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Disciplinary Costs Survive Bankruptcy Filing

After the New Hampshire Supreme Court disbarred lawyer William Richmond and ordered him to reimburse the state's Committee on Professional Conduct for the costs of bringing disciplinary proceedings against him, Richmond filed for bankruptcy and argued that the cost assessment should be discharged. Both the bankruptcy court and the district court disagreed with him, ruling that the assessment was not a debt that could be discharged under the bankruptcy law. In an opinion issued Friday, Richmond v. New Hampshire Supreme Court Committee on Professional Conduct, the 1st U.S. Circuit Court of Appeals sided with the two lower courts.

The issue before the court was whether the assessment fell under Bankruptcy Code section 523(a)(7), which exempts from discharge any "fine, penalty or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss." Richmond contended that this exemption did not cover the assessment of costs for two reasons. First, it was not a "fine, penalty or forfeiture" but more like an award of costs to a prevailing party under fee-shifting statutes. Second, the assessment was meant to cover the government's "actual pecuniary loss" in bringing the disciplinary action against him.

The 1st Circuit disagreed on both points. As to the first, the court said that the discretionary nature of the cost assessments indicates that they should be viewed as penalties. "While Richmond believes that the costs are awarded in a perfunctory manner, the New Hampshire Supreme Court has stated on several occasions that the cost assessments are viewed as part of the sanction." As to the second point, the court said that while the cost award might "resemble" compensation for actual loss, when viewed in context, the assessment's purpose is to serve as a sanction. "[C]ost assessments serve both to deter attorney misconduct and to help rehabilitate wayward attorneys."

Admitted to practice in New Hampshire in 1996, Richmond was twice the subject of disciplinary petitions there. The first, filed in March 2003, resulted in the Supreme Court suspending him for six months and ordering him to pay $13,776.19 for "the costs of investigating and prosecuting" the matter. A second petition filed in November 2003 resulted in his disbarment and a second order to reimburse the conduct committee for the investigation and prosecution.

Posted by Robert J. Ambrogi on September 22, 2008 at 12:01 PM | Permalink | Comments (0)


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