speaking, punitive in

nature. The New Hampshire Supreme Court’s reluctance to

characterize attorney disciplinary proceedings as “punitive” or

“criminal” is easily explained. If it were to characterize these

proceedings as criminal, enhanced due process protections and

notice requirements would likely apply, a result that the New

Hampshire Supreme Court might wish to avoid. See In re Burling,

139 N.H. at 268-69. Thus, it has characterized attorney

disciplinary proceedings as neither civil nor criminal in nature:

they are “special” proceedings. Id. In a similar vein, other

courts have characterized attorney disciplinary proceedings as

“quasi-criminal” in nature. See In re Ruffalo, 390 U.S. 544, 551

(1968); In re Carlson, 202 B.R. 946, 951 (Bankr. N.D. Ill. 1996)

(“[A]n attorney disciplinary hearing is akin to a quasi-criminal

proceeding and costs awarded are more akin to a fine than to

- 11 -
compensation for losses.”). This does not entail that the

sanctions handed down in such proceedings are not “penalties”

within the meaning of § 523(a)(7). Sanctions are, by their very

nature, penalties.1 Cf. In re Ruffalo, 390 U.S. at 550.

We have considered Richmond’s other arguments and found them

to be without merit.2 We believe that the cost assessments imposed

by the New Hampshire Supreme Court in attorney disciplinary

proceedings are not similar to costs awarded to prevailing parties

in civil litigation. While the latter are essentially routine, the

former are quite discretionary and are intended to sanction

attorney misconduct. Thus, they are “fines” or “penalties” within

the meaning of § 523(a)(7).

B. NOT COMPENSATION FOR ACTUAL PECUNIARY LOSS

Richmond next argues that the cost assessments are

“compensation for actual pecuniary loss” and thus dischargeable

under § 523(a)(7). Richmond notes that the New Hampshire Supreme

Court ordered him to “reimburse” the Committee for the “costs” of

the disciplinary action. Reimbursement, Richmond argues, is

1
While Richmond points to the dictionary definitions of “fine”
and “penalty” in an attempt to show that they are not “punitive,”
he neglects to note that “sanction,” the very term used in the New
Hampshire Rules, is defined as a type of “penalty.” See BLACK ’S LAW
DICTIONARY 1341 (7th ed. 1999).
2
For example, Richmond argues that cost assessments cannot be
viewed as “sanctions” because they do not appear in the list of
sanctions found in Rule 37A(1)(e)(1). We are not persuaded by this
argument, particular when the New Hampshire Supreme Court has
clearly indicated that it regards them as sanctions.

- 12 -
compensation for actual loss. We do not deny that, viewed in

isolation, Richmond’s reading of the statute has superficial

appeal. In Kelly, however, the Supreme Court cautioned us to read

§ 523(a)(7) in light of the broader objects of the statute. Kelly,

479 U.S. at 50. While a cost award might “resemble” compensation

for an actual loss, “the context in which it is imposed [might]

undermine[] that conclusion.” Id. at 52. Thus, we look to the

context in which the penalty is imposed to determine whether its

purpose is truly compensatory. Since Kelly is central to the

resolution of this issue, we examine it in greater depth. In

Kelly, a debtor attempted to have discharged a restitution order

entered as a condition of probation in a state criminal proceeding.

The Court held, however, that such debts were non-dischargeable

under § 523(a)(7) because they were not “compensation for actual

pecuniary loss.” Id. at 40. The Kelly Court noted that the

criminal justice system is “not operated primarily for the benefit

of victims, but for the benefit of society as a whole.” Id. at 52.

While the Court acknowledged that restitution orders necessarily

involved compensation for pecuniary loss, this was not dispositive.

Instead, the Court emphasized that the primary purpose of

restitution orders was to further the “rehabilitative and deterrent

goals” of the criminal justice system. Id. at 49. If federal

bankruptcy judges were to order discharge of these obligations, the

mix of sanctions chosen by the State to further these important

- 13 -
goals would be thrown out of balance. Id. This could not be what

Congress intended in enacting § 523(a)(7).

Following Kelly, a number of courts of appeals have held that

cost assessments levied in criminal proceedings are non-

dischargeable under § 523(a)(7). See In re Thompson, 16 F.3d 576,

580-81 (4th Cir. 1994); In re Hollis, 810 F.2d 106, 108-09 (6th

Cir. 1987); In re Zarzynski, 771 F.2d 304, 305-06 (7th Cir. 1985).

Further, nearly every bankruptcy court to have addressed the proper

treatment of cost assessments levied in attorney disciplinary

proceedings has found them to be non-dischargeable. See In re

Smith, 317 B.R. 302, 313 (Bankr. D. Md. 2004); In re Bertsche, 261

B.R. at 438-39; In re Carlson, 202 B.R. at 951; In re Doerr, 185

B.R. 533, 537 (Bankr. W.D. Mich. 1995); In re Cillo, 159 B.R. 340,

343 (Bankr. M.D. Fla. 1993); In re Williams; 158 B.R. 488, 491

(Bankr. D. Idaho 1993); In re Lewis, 151 B.R. 200, 203 (Bankr. C.D.

Ill. 1992); In re Betts, 149 B.R. 891, 896 (Bankr. N.D. Ill. 1993);

In re Haberman, 137 B.R. 292, 295-96 (Bankr. E.D. Wis. 1992).

While noting that attorney disciplinary proceedings are not

criminal, these cases have found that the goals of these

sanctions—deterrence, rehabilitation and protection of the public

interest—are sufficiently analogous to Kelly to support an

extension of its rule.

Richmond acknowledges that his position is contrary to the

decided weight of authority. Nevertheless, he urges us to take a

- 14 -
fresh look at the issue. He argues that Kelly departed from the

plain language of § 523(a)(7) only because a common-law exception

for criminal restitution awards had long existed. Congress,

Richmond asserts, legislated against this common-law background.

Further, Richmond argues that extending Kelly to preclude discharge

of civil penalties would render most of § 523(a)(7) mere

surplusage, because agencies generally assess costs against

defendants in successful enforcement actions.

Whatever the merits of Richmond’s arguments regarding the

extension of Kelly into the civil sphere, they are water under the

bridge. We have already held that a civil penalty may qualify as

non-dischargeable if “the particular penalty . . . serve[s] some

‘punitive’ or ‘rehabilitative’ governmental aim, rather than a

purely compensatory purpose.” Whitehouse, 277 F.3d at 573 (citing

Kelly, 479 U.S. at 52); accord Cost Control, 64 F.3d at 928

(holding that a disgorgement remedy awarded in a suit brought by

the U.S. Department of Housing and Urban Development under the

Interstate Land Sales Full Disclosure Act was non-dischargeable).

While, as we have noted, attorney disciplinary proceedings in New

Hampshire are not civil proceedings, our holding in Whitehouse in

and of itself is dispositive.

It is clear that the costs assessed in New Hampshire

disciplinary proceedings are not “purely compensatory.” As we have

explained, cost assessments serve both to deter attorney misconduct

- 15 -
and to help rehabilitate wayward attorneys. See, e.g., Kersey’s

Case, 150 N.H. 585, 842 A.2d at 122-23; Morgan’s Case, 143 N.H.

475, 727 A.2d at 987; Doherty’s Case, 142 N.H. 446, 703 A.2d 261,

264 (1997). Rehabilitation and deterrence are the same public

functions that were at issue in Kelly. Thus, under Whitehouse, the

cost assessments here are non-dischargeable. See Whitehouse, 277

F.3d at 573 (citing Kelly, 479 U.S. at 52).

It is irrelevant that the cost assessment may be calculated by

reference to the actual loss. In fact, there was no question that,

in Kelly, the restitution award was calculated in reference to the

victim’s loss. See Kelly, 479 U.S. at 52 (“restitution is

forwarded to the victim, and may be calculated by reference to the

amount of harm the offender has caused”). This did not determine

the outcome, however, because it was the purpose of the penalty

that was in issue. Courts have consistently held that the “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.” In re Smith, 317 B.R. at 312.

Here, the Committee is not concerned with recouping its litigation

costs to the degree that it is concerned with deterring

unprofessional conduct.3

3
It is also arguable that the Committee suffers a pecuniary
loss in the traditional sense. Because the Committee is “not
dependent upon the payment of monetary sanctions to fulfill its
obligations,” the district court noted, it is arguable that it did
not suffer a “loss.” See In re Smith, 317 B.R. at 312-13; In re

- 16 -
 We emphasize that we are concerned here with the “special”

case of New Hampshire attorney disciplinary proceedings, the

substantial purpose of which is to deter attorney misconduct,

protect the public and to rehabilitate the attorney. “It would be

a poor policy indeed to suggest that an attorney could elude

punishment for professional improprieties by resorting to the

Bankruptcy Code.” In re Williams, 158 B.R. at 491. The cost

assessments levied in Richmond I and Richmond II are thus non-

dischargeable under § 523(a)(7).

IV.

For the foregoing reasons, the decision of the district court

is AFFIRMED.

Carlson, 202 B.R. at 950; In re Doerr, 185 B.R. at 536; In re
Lewis, 151 B.R. at 203; In re Betts, 149 B.R. at 896; In re
Haberman, 137 B.R. at 295-96. Similarly, there is some question
whether a public agency can be said to “lose” money when it is
performing its functions as it should: the funds expended may be
characterized as an “expenditure” or “cost” rather than a “loss.”
In re Zarzynski, 771 F.2d at 306. We perceive little gain in
pursuing these technical distinctions and prefer to emphasize the
important public purpose served by the cost assessments, even if
they are also compensatory. Id. at 306 (Cudahy, J., concurring).

- 17 -