The State Bar of California suspended one of its members for misconduct. It conditioned her reinstatement on the payment of court-ordered discovery sanctions and costs associated with its disciplinary proceedings. Rather than pay the two fees, the suspended attorney sought to discharge them in bankruptcy.
“Our court has already addressed whether a debtor may discharge the costs of the State Bar’s attorney disciplinary proceedings imposed under California Business and Professions Code §6086.10. The clear answer is no.” The costs of State Bar attorney disciplinary proceedings are non-dischargeable based on their punitive and rehabilitative nature. “California law classifies these costs as penalties, payable to and for the benefit of the State Bar of California, a public corporation created pursuant to Article VI of the California Constitution, to promote rehabilitation and to protect the public.” Hence, such costs were not compensatory to the State Bar but rather “disciplinary costs” imposed only for “misconduct that merits public reproval, suspension or disbarment.”
With respect to discovery sanctions, on the other hand:
The Bankruptcy Code “expressly requires three elements for a debt to be non-dischargeable. The debt must (1) be a fine, penalty, or forfeiture; (2) be payable to and for the benefit of a governmental unit; and (3) not constitute compensation for actual pecuniary costs. Here, the discovery sanctions plainly do not satisfy the last two of these elements and, thus, are not excepted from discharge.
“California law authorizes the award of sanctions for the misuse of the discovery process. A court may impose a monetary sanction ordering that one engaging in the misuse of the discovery process, or any attorney advising that conduct, or both pay the reasonable expenses, including attorney’s fees, incurred by anyone as a result of that conduct.
“By its terms, the law does not provide for the sanctions to be paid to the court or any other governmental entity, but to ‘anyone’ incurring an expense as a result of discovery abuse. Here, Albert was ordered to pay the discovery sanctions to Plaintiff 10675 S. Orange Park Boulevard, LLC. Orange Park Boulevard is not a governmental unit, nor was the sanction for the benefit of a governmental unit.
“Furthermore, the discovery sanctions also constitute compensation for actual pecuniary costs. The sanctions are only available to pay the reasonable expenses, including attorney’s fees, incurred. Thus, the discovery sanctions enforce compliance with discovery procedures by assessing the costs of compelling compliance against the defaulting party. Here, the California superior court ordered the sanctions to reflect the costs Orange Park Boulevard incurred responding to Koshak and Albert’s misuse of the discovery process. Accordingly, the discovery sanctions were commensurate with Orange Park Boulevard’s expenses to litigate the discovery motions against Albert’s former client and, thus, were ‘compensatory’.”
In re Albert-Sheridan, 960 F.3d 1188 (9th Cir. 2020).