FILED
APR 2 2024
ORDERED PUBLISHED
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-23-1024-SFL
LENORE L. ALBERT-SHERIDAN,
Debtor. Bk. No. 8:18-bk-10548-SC
LENORE L. ALBERT-SHERIDAN, dba Adv. No. 8:18-ap-01065-SC
Law Offices of Lenore Albert
Appellant,
v. OPINION
STATE BAR OF CALIFORNIA;
MARICRUZ FARFAN; BRANDON
TADY; ALEX HACKERT; PAUL
BERNARDINO; HON. YVETTE
ROLAND,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Scott C. Clarkson, Bankruptcy Judge, Presiding
APPEARANCES
Appellant Lenore L. Albert-Sheridan argued pro se; Suzanne C. Grandt
argued for appellees.
Before: SPRAKER, FARIS, and LAFFERTY, Bankruptcy Judges.
Opinion by Judge Spraker
Concurrence by Judge Faris
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
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
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 nondischargeable 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
3
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
4
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.
FACTS 2
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
2
We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
3 For a description of the State Bar disciplinary process, see Hirsh v. Justices of
Supreme Court of California, 67 F.3d 708, 711–12 (9th Cir. 1995).
5
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
6
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
7
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 (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) (“Albert II”), and aff'd, 808 F. App’x
565 (9th Cir. Jun. 10, 2020) (“Albert III”). We further held that the State Bar
could condition the reinstatement of Albert’s law license on payment of
nondischargeable debts without violating § 525. Id. at *8. We also affirmed
the dismissal of Albert’s other causes of action.
C. The Ninth Circuit’s decisions.
Albert appealed the Panel’s decision to the Ninth Circuit Court of
Appeals. This resulted in two decisions. In an unpublished decision, the
Ninth Circuit affirmed the dismissal of all the non-bankruptcy claims for
relief. Albert III, 808 F. App’x at 566. It held that most of the non-
bankruptcy claims depended on the dischargeability of both the
Disciplinary Costs and the 2017 Discovery Sanctions. As the Ninth Circuit
observed, this was a false premise because the Disciplinary Costs were
8
nondischargeable, and the State Bar could properly condition Albert’s
reinstatement on payment of the Disciplinary Costs. Id. at 566-67.
Separately, in a published decision, the Ninth Circuit held that the
2017 Discovery Sanctions were compensatory rather than punitive in
nature and were not excepted from discharge under § 523(a)(7). Albert II,
960 F.3d at 1188, 1195-96.
D. Albert’s discharge and issuance of a new suspension order.
In the meantime, on February 26, 2019, Albert received her chapter 7
discharge.
In January 2019, between this Panel’s decision in Albert I and the
Ninth Circuit’s decisions in Albert II and III, the State Bar Court issued
another decision (“2019 Decision”), and in July 2019 the California
Supreme Court issued a second disciplinary order against Albert (“2019
Suspension Order”). The misconduct covered by this order was separate
from that covered by the 2017 Suspension Order. It mostly concerned
Albert’s retention by Dr. Nira Schwartz-Woods as patent litigation counsel
between 2014 and 2016. But it also addressed $875 in unpaid discovery
sanctions imposed against Albert in 2015 in a lawsuit she prosecuted as
plaintiffs’ counsel against Fin City Foods, Inc. (“Fin City Sanction”).
Between 2016 and 2018, the State Bar issued multiple NDCs regarding
these matters and continued its investigation and prosecution of these
disciplinary charges while Albert’s bankruptcy case was pending. On
January 9, 2019, prior to Albert’s discharge, the State Bar Court found that
9
she willfully failed to: (1) perform her representation of Dr. Woods with
competence; (2) account for client funds; (3) refund $20,000 in unearned
fees; (4) cooperate in the State Bar’s disciplinary investigation; (5) release
the client’s file; and (6) obey the sanctions order in the Fin City Foods
litigation.
Based on these findings of misconduct, the California Supreme Court
issued the 2019 Suspension Order. It placed Albert on probation for two
years and suspended her from practice for a minimum of six months. The
suspension would continue until she repaid the $20,000 retainer fee plus
interest to Dr. Woods (“Woods Restitution”), the Fin City Sanction, and
$18,841.90 in further Disciplinary Costs. 4
Between 2019 and 2021, Albert and the State Bar communicated
about the terms and status of her probation and the amounts she needed to
pay to be eligible for reinstatement. Some of these communications took
the form of quarterly probation reports the State Bar required Albert to fill
out and the State Bar’s responses to her efforts. The State Bar also issued
additional NDCs and sent Albert emails in response to her inquiries
regarding what she needed to pay to be reinstated (“Alleged Email
Violations”).
4
In December 2020, the State Bar paid Dr. Woods $20,000 from the CSF. In
accordance with the terms of the 2019 Suspension Order, the CSF directed Albert to
reimburse it for this expenditure (“CSF Obligation”) as a condition to her reinstatement.
10
E. Albert’s second adversary proceeding.
In June 2020, Albert filed her second adversary proceeding against
the State Bar and some of its employees (“Individual State Bar
Defendants”). The parties stipulated to consolidate the remnants of her
First Adversary with the second adversary proceeding and to allow her to
file an amended consolidated complaint with additional claims
(“Consolidated Adversary”). Albert’s First Amended Complaint (“FAC”)
stated claims for: (1) dischargeability of debts under § 523(a)(7) against all
defendants; (2) violation of the automatic stay and discharge injunction
against all defendants; (3) violation of the Eighth Amendment of the U.S.
Constitution for excessive fines against the State Bar; (4) violation of Article
1, Section 17, of the California Constitution for excessive fines against the
State Bar; and (5) violation of § 525(a) against the State Bar for its failure to
reinstate Albert’s license based on a dischargeable debt.
In April 2021, Albert paid the State Bar $37,555.90, representing all
outstanding Disciplinary Costs and all of the CSF Obligation. The State Bar
reinstated Albert as an active licensed attorney on May 5, 2021.
F. Partial dismissal of the Consolidated Adversary.
In June 2021, the bankruptcy court granted the State Bar’s motion to
dismiss some of Albert’s claims in the Consolidated Adversary.
The court dismissed her claims for violation of the automatic stay.
The bankruptcy court concluded that the 2019 Decision was exempt from
the automatic stay under § 362(b)(4). It did not directly address the
11
allegations pertaining to the timeliness of her reinstatement during the
chapter 13 phase of her bankruptcy case, but the court rejected Albert’s
claim that the State Bar violated the automatic stay by reimposing her
suspension after the conversion of her case to chapter 7. The court
interpreted the Ninth Circuit’s decision in Albert II to mean that the State
Bar could properly condition Albert’s reinstatement upon the payment of
nondischargeable debt.
The bankruptcy court also dismissed Albert’s claims for violation of
the United States and California constitutions and under § 525(a), as well as
all claims against the Individual State Bar Defendants. It denied leave to
amend the dismissed claims.
The only surviving claims after the court’s ruling on the motion to
dismiss were Albert’s: (1) first claim for relief against the State Bar seeking
to determine the dischargeability of the debts she owed to the State Bar;
and (2) second claim for relief against the State Bar for violation of the
discharge injunction.
G. Partial summary judgment in the Consolidated Adversary.
In April 2022, the State Bar moved for partial summary judgment on
the two remaining claims for relief. But it excluded from its motion a small
portion of the claim for violation of the discharge injunction: it admitted
that it should have reinstated Albert’s law license on April 21, 2021, when
she paid the Disciplinary Costs and the CSF Obligation, that it did not do
so until May 5, 2021, and that its delay violated the discharge injunction.
12
With respect to the first claim for relief, the State Bar argued that
there was no genuine factual dispute regarding the dischargeability of the
discovery sanctions, the Disciplinary Costs, and the Woods Restitution/CSF
Obligation. All that remained was for the bankruptcy court to determine as
a pure matter of law whether these debts were nondischargeable under
§ 523(a)(7).
As for the second claim for contempt, the State Bar asserted that none
of its challenged conduct constituted an attempt to collect a discharged
debt. But even if it did, the State Bar argued that there was no genuine
dispute that it reasonably believed it was acting lawfully and not in
violation of the discharge injunction.
The bankruptcy court granted the motion for partial summary
judgment in June 2022. The court recognized that under Albert II, the
discovery sanctions had been discharged but the Disciplinary Costs
remained nondischargeable. The bankruptcy court also ruled that Albert’s
CSF Obligation was excepted from discharge under § 523(a)(7).
As for the contempt claim, the bankruptcy court held that the
probation reports, the NDCs, and the Alleged Email Violations were not
actions to collect discharged debts but rather served regulatory or
disciplinary purposes. The court alternatively held that, even if some of
these activities constituted actions to collect a debt, the Disciplinary Costs
remained nondischargeable. As for the discovery sanctions, the bankruptcy
court ruled that Albert failed to show that the State Bar lacked an
13
objectively reasonable basis for concluding that these debts were
nondischargeable when the alleged collection efforts occurred. To the
contrary, the bankruptcy court remarked that, “until the Ninth Circuit
rendered its opinion in [Albert II] . . . , there was no [Ninth Circuit]
precedent on this issue and both this Court and the Ninth Circuit B.A.P.
were under the same impression as the State Bar that discovery sanctions
were nondischargeable.”
Shortly after the bankruptcy court’s partial summary judgment, the
Ninth Circuit held in Kassas v. State Bar, 49 F.4th 1158 (9th Cir. 2022)
(“Kassas II”), rev’g Kassas v. State Bar (In re Kassas), 631 B.R. 469 (Bankr. C.D.
Cal. 2021) (“Kassas I”), that restitution obligations payable to the CSF were
dischargeable in bankruptcy. Albert thereafter moved for reconsideration
of the bankruptcy court’s summary judgment ruling. The bankruptcy court
partially granted the motion, acknowledging that, under Kassas II, the CSF
Obligation had been discharged.
H. Trial and final judgment.
The bankruptcy court’s decisions on the motions to dismiss and
summary judgment left for trial only the issue of the State Bar’s contempt
for violation of the discharge injunction from the date on which Albert paid
the Disciplinary Costs and the CSF Obligation (April 21, 2021) through the
date of Albert’s reinstatement (May 5, 2021). After a one-day trial, the court
issued its memorandum decision holding the State Bar in contempt for the
15-day period. As the court explained, when Albert made the payment on
14
April 21, 2021, the State Bar told her that it would forthwith reinstate her.
But, as the State Bar admitted, “through its employees, [it] continued to
place administrative barriers, which delayed the re-activation of her license
until May 5, 2021.”
The court then made rulings regarding Albert’s entitlement to
damages against the State Bar. Albert claimed 22 categories of damages.
For most of these categories, the court awarded little or no damages. It
ruled that Albert presented insufficient evidence that she incurred any
compensable damages or losses as a result of the 15-day delay.
Albert admitted that she could not recover her attorney’s fees for self-
representation. Still, she sought $300,133.75 for the “time” she spent on the
matter. The court considered this to be a thinly disguised attempt to
recover attorney’s fees by a pro se litigant. It awarded her $922.50 ($45 per
hour for 20.5 hours) for the time she said she spent over the 15 days
attempting to push through her reinstatement after she paid the State Bar.
The court also awarded Albert $20,705.48 for various litigation costs
she incurred. The bankruptcy court entered final judgment for Albert in the
amount of $21,627.48 on January 27, 2023. Albert timely appealed. The
State Bar has not appealed the entry of judgment against it.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334, and we
have jurisdiction under 28 U.S.C. § 158.
15
ISSUES
1. Did the bankruptcy court err when it dismissed some of Albert’s
claims for relief?
2. Did the bankruptcy court err when it granted the State Bar partial
summary judgment?
3. Did the bankruptcy court err when it entered judgment in favor of
Albert but awarded her damages of only $21,627.48?
4. Do any of Albert’s evidentiary or discovery arguments support
reversal?
STANDARDS OF REVIEW
We review de novo the bankruptcy court’s dismissal under Civil
Rule 12(b)(6), which is made applicable in adversary proceedings by Rule
7012(b). Barnes v. Belice (In re Belice), 461 B.R. 564, 570-72 & n.3 (9th Cir. BAP
2011). We also review de novo its summary judgment ruling. Stadtmueller
v. Sarkisian (In re Medina), 619 B.R. 236, 240 (9th Cir. BAP 2020), aff'd, 2021
WL 3214757 (9th Cir. July 29, 2021). Jurisdictional issues also are reviewed
de novo. See McCowan v. Fraley (In re McCowan), 296 B.R. 1, 2 (9th Cir. BAP
2003) (“Whether a court has subject matter jurisdiction is a question of law
that we review de novo.”). “De novo review requires that we consider a
matter anew, as if no decision had been made previously.” Francis v.
Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).
The bankruptcy court’s legal conclusions after trial are reviewed de
novo, and its factual findings are reviewed under the clearly erroneous
16
standard. Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP
2009), aff'd, 407 F. App’x 176 (2010). Factual findings are clearly erroneous
if they are illogical, implausible, or without support in the record. Retz v.
Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).
CIVIL RULE 12(b)(6) STANDARDS
When we review an order granting a Civil Rule 12(b)(6) motion, we
consider the legal sufficiency of the plaintiff’s complaint. See Johnson v.
Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121–22 (9th Cir. 2008). We must
assess whether the complaint presents a cognizable legal theory and
whether it contains sufficient factual allegations to support that theory. Id.
Thus, “for a complaint to survive a motion to dismiss, the non-conclusory
‘factual content,’ and reasonable inferences from that content, must be
plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S.
Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S.
662, 677-78 (2009)). A claim is facially plausible when it contains factual
allegations that, if taken as true, would allow the court to reasonably infer
that the defendant is liable to the plaintiff. Iqbal, 556 U.S. at 678.
“Threadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.” Id. Additionally, we do not
accept as true mere legal conclusions because they cannot by themselves
establish a plausible claim for relief. Id.
SUMMARY JUDGMENT STANDARDS
A court must grant summary judgment when the pleadings and
17
evidence submitted show that there are no genuine issues of material fact
and the movant is entitled to judgment as a matter of law. Civil Rule 56(a)
(incorporated by Rule 7056); Roussos v. Michaelides (In re Roussos), 251 B.R.
86, 91 (9th Cir. BAP 2000), aff'd, 33 F. App’x 365 (9th Cir. 2002). The moving
party bears the initial burden of demonstrating an absence of a genuine
issue of material fact. Once the moving party has met its initial burden, the
non-moving party must show specific facts establishing the existence of
genuine issues for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256
(1986).
DISCUSSION
A. Events During the Bankruptcy Case.
Albert’s first set of claims are based on alleged violations of the
automatic stay that went into effect when she filed her chapter 13 petition
and remained in effect until she received her chapter 7 discharge. The
automatic stay is a statutory injunction that prohibits most actions to collect
prepetition debts or to execute upon property of the estate. § 362(a); see also
Gruntz v. Cnty. of L.A. (In re Gruntz), 202 F.3d 1074, 1081–82 (9th Cir. 2000)
(en banc) (describing sweeping scope of automatic stay).
The automatic stay is broad, but it is subject to exceptions. The
exception that is particularly relevant to this appeal is § 362(b)(4), which
provides that the automatic stay does not apply to “the commencement or
continuation of an action by a governmental unit . . . to enforce such
governmental unit’s . . . police and regulatory power, including the
18
enforcement of a judgment other than a monetary judgment . . . .”
This exception covers professional disciplinary proceedings
conducted by state licensing agencies. It does not, however, apply to
actions solely serving a pecuniary interest. See Poule v. Registrar of
Contractors (In re Poule), 91 B.R. 83, 85-88 (9th Cir. BAP 1988). Courts must
distinguish between valid and necessary governmental action and “a
circumvented method of collecting a dischargeable judgment from the
debtor.” Watson v. Shandell (In re Watson), 192 B.R. 739, 745 n.5 (9th Cir.
BAP 1996) (citing Stovall v. Stovall, 126 B.R. 814, 815–16 (N.D. Ga. 1990)),
aff’d, 116 F.3d 488 (9th Cir. 1997).
Violations of the automatic stay have consequences. Actions taken in
violation of the automatic stay are void. Schwartz v. United States (In re
Schwartz), 954 F.2d 569, 571-72 (9th Cir. 1992). Additionally, § 362(k) allows
individual debtors to recover damages caused by a violation of the
automatic stay. See Koeberer v. Cal. Bank of Com. (In re Koeberer), 632 B.R. 680,
687 (9th Cir. BAP 2021); Ramirez v. Fuselier (In re Ramirez), 183 B.R. 583, 589
(9th Cir. BAP 1995), appeal dismissed sub nom., Ramirez v. Sharp (In re
Ramirez), 201 F.3d 444 (9th Cir. 1999) (table). To recover actual damages
under § 362(k), the debtor must allege and prove that the stay violation was
willful, specifically that the defendant “knew of the automatic stay, and its
actions in violation of the stay were intentional.” Stuart v. City of Scottsdale
(In re Stuart), 632 B.R. 531, 538 (9th Cir. BAP 2021) (quoting Eskanos & Adler,
P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2002)), aff’d, 2023 WL 5011739
19
(9th Cir. Aug. 7, 2023). Importantly, the debtor need not prove that the
defendants intended to violate the stay. Pinkstaff v. United States (In re
Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992).
1. Period 1: Chapter 13 petition date to end of minimum
suspension.
We begin our analysis with the period that began when Albert filed
her bankruptcy petition and the automatic stay was invoked, and ended on
March 16, 2018, when the minimum 30-day suspension period under the
2017 Suspension Order expired. Although Albert’s contentions are
muddled, she seemed to concede that the State Bar did not violate the
automatic stay during this period. Her concession is correct. The automatic
stay did not prevent the State Bar from exercising its police or regulatory
powers unless it was employing those powers solely for pecuniary
purposes. During Period 1, the 2017 Suspension Order provided that
Albert could not reinstate her license even if she paid all of her debts in
full. Therefore, the suspension during Period 1 had no pecuniary purpose,
and it did not violate the automatic stay.
2. Period 2: End of minimum suspension to reinstatement in
chapter 13.
After the minimum suspension term ended on March 16, 2018, the
2017 Suspension Order entitled Albert to reinstatement if she paid the 2017
Discovery Sanctions and the Disciplinary Costs. In short, the only thing
that stood between Albert and her license during this period was the
20
payment of debt. Albert alleged in her FAC that the State Bar violated the
automatic stay by refusing to reinstate her law license until June 1, 2018,
based on her failure to pay debt. 5
The bankruptcy court rejected this claim, reasoning that the State Bar
did not violate the automatic stay during this period because some of those
debts (the Disciplinary Costs) were not dischargeable. It relied on the Ninth
Circuit’s decision in Albert II. In this respect, the bankruptcy court
misconstrued Albert II. In that decision, the court of appeals held that the
State Bar did not violate § 525(a). That section bars a governmental unit
from withholding a license “solely because [the debtor] . . . has not paid a
debt that is dischargeable . . . .” The court of appeals did not discuss the
effect of the automatic stay because no stay violation claims were before
the court. Section 525(a) is different from § 362(a) in a crucial respect: the
former only protects debtors against adverse consequences from
dischargeable debts; while the latter protects debtors from the enforcement
of “claims,” which includes both dischargeable and nondischargeable
debts. Compare § 525(a) (preventing discrimination against debtors and
others by virtue of being a debtor or not having “paid a debt that is
dischargeable in the case under this title . . .”), with § 362(a)(6) (staying “any
act to collect, assess, or recover a claim against the debtor that arose before
5 The State Bar claimed that it backdated the reinstatement of Albert’s license as
of March 16, 2018. We need not decide which date is relevant because it would only
affect the amount of any damages, and we leave that issue to the bankruptcy court on
remand.
21
commencement of the case under this title”); see generally Johnson v. Home
State Bank, 501 U.S. 78, 83 (1991) (explaining that “claim” means “right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured” and that “Congress
intended by this language to adopt the broadest available definition of
‘claim’” (citations omitted)).
The Ninth Circuit affirmed the prior dismissal of Albert’s claims
under § 525, but her subsequent claim under § 362(k) remains. Albert’s
FAC is poorly drafted, but it contains sufficient allegations to sustain this
portion of her claim. Albert alleged that, “[o]n March 16, 2018, after the 30-
day suspension period had ended, Ms. Albert demanded the State Bar
defendants reinstate her license, but they failed and refused to do so on the
ground Ms. Albert had not paid [the 2017 Discovery Sanctions] plus 10%
interest.” FAC at ¶ 22. Albert also specifically alleged that “[s]uch illegal
attempt included but is not limited to refusing to reinstate Ms. Albert’s law
license from March 16, 2018 to May 30, 2018 in a timely manner and then
by revoking her license again on June 28, 2018 through at least February 2,
2019 because the [2017 Discovery Sanctions] was dischargeable debt.” FAC
at ¶ 100. Albert further alleged that she suffered actual damages
proximately caused by the State Bar’s willful stay violation.
These factual allegations are adequate. On our review of the
bankruptcy court’s order partially granting the State Bar’s motion to
22
dismiss, we are obligated to accept her allegations as true and construe
them in the light most favorable to Albert. See Johnson, 534 F.3d at 1122. The
allegations sufficiently state a claim for violation of the automatic stay.
While Albert was in chapter 13, all debts owed to the State Bar were
dischargeable under § 1328(a), including the Disciplinary Costs, because
§ 523(a)(7) does not apply in chapter 13. Accordingly, there is no question
that § 362(a)(6) stayed the State Bar from attempting to collect any debts
owed by Albert while she was in chapter 13. Any effort to collect these
debts as a condition of reinstatement of Albert’s law license, therefore,
violated the automatic stay. The bankruptcy court erred in dismissing this
claim under Civil Rule 12(b)(6). We remand for further proceedings on
Albert’s claim that the State Bar violated the stay by attempting to collect
the 2017 Discovery Sanction and Disciplinary Costs while she was in
chapter 13.
3. Period 3: First reinstatement to chapter 7 conversion.
In her FAC, Albert alleged that the State Bar continuously violated
the automatic stay during this period. These allegations do not meet the
test of plausibility. Albert did not identify any act of the State Bar that
violated the stay during the limited period after the State Bar reinstated her
license up to the conversion of her bankruptcy and the reimposition of her
suspension. The bankruptcy court did not err in dismissing this portion of
23
her claims.
4. Period 4: Conversion to chapter 7 to discharge (2/26/19).
The bankruptcy court converted Albert’s bankruptcy case from
chapter 13 to chapter 7 on June 26, 2018. Conversion of her bankruptcy case
to chapter 7 made § 523(a)(7) applicable where it was not in chapter 13.
Compare § 523(a), with § 1328(a)(2). As a result, the Disciplinary Costs
became nondischargeable upon conversion of the case while the 2017
Discovery Sanctions remained dischargeable as held in Albert II, 960 F.3d at
1188, 1195-96. The State Bar then reimposed Albert’s suspension from the
practice of law subject to paying the 2017 Discovery Sanctions and the
Disciplinary Costs. Albert has alleged in the FAC that the State Bar violated
the automatic stay by seeking to collect both debts through various actions,
including the reimposition of her suspension.
The bankruptcy court dismissed Albert’s claims for stay violations on
the basis that that the Disciplinary Costs were nondischargeable. It
reasoned that the State Bar properly conditioned her reinstatement to
practice law on the payment of that debt. Section 362(a)(6) continued to
stay the State Bar’s efforts to collect the dischargeable 2017 Discovery
Sanctions, but the question arises whether it also stayed collection of the
nondischargeable Disciplinary Costs while Albert was in chapter 7.
Section 362(a) defines the scope of the automatic stay and specifically
precludes any act to collect any prepetition claims, which the 2017
Discovery Sanctions and the Disciplinary Costs were. As noted above,
24
§ 362(a)(6) stays “any act to collect, assess, or recover a claim against the
debtor that arose before the commencement of the case . . . .” Section 362(b)
lists the exceptions to the automatic stay. The State Bar acted under
§ 362(b)(4) to investigate and adjudicate the claims of professional
misconduct against Albert, and then to enforce its judgments against her.
Section 362(b)(4) provides:
under paragraph (1), (2), (3), or (6) of subsection (a) of this
section, of the commencement or continuation of an action or
proceeding by a governmental unit . . . to enforce such
governmental unit’s or organization’s police and regulatory
power, including the enforcement of a judgment other than a
money judgment, obtained in an action or proceeding by the
governmental unit to enforce such governmental unit’s or
organization’s police or regulatory power[.]
(Emphasis added.)
While § 362(b)(4) excepts actions and enforcement of judgments
invoking a governmental unit’s police and regulatory power, the statute
specifically excludes enforcement of money judgments from its exception.
Accordingly, “section 362(b)(4) by its own terms does not permit a
[governmental creditor] to ‘enforce . . . a money judgment’ obtained in a
police power proceeding. Thus, section 362(b)(4) defers to other provisions
of the Code to determine whether the state may collect money.” Hawaii v.
Parsons (In re Parsons), 505 B.R. 540, 545 (Bankr. D. Haw. 2014); see also
United States v. Perez (In re Perez), 61 B.R. 367, 368 (Bankr. E.D. Cal. 1986)
(permitting governmental action to proceed to judgment under § 362(b)(4)
25
but holding “that any attempts to collect any money judgment which
might be rendered in that action shall not be pursued except through
debtor’s bankruptcy proceeding”).
Neither § 362(a) nor § 362(b) differentiates between dischargeable
and nondischargeable debts in the application of the stay or its exceptions.
Yet, binding authority in this circuit holds that creditors who obtain a
nondischargeable judgment are not stayed from collecting
nondischargeable debts so long as collection is sought from property that is
not property of the bankruptcy estate. Palm v. Klapperman (In re Cady), 266
B.R. 172, 180 (9th Cir. BAP 2001) (“Section 362 [does] not preclude the
execution of a judgment, which has been held by the bankruptcy court to
be non-dischargeable, upon property of the debtor which is not property of
the estate.” (quoting Watson v. City Nat’l Bank (In re Watson), 78 B.R. 232,
235 (9th Cir. BAP 1987)), aff’d, 315 F.3d 1121 (9th Cir. 2003); see Cal. State
Univ. v. Gustafson (In re Gustafson), 111 B.R. 282, 286 (9th Cir. BAP 1990)
(“We therefore determine that the automatic stay applies to preclude a
creditor’s attempts to collect a claim that is presumed, but not yet
determined by the bankruptcy court, to be nondischargeable under section
523(a)(8).”), rev'd on other grounds, 934 F.2d 216 (9th Cir. 1991); In re Watson,
78 B.R. at 233-34 (holding that a creditor who obtains a § 523 judgment of
nondischargeability may proceed with execution on non-estate property
without obtaining relief from the automatic stay).
These cases do not address whether creditors holding
26
nondischargeable debts that are neither presumed nondischargeable, such
as under § 523(a)(8), nor require a bankruptcy court judgment under
§ 523(c), are subject to the automatic stay. As relevant here, § 362(b)(4)
provides that judgment debts arising from governmental police and
regulatory powers are not excepted from the automatic stay. Because
§ 362(b)(4) is clear that the recovery of monetary judgments remains subject
to the automatic stay, any actions to recover such a debt violates the
automatic stay absent relief from stay under § 362(d). As a result, any
action by the State Bar to collect either the 2017 Discovery Sanctions or the
Disciplinary Costs during Albert’s bankruptcy necessarily violated the
automatic stay.
Albert’s allegations of stay violations in the FAC are chaotic. We have
focused on the allegations pertaining to her liability under the 2017
Suspension Order, but she also asserts that the State Bar’s later disciplinary
proceedings involving her representation of Dr. Woods and the Fin City
Sanction violated the automatic stay. As discussed in more detail elsewhere
in this decision, we agree with the bankruptcy court that the adjudication
of the disciplinary proceedings against Albert during the pendency of her
bankruptcy that ultimately resulted in the 2019 Decision and the 2019
Suspension Order fall squarely within the stay exception provided by
§ 362(b)(4). Those actions did not violate the automatic stay.
We reverse and remand the bankruptcy court’s dismissal of Albert’s
claims that the State Bar’s efforts to collect the 2017 Discovery Sanctions
27
and Disciplinary Costs violated the automatic stay. The court erred in
concluding that the automatic stay did not apply to the State Bar’s
collection efforts while Albert was in chapter 7. Albert’s allegations that the
State Bar sought to collect the 2017 Discovery Sanctions and Disciplinary
Costs in violation of the automatic stay state viable claims for purposes of
defeating the motion to dismiss.
B. Post-Discharge Events.
As we have noted, Albert received her discharge under chapter 7 on
February 26, 2019. The discharge has two effects. First, it “voids any
judgment at any time obtained, to the extent that such judgment is a
determination of the personal liability of the debtor with respect to any
debt discharged under section 727 . . . .” § 524(a)(1). Second, it “operates as
an injunction against . . . an act[ ] to collect, recover or offset any
[discharged] debt as a personal liability of the debtor . . . .” § 524(a)(2).
The discharge only applies to dischargeable debts. Among the debts
that are not discharged in chapter 7 is “any debt . . . to the extent such debt
is for a fine, penalty, or forfeiture payable to and for the benefit of a
governmental unit, and is not compensation for actual pecuniary loss . . . .“
§ 523(a)(7).
Unlike violations of the automatic stay, the Bankruptcy Code does
not provide a statutory remedy to debtors for a violation of the discharge
injunction. But because it is an injunction, a party who violates it may be
liable for contempt. See Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507
28
(9th Cir. 2002). Contempt arises from a knowing violation of a clear order
of the court. See ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996,
1007-09 (9th Cir. 2006); Nash v. Clark Cnty. Dist. Att'y's Off. (In re Nash), 464
B.R. 874, 880 (9th Cir. BAP 2012).
The discharge injunction is a “specific and definite” court order that
may support contempt. In re Bennett, 298 F.3d at 1069. To impose liability,
however, Albert was required to show by “clear and convincing evidence”
that the State Bar “(1) knew the discharge injunction was applicable and
(2) intended the actions which violated the injunction.” In re ZiLOG, Inc.,
450 F.3d at 1007 (quoting In re Bennett, 298 F.3d at 1069).
The creditor’s knowledge of the discharge injunction for purposes of
contempt is subject to an objective standard. In Taggart v. Lorenzen, 139
S. Ct. 1795 (2019), the Supreme Court held that civil contempt sanctions
only are appropriate “when there is no objectively reasonable basis for
concluding that the creditor’s conduct might be lawful under the discharge
order.” Id. at 1801 (emphasis added). Thus, to hold a party in contempt, the
debtor must prove that there was “[no] fair ground of doubt as to the
wrongfulness of the defendant’s conduct.” Id. (emphasis added) (quoting
Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885)).
The Ninth Circuit’s consideration of the contempt claim in Taggart
after remand from the Supreme Court is instructive. There, the underlying
question was whether the debtor had “returned to the fray” in postpetition
litigation such that attorney’s fees could be awarded for his postpetition
29
conduct despite entry of the discharge. The Ninth Circuit observed that the
question it needed to answer was “whether the Creditors had some—
indeed, any—objectively reasonable basis for concluding that Taggart
might have ‘returned to the fray’ and that their motion for post-petition
attorney’s fees might have been lawful.” Lorenzen v. Taggart (In re Taggart),
980 F.3d 1340, 1348 (9th Cir. 2020) (citing Taggart, 139 S. Ct. at 1799).
1. The Discharge Did Not Entirely Void the 2019 Suspension
Order.
Albert argues that the 2019 Suspension Order violated the discharge
and is therefore void. The bankruptcy court correctly rejected this
contention.6
The 2019 Suspension Order was the culmination of lengthy
disciplinary proceedings examining Albert’s prepetition conduct and her
compliance with her professional obligations. Albert was charged with
eight counts of professional misconduct involving two distinct matters.
With respect to Albert’s representation of Dr. Woods, the State Bar Court
found that Albert failed to: (1) provide competent representation; (2)
render an account of client funds; (3) return unearned fees; (4) cooperate
with the State Bar investigation; and (5) return client papers and property.
6
Albert also challenges the 2019 Decision as void. The 2019 Decision was issued
in January 2019, before the bankruptcy court granted Albert a discharge in February
2019. It was subject to the automatic stay rather than the discharge injunction. The
disciplinary proceedings resulting in the 2019 Decision against Albert were proper
exercises of the regulatory powers of the State Bar excepted from the stay under
§ 362(b)(4). Wade v. State Bar (In re Wade), 948 F.2d 1122, 1123 (9th Cir. 1991).
30
Most of these findings do not concern Albert’s failure to pay her debts—
dischargeable or otherwise. Thus, there is no basis to say that the entirety
of the 2019 Suspension Order violated the discharge.
Albert vaguely argues that the State Bar used the disciplinary
proceedings leading up to and including the 2019 Suspension Order as a
form of leverage solely to collect dischargeable debts. This bald allegation
is neither specific nor plausible enough to withstand dismissal under Civil
Rule 12(b)(6). Iqbal, 556 U.S. at 678. The record makes clear that the State
Bar had ample non-pecuniary reasons to take disciplinary action against
Albert.7
Admittedly, the 2019 Suspension Order did provide for the
continuation of a mandatory suspension conditioned on repayment of the
Woods Restitution and the Fin City Sanction. Albert has established that
those debts are dischargeable. But this alone does not render the
disciplinary proceedings pecuniary in nature, because her license was
suspended for multiple, independently sufficient reasons, many of which
had nothing to do with Albert’s failure to pay her debts. A judgment
7 Bertuccio v. California State Contractors License Board (In re Bertuccio), 414 B.R. 604,
616-17 (Bankr. N.D. Cal. 2008), does not help Albert. In that case, two California state
agencies suspended Bertuccio’s contractor’s license solely because he failed to pay state
taxes. The agencies refused to reinstate the license immediately after he filed his chapter
13 bankruptcy. Id. at 607-08. The parties ultimately agreed that the taxes were
dischargeable and that Bertuccio was entitled to reinstatement of his license. Bertuccio
differs from this case because the agencies had no reason to suspend Bertuccio’s license
other than his failure to pay a dischargeable debt. In contrast, Albert committed
multiple unprofessional acts that had nothing to do with the payment of money.
31
subsuming both dischargeable and nondischargeable debt is not void in its
entirety under § 524(a)(1) simply because it also included the discharged
debt. See In re Poule, 91 B.R. at 85-88.
Albert argues that In re Slater, 573 B.R. 247 (Bankr. D. Utah 2017),
permits courts to void the entirety of a judgment if it includes any
dischargeable debt. Slater involved a default judgment entered against the
debtor for both discharged prepetition debts and postpetition debts not
subject to the debtor’s discharge. The bankruptcy court held that the
judgment was void. In a footnote, the court observed that, “although an
argument could be made that only part of the [judgment] relating to the
2007 Note is void, the Court determines that carving the [judgment] up as
to void and not void would be problematic.” Id. at 257 n.50.
We respectfully decline to follow Slater. The court did not explain
why it would be “problematic” to separate the nondischargeable and
dischargeable parts of the judgment; the decision lays out the dollar
amount of each part. Id. at 251-52. More importantly, § 524(a)
unambiguously provides that a judgment is void only “to the extent” it
rests on a discharged debt, so the Slater’s decision to void the entire
judgment lacked a statutory basis.
Section 524(a)(1) is clear, and we are bound to apply it to void the
2019 Suspension Order—but only to the extent it imposed continued
liability for the Fin City Sanction, the Woods Restitution, and the CSF
Obligation. See Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004). Accordingly, we
32
affirm the bankruptcy court’s dismissal of Albert’s claim that the 2019
Decision and 2019 Suspension Order were void in their entirety for
violation of the discharge.
2. The bankruptcy court did not err by granting partial
summary judgment on Albert’s claims for contempt against
the State Bar.
Albert further argues that the bankruptcy court erred by granting
summary judgment to the State Bar on her claims for contempt arising
from its post-discharge efforts to collect the dischargeable Woods
Restitution, CSF Obligation, and Fin City Sanction imposed under the 2019
Suspension Order. She is wrong. She has established that these debts are
dischargeable. It follows that the State Bar violated the discharge injunction
by attempting to collect those debts. But Albert failed to show that the State
Bar was in contempt and liable for damages.
a. Before Albert II.
Not every violation of the discharge injunction results in liability for
contempt. Albert was required to establish that there was no “objectively
reasonable basis” for the State Bar to believe that its actions did not violate
the discharge. Taggart, 139 S. Ct. at 1801.
Prior to the Ninth Circuit’s decisions in Albert II and Kassas II,
bankruptcy courts and the BAP ruled that liabilities like the Fin City
Sanction, Woods Restitution, and CSF Obligation were nondischargeable.
Indeed, when the California Supreme Court entered its 2019 Suspension
33
Order, we had just affirmed the bankruptcy court’s ruling that the 2017
Discovery Sanctions were nondischargeable under § 523(a)(7). The Ninth
Circuit later decided that our decision was incorrect, recognizing that there
was “considerable confusion among federal courts and practitioners about
section 523(a)(7)’s scope.” Albert II, 960 F.3d at 1195 (quoting Scheer v. State
Bar (In re Scheer), 819 F.3d 1206, 1210 (9th Cir. 2016)). Until the Ninth
Circuit decided Albert II, our decision in Albert I gave the California
Supreme Court and the State Bar an objectively reasonable basis to believe
that their conduct did not violate the discharge.
Albert also maintains that the State Bar was in contempt of the
discharge injunction when it refused to reinstate her law license on
February 24, 2020, when the mandatory six-month suspension under the
2019 Suspension Order expired. Again, the continuation of the suspension
was improperly conditioned on the repayment of the Fin City Sanction and
the Woods Restitution, but this was not established until June 10, 2020,
when the Ninth Circuit entered its decision in Albert II. Until then, our
decision in Albert I gave the State Bar an objectively reasonable basis to
condition reinstatement on the repayment of the Fin City Sanction and
Woods Restitution.
Further, the continued post-discharge suspension was also
conditioned on the payment of the Disciplinary Costs imposed by the 2019
Suspension Order, and the Ninth Circuit held that such costs are not
discharged. In other words, the State Bar was entitled to suspend Albert
34
based on her failure to pay the nondischargeable Disciplinary Costs, and
Albert failed to establish that she suffered additional damage because the
State Bar also continued the suspension based on her failure to pay
discharged debts. This also warranted the bankruptcy court’s partial
summary judgment.
b. After Albert II.
Albert argues that the post-discharge conversion of the Woods
Restitution into the CSF Obligation is a separate basis for contempt. The
CSF paid the Woods Restitution on December 18, 2020, after the Ninth
Circuit had decided Albert II. She argues that by paying Dr. Woods what
Albert owed her in dischargeable client restitution, the State Bar
improperly changed her debt from one owed to a third party to one owed
to a governmental entity. Once the obligation was owed to the State Bar’s
CSF, the State Bar argued that the CSF Obligation fell within the scope of
§ 523(a)(7)’s discharge exception. But Albert has established that both debts
are dischargeable. As such, the conversion of the Woods Restitution into
the CSF Obligation did not change Albert’s rights.
Albert cites the bankruptcy court’s decision in Kassas I as evidence
that the State Bar did not have a fair ground to doubt that the CSF
Obligation was dischargeable. This is simply wrong. The bankruptcy court
in Kassas I recognized that Albert II did not address the dischargeability of
CSF debt. 631 B.R. at 472. Based on the Supreme Court’s decision in Kelly,
Kassas I concluded that “[t]he reimbursement obligation consequently
35
bears the hallmarks of a ‘fine, penalty, or forfeiture’ because it forces [the
attorney] to ‘confront, in concrete terms, the harms his actions have
caused.’” Id. at 475 (quoting Kelly, 479 U.S. at 49 n.10). Indeed, the
bankruptcy court here granted summary judgment in large part based on
Kassas I. It was not until the Ninth Circuit published its opinion reversing
Kassas I on August 1, 2022, that the law in this circuit established that CSF
debts are dischargeable. By that time, Albert’s license had been reinstated
for over a year. Accordingly, even if Albert could state some damage from
the State Bar’s efforts to collect the CSF Obligation, the State Bar had fair
ground to doubt that the debt was discharged when it took its actions. This
ground of doubt negated the claim for contempt based on the CSF
Obligation.
c. Failure to reinstate immediately after payment of the
CSF Obligation and Disciplinary Costs.
Albert argues that the State Bar was in contempt for failing to
reinstate her license immediately after she paid the CSF Obligation and the
Disciplinary Costs on April 20, 2021. 8 The bankruptcy court agreed with
this proposition: it held the State Bar in contempt for the period from April
8 Albert states that the State Bar also violated the discharge order by petitioning
“the California Supreme Court to modify the Orders to include the payments Albert
made on April 20, 2021.” Albert never develops this argument or states how this
conduct might have resulted in damages different from those caused by the State Bar’s
failure to reinstate her license after she paid the CSF Obligation and Disciplinary Costs.
Accordingly, she has failed to establish any reversible error (assuming she means to
suggest that this was a separate ground for contempt).
36
21, 2021 through May 5, 2021, when the State Bar reinstated her license, and
entered judgment against the State Bar for the amount she paid.
But Albert also contends that she is entitled to interest on the $20,801
she paid to the State Bar to satisfy the CSF Obligation until the State Bar
reimbursed her. Again, Albert confuses the State Bar’s discharge violation
with its liability for contempt. The State Bar did violate the discharge
injunction by collecting the CSF Obligation, but it did so with an
objectively reasonable basis for concluding that the CSF Obligation was
nondischargeable. The record reflects that the State Bar promptly
reimbursed Albert for her payment of the CSF Obligation after the Ninth
Circuit issued its Kassas II decision. Accordingly, the State Bar was not
liable for contempt damages (in the form of interest or otherwise) for
collecting and temporarily retaining the $20,801 Albert paid to satisfy the
CSF Obligation.
C. The bankruptcy court correctly dismissed Albert’s § 525 claim.
In her FAC, Albert alleged that the State Bar had violated § 525(a) by
refusing to reinstate her license solely based on her failure to pay
discharged debts. The bankruptcy court dismissed this claim as moot and
because reinstatement was conditioned on payment of nondischargeable
debt as well.
Albert’s claim is frivolous. She completely ignores the fact that this
Panel and the Ninth Circuit upheld the dismissal of a similar § 525(a) claim
for relief stated in her First Adversary. As both decisions explained, the
37
State Bar validly conditioned her reinstatement on the payment of a
nondischargeable debt without violating § 525(a). Albert II, 960 F.3d at 1196;
Albert I, 2019 WL 1594012, at *8. These holdings are law of the case. See
FDIC v. Kipperman (In re Com. Money Ctr., Inc.), 392 B.R. 814, 832-33 (9th Cir.
BAP 2008). They are fatal to this claim.
We also agree with the bankruptcy court that Albert’s § 525(a) claim
was moot. The only relief she sought in respect of this claim was injunctive
relief, costs, and attorney’s fees, and “[a]ny further relief this Court may
deem fair and just.” By the time of the hearing on the State Bar’s motion to
dismiss, the State Bar had reinstated her, so there was no basis for
injunctive relief, and she never alleged anything plausibly establishing her
right to “further relief.”
Albert cites United States v. W. T. Grant Co., 345 U.S. 629, 632 (1953), in
support of her argument that the State Bar’s voluntary cessation of the
allegedly unlawful activity does not justify dismissal of the claim as moot.
However, W. T. Grant and other Supreme Court cases have held that
voluntary cessation of the unlawful conduct moots requests for declaratory
and injunctive relief when the plaintiff lacks a “reasonable expectation that
the wrong will be repeated[.]” Preiser v. Newkirk, 422 U.S. 395, 402-03 (1975)
(quoting W. T. Grant Co., 345 U.S. at 633) (listing cases). Albert has
speculated that other future wrongs might occur, but she offered nothing
to show that her fears amounted to a “reasonable expectation.”
Albert has not demonstrated that the bankruptcy court erred in
38
dismissing her § 525(a) claim.
D. The bankruptcy court did not commit reversible error in granting
summary judgment on Albert’s claim for declaratory relief.
Albert argues that the bankruptcy court erred “[b]ecause there was
no order after summary judgment in Albert’s favor declaring the debts
discharged . . . .” (Emphasis added). Albert contends that, “[w]ithout
correcting the record, the Orders stood as collectible to the world . . . .” She
maintains that a declaratory judgment is necessary to state the
dischargeability of the debts the State Bar attempted to collect from her.
She does not explain why anything other than the orders and judgment
entered in the Consolidated Adversary were required.
To state a claim for declaratory judgment under the Federal
Declaratory Judgment Act, 28 U.S.C. § 2201, the plaintiff must demonstrate
that an “actual controversy” exists between the parties as required by
Article III of the U.S. Constitution, and the court must consider whether in
its discretion to exercise its jurisdiction over the actual controversy. GEICO
v. Dizol, 133 F.3d 1220, 1222-23 (9th Cir. 1998); Am. States Ins. Co. v. Kearns,
15 F.3d 142, 143-44 (9th Cir. 1994). An actual controversy exists if the
dispute is “definite and concrete, touching the legal relations of parties
having adverse legal interests; and that it be real and substantial and admit
of specific relief through a decree of a conclusive character, as
distinguished from an opinion advising what the law would be upon a
hypothetical state of facts.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
39
127 (2007) (cleaned up). A court may dismiss a claim for declaratory relief if
it is duplicative of, substantially similar to, or commensurate with relief
sought under another cause of action. Mangindin v. Wash. Mut. Bank, 637 F.
Supp. 2d 700, 707-08 (N.D. Cal. 2009). A claim brought under the Federal
Declaratory Judgment Act “should be denied when it will neither serve a
useful purpose in clarifying and settling the legal relations in issue nor
terminate the proceedings and afford relief from the uncertainty and
controversy faced by the parties.” United States v. Washington, 759 F.2d
1353, 1357 (9th Cir. 1985) (en banc).
In Albert II and Kassas II, the Ninth Circuit held that obligations like
the Fin City Sanction, the Woods Restitution, and the CSF Obligation were
dischargeable. After those decisions, the State Bar did not contend
otherwise. Accordingly, there was no immediate and actual controversy
about the dischargeability of these debts and no basis for a declaratory
judgment in the exact form that Albert demanded.
The bankruptcy court did not err in entering summary judgment on
Albert’s claim for declaratory relief.
E. Albert’s challenges to the Disciplinary Costs as constitutional
violations.
Albert’s third claim for relief in the FAC alleged that the State Bar’s
Disciplinary Costs were excessive and violated the Eighth Amendment of
the U.S. Constitution, as made applicable to the States by the Fourteenth
Amendment. She similarly alleged in her fourth claim for relief that the
40
Disciplinary Costs also violated Article I, Section 17, of the California
Constitution. Albert argues that the Disciplinary Costs were improperly
assessed in fixed amounts regardless of the amount in controversy in the
underlying disciplinary action. She further alleged that most of the
Disciplinary Costs assessed against her bore no relationship to the minor
nature of her violations.
1. The bankruptcy court properly dismissed Albert’s Eighth
Amendment Claim for excessive fines against the State Bar.
The bankruptcy court dismissed Albert’s claim under the Eighth
Amendment pursuant to Civil Rule 12(b)(1) for lack of subject matter
jurisdiction. While we disagree with the bankruptcy court’s decision that it
lacked subject matter jurisdiction (for the reasons given in the next section),
we agree that dismissal of this claim was proper. The State Bar was not
amenable to suit on this basis, so the FAC failed to state a claim against the
defendants.
The court correctly observed that claims for violation of
constitutional rights require statutory authority and treated her claim as if
it were premised on 42 U.S.C. § 1983 (“§ 1983”). See, e.g., Pimentel v. City of
L.A., 974 F.3d 917, 922 (9th Cir. 2020) (excessive fee claim brought against a
municipality under § 1983); Blickenstaff v. City of Hayward, 2023 WL 187100,
at *3 (N.D. Cal. Jan. 13, 2023) (same). Albert has not challenged these
decisions.
The bankruptcy court held that the State Bar was not amenable to suit
41
under § 1983 because this statute only covers violation of constitutional
rights by “persons.” State agencies are not “persons” within the meaning of
the statute. See Isaacs v. USC Keck Sch. of Med., 853 F. App’x 114, 117 (9th
Cir. 2021) (citing Maldonado v. Harris, 370 F.3d 945, 951 (9th Cir. 2004));
Johnson v. Dep't of Soc. & Health Servs., 800 F. App’x 595 (9th Cir. 2020);
McReynolds v. Washington, 2021 WL 736927, at *10 (W.D. Wash. Feb. 25,
2021), aff'd, 2022 WL 16756387 (9th Cir. Nov. 8, 2022).
On appeal, Albert cites Timbs v. Indiana, 139 S. Ct. 682, 687 (2019),
which applied the Eighth Amendment’s Excessive Fines Clause to state
governments within a civil forfeiture proceeding. Albert also cites Pimentel
v. City of Los Angeles, 966 F.3d 934, 937-38 (9th Cir.), as amended on denial of
reh’g, 974 F.3d 917, 920 (9th Cir. 2020), which applied Timbs to a
municipality in a § 1983 action. But local governments are recognized as
persons subject to § 1983. Monell v. Dep’t of Social Servs., 436 U.S. 658, 690
(1978). Neither of these cases involved a state agency like the State Bar.
The bankruptcy court had subject matter jurisdiction, but Albert had
no claim because the State Bar was not amenable to suit on the claim. The
court thus did not err when it dismissed these claims.
2. The court had subject matter jurisdiction of Albert’s excessive
fines claim based on the California Constitution.
The bankruptcy court also dismissed Albert’s excessive fines claim
under Article 1, Section 17, of the California Constitution based on Civil
Rule 12(b)(1) for lack of jurisdiction. The State Bar sought dismissal of the
42
state law claim because Albert failed to allege how the claim was related to
the core bankruptcy matters raised in the FAC. Albert opposed dismissal
because she alleged in the FAC that the Consolidated Adversary was a core
proceeding “within the meaning of 28 USC § 157 and 28 USC § 1334
pursuant to FCP 7001 [sic].”
Courts ordinarily must examine their subject matter jurisdiction for
each claim brought. See, e.g., Holdner v. Krietzberg, 2019 WL 1783057, at *4
(D. Or. Mar. 14, 2019), report and recommendation adopted, 2019 WL 1783044
(D. Or. Apr. 23, 2019); Gentile Fam. Indus. v. Diatom, LLC, 2015 WL 13917008,
at *5 (C.D. Cal. Mar. 5, 2015). To establish bankruptcy jurisdiction over a
particular claim, a plaintiff must prove that the claim arises in the
bankruptcy case, arises under the Bankruptcy Code, or is related to the
bankruptcy case. 28 U.S.C. § 1334(b). Albert failed to identify the basis for
jurisdiction under 28 U.S.C. § 1334(b) or the facts alleged in the FAC
supporting such jurisdiction. Instead, she argued that the motion must be
denied because no party had made a motion to have her ancillary state law
claim heard in state court.
The bankruptcy court dismissed this state law claim because it did
not arise under the Bankruptcy Code or in a case under the Code. See
Wilshire Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard), 729
F.3d 1279, 1285-87 (9th Cir. 2013). The bankruptcy court also noted that
Albert had the burden of alleging facts supporting its jurisdiction, but the
FAC did not contain any facts suggesting that the bankruptcy court had
43
“related to” jurisdiction over the fourth claim for relief. The bankruptcy
court rejected the notion that it had “ancillary jurisdiction” over the state
law claim. It observed that ancillary jurisdiction is permitted to dispose of
“factually interdependent claims” by a single court. Battleground Plaza v.
Ray (In re Ray), 624 F.3d 1124, 1135 (9th Cir. 2010) (citing Sea Hawk Seafoods,
Inc. v. Alaska (In re Valdez Fisheries Dev. Ass’n), 439 F.3d 545, 549 (9th Cir.
2006)). But the court held that nothing in the FAC indicated that the fourth
claim for relief was factually interdependent with Albert’s dischargeability
claim, her contempt claim, or her § 525(a) claim.
On appeal, Albert summarily argued that jurisdiction exists because
the excessive nature of the Disciplinary Costs are interrelated to her claims
under § 525(a) and § 524. Again, she failed to develop this argument.
Instead, in her reply brief, she argued that the bankruptcy court had core
jurisdiction to rule on the allowance or disallowance of the State Bar’s
proof of claim. She has not effectively challenged the bankruptcy court’s
discussion of ancillary jurisdiction.
We disagree with the bankruptcy court’s jurisdictional analysis.
Bankruptcy courts have subject matter jurisdiction over proceedings
“arising under title 11, or arising in or related to cases under title 11.” 28
U.S.C. § 1334. A proceeding “arises under” title 11 if it presents claims for
relief created or controlled by title 11. A proceeding “arises in” a
bankruptcy case if the claims would have no existence outside of a
bankruptcy case, even if they are not explicitly created or controlled by title
44
11. Double Diamond Distrib., Ltd. v. Garman Turner Gordon LLP (In re U.S.A.
Dawgs, Inc), 657 B.R. 98, 110 (9th Cir. BAP 2024) (citing In re Ray, 624 F.3d at
1131). “Related to” jurisdiction exists if
the outcome of the proceeding could conceivably have any
effect on the estate being administered in bankruptcy. . . . An
action is related to bankruptcy if the outcome could alter the
debtor’s rights, liabilities, options, or freedom of action (either
positively or negatively) and which in any way impacts upon
the handling and administration of the bankrupt estate.
Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (9th Cir. 1984) (cleaned up), partially
overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124
(1995).
We agree that Albert’s constitutional claims do not “arise under” the
Bankruptcy Code; rather, they arise under the applicable constitutional
provisions. We also agree that those claims did not “arise in” her
bankruptcy case, because the same claims could arise in a non-bankruptcy
setting. But Albert’s claims were “related to” her bankruptcy case because
they affected the amount of Albert’s nondischargeable obligations and thus
“could alter [her] rights, liabilities, options, or freedom of action (either
positively or negatively) . . . .” Id. The bankruptcy court has subject matter
jurisdiction to determine the amount of any claim against the debtor,
whether that claim is or is not discharged.
Both Albert and the bankruptcy court went astray when they
evaluated the relatedness of Albert’s state constitutional claims to the
45
categories of “core proceedings.” This was incorrect. The court’s subject
matter jurisdiction turned on the relationship between those claims and
Albert’s bankruptcy case. Whether those claims were “core proceedings”
bears on whether the bankruptcy court or the district court may enter final
judgment on the claims, and does not pertain to either court’s subject
matter jurisdiction.
Albert’s scattered pleading and ever-changing arguments have
confused the jurisdictional analysis. But again mindful of the standards
applied to the State Bar’s motion to dismiss, we must reverse the dismissal
of Albert’s claims under the California Constitution. We express no opinion
on any other aspect of those claims, including (1) whether the bankruptcy
court may or must decline to decide those claims on grounds other than
subject matter jurisdiction, (2) whether the California Supreme Court’s final
decisions in the 2017 Suspension Order and the 2019 Suspension Order
have preclusive effect that bars those claims in whole or in part,
(3) whether the Rooker-Feldman doctrine bars a federal court from
addressing those claims, or (4) the merits of those claims.
F. The bankruptcy court correctly applied quasi-judicial immunity to
the Individual State Bar Defendants.
Albert challenges the bankruptcy court’s dismissal of all claims
against the Individual State Bar Defendants. She named them as
defendants as to the first claim for declaratory relief and the second claim
for violations of the automatic stay and discharge injunction. The
46
bankruptcy court followed our decision in Albert I and held that state bar
judges, prosecutors, and probation officers are “entitled to absolute quasi-
judicial immunity under the Civil Rights Act for acts performed in their
official capacities.” 2019 WL 1594012, at *9. This is not only a correct
statement of law; it is law of the case. See generally Am. Express Travel
Related Servs. Co. v. Fraschilla (In re Fraschilla), 235 B.R. 449, 454 (9th Cir.
BAP 1999) (explaining legal standards governing law of the case doctrine),
aff'd, 242 F.3d 381 (9th Cir. 2000) (table).
Albert does not explain how her claims could withstand quasi-
judicial immunity. In her FAC, she sued the Individual State Bar
Defendants for: (1) the instigation and prosecution of the disciplinary
proceedings themselves; (2) the resulting recommendations that led to the
California Supreme Court’s issuance of the 2017 and 2019 Suspension
Orders; and (3) the monitoring and reporting associated with Albert’s
probation as contemplated in those orders. These are prototypical quasi-
judicial activities that are protected by such immunity. See Hirsh, 67 F.3d at
715 (citing Butz v. Economou, 438 U.S. 478, 511-17 (1978)); Demoran v. Witt,
781 F.2d 155, 157 (9th Cir. 1985); see also Fort v. Washington, 41 F.4th 1141,
1144 (9th Cir. 2022) (holding that quasi-judicial immunity extended to the
administrative act of scheduling a parole hearing by the state’s parole
board); Sellars v. Procunier, 641 F.2d 1295, 1303 (9th Cir. 1981) (“If an
official’s role is functionally equivalent to that of a judge, the official will be
47
granted equivalent immunity.”).
Albert alleges that the Individual State Bar Defendants’ actions were
motivated by politics, personal animus, or her failure to pay the discharged
debts. But their motivations are irrelevant. As the Supreme Court has
explained, “judicial immunity is an immunity from suit, not just from
ultimate assessment of damages. Accordingly, judicial immunity is not
overcome by allegations of bad faith or malice, the existence of which
ordinarily cannot be resolved without engaging in discovery and eventual
trial.” Mireles v. Waco, 502 U.S. 9, 11 (1991) (citations omitted). 9
The bankruptcy court did not commit reversible error when it
dismissed the Individual State Bar Defendants.
G. The bankruptcy court’s damages findings were not clearly
erroneous.
Albert argues that the bankruptcy court should have awarded her
damages for emotional distress and “delay and harassment.” The court
declined to do so. It explained that Albert provided insufficient evidence
9
Albert also argues that there could never be quasi-judicial immunity for
violating a federal court order. She cites Hutto v. Finney, 437 U.S. 678 (1978), and Twin
Sisters Gun Club v. Emlen, 2018 WL 1335394, at *9 (E.D. Cal. Mar. 15, 2018), in support of
her argument. Hutto is inapposite. It dealt with the sovereign immunity of state officials
and whether that immunity insulated them from being held in contempt when they
violated orders issued by a federal court that was hearing a matter in which the officials
already were parties. 437 U.S. at 690-91. Twin Sisters Gun Club applied quasi-judicial
immunity to one of the two individual defendants in that case but analyzed why the
other defendant was not entitled to a separate and distinct qualified or “good faith”
immunity. 2018 WL 1335394, at *10-11. Neither case addressed quasi-judicial immunity
as it applies to the Individual State Bar Defendants.
48
that, during the 15-day period of the State Bar’s admitted violation of the
discharge injunction, she suffered compensable damages on either ground.
It also found that there was insufficient evidence to justify a larger
damages award for this 15-day period on any other ground.
Albert does not explain why these findings were clearly erroneous.
She merely disagrees with the court’s findings. She also cites several cases
that she maintains support the proposition that she might have incurred
compensable damages. See Schmitt v. SN Servicing Corp., 2021 WL 3493754,
at *8-9 (N.D. Cal. Aug. 9, 2021); Copeland v. Kandi (In re Copeland), 441 B.R.
352, 367-68 (Bankr. W.D. Wash. 2010); In re Ramirez, 183 B.R. at 590. None of
these cases help explain why the bankruptcy court’s damages findings
were clearly erroneous on this record. Given our review of the record, we
cannot say that these findings were illogical, implausible, or without
support in the record.
Albert additionally argues that the bankruptcy court should have
awarded her at least $125,169.25 in punitive damages. The bankruptcy
court found that the evidence presented did not justify any punitive
damages. Once again, Albert has not done anything to demonstrate on
appeal that this finding was clearly erroneous. Moreover, a bankruptcy
court has no authority to award punitive damages for contempt other than
“relatively mild” non-compensatory fines. See Ocwen Loan Servicing, LLC v.
Marino (In re Marino), 577 B.R. 772, 788–89 & n.12 (9th Cir. BAP 2017), aff'd
in part, dismissed in part, 949 F.3d 483 (9th Cir. 2020).
49
H. The challenged evidentiary and discovery rulings did not affect the
outcome of this appeal.
Albert challenges the bankruptcy court’s decision to excuse the State
Bar’s former counsel, James Chang, from testifying at trial. She also
disputes the exclusion from trial of some of her expert witnesses. Finally,
she asserts that the court erroneously denied her motion to compel
discovery.
The denial of discovery-related motions is not grounds for reversal
absent a clear showing of prejudice. Kobold v. Good Samaritan Reg'l Med.
Ctr., 832 F.3d 1024, 1048 (9th Cir. 2016). Similarly, we only will reverse an
evidentiary ruling “if any error would have been prejudicial to the
appellant.” Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 351 (9th Cir.
BAP 2012) (citing Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir.
2008)).
Albert has not demonstrated any prejudice arising from the
bankruptcy court’s evidentiary and discovery rulings. Nor is any evident
to us in light of our review of the record and our analysis of this appeal.
Consequently, Albert’s arguments based on the bankruptcy court’s
evidentiary and discovery rulings do not justify reversal.
I. The bankruptcy court properly denied leave to amend.
In three sentences, Albert argues that the bankruptcy court should
have granted her leave to amend the portions of the FAC that the
bankruptcy court dismissed with prejudice. But the trial court is not
50
obliged to grant leave to amend when amendment would be futile. Ebner v.
Fresh, Inc., 838 F.3d 958, 968 (9th Cir. 2016) (citing Doe v. United States, 58
F.3d 494, 497 (9th Cir. 1995)). The bankruptcy court denied leave after
considering that the First Adversary and the Consolidated Adversary
already had been pending for three years, Albert already had made two
full attempts to plead legally sufficient claims for relief, and the dismissed
claims largely suffered from “substantive” deficiencies. “[W]hen the
district court has already afforded a plaintiff an opportunity to amend the
complaint, it has wide discretion in granting or refusing leave to amend
after the first amendment, and only upon gross abuse will its rulings be
disturbed.” Rich v. Shrader, 823 F.3d 1205, 1209 (9th Cir. 2016) (cleaned up).
Here, both the First Adversary and the Consolidated Adversary concerned
essentially the same conduct by the State Bar, its officials, and its other
representatives. Albert never explained how she could amend the FAC to
cure its defects. The bankruptcy court did not abuse its discretion.
CONCLUSION
For the reasons set forth above, we REVERSE the portions of the
bankruptcy court’s decision: (1) dismissing Albert’s stay violation claim
based on the State Bar’s failure to promptly reinstate her license to practice
law while she was in chapter 13 and its reimposition of the suspension
after her case was converted to chapter 7; and (2) dismissing her claims
under the California Constitution. As to those matters, we REMAND for
further proceedings consistent with this decision. We AFFIRM the
51
bankruptcy court’s decision in all other respects.
Concurrence begins on next page.
52
FARIS, Bankruptcy Judge, concurring:
I agree with the majority’s result and reasoning. I write separately to
make three additional points.
I.
In section A.4 of the Discussion, the majority holds that the State Bar
violated the automatic stay when it reimposed Albert’s conditional
suspension after the court converted her case from chapter 13 to chapter 7.
The majority discusses and distinguishes prior decisions of this Panel and
the Ninth Circuit holding that the automatic stay does not bar enforcement
of a nondischargeable claim, at least against property that is not property
of the estate. Watson v. City Nat’l Bank (In re Watson), 78 B.R. 232 (9th Cir.
BAP 1987); Palm v. Klapperman (In re Cady), 266 B.R. 172 (9th Cir. BAP 2001),
aff’d, 315 F.3d 1121 (9th Cir. 2003). I agree that those decisions are
distinguishable, and I also think that they are no longer good law.
Section 362(a) does not distinguish between dischargeable and
nondischargeable debts. That section bars (among other things) the
enforcement of a “claim.” § 362(a)(1), (5), (6). The Bankruptcy Code
provides a sweeping definition of the term “claim.” § 101(5). The definition
of “claim” does not even mention, let alone distinguish between,
dischargeable and nondischargeable obligations. Further, the language of
§ 523 makes clear that an obligation is a “claim” whether it is dischargeable
or not. That section makes certain kinds of “debt” nondischargeable. “The
term ‘debt’ means liability on a claim.” § 101(12). If the word “claim” did
1
not include nondischargeable obligations, then the reference to “debts” that
are not “discharged” would be redundant.
It is equally clear that the automatic stay often protects property that
is not property of the estate. For example, § 362(a)(1) blocks the
“commencement or continuation . . . of [any] action or proceeding against
the debtor [on a prepetition claim] or to recover a claim against the debtor
that arose” prepetition. This section applies regardless of whether the
claimant seeks recovery from estate or non-estate property. Similarly,
§ 362(a)(6) bars “any act to collect, assess, or recover a claim against the
debtor that arose” prepetition. Again, this subsection effectively protects
property whether it belongs to the estate or not.
In short, there is no textual support for the argument that the
automatic stay does not apply to nondischargeable claims.
In Watson and Cady, this Panel and the Ninth Circuit held that “the
automatic stay provisions of Section 362 do not preclude the execution of a
judgment, which has been held by the bankruptcy court to be non-
dischargeable, upon property of the debtor which is not property of the
estate.” In re Watson, 78 B.R. at 235; see also In re Cady, 266 B.R. at 176; cf. Cal.
State Univ. v. Gustafson (In re Gustafson), 111 B.R. 282, 286 (9th Cir. BAP
1990) (“We therefore determine that the automatic stay applies to preclude
a creditor’s attempts to collect a claim that is presumed, but not yet
determined by the bankruptcy court, to be nondischargeable under section
523(a)(8).”), rev'd on other grounds, 934 F.2d 216 (9th Cir. 1991). Those cases
2
rely on policy justifications and legislative history, not the language of the
statute. In Watson, the majority of this Panel was persuaded that there was
“no valid reason” to give a debtor who has suffered a nondischargeable
judgment “the opportunity to delay and/or hinder the creditor from
executing upon post-petition property, which is not property of the
bankruptcy estate . . . .” 78 B.R. at 234. The Panel also quoted legislative
history stating that the automatic stay is “one means of protecting the
debtor’s discharge[,]” id. at 234 (quoting H.R. Rep. No. 95-595 (1978), as
reprinted in U.S.C.C.A.N. 5787, 6299), and reasoned that “[t]here is a lack of
logic in allowing a creditor release from a discharge only to hold him in
place as if he were still affected by the discharge or the prospect thereof[,]”
id. at 235. In Cady, this Panel followed Watson as “binding authority,” 266
B.R. at 180, and the Ninth Circuit affirmed, simply adopting this Panel’s
decision, 315 F.3d 1121.
Judge Meyers dissented from the Panel’s decision in Watson, pointing
out that the language of the statute did not support the majority’s decision.
78 B.R. at 236-37 (Meyers, J., dissenting). In Cady, Judge Berzon dissented
from the Ninth Circuit’s majority decision, agreeing with Judge Meyers’
reasoning in Watson. 315 F.3d at 1122-23 (Berzon, J., dissenting).
The dissenters were prescient. Almost two decades after Judge
Berzon wrote her dissent, the Supreme Court unanimously held in City of
Chicago v. Fulton, 592 U.S. 154 (2021), that the City of Chicago did not
violate the automatic stay when it retained possession of a vehicle that it
3
had impounded before the debtor filed a bankruptcy petition. The Court’s
analysis focused entirely on the language of § 362 (including that section
prior to an amendment) and a related provision (§ 542(a)). The Court was
aware that its decision would have negative practical consequences for
debtors, because Justice Sotomayor explained them in detail in a separate
opinion. 592 U.S. at 163-64 (Sotomayor, J., concurring). But those
consequences did not change any justice’s mind. Even Justice Sotomayor
concurred.
Fulton makes clear that, when interpreting § 362, we must begin with
the statute’s language, and our analysis must also end there unless the
statute is ambiguous. As Judges Berzon and Meyers pointed out, the
language of § 362 does not support the holding of Watson, Gustafson, or
Cady. I would therefore hold that those decisions are no longer good law.
This reinforces our unanimous holding that the State Bar violated the
automatic stay when it reimposed Albert’s suspension upon the conversion
to chapter 7.
II.
Our partial reversal of the bankruptcy court’s decision may not lead
to a victory for Albert.
First, if she is proceeding on a contempt theory, she would have to
surmount the Taggart standard by proving that there was no “fair ground
of doubt” that the State Bar’s reinstatement of the suspension would violate
the automatic stay. See Taggart v. Lorenzen, 139 S. Ct. 1795, 1804 (2019).
4
Given that Watson and Cady were on the books when the State Bar acted,
this may be an impossible task.
Second, whether she employs a contempt theory or § 362(k), she
would have to prove that she suffered compensable damages due to the
stay violation. These damages would be limited at best, and might be
nonexistent, because the State Bar was fully entitled to reimpose the
suspension when Albert received her discharge. In other words, the State
Bar jumped the gun by only a few months. Albert would have to show that
she could have restarted her practice and made it profitable between the
time the State Bar incorrectly reimposed the suspension (in mid-2018) and
the date of her discharge (February 26, 2019).
Third, the bankruptcy court might (or might not) exercise its
discretionary power to grant the State Bar retroactive relief from the stay.
See Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 21 (9th Cir. BAP 2003) (“A
bankruptcy court has authority to [grant]. . . annulment [of the automatic
stay] providing retroactive relief, which, if granted, moots any issue as to
whether the violating sale was void because, then, there would have been
no actionable stay violation.” (citation omitted)).
III.
We do not condone any of Albert’s conduct. The State Bar charged
her with very serious professional misconduct, including (in effect) stealing
money from her clients. Her briefing and oral argument before this Panel
were incompetent. She richly deserved the suspension and other discipline
5
that the California Supreme Court imposed.
There is an irony at the core of this case: if the supreme court had
imposed an unconditional suspension, or had simply disbarred her, Albert
would have no recourse under the Bankruptcy Code. Albert has claims
under the Bankruptcy Code only because the supreme court offered her a
way to salvage her legal career. Although we hold that the State Bar failed
(in some relatively minor respects) to comply with the Bankruptcy Code,
our decision should not meaningfully hinder the crucial work of the State
Bar in protecting the public from incompetent and unethical attorneys.
6