Disciplinary Cost Assessment Not Dischargeable in Bankruptcy

Richmond v. New Hampshire Supreme Court Committee on Professional Conduct, 542 F.3d 913 (1st Cir. 2008)

Brief Summary
Discretionary cost assessments levied against attorneys in disciplinary proceedings are not dischargeable in bankruptcy.

Complete Summary
In 2003 the New Hampshire Supreme Court disciplined attorney William Richmond twice. Richmond was disbarred for the second incident. On both occasions, the court ordered Richmond to reimburse the Committee on Professional Conduct for the costs associated with these proceedings.

Richmond filed for bankruptcy while the second proceeding was pending. The Committee argued in bankruptcy court that under 11 U.S.C. § 523(a)(7), the cost assessments against Richmond could not be discharged. The bankruptcy court and the district court agreed, and the First Circuit affirmed.

Under 11 U.S.C. § 523(a)(7) any “fine, penalty or forfeiture to and for the benefit of a governmental unit, [which] is not compensation for actual pecuniary loss[,]” is non-dischargeable. Thus the primary issues were: (1) whether the cost assessment was a “fine, penalty or forfeiture,” and (2) whether the cost assessment was “compensation for actual pecuniary loss.”

The First Circuit held that the cost assessment was equivalent to a penalty because such assessments are discretionary. Specifically “[a]ll expenses incurred by the committee and by bar counsel . . . may, in whole or in part, be assessed to a disciplined attorney to the extent appropriate.” Richmond, 542 F.3d at 916 (quoting N.H. Sup. Ct. R. 37(16)) (emphasis added). Based on New Hampshire precedent, the court found that discretionary assessments were to be levied in order to sanction (i.e. “penalize”) attorneys.

The First Circuit also held that the cost assessment was not co mpensation for actual pecuniary loss based on Kelly v. Robinson, 479 U.S. 36 (1986). In Kelly, the Supreme Court held that a restitution order in a criminal proceeding, despite being literally compensatory, served the primary goals of the criminal justice system ¿ deterrence and rehabilitation - and was therefore non-dischargeable. Using this reasoning, the First Circuit held that because the Committee was concerned not with recouping its litigation costs but with deterring unprofessional conduct, the cost allocation was not compensatory and was therefore non-dischargeable.

Significance of Opinion
This opinion demonstrates a judicial unwillingness to let disbarred attorneys off the financial hook.