United States Court of Appeals
For the First Circuit
No. 02-9007 Volume II of II
IN RE WILLIAM C. SHERIDAN,
WILLIAM C. SHERIDAN,
Defendant, Appellant,
v.
NANCY MICHELS,
Plaintiff, Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Selya, Circuit Judge,
Cyr, Senior Circuit Judge,
and Lynch, Circuit Judge.
William C. Sheridan, pro se.
Nancy H. Michels, with whom the Law Offices of Michels &
Michels and Carole A. Mansur were on the brief for appellee.
March 29, 2004
LYNCH, Circuit Judge (dissenting). With regret, I
dissent. The majority decides this case on an argument that
Sheridan never raised in the bankruptcy court, in the BAP, or on
appeal, and that Sheridan expressly refused to adopt when this
court raised it sua sponte and asked for his view. The majority
then decides that issue the wrong way. The result is to relegate
Sheridan to a new round of litigation in the courts below, more
than two years after the bankruptcy court suspended him from
practice. For Sheridan, this is a pyrrhic victory, and one that he
asked us not to give him.19
The principal opinion by Judge Cyr and the opinion by
Judge Selya concurring in the judgment agree on two points that I
believe are not only mistaken but also certain to have consequences
beyond the narrow realm of attorney discipline in bankruptcy cases:
(1) that this is an appropriate case for invoking the
LaGuardia/Weinstein doctrine to justify this court in addressing an
issue that Sheridan elected not to raise; and (2) that the
disciplinary proceeding against Sheridan was not a "core
proceeding" under § 157. I also dissent from the principal
opinion's conclusion that Sheridan neither consented nor waived his
objections to entry of a final order in the bankruptcy court.
19
It is true that, after the court's decision, the order
suspending Sheridan will no longer be final. But the district
court may simply reinstate the remedy chosen by the bankruptcy
court.
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I.
The principal opinion reaches the "core proceeding"
question in this case only by holding that while Sheridan perhaps
forfeited the issue, he never consented to the entry of a final
judgment or otherwise waived the requirements of § 157. I cannot
join that conclusion: (i) it requires a restrictive interpretation
of § 157(c) that conflicts with the views of at least five circuits
and the leading commentator on bankruptcy law; and (ii) it
undermines this court's jurisprudence of waiver and consent to say,
on this record, that Sheridan ever disputed the finality of the
bankruptcy court's order.
A. Section 157 and Finality
A bankruptcy judge's power to enter final orders is not
limited to core proceedings. Rather, a bankruptcy court has the
authority to enter a dispositive order in any proceeding,
irrespective of core/non-core status, if the parties consent. See
§ 157(c)(2); see also In re S. Indus. Banking Corp., 809 F.2d 329,
331 (6th Cir. 1987) ("A related proceeding with the consent of all
parties functionally has the same effect as a core proceeding . .
. ."). This court held unequivocally in In re G.S.F. Corp., 938
F.2d 1467 (1st Cir. 1991), that such consent can be implied from a
party's litigation conduct. See id. at 1477 ("[I]mplied consent
will suffice."). We upheld appellate jurisdiction in that case
because the parties had, by their conduct before the bankruptcy
-36-
court, "acquiesce[d]" in the treatment of the proceeding as core.
Id. If, by his conduct, Sheridan likewise indicated his knowing
acquiescence in the bankruptcy court's treatment of his case as
core, then the sanctions order was final, the BAP had appellate
jurisdiction, and the core/non-core status of the disciplinary
hearing is irrelevant.20
The principal opinion seems to interpret In re G.S.F. to
require some "affirmative" expression of consent before a party
will be held to have waived the procedures required by § 157(c).
Op. at 8-10. That decision does not announce such a restrictive
and formalistic rule; it did not require any particular conduct,
but merely examined the record for "indication[s] of acquiescence."
938 F.2d at 1477. Further, in concluding that "implied consent
20
In a non-bankruptcy case, this issue would normally be
characterized as "waiver." In bankruptcy cases, the more common
rubric is that of "implied consent." The difference in terminology
is not important; notions of waiver and consent are closely
intertwined in the context of a litigant's asserted right to an
Article III tribunal, as the Supreme Court has made clear. See,
e.g., Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 849
(1986) ("[T]he relevance of concepts of waiver to Article III
challenges is demonstrated by our decision in Northern Pipeline, in
which the absence of consent to an initial adjudication before a
non-Article III tribunal was relied on as a significant factor in
determining that Article III forbade such adjudication."). Indeed,
several courts of appeals have used both terms to describe the
inquiry under § 157(c)(2). See, e.g., In re Johnson, 960 F.2d 396,
403-04 (4th Cir. 1992); Home Ins. Co. v. Cooper & Cooper, Ltd., 889
F.2d 746, 749 (7th Cir. 1989); see also In re Nell, 71 B.R. 305,
310 n.4 (D. Utah 1987). The terms are used interchangeably in this
opinion, as the substantive standard is the same: because Sheridan
knew of his right to seek de novo review in the district court and
chose not to do so, the sanctions order should have been deemed
final and the entire core/non-core problem avoided.
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will suffice" under § 157(c)(2), this court cited cases like In re
Daniels-Head & Assocs., 819 F.2d 914 (9th Cir. 1987), In re S.
Indus. Banking Corp., supra, and In re Hatfield, 117 B.R. 387
(Bankr. C.D. Ill. 1990), each of which held that the absence of a
timely objection to the bankruptcy court's jurisdiction is enough
to establish consent. See 819 F.2d at 919; 809 F.2d at 331; 117
B.R. at 389 n.1.
The principal opinion contends that such cases must have
been wrongly decided in light of the 1987 advisory committee notes
to Fed. R. Bankr. P. 7008, which emphasize "express" consent. See
Op. at 8 n.2. That argument, however, is undercut by the Supreme
Court's recent decision in Roell v. Withrow, 123 S. Ct. 1696
(2003), in which the Court held that consent to proceedings before
a federal magistrate judge can be implied from a party's litigation
conduct. Id. at 1703. In Roell, as in this case, a federal rule
interpreting the underlying statute required advance, written
consent from both parties. Id. at 1701. As in this case, that
rule was not satisfied. Nevertheless, the Roell Court held that
under the terms of the statute itself, implied consent was all that
was required. Id. at 1703. The same logic applies under § 157(c),
which requires only "consent," not "express consent." Moreover,
Congress knew how to require express consent when it wanted that
result -- it did so in § 157 only a few paragraphs later. See 28
U.S.C. § 157(e) ("express consent" is required from all parties
-38-
before the bankruptcy court may hold a jury trial). In light of
Roell and Congress's calculated choice of words in § 157, the
principal opinion's restrictive interpretation of the consent
requirement in § 157(c) is unjustified.
Under the view adopted by the principal opinion today, a
party's complete failure to object to core treatment is not
sufficient to show consent. That position, if adopted by this
court, would place this circuit directly in conflict with the views
of at least five of our sister circuits. See In re Tex. Gen.
Petroleum Corp., 52 F.3d 1330, 1337 (5th Cir. 1995) ("A party who
fails to object to a bankruptcy court's assumption of core
jurisdiction consents to that court's entry of final judgment.");
Abramowitz v. Palmer, 999 F.2d 1274, 1280 (8th Cir. 1993) (finding
implied consent where "[n]either party object[ed] to the bankruptcy
court's entering a final judgment"); In re Johnson, 960 F.2d 396,
403-04 (4th Cir. 1992) (finding implied consent because the parties
"failed to object to the bankruptcy court's determination" of the
matters in dispute); In re Daniels-Head, 819 F.2d at 919 (failure
to raise a timely objection to core treatment constitutes implied
consent); In re Men's Sportswear, Inc., 834 F.2d 1134, 1137-38 (2d
Cir. 1987) (party's failure to object to bankruptcy court's
exercise of core jurisdiction despite multiple opportunities to
lodge such an objection "can only be construed as implied
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consent").21 The leading treatise on bankruptcy law likewise
concludes that the failure to object to core treatment should be
enough to show consent. See 1 Collier on Bankruptcy § 3.02[6][b]
(rev. 15th ed. 2003) ("It is unstated, but probably implied in
section 157(b)(3), and it has been held, that failure to make
timely objection to the characterization of the proceeding as a
core proceeding will be deemed a consent to the jurisdiction of the
bankruptcy court to enter dispositive orders and judgments in like
manner as section 157(c)(2)."); id. § 3.03[4] ("The effect of
failure to interpose an objection [to core treatment] at the
pleading stage should be consent to the final order being entered
by the bankruptcy judge.").
B. Waiver in the Bankruptcy Court
If the principal opinion's restrictive view of consent
under § 157(c)(2) is wrong, it collapses. That is because under
the test adopted by other circuits and (in my view) endorsed by
this court itself in In re G.S.F., Sheridan waived any right he may
have had to de novo review in the district court.
Sheridan utterly failed even to identify the core/non-
core issue in the bankruptcy court, let alone raise a coherent
objection to the core status of the proceeding, despite multiple
opportunities to do so. Neither in his responsive pleadings nor in
21
But see Home Ins. Co., 889 F.2d at 749-50 (express consent
required).
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his various motions to the bankruptcy court did Sheridan -- an
experienced bankruptcy attorney22 –- argue that the proceedings were
non-core, that the bankruptcy court could not enter a final
judgment against him, that he was entitled to de novo review of the
facts and the law in the district court, or anything else that
could be interpreted as a reference to § 157(c).
Nor did Sheridan identify this issue at the bench trial.
The bankruptcy court entered a pretrial scheduling order on January
16, 2001 that required the parties to identify all disputed issues
of law and applicable defenses. Sheridan, in response, raised
various legal objections, not one of which addressed the core/non-
core status of the proceeding or the bankruptcy court's power to
22
The bankruptcy court expressly found that Sheridan "is an
experienced attorney who has practiced [bankruptcy law] for a
significant period of time." 2001 WL 1757058, at *24. The court
further found that in light of that extensive experience, Sheridan
"was aware" of the applicable rules and practices in bankruptcy
court. Id.
Nevertheless, the principal opinion says that Sheridan's
extensive experience as a bankruptcy attorney does not support the
inference that he knowingly acquiesced in core treatment because
"these disciplinary proceedings arose, at least in part, from
Sheridan's numerous physical ailments and mental impairments." Op.
at 15 n.7. That is a non-sequitur: whether Sheridan's misconduct
was related to his alleged disabilities has nothing to do with
whether Sheridan knew, based on his years of practicing bankruptcy
law, that he was obliged to alert the bankruptcy judge if he
objected to the treatment of his disciplinary proceeding as core.
The principal opinion does not suggest that a disability actually
prevented Sheridan from objecting to core treatment.
In any event, the principal opinion's willingness to attribute
Sheridan's professional misconduct to his disabilities is puzzling,
given that (1) the bankruptcy court made no finding of any
disability, and (2) the BAP held that Sheridan utterly failed to
support his claim of disability. See 282 B.R. at 92 & n.15.
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enter a final judgment against him.23 Even during the bench trial,
Sheridan made no argument that the court was obliged to enter its
findings as "proposed findings of fact" under § 157(c)(1). On
October 12, 2001, the bankruptcy court entered a final opinion and
order suspending Sheridan from practice. Michels v. Sheridan, No.
00-1140-JMD, 2001 WL 1757058 (Bankr. D.N.H. Oct. 12, 2001).
The principal opinion explains all of this by saying that
Sheridan could not have raised the core/non-core issue prior to
judgment because he had no idea that the bankruptcy court intended
to enter a binding sanctions order. Op. at 13. That is simply not
so. Sheridan has never claimed, and could not claim, that he was
unaware that the bankruptcy court intended to sanction him
directly. The bankruptcy court's January 16, 2001 pretrial
scheduling order stated that the complaint against Sheridan had
been commenced under Administrative Order 2090-2 of the New
Hampshire bankruptcy courts. That order expressly allows the
bankruptcy court to issue binding orders sanctioning and disbarring
attorneys by deeming attorneys who practice before the bankruptcy
court to have consented to disciplinary jurisdiction.24 Sheridan
23
Sheridan's reply stated only that the complaint failed to
allege violations of the applicable rules of ethics and that, in
the alternative, his conduct should be excused because of his
disabilities.
24
AO 2090-2 provides, in relevant part, that "[a]ny attorney
admitted or permitted to practice before [the bankruptcy] court
shall be deemed to have conferred disciplinary jurisdiction upon
th[e] court for any alleged attorney misconduct arising during the
-42-
was clearly on notice that the bankruptcy court intended to hold
such a proceeding, yet he did not dispute that it was a core
proceeding or that any resulting order would be final.25
Even in his multiple motions for reconsideration after
the bench trial, Sheridan failed to raise the core/non-core issue.
In his October 22, 2001 motion, Sheridan responded to the
bankruptcy judge's statement that bankruptcy courts have the
substantive power to discipline attorneys under the "inherent
power" doctrine of Ex parte Burr, 22 U.S. 529 (1824). See
Sheridan, 2001 WL 1757058, at *1. Because the principal opinion
relies heavily on Sheridan's response to conclude that he raised
and pressed the core/non-core argument, I quote it here:
First, Ex parte Burr, supra (U.S. 1824) concerns
broad powers inherent in the exercise of the judicial
power under Article III of the United States
Constitution. However, although the United States
Bankruptcy Court is a "unit of the [Federal] district
court," it is well established that the powers of
Bankruptcy judges are limited to those "conferred under"
the United States Bankruptcy Code. 28 U.S.C. Section 151.
As such the Bankruptcy court does not share all of
the powers of the district court. Thus, in Northern
Pipeline Co. vs. Marathon Pipeline Co., 458 U.S. 50
(1982) the United States Supreme Court held that it was
course of a case pending before th[e] court in which that attorney
has participated in any way."
25
Sheridan argued in his opening brief that AO 2090-2 was not
promulgated until February 2001, after the disciplinary complaint
against him was filed. That is not true: the administrative order
was adopted in October 2000, and Sheridan is fairly charged with
knowledge of its contents. An amended version of AO 2090-2 became
effective in February 2001, but the amendments did not affect any
portion of the order relevant to Sheridan's case.
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unconstitutional for the Bankruptcy Courts to exercise
the "essential attributes of judicial power of the
Article III district court," and that the bankruptcy
court's power was limited to "core proceedings" of the
administration of the bankruptcy estate under the
bankruptcy code. 28 U.S.C. section 157(b)(1).
It is axiomatic that since the bankruptcy court does
not share in the "essential" powers of Article III
judges, it follows that the bankruptcy court does not
share in the "inherent authority" derived from the
exercise of Article III judicial power.26
This was Sheridan's sole reference to "core proceedings" or § 157
in the bankruptcy court.
As the context makes clear, Sheridan was not objecting in
these paragraphs to the finality of the bankruptcy court's order
against him. Nor did the bankruptcy court understand him to be
making such an argument. Rather, Sheridan was contending only that
bankruptcy courts do not enjoy the "inherent power" described in Ex
parte Burr to discipline attorneys. This is simply an attack on
one of the bankruptcy court's asserted sources of disciplinary
authority. It is distinct from the contention that the principal
opinion attributes to Sheridan: namely, that the bankruptcy court,
while empowered to conduct disciplinary proceedings, was not
permitted to enter a final order against Sheridan under
§ 157(c)(1). Sheridan, an experienced bankruptcy lawyer, knows the
difference. Indeed, the principal opinion itself recognizes that
the question whether a bankruptcy court has the power to discipline
26
This passage is quoted exactly from Sheridan's October 22
motion; any mistakes or grammatical errors are his.
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attorneys is a question independent of whether it has the power to
enter a final order.27 Yet the principal opinion contends that by
raising the former argument, Sheridan somehow also raised the
latter.28 This is unfair to bankruptcy judges, who should not be
asked to read tea leaves to discern a litigant's argument.
27
For example, the principal opinion concedes that bankruptcy
courts have substantive disciplinary authority, but it holds that
the exercise of that power in this particular case was not a "core
proceeding." See Op. at 28-29. Sheridan essentially argued the
opposite: he challenged the substantive power of bankruptcy courts
to discipline attorneys, but did not contest that the invocation of
that power, if valid, would be a core proceeding.
28
The principal opinion emphasizes Sheridan's citation to
Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S.
50 (1982), which it describes as "the seminal case regarding the
constitutional limitations which undergird the pivotal core/non-
core distinction." Op. at 16 (emphasis in original). There is no
doubt that the "core proceeding" concept reflects some of the
Article III issues discussed in the plurality opinion in Northern
Pipeline. But it is more than a stretch to say that Sheridan's
reference to that case amounts to an argument that the proceeding
below was non-core under § 157. Congress did not create the
core/non-core distinction until after Northern Pipeline, so the
citation alone hardly suffices to raise the issue.
More fundamentally, Northern Pipeline discussed at least five
ways in which the Bankruptcy Act of 1978 unconstitutionally vested
the "essential attributes" of judicial power in Article I
bankruptcy judges, only one of which was the fact that bankruptcy
judges were empowered to issue final orders that were binding and
enforceable. See 458 U.S. at 85-86. Significantly, another of the
"essential attributes" cited by the Northern Pipeline Court was the
power of bankruptcy judges to exercise "all ordinary powers of
district courts," including issuing extraordinary writs and orders.
Id. at 85. This -- and not the core/non-core distinction -- was
the proposition for which Sheridan cited Northern Pipeline.
Sheridan has consistently argued that under Northern Pipeline,
bankruptcy courts lack the "inherent power" that district courts
enjoy to discipline attorneys in the absence of statutory
authorization. As noted above, this is logically distinct from the
argument that bankruptcy courts can discipline attorneys but cannot
enter final orders.
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All of this, in my view, requires the conclusion that the
bankruptcy court's order was final and appealable. Sheridan was
plainly aware of the core/non-core distinction. He simply elected
not to assert the issue, perhaps for strategic reasons. Perhaps he
gambled that the bankruptcy judge's factual findings would be
favorable to him, hoping to benefit from a more favorable standard
of review on appeal. Perhaps he preferred to retain the option of
appealing to the Bankruptcy Appellate Panel, as he ultimately did.
Whatever his reasons, Sheridan abandoned any right he may have had
to de novo review in the district court by choosing not to object
to core treatment. See In re G.S.F., 938 F.2d at 1477; accord In
re Tex. Gen. Petroleum Corp., 52 F.3d at 1337; Abramowitz, 999 F.2d
at 1280; In re Johnson, 960 F.2d at 403-04; In re Daniels-Head, 819
F.2d at 919; In re Men's Sportswear, 834 F.2d at 1137-38. By
refusing to infer consent from Sheridan's conduct, the majority
simply encourages future bankruptcy litigants to game the system by
waiting until an adverse judgment before objecting to core
treatment. "Inferring consent in these circumstances . . . checks
the risk of gamesmanship by depriving parties of the luxury of
waiting for the outcome before denying the [bankruptcy judge's]
authority. Judicial efficiency is served; the Article III right is
substantially honored." Roell, 123 S. Ct. at 1703.
C. Waiver on Appeal
Sheridan's conduct on appeal, both in the BAP and before
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this court, provides further assurance that he consented to core
treatment. First, Sheridan elected to bring his appeal in the
Bankruptcy Appellate Panel rather than in the district court,
despite the fact that the BAP has no authority to review proposed
findings of fact or conclusions of law under § 157(c)(1). The
principal opinion dismisses this point, stating that Sheridan's
appeal was proper because the bankruptcy judge ostensibly entered
a final order. Op. at 16 n.8. That is true, but it does not
negate the inference of consent: although Sheridan had an absolute
statutory right to bring his appeal in the district court
irrespective of the core/non-core issue, see 28 U.S.C. § 158(c)(1),
and although the BAP notified Sheridan of that right in writing,
Sheridan nevertheless pursued his appeal in the BAP. If, as the
principal opinion contends, Sheridan had believed he was entitled
to de novo review in the district court, the obvious choice would
have been to invoke his right to appeal to the district court and
then to demand de novo review. His decision to appeal to the BAP
instead is strong evidence of his consent to core treatment. Cf.
Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 849-50
(1986) (plaintiff's election to forgo review in federal court and
seek relief instead in an Article I proceeding "constituted an
effective waiver" of Article III objections because the party had
the option of Article III adjudication but "chose to avail himself
of the quicker and less expensive procedure Congress had provided
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him").
Sheridan never argued to the BAP that the proceeding in
the bankruptcy court was non-core. He merely repeated his argument
about "inherent power" under Ex parte Burr. The BAP opinion makes
clear that the finality of the bankruptcy court's order was never
in dispute. See, e.g., In re Disciplinary Proceedings, 282 B.R.
79, 85 (B.A.P. 1st Cir. 2002) (referring to "final bankruptcy court
orders" and indicating that the bankruptcy court's factual findings
would be reviewed for clear error).
The final and most telling indication of Sheridan's
consent to core treatment came before this court. Invited by the
court to file a supplemental brief on the core/non-core question,
Sheridan expressly declined to argue that the disciplinary hearing
was non-core. His supplemental brief acknowledged the core/non-
core issue and even cited § 157(c)(1), the provision barring
bankruptcy judges from entering final orders in non-core
proceedings absent the consent of the parties. Nevertheless,
Sheridan refused to assert that the disciplinary proceeding was
non-core –- he stated simply that he "takes no position" on whether
the bankruptcy court order was final, and he urged this court to
provide prompt and clear guidance on the merits of his appeal
because his case had already been pending too long.29
29
The principal opinion emphasizes that before Sheridan stated
he "takes no position" on the core/non-core issue, he successfully
briefed the argument that the proceeding below was non-core. Op.
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II.
The second reason I cannot join the judgment is the
majority's extension of the LaGuardia/Weinstein exception to our
rules of waiver and forfeiture. See Op. at 17-19. The LaGuardia
exception is inapplicable on these facts, and by invoking it here,
the majority approves a novel and extremely unwise expansion of
that doctrine.
Under LaGuardia and its progeny, the court of appeals may
review de novo an argument that is raised for the first time on
appeal only if: (1) the argument involves a purely legal question
of constitutional import that can be resolved with certitude on the
existing record; (2) addressing the argument will promote judicial
economy because the same issue will arise in nearly identical terms
in other cases; and (3) the argument, if meritorious, would almost
certainly entitle the appellant to prevail, so that failing to
address it would result in a miscarriage of justice. See United
States v. LaGuardia, 902 F.2d 1010, 1013 (1st Cir. 1990); see also
Castillo v. Matesanz, 348 F.3d 1, 12 (1st Cir. 2003); In re
Weinstein, 164 F.3d 677, 685 (1st Cir. 1999); Sammartano v. Palmas
del Mar Props., Inc., 161 F.3d 96, 98-99 (1st Cir. 1998). Until
at 16 n.8. Of course he did –- the whole point of the supplemental
briefing was to address that argument, and Sheridan duly traced its
contours. Yet despite demonstrating that he knew how to make the
argument if he were so inclined, Sheridan expressly stated that he
"takes no position" on the matter. The principal opinion
attributes the argument to him anyway.
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today, LaGuardia provided a narrow exception to the raise-or-waive
rule, which this court ordinarily applies "with a near-religious
fervor." Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622, 627
(1st Cir. 1995). Cases qualifying for the exception, we have said,
are "few and far between." Id.
The majority's resort to LaGuardia on facts like these is
unprecedented in multiple respects. First, this court has never
invoked the LaGuardia exception when the party on whose behalf the
court would intervene has not actually raised the issue on appeal.
Here, not only did Sheridan fail to raise the core/non-core issue
on appeal, but he also explicitly declined to advocate the position
when asked.
In addition, the usual predicate conditions for invoking
LaGuardia are absent here. The core/non-core distinction is not a
matter of constitutional law or import, no more than any other
question of statutory interpretation under the Bankruptcy Code.30
30
The principal opinion insists that the core/non-core question
is a question of "constitutional import," presumably because
Congress created the core/non-core distinction in response to a
Supreme Court case predicated on Article III. Op. at 19 & n.10.
That argument is misplaced for two reasons. First, the fact that
a statutory scheme reflects considerations of constitutional law
does not elevate the statute itself to constitutional stature. We
do not say, for example, that service of process under Fed. R. Civ.
P. 4 is a question of constitutional dimensions, even though that
Rule was plainly written to comport with constitutional due process
concerns. Indeed, if the core/non-core issue is a matter of
constitutional law, so too is the rest of the Bankruptcy Code
insofar as it reflects Congress's judgment about how best to
implement its powers under the Bankruptcy Clause, U.S. Const. Art.
I, § 8, cl. 4.
-50-
Nor is the core/non-core determination "strictly a question of
law." LaGuardia, 902 F.2d at 1013. The principal opinion itself
recognizes that the core/non-core question in this case is not a
purely legal one -- the court does not hold that attorney
disciplinary proceedings are always non-core, but rather that the
proceeding was non-core "[i]n the particular circumstances of the
instant case." Op. at 5. And the core/non-core status of an
omnibus attorney disciplinary proceeding initiated by a bankruptcy
court is hardly a question that is "almost certain to be presented
in identical terms in other cases." LaGuardia, 902 F.2d at 1013.
Similarly, the merits of the core/non-core issue in this
case are neither "highly persuasive," Harwood, 69 F.3d at 628, nor
"so compelling as virtually to insure [the appellant's] success,"
Second, the core/non-core distinction is nothing like the
problems of constitutional law or import that have previously
served as a predicate for this court's resort to LaGuardia. See,
e.g., Castillo v. Matesanz, 348 F.3d 1, 11-16 (1st Cir. 2003)
(ineffective assistance of counsel under the Sixth Amendment); In
re Weinstein, 164 F.3d 677, 684-85 (1st Cir. 1999) (takings claim
under the Fifth Amendment); Nat'l Ass'n of Soc. Workers v. Harwood,
69 F.3d 622, 629 (1st Cir. 1995) (immunity of state legislature
from First Amendment claim under federal common law, by analogy to
the Speech and Debate Clause); United States v. Mercedes-Amparo,
980 F.3d 17, 19 (1st Cir. 1992) (due process concerns in
prosecutorial breach of plea bargain agreement). In the few cases
in which this court has invoked LaGuardia in the absence of a claim
based directly in constitutional law, we have done so to vindicate
a strong governmental interest of a kind not present here. See,
e.g., Chestnut v. City of Lowell, 305 F.3d 18, 21 (1st Cir. 2002)
(per curiam) (en banc) (relieving a city of punitive damages award
under City of Newport); In re 604 Columbus Ave Realty Trust, 968
F.3d 1332, 1343-44 (1st Cir. 1992) (permitting the FDIC to raise
special governmental defenses based on federal common law).
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Sammartano, 161 F.3d at 98-99; United States v. Slade, 980 F.2d 27,
31 (1st Cir. 1992). Sheridan has not advanced the core/non-core
argument at all, let alone advanced it in a "highly persuasive"
manner, and the principal opinion's reasoning is not "so
compelling" that the outcome is essentially predetermined. See
Correa v. Hosp. San Francisco, 69 F.3d 1184, 1196 (1st Cir. 1995)
(declining to invoke LaGuardia where the forfeited argument merely
advanced one of two possible constructions of a statute).
Lastly, this case does not meet the final criterion for
invoking LaGuardia: that if the issue were meritorious, failing to
reach it would constitute a "miscarriage of justice." 902 F.2d at
1013. It could hardly be a miscarriage of justice to reach the
merits of Sheridan's appeal given that both parties have urged us
to do so. If there is any miscarriage of justice in this case, it
is the disservice done to both sides in remanding this case for
another round of litigation below.
If LaGuardia can apply here, it can apply in any case in
which an appellate judge wishes to raise and decide an issue sua
sponte, no matter how compelling the evidence of waiver or
forfeiture and regardless of whether a party advocates that
position. I will not be surprised if this aspect of the court's
decision today is regretted by this court and the bar for years to
come.
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III.
Finally, I disagree with the majority's conclusion that
the proceeding against Sheridan was non-core. In my view, the only
interpretation of § 157 that is consistent with the purposes of the
federal bankruptcy laws and Congress's intent in the 1984
bankruptcy amendments is that the disciplinary proceeding against
Sheridan, which arose out of misconduct occurring in indisputably
core proceedings, constituted a core proceeding.
A. Interpretation of 28 U.S.C. § 157
1. Plain text of § 157
Whether the disciplinary proceeding against Sheridan was
a "core proceeding" under 28 U.S.C. § 157 is a matter of statutory
construction. The plain text of § 157 makes no explicit reference
to attorney discipline, sanctions, contempt, or anything similar,
just as it fails to describe other proceedings that courts have
recognized as core.31 Nor is the statutory term "core proceeding"
self-defining.
Nevertheless, the principal opinion purports to find
support in the text of § 157. It discusses the various categories
of core proceedings in § 157(b)(2), emphasizing that "each of the
enumerated matters relates to a function essential to the
31
See generally 1 Collier on Bankruptcy § 3.02[3] (rev. 15th
ed. 2003) (listing examples of proceedings recognized as "core"
even though they do not fall within the express terms of § 157(b)).
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administration of the bankruptcy case." Op. at 21. The proceeding
against Sheridan, the principal opinion contends, was different:
it did not arise in any single bankruptcy case, so there was no
relevant "case" to administer. Accordingly, it must have been non-
core. This is an expressio unius rationale: Congress provided a
list of core proceeding categories in § 157(b); that list does not
include omnibus attorney disciplinary hearings or similar
proceedings spanning multiple bankruptcy cases; therefore Congress
meant to exclude such proceedings from "core" treatment.
This is flawed logic. As the Supreme Court reiterated
last Term, the expressio unius canon applies only when the
statutory list in question "justif[ies] the inference that items
not mentioned were excluded by deliberate choice." Barnhart v.
Peabody Coal Co., 537 U.S. 149, 168 (2003). No such inference is
possible here. It is true that Congress, in drafting the
categories of core proceedings in § 157(b)(2), referred to "the
estate" (i.e., in the singular), but that choice of words merely
reflects the reality that the vast majority of bankruptcy
proceedings pertain to a single debtor. Nothing in the statute
says a proceeding is non-core if it involves more than one estate,
and Congress knew how to exclude matters from § 157(b) when it
wished to do so. See, e.g., § 157(b)(2)(O) (excluding personal
injury and wrongful death claims from core treatment). The
clincher is that Congress specifically provided that the list of
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examples in § 157(b)(2) is not exhaustive. See 28 U.S.C.
§ 157(b)(2) (core proceedings "are not limited to" the listed
categories); see also 1 Collier on Bankruptcy, supra, § 3.02[3]
("It should be emphasized at the outset that section 157(b)(2) is
not limiting . . . .").
This brings us back to where we started. The underlying
question on the merits of the core/non-core issue is this:
whether, in light of the structure and purpose of the core/non-core
distinction and the Bankruptcy Code as a whole, § 157(b)(2) should
be interpreted to embrace disciplinary proceedings like Sheridan's.
See In re Hart, 328 F.3d 45, 48 (1st Cir. 2003). The principal
opinion undertakes no such analysis.
2. Background to the 1984 Bankruptcy Amendments
In fact, there is every reason to believe that Congress
wanted and expected bankruptcy judges to enforce the professional
responsibilities of bankruptcy attorneys through final and binding
orders where the misconduct in question occurred in a core
bankruptcy proceeding or proceedings.32 In 1984, when Congress
32
Long before Northern Pipeline and Congress's 1984 enactment
of § 157, the Supreme Court recognized that a court's power to
regulate the conduct of the bar, including the power to suspend and
disbar attorneys, is essential to the administration of justice and
the protection of the public. See, e.g., Roadway Express, Inc. v.
Piper, 447 U.S. 752, 764-67 (1980); Theard v. United States, 354
U.S. 278, 281 (1957); Ex parte Bradley, 74 U.S. 364, 374 (1868); Ex
parte Garland, 71 U.S. (4 Wall.) 333, 378-79 (1867); Ex parte Burr,
22 U.S. (9 Wheat.) 529, 531 (1824); see also In re Snyder, 472 U.S.
634, 643-45 (1985) ("Courts have long recognized an inherent
authority to suspend or disbar lawyers.").
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amended the Bankruptcy Code to create the core/non-core
distinction, the case law available to Congress provided no reason
to think that bankruptcy courts' status as Article I tribunals
would bar them from entering final disciplinary orders. In 1926,
the Supreme Court itself held in Goldsmith v. U.S. Bd. of Tax
Appeals, 270 U.S. 117 (1926), that the U.S. Board of Tax Appeals,
an Article I tribunal, possessed the authority not only to
promulgate ethical rules for admitting attorneys to practice, but
also to disbar attorneys who failed to meet those standards. See
id. at 121-22 (emphasizing, in holding that the Board possessed
this power, "the character of the work to be done by the board, the
quasi judicial nature of its duties, [and] the magnitude of the
interests to be affected by its decisions"). The Court explicitly
rejected the contention that such a tribunal cannot disbar or
discipline lawyers absent express statutory authority, observing
that the power of the Board to do so is "so necessary . . . and so
usual" that the statute creating it would be interpreted to include
that power. Id. at 122.
Furthermore, Congress knew that federal courts before
1984 had upheld the power of other Article I tribunals to issue
binding disciplinary orders against counsel appearing before them.
See, e.g., Kivitz v. SEC, 475 F.2d 956, 962 (D.C. Cir. 1973) (power
of SEC to disbar attorney for ethical misconduct); Herman v.
Dulles, 205 F.2d 715, 715-16 (D.C. Cir. 1953) (similar,
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International Claims Commission); Francis v. Virgin Islands, 11
F.2d 860, 864 (3d Cir. 1926) (upholding the contempt powers of the
U.S. District Court for the Virgin Islands); Fleming v. United
States, 279 F. 613, 616 (9th Cir. 1922) (similar, United States
Court for China). Consistent with this line of cases, some courts
had by 1984 already upheld the authority of bankruptcy courts to
discipline attorneys for unethical conduct in bankruptcy cases. As
early as 1979, for example, the Second Circuit described as
"nothing novel" the proposition that a debtor's counsel could be
sanctioned for breaching his ethical responsibilities to the
bankruptcy court. See In re Arlan's Dep't Stores, Inc., 615 F.2d
925, 943-44 (2d Cir. 1979).
Congress enacted the 1984 bankruptcy amendments against
this background. Nothing in the 1984 Act or its legislative
history suggests that Congress intended to deny bankruptcy judges
the authority to regulate the bankruptcy bar. On the contrary,
this court has held that Congress's purpose in the 1984 amendments
was to press the jurisdiction of the bankruptcy courts "to its
constitutional bounds" in the wake of Northern Pipeline. See In re
Arnold Print Works, Inc., 815 F.2d 165, 168 (1st Cir. 1987)
(Breyer, J.). The congressional sponsors of the 1984 amendments
described non-core proceedings as "Marathon-type" cases, referring
to the Northern Pipeline decision, and they understood that
category to be "very limited." Id. Accordingly, this court
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concluded that "Congress intended that 'core proceedings' would be
interpreted broadly, close to or congruent with constitutional
limits." Id.
3. Article III and attorney discipline
Congress had no reason to think that Article III is
offended when a bankruptcy court enters a binding order against a
bankruptcy attorney for professional misconduct in a core
bankruptcy proceeding. Even the principal opinion does not so
contend. Indeed, less than a year after its decision in Northern
Pipeline, the Supreme Court emphasized the limits of its holding:
"The Court's holding in that case establishes only that Congress
may not vest in a non-Article III court the power to adjudicate,
render final judgment, and issue binding orders in a traditional
contract action arising under state law, without consent of the
litigants, and subject only to ordinary appellate review." Thomas
v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 584 (1985)
(emphasis added).33
The proceeding at issue in Sheridan's case is
fundamentally different from a traditional common-law cause of
33
The Supreme Court endorsed this narrow reading of Northern
Pipeline again the following year, repeatedly citing that case for
the proposition that Congress's power to assign matters to non-
Article III tribunals is constrained "where private, common law
rights are at stake." Schor, 478 U.S. at 854; see also id. (noting
that "private, common law rights were historically the types of
matters subject to resolution by Article III courts," citing
Northern Pipeline).
-58-
action. The privilege to practice law, including the privilege to
practice before a federal tribunal, is a matter of public license.
See In re Snyder, 472 U.S. 634, 644 (1985). It is well-settled
that courts have the authority to revoke that license where
necessary to protect the public. See id.; In re Ruffalo, 390 U.S.
544, 550 (1968); Theard v. United States, 354 U.S. 278, 281 (1957);
Ex parte Wall, 107 U.S. 265, 288-89 (1882). Further, a
disciplinary proceeding is a matter between the court and the
attorney only; no right to a jury trial attaches. See Ex parte
Wall, 107 U.S. at 288. It is akin to the enforcement of a "public
right," and as then-Judge Breyer noted for this court in Arnold
Print Works, the Supreme Court in Northern Pipeline found nothing
unconstitutional in a bankruptcy judge issuing dispositive orders
in such cases. See 815 F.2d at 170.
4. Purposes of the Bankruptcy Code
Nor is there any reason to infer from the overarching
purposes of the Bankruptcy Code that Congress wanted to limit
bankruptcy judges' power to issue final and binding orders
disbarring, suspending, or otherwise disciplining attorneys who act
unethically in core proceedings. On the contrary, the need to
maintain attorney discipline and enforce the rules of professional
responsibility is, if anything, stronger in the bankruptcy context,
where considerations of speed and cost-effectiveness are paramount:
A sine qua non in restructuring the debtor-creditor
relationship is the court's ability to police the
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fiduciaries . . . who are responsible for managing the
debtor's estate in the best interest of creditors. The
bankruptcy court must be able to assure itself and the
creditors who rely on the process that court-approved
managers of the debtor's estate are performing their
work, conscientiously and cost-effectively.
In re Southmark Corp., 163 F.3d 925, 931 (5th Cir. 1999) (holding
that a professional malpractice claim by a Chapter 11 debtor
against a court-appointed accountant was a core proceeding).
Bankruptcy courts are charged with the rehabilitation of
financially distressed debtors and the reorganization or
liquidation of their assets, often under the press of time because
of the threat of financial loss. In re McLean Indus., 68 B.R. 690,
695 (Bankr. S.D.N.Y. 1986); see also United States v. Mourad, 289
F.3d 174, 179 (1st Cir. 2002) (observing that the power to regulate
attorney behavior is necessary "if the bankruptcy courts are to
carry out efficiently and effectively the duties assigned to them
by Congress" (quoting In re Volpert, 110 F.3d 494, 500 (7th Cir.
1997))). Involving the district court in such disciplinary matters
would "unduly burden the already complex and congested calendars of
the district courts, and undermine the reasons for the district
court's reference of Code cases to the bankruptcy courts." In re
McLean Indus., 68 B.R. at 696; see also In re Mem'l Estates, Inc.,
116 B.R. 108, 112 (N.D. Ill. 1990) (imposition of sanctions must be
a core proceeding because "any other interpretation would seriously
hamper the bankruptcy court in its administration of the estate and
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would provide additional methods of multiplying litigation for
those seeking to hinder and delay the proceedings in the bankruptcy
court").
Congress, moreover, must have been aware that problems of
attorney discipline are particularly acute in the consumer
bankruptcy area, see In re Bruzzese, 214 B.R. 444, 450-51 (Bankr.
E.D.N.Y. 1997), such as the Chapter 13 proceedings in which
Sheridan specialized. Consumer debtors, like those whom Sheridan
represented, rarely have the resources or sophistication to bring
tort claims for legal malpractice. Indeed, because of the high
volume of consumer bankruptcy filings and the speed at which
bankruptcy courts must process such petitions, many consumer
debtors "never discover that their attorneys have committed
malpractice." Id. at 450. Direct discipline by the bankruptcy
court may be the only feasible means in many cases of protecting
debtors and ensuring the ethical conduct of the consumer bankruptcy
bar in core proceedings. For this reason, "[b]ankruptcy judges are
expected by Congress, the public, the appointing courts of appeals,
and the leadership of the bar to maintain high standards of
performance by all lawyers appearing before them. This is 'part of
the job description.'" Id. at 450-51.
5. "Core comes from core"
I do not contend that Congress intended all attorney
disciplinary proceedings in the bankruptcy courts to be core
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proceedings, regardless of how they arise. There are situations in
which the justifications for permitting bankruptcy judges to issue
binding disciplinary orders are less compelling –- for example,
when an attorney acts unethically in a non-core proceeding in which
the parties have refused to consent to the entry of a final order
on the merits. In such cases, the bankruptcy court must recommend
findings of fact and conclusions of law to the district court in
any event; there is little reason to treat the disciplinary issues
alone as within the bankruptcy court's core powers.
As to unethical conduct in core proceedings, however,
Congress's purposes in the Bankruptcy Code are much better served
by a rule that permits bankruptcy judges to issue final and binding
disciplinary orders directly, without resort to the district court
but with normal rights to appeal. In fact, there is a widely
accepted rule in attorney discipline cases that "core comes from
core" -- that is, disciplinary hearings arising out of core
proceedings are themselves core proceedings. See, e.g., Memorial
Estates, 950 F.2d at 1370; In re O'Connor, 2001 WL 1335883, at *1
(N.D. Tex. 2001); In re French Bourekas, Inc., 183 B.R. 695, 696
(Bankr. S.D.N.Y. 1995) ("[T]he power to sanction parties for
conduct in a core matter is itself core."), aff'd, 195 B.R. 19
(S.D.N.Y. 1996); In re VIII S. Mich. Assocs., No. 94C 5593, 1994 WL
698489, at *5 (N.D. Ill. 1994); Fed. Sav. & Loan Ins. Corp. v.
Sutherlin, 109 B.R. 700, 703 (E.D. La. 1989); In re Usoskin, 61
-62-
B.R. 869, 872 (Bankr. E.D.N.Y. 1986); In re Emergency Beacon Corp.,
52 B.R. 979, 987 (Bankr. S.D.N.Y. 1985), aff'd, 790 F.2d 285 (2d
Cir. 1986); see also In re Monarch Capital Corp., 173 B.R. 31, 35-
39 (D. Mass. 1994) (contempt proceeding against debtor's attorneys
was core because the contempt occurred in a core proceeding).
The "core comes from core" rule also makes practical
sense. One chief functional difference between a core proceeding
and a non-core proceeding is the deference accorded to the
bankruptcy court's findings of fact. Compare Fed. R. Bankr. P.
8013 (review of core proceedings), with Fed. R. Bankr. P. 9033(d)
(review of non-core proceedings); see generally In re Delta
Petroleum (P.R.), Ltd., 193 B.R. 99, 106 (D.P.R. 1996). In a core
proceeding, the bankruptcy judge is empowered to make factual
findings on the merits and to have those findings reviewed only for
clear error. No useful purpose is served by denying the bankruptcy
court the power to make equally authoritative findings of fact
about the conduct of the very attorneys who appear before it. "If
the bankruptcy courts are to administer 'the restructuring of
debtor-creditor relations, which is at the core of the federal
bankruptcy power,' they must also have the power to sanction
parties that interfere with such administration." In re Emergency
Beacon Corp., 52 B.R. at 987.
Under the "core comes from core" principle, the
proceeding against Sheridan was plainly a core proceeding. The
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overwhelming majority of the ethical violations of which Sheridan
was accused occurred in core proceedings. The bankruptcy court
found that Sheridan committed at least 83 ethical violations over
33 separate bankruptcy cases.34 It is clear from the record that
at least 80 of those 83 violations, accounting for fully 31 of the
33 cases, occurred in core proceedings (specifically, proceedings
to propose, file, modify, and confirm Chapter 13 plans).35 Further,
there has been no showing that the remaining three instances of
misconduct occurred in non-core proceedings; rather, it is simply
impossible to tell from the record whether those proceedings were
also core. As a result, the only impediment to applying the "core
comes from core" rule in this case is a set of 3 ethical violations
in proceedings whose core/non-core status is unknown. Even
assuming that those violations (which accounted for less than
1/20th of the charges against Sheridan) occurred in non-core
proceedings, there is no reason to think that they materially
34
In addition, the court determined that Sheridan committed
five violations in the disciplinary proceeding itself, bringing the
total to 88 violations in 34 cases.
35
The vast majority of Sheridan's infractions involved failing
to file certificates of service for his clients' Chapter 13 plans
(17 times in 16 cases); failing to file documents or motions
related to his clients' Chapter 13 petitions in a timely manner (39
times in 28 cases); and failing to appear or appearing late at
court hearings (8 occasions) and § 341 meetings (3 occasions)
related to Chapter 13 petitions. Matters concerning the
confirmation of a debtor's plan for reorganization, including
Chapter 13 plans, are core proceedings. See 28 U.S.C.
§ 157(b)(2)(L).
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affected the bankruptcy court's choice of sanction. Cf. Sheridan,
2001 WL 1757058, at *23 (declaring that the evidence at trial
"clearly establishes" that Sheridan is not professionally
competent).
6. Summary
The court's constrained reading of § 157 contradicts
Congress's intent in the 1984 amendments, which was not to shrink
the powers of the bankruptcy courts but to extend them to their
jurisdictional limits in the wake of Northern Pipeline. In light
of the open-ended statutory text of § 157; the clear congressional
intent that courts should interpret the term "core proceeding"
broadly; the binding precedent in our own circuit commanding that
we do so; the absence of relevant constitutional constraints; the
legitimate functional need for bankruptcy courts to have "core"
jurisdiction over attorney misconduct arising in core proceedings;
and the broadly accepted rule that "core comes from core," I think
we would be obliged to hold, were the issue properly presented,
that the disciplinary proceeding against Sheridan was a "core
proceeding" under § 157.
B. The Principal Opinion's Four Distinguishing Factors
The principal opinion reserves the question of whether
attorney disciplinary proceedings may ever enjoy core status,
holding instead that Sheridan's case is distinguishable on four
grounds: (1) the disciplinary proceeding against Sheridan did not
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take place in the context of an ongoing bankruptcy case, but rather
was an "omnibus" proceeding spanning multiple cases; (2) the rule
of decision in Sheridan's disciplinary proceeding came from state-
law ethics rules, rather than federal law; (3) any potential effect
on a closed bankruptcy case is remote and speculative; and (4) the
bankruptcy court's disciplinary order was "extreme" relative to
Sheridan's misconduct. See Op. at 31-32. Not one of these grounds
is valid basis for distinguishing this case.
1. Omnibus vs. individual disciplinary proceedings
The principal opinion first argues that Sheridan's case
merits different treatment because it was an "omnibus" disciplinary
investigation -- that is, because the bankruptcy court consolidated
the ethical issues arising in multiple, independent bankruptcy
cases into a single disciplinary hearing.
This objection is without merit. Nothing in § 157
restricts core proceedings to proceedings that concern a single
bankruptcy case, and the principal opinion cites no authority for
its suggestion that § 157(b) should be interpreted so narrowly.
Compare Arnold Print Works, 815 F.2d at 168. There is no
functional reason to discourage bankruptcy courts from combining
disciplinary issues spanning multiple bankruptcy cases into a
single proceeding for expeditious administration. Normally this
court encourages and respects the efforts of lower courts to manage
their dockets efficiently. In re Atlantic Pipe Corp., 304 F.3d
-66-
135, 143-45 (1st Cir. 2002); A.M. Capen's Co., Inc. v. Am. Trading
& Prod. Corp., 202 F.3d 469, 472 n.4 (1st Cir. 2000); Rosario-Diaz
v. Gonzalez, 140 F.3d 312, 315 (1st Cir. 1998). Moreover, attorney
discipline in the federal courts outside of the bankruptcy context
is frequently imposed in "omnibus" proceedings. See, e.g., United
States v. Johnson, 327 F.3d 554, 558, 561-62 (7th Cir. 2003); In re
Smith, 76 F.3d 335, 336 (10th Cir. 1996) (per curiam). Surely
Congress would not have wanted the bankruptcy judge to hold 30
separate disciplinary hearings before entering a binding sanctions
order against Sheridan.
The case law confirms that "omnibus" disciplinary
hearings in the bankruptcy courts are generally treated as core
proceedings. For example, the Fifth Circuit in 1999 affirmed a
four-year suspension imposed by a bankruptcy court in a proceeding
that involved evidence of misconduct in three separate bankruptcy
cases. See In re Dragoo, 219 B.R. 460, 465-68 (Bankr. N.D. Tex.
1998), aff'd, 186 F.3d 614 (5th Cir. 1999). The court of appeals
did not take issue with the bankruptcy court's express entry of a
final order under Fed. R. Bankr. P. 7052.36 See 219 B.R. at 468
n.2. See also In re Melendez, 235 B.R. 173, 181-82, 201-04 (Bankr.
D. Mass. 1999) (imposing sanctions in an omnibus disciplinary
36
Bankruptcy Rule 7052 makes Fed. R. Civ. P. 52 applicable to
bankruptcy proceedings. An order entered under Rule 7052 is a
final judgment. See Fed. R. Civ. P. 52(a); see also In re Werthen,
329 F.3d 269, 272 (1st Cir. 2003) (findings of fact under
Bankruptcy Rule 7052 are reviewed for clear error).
-67-
hearing initiated sua sponte by the bankruptcy court against
several debtors' attorneys for inadequate representation of their
respective clients, and expressly entering its findings under
Bankruptcy Rule 7052); In re Nesom, 76 B.R. 101, 102 & n.1 (Bankr.
N.D. Tex. 1987) (suspending an attorney for misconduct in two
bankruptcy cases after a sua sponte disciplinary hearing by the
court, and expressly terming the proceeding core).
The principal opinion's objection to consolidated
disciplinary proceedings also makes little sense in light of the
rules of evidence. By the principal opinion's reasoning, the
bankruptcy court in Sheridan's case could simply have framed its
hearing as an investigation into Sheridan's misconduct in a single
bankruptcy case, then admitted evidence of Sheridan's misconduct in
other cases under Fed. R. Evid. 404(b) and entered a final order on
that basis. See In re Ludwick, 185 B.R. 238, 242-47 (Bankr. W.D.
Mich. 1995) (en banc) (following this approach in suspending a
bankruptcy attorney from practice for two years); see also id. at
239 (determining that the hearing was a core proceeding). It
elevates form over substance to hold that the functionally
equivalent approach selected by the bankruptcy court in this case
rendered the proceeding non-core.37
37
For similar reasons, there is no justification for the
principal opinion's suggestion that the power of a bankruptcy judge
to enter binding disciplinary orders should depend on whether the
bankruptcy judge personally witnesses the attorney's misconduct.
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2. Source of law
The principal opinion next argues that the proceeding
against Sheridan should be characterized as non-core because the
underlying substantive ethics rules "derive . . . from state law."
Op. at 24-25. That is flatly wrong. The rules of attorney conduct
in federal court are federal law, not state law. The Supreme Court
so held in In re Snyder, in which the court of appeals had asserted
that an attorney's ethical obligations in federal court are defined
by state law. The Supreme Court disagreed: "The state code of
professional responsibility does not by its own terms apply to
sanctions in the federal courts. Federal courts admit and suspend
attorneys as an exercise of their inherent power; the standards
imposed are a matter of federal law." 472 U.S. at 645 n.6
(emphasis added); see also In re Larry's Apartment, L.L.C., 249
F.3d 832, 837-38 (9th Cir. 2001) (federal law, not state law,
governs the imposition of sanctions in federal bankruptcy cases).
This case did not involve a "state law claim that could exist
outside of bankruptcy." In re ACI-HDT Supply Co., 205 B.R. 231,
236 (B.A.P. 9th Cir. 1997). Rather, it involved a federal
bankruptcy judge's enforcement of federal standards of conduct
against an attorney who practiced in the federal bankruptcy courts.
In any event, the focus on the source of the applicable
law is beside the point. As this court held in Arnold Print Works,
"[i]t is the nature of the proceeding –- its relation to the basic
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function of the bankruptcy court –- not the state or federal basis
for the claim, that makes the difference here." 815 F.2d at 169
(emphasis added).
3. Closed cases
The principal opinion also attempts to distinguish the
proceeding against Sheridan on the grounds that much of the charged
misconduct occurred in now-closed bankruptcy cases,38 so that any
remedy ordered by the bankruptcy court is unlikely to concern the
administration of those clients' estates. Therefore, the principal
opinion argues, the proceeding cannot be core because it neither
"concern[s] the administration of [an] estate," § 157(b)(2)(A), nor
"affect[s] the liquidation of the assets of [an] estate,"
§ 157(b)(2)(O).
This, too, is unpersuasive. The bankruptcy court's
imposition of sanctions on Sheridan did in fact "concern[] the
administration of the estate" in each of the underlying bankruptcy
cases within the meaning of § 157(b)(2)(A). That section
conspicuously does not require that the proceeding in question
contemporaneously affect the ongoing administration of the estate;
38
Neither the principal opinion nor the concurring opinion
acknowledges that several of the underlying bankruptcy cases were
still pending at the time the disciplinary proceeding against
Sheridan was instituted in October 2000. Indeed, several of the
instances of misconduct proven during the bench trial occurred as
late as November 2000, after the disciplinary proceedings had
begun. At least in these cases, the disciplinary action against
Sheridan was literally a "matter[] concerning the administration of
the estate." § 157(b)(2)(A).
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the matter must simply "concern[]" the administration of the
estate. Compare § 157(b)(2)(O) (core proceedings include "other
proceedings affecting . . . the debtor-creditor . . . relationship"
(emphasis added)). And the imposition of sanctions against the
debtor's attorney necessarily "concern[s]" the administration of
the debtor's estate because, in a Chapter 13 case, the debtor's
attorney is paid with funds from the estate in an amount "based on
a consideration of the benefit . . . of [the attorney's] services
to the debtor." 11 U.S.C. § 330(a)(4)(B); see also id.
§ 503(b)(2) (authorizing payments to attorneys under § 330(a) as
"administrative expenses" of the estate); cf. Delta Petroleum, 193
B.R. at 106 (disputes over the appointment and compensation of
attorneys are core proceedings because they concern the
administration of the estate).
The majority's rule would require a bankruptcy court even
in a single core proceeding to interrupt its adjudication of the
debtor's petition to decide, then and there, an attorney
disciplinary matter. It would preclude the court, on penalty of
converting the proceeding from core to non-core, from waiting to
deal with the attorney until after it had dealt with debtor's and
creditors' arguments. That priority is backwards.
Moreover, even in the majority's terms, the order
sanctioning Sheridan "concern[ed]" the administration of the
underlying estates because it provided a clear basis for re-opening
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those cases, which the bankruptcy court may do whenever it finds
"cause." See 11 U.S.C. § 350(b) ("A case may be reopened . . . to
administer assets, to accord relief to the debtor, or for other
cause."). The principal opinion characterizes the possibility of
reopening the underlying cases as "remote and overly speculative."
Op. at 31. But at least one bankruptcy court has reopened a case
"for cause" due to evidence of ineffective representation by the
debtor's counsel. See Bruzzese, 214 B.R. at 449-50. Moreover,
there is no warrant in § 157(b)(2) for insisting on proof that a
proceeding will alter the administration of the estate; the statute
requires only that the proceeding "concern[]" its administration.
The narrower reading is contrary to this court's conclusion in
Arnold Print Works that Congress intended the term "core
proceeding" to be interpreted expansively.
Lastly, there is no independent problem with imposing
sanctions on an attorney for misconduct that occurred in a since-
closed case. Disciplinary proceedings against attorneys do not
depend on the continued pendency of the underlying action and can
be imposed long after a judgment on the merits. See Chambers v.
NASCO, Inc., 501 U.S. 32, 56 (1991); Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 396 (1990). This has been the rule in
bankruptcy cases as well. See In re Hasan, 287 B.R. 308, 311-12
(Bankr. D. Conn. 2002) (collecting cases); see also In re Rambo,
209 B.R. 527, 528-29 (B.A.P. 10th Cir. 1997) (dismissal of
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underlying Chapter 13 case did not affect BAP's jurisdiction to
decide appeal of sanctions order); In re Balboa Improvements, Ltd.,
99 B.R. 966 (B.A.P. 9th Cir. 1989) (similar).
4. "Extreme" nature of the sanction
Finally, the principal opinion cites the "extreme" nature
of the sanction imposed on Sheridan as a justification for holding
that the proceeding against him was not core. Op. at 31-32. This
conflates the core/non-core question with the merits of Sheridan's
appeal. Whether the bankruptcy court's chosen sanction was
"extreme" has nothing to do with whether it had the statutory
authority to enter a binding order embodying that sanction.
Suspensions and disbarments are severe sanctions that merit close
review. But that review should have been done here.
IV.
For the foregoing reasons, I respectfully dissent.
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