PRICE v. LEHTINEN ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: PATRICIA ANN 
LEHTINEN,
Debtor,
No. 05-17421
JIM G. PRICE
Appellant,  BAP No.
NC-04-01534-BMaS
v.
OPINION
PATRICIA ANN LEHTINEN; MARTHA
BRONITSKY, Chapter 13 Standing
Trustee; UNITED STATES TRUSTEE,
Appellees.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Brandt, Marlar, and Smith, Bankruptcy Judges, Presiding
Submitted February 12, 2009*
San Francisco, California
Filed April 28, 2009
Before: Dorothy W. Nelson, William A. Fletcher and
Richard C. Tallman, Circuit Judges.
Opinion by Judge D.W. Nelson
*The panel unanimously finds this case suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).
4975
4978 IN THE MATTER OF LEHTINEN
COUNSEL
Jim Price, Brentwood, California, for the appellant.
OPINION
D.W. NELSON, Circuit Judge:
Appellant Jim Price appeals the Bankruptcy Appellate
Panel’s (“BAP”) decision affirming the bankruptcy court’s
order suspending him. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In October or November 2003, debtor Patricia Lehtinen
(“debtor”) retained Jim Price to represent her in a chapter 13
IN THE MATTER OF LEHTINEN 4979
proceeding. Debtor was primarily concerned with selling her
house to repay certain debts.
Debtor’s petition was filed before the U.S. Bankruptcy
Court, Northern District of California. On February 19, 2004,
debtor attended the 11 U.S.C. § 341 meeting of the creditors.
Price did not attend this meeting and sent a contract attorney
instead. Debtor alleges that Price failed to inform her that he
would not attend.
Price also referred debtor to Rene Boisvert of Boulevard
Equity Group so that debtor could obtain a loan to fix up her
house. Boisvert told debtor that Boulevard would lend her the
funds and pay off the first deed of trust on her house, and that
Boulevard would be repaid from the proceeds of the sale, but
only if debtor retained Price as a broker for the sale. Debtor
never completed the loan documents, and sold her house
through another realtor without informing Price.
The trustee served notice of a June 3, 2004, confirmation
hearing on Price and debtor. Debtor called the trustee’s office
in April 2004, and was advised that she had until the confir-
mation hearing to either sell her home, refinance her home, or
amend her plan. She was also advised that she was required
to attend the hearing. According to debtor, this was the first
time she had heard of the confirmation hearing because Price
had failed to notify her.
Price did not appear at the June 3, 2004, confirmation hear-
ing. At the request of another client, he had agreed to appear
in another court even though he knew it conflicted with the
confirmation hearing. He did not request a continuance of
either hearing. Debtor attended the confirmation hearing
alone, and informed the court that her house was pending sale.
The court confirmed the plan with a 100% payout to unse-
cured creditors.
Without checking the outcome of the confirmation hearing,
Price sent a letter to debtor on June 4, 2004, stating that her
4980 IN THE MATTER OF LEHTINEN
case had been dismissed, that he could refile another case for
her or help her to sell the house, and that the bank could pro-
ceed with the foreclosure on her house. Price admits that
sending the letter was a “mistake.” He assumed the case had
been dismissed because he missed the hearing and because
debtor was behind on her payments to the trustee. Price testi-
fied that he sent the letter “to urge . . . [debtor] to do some-
thing.”
On June 10, 2004, the bankruptcy court issued an order to
show cause why Price should not disgorge all or part of his
$1,500 fee for failure to appear at the meeting of the creditors
and the confirmation hearing (hereinafter “First OSC”). On
July 7, 2004, the bankruptcy court held a hearing on these
issues. On July 8, 2004, it entered an order resolving both
absences by ordering Price to disgorge $300 of the $1,500 fee.
After the hearing, but before the issuance of the order,
debtor sent a letter to the bankruptcy court stating: (1) that
Price never informed her of the confirmation hearing date; (2)
that she learned of the hearing date from the trustee; (3) that
Price was a real estate broker and pressured debtor to list her
house with his brokerage firm; and (4) that Price referred
debtor to his friend for a home improvement loan, who had
conditioned the loan on her engaging Price as her broker.
Debtor also attached the June 4, 2004, letter from Price.
Based on debtor’s letter, the bankruptcy court issued a sec-
ond order to show cause “why . . . [Price] should not be sanc-
tioned pursuant to this court’s inherent sanction power . . . for
bad faith conduct,” and “why he should not be suspended or
disbarred from practice in this court” (hereinafter “Second
OSC”). The Second OSC identified four instances of alleged
misconduct: (1) Price’s failure to attend and to inform debtor
of her confirmation hearing; (2) the pressuring of debtor to list
her house for sale with his brokerage firm; (3) the lender’s
condition of retaining Price as the broker for the loan transac-
tion; and (4) his letter to debtor falsely informing her that her
IN THE MATTER OF LEHTINEN 4981
bankruptcy case had been dismissed and that a foreclosure
sale was imminent. The Second OSC also stated that “the
facts point to a clear conflict of interest between Mr. Price
acting as the debtor’s lawyer, soliciting the debtor to use his
services as a real estate broker, and serving as a loan broker.”
Moreover, it described the evidence required regarding the
sanctionable conduct. The Second OSC, however, did not
identify applicable rules or sections.
The bankruptcy court held the Second OSC hearing on July
26, 2004. On October 22, 2004, it ordered Price to disgorge
the balance of the $1,500 fee and suspended him from practic-
ing before the bankruptcy court of the Northern District of
California for three months. It concluded that Price violated
several parts of the California Rules of Professional Conduct
and the California Business & Professions Code.
On October 29, 2004, Price filed an appeal and obtained a
stay of the suspension with the BAP. On October 11, 2005,
the BAP concluded that the bankruptcy court “was within its
authority in sanctioning Price, and afforded him due process,”
but vacated the suspension and remanded to the bankruptcy
court for consideration of the American Bar Association Stan-
dards in disciplining Price. Price v. Lehtinen (In re Lehtinen),
332 B.R. 404, 417 (9th Cir. B.A.P. 2005).
On November 10, 2005, Price appealed to this court. No
answering brief was filed.
JURISDICTION
[1] We have jurisdiction over “final decisions” of the BAP
under 28 U.S.C. § 158(d). Although there is some question as
to the finality of the BAP’s decision because the BAP vacated
the portion of the bankruptcy court’s order suspending Price
and remanded for further proceedings, see Foothill Capital
Corp. v. Clare’s Food Mkt., Inc. (In re Coupon Clearing
Serv., Inc.), 113 F.3d 1091, 1098 (9th Cir. 1997), we have
4982 IN THE MATTER OF LEHTINEN
jurisdiction over a non-final order in a bankruptcy case where
“the appeal concerns primarily a question of law,” DeMarah
v. United States (In re DeMarah), 62 F.3d 1248, 1250 (9th
Cir. 1995); accord Bonner Mall P’ship v. U.S. Bancorp Mort-
gage Co. (In re Bonner Mall P’ship), 2 F.3d 899, 904 (9th
Cir. 1993), cert. granted, 510 U.S. 1039 (1994), dismissed as
moot, 513 U.S. 18, 29 (1994). This case concerns the bank-
ruptcy court’s power to sanction. Because this is a purely
legal question, we have jurisdiction. See Knupfer v. Lindblade
(In re Dyer), 322 F.3d 1178, 1187 (9th Cir. 2003).
[2] Although Price argues that the proceeding is non-core,
the acts and events upon which his suspension was predicated
occurred in the course of his representation of debtor in mat-
ters central to the administration of her case. As such, the
disciplinary hearing fits well within the ambit of a core pro-
ceeding. 28 U.S.C. § 157(b)(2)(A).1
STANDARD OF REVIEW
“This court independently reviews the bankruptcy court’s
rulings on appeal from the BAP.” Miller v. Cardinale (In re
DeVille), 361 F.3d 539, 547 (9th Cir. 2004). “This court
reviews an award of sanctions for an abuse of discretion.” Id.Due process challenges are reviewed de novo. Willamette
Waterfront, Ltd. v. Victoria Station Inc. (In re Victoria Station
Inc.), 875 F.2d 1380, 1382 (9th Cir. 1989). A court’s interpre-
tation and application of a local rule is reviewed for abuse of
discretion. United States v. Heller, 551 F.3d 1108, 1111 (9th
Cir. 2009).
1
Price relies on Sheridan v. Michels (In re Sheridan), 362 F.3d 96 (1st
Cir. 2004), but that case is distinguishable because the bankruptcy court
there held an omnibus disciplinary hearing (concerning several of the
attorney’s unrelated cases, many of which were closed), and the First Cir-
cuit found that such a proceeding was non-core, id. at 107-08. The circum-
stances here are clearly different.
IN THE MATTER OF LEHTINEN 4983
DISCUSSION
Price argues the BAP’s decision should be reversed
because: (1) the bankruptcy court lacked the power to suspend
him; (2) he was not accorded due process; and (3) the bank-
ruptcy court abused its discretion by failing to follow N.D.
Cal. Civ. R. 11-6. We address each argument in turn.
I. The Bankruptcy Court’s Inherent Power to Suspend
Attorneys
[3] Bankruptcy courts generally have the power to sanction
attorneys pursuant to (1) their civil contempt authority under
11 U.S.C. § 105(a); and (2) their inherent sanction authority.
Dyer, 322 F.3d at 1192-93, 1196. The bankruptcy court sanc-
tioned Price under its “inherent sanction powers.”
[4] In Chambers v. NASCO, Inc., the Supreme Court held
that the inherent power of a federal court permits it, inter alia,
“to control admission to its bar and to discipline attorneys
who appear before it.” 501 U.S. 32, 43 (1991). In Caldwell v.
Unified Capital Corp. (In re Rainbow Magazine, Inc.), this
court held that bankruptcy courts also “have the inherent
power to sanction that Chambers recognized exists within
Article III courts.” 77 F.3d 278, 284 (9th Cir. 1996). Although
a simple reading of both Chambers and Caldwell suggests
that the bankruptcy court has the power to suspend attorneys,
this court’s subsequent cases have limited the scope of the
bankruptcy court’s inherent power, see, e.g., Dyer, 322 F.3d
at 1197, warranting further analysis.
A bankruptcy court’s inherent power allows it to sanction
“bad faith” or “willful misconduct,” even in the absence of
express statutory authority to do so. Id. at 1196. It also “al-
lows a bankruptcy court to deter and provide compensation
for a broad range of improper litigation tactics.” Id. (citing
Fink v. Gomez, 239 F.3d 989, 992-93 (9th Cir. 2001)).
4984 IN THE MATTER OF LEHTINEN
The inherent sanction authority differs from the statutory
civil contempt authority in at least two ways. First, with the
inherent power, a bankruptcy court may sanction a “broad
range” of conduct, unlike the “[c]ivil contempt authority[,
which only] allows a court to remedy a violation of a specific
order (including ‘automatic’ orders, such as the automatic
stay or discharge injunction).” Id. Second, unlike the civil
contempt authority, “[b]efore imposing sanctions under its
inherent sanctioning authority, a court must make an explicit
finding of bad faith or willful misconduct.” Id. (citing Fink,
239 F.3d at 992-93). “[B]ad faith or willful misconduct con-
sists of something more egregious than mere negligence or
recklessness.” Id. (citing Fink, 239 F.3d at 993-94).
“Because of their very potency, inherent powers must be
exercised with restraint and discretion.” Chambers, 501 U.S.
at 44. Thus, like the bankruptcy court’s civil contempt author-
ity, the inherent sanction authority “does not authorize signifi-
cant punitive damages.” Dyer, 322 F.3d at 1197 (noting that
this court has “refrained from authorizing a punitive damage
award under the bankruptcy court’s inherent sanction authori-
ty”). Punitive sanctions are prohibited, at least in part, because
the bankruptcy court cannot provide the due process protec-
tions that a criminal defendant is ordinarily entitled to, such
as a right to a jury trial. Id. at 1194; cf. F.J. Hanshaw Enters.,
Inc. v. Emerald River Dev., Inc., 244 F.3d 1128, 1139 (9th
Cir. 2001) (“[W]hen a court uses its inherent powers to
impose sanctions that are criminal in nature, it must provide
the same due process protections that would be available in a
criminal contempt proceeding.”).
[5] The BAP has held that the bankruptcy court has the
power to disbar or suspend an attorney under its inherent
authority power. Peugeot v. U.S. Trustee (In re Crayton), 192
B.R. 970, 976 (9th Cir. B.A.P. 1996). However, it is a ques-
tion of first impression in this court whether the bankruptcy
court has this power.
IN THE MATTER OF LEHTINEN 4985
A. Characteristics of civil and punitive sanctions
“Civil penalties must either be compensatory or designed to
coerce compliance.” Dyer, 322 F.3d at 1192 (citing Hanshaw,
244 F.3d at 1137-38). Although this court has never “de-
velop[ed] . . . a precise definition of the term ‘serious’ puni-
tive (criminal) sanctions,” id. at 1193, it has stated that a
penalty is criminal in nature “if the contemnor has no subse-
quent opportunity to reduce or avoid the fine through compli-
ance, and the fine is not compensatory,” id. at 1192 (internal
quotations omitted). It is also criminal if the sanction was
intended “to vindicate the authority of the court.” Hanshaw,
244 F.2d at 1138 (internal quotations omitted).
In the bankruptcy context, this court has found that a “sanc-
tions award” between $50,000 and $200,000 that “was neither
intended to coerce compliance nor intended to compensate . . .
for actual damages” was a criminal contempt sanction. Dyer,
322 F.3d at 1192. Even “a flat unconditional fine totaling
even as little as $50 could be criminal if the contemnor has
no subsequent opportunity to reduce or avoid the fine through
compliance.” Id. (internal quotation marks omitted).
B. Price’s Suspension
[6] Price argues that his suspension was punitive in nature
and therefore akin to criminal contempt. His suspension did
not compensate debtor for losses sustained. See Dyer, 322
F.3d at 1192. Nor was Price able to reduce or avoid the sanc-
tion through compliance. See id. Instead, it appears that the
suspension’s purpose was to punish Price for his “egregious”
conduct.
[7] In other contexts, however, this court has held that a
lawyer disciplinary proceeding is not a criminal proceeding.
Attorney suspension is “neither civil nor criminal, but an
investigation in to the conduct of the lawyer-respondent.”
Canatella v. California, 404 F.3d 1106, 1110 (9th Cir. 2005)
4986 IN THE MATTER OF LEHTINEN
(internal quotation marks omitted). “[D]isbarment proceed-
ings are not for the purpose of punishment but to maintain the
integrity of the courts and the profession.” Patterson v. Stand-
ing Comm. of Discipline to Bar of the U.S. Dist. Court of Or.
(In re Patterson), 176 F.2d 966, 968 n.1 (9th Cir. 1949).
II. Due Process
[8] A “lawyer subject to discipline is entitled to procedural
due process, including notice and an opportunity to be heard.”2
Rosenthal v. Justices of the Supreme Court of Cal., 910 F.2d
561, 564 (9th Cir. 1990) (citing In re Ruffalo, 390 U.S. 544,
550 (1968)); Crayton, 192 B.R. at 978. A suspension hearing
is not a criminal proceeding so the “normal protections
afforded a criminal defendant do not apply.” Rosenthal, 910
F.2d at 564; see also Ex Parte Wall, 107 U.S. 265, 288-89
(1883) (holding that no jury trial right attaches in an attorney
disciplinary proceeding).
A. Notice
[9] “Ordinarily a court proposing to impose sanctions noti-
fies the person charged both of the particular alleged miscon-
duct and of the particular disciplinary authority under which
the court is planning to proceed.” DeVille, 361 F.3d at 548.
The rule, however, is not absolute. Id. This court has held that
when using the inherent sanction power, due process is
accorded as long as the sanctionee is “provided with suffi-
cient, advance notice of exactly which conduct was alleged to
2
Under California law, an attorney facing disbarment or suspension is
also entitled to present witnesses. See Rosenthal, 910 F.2d at 564. These
protections go beyond what is required under federal constitutional law.
See id.; United States v. Engstrom, 16 F.3d 1006, 1012 (9th Cir. 1994)
(“Procedural due process does not encompass the right to present all
desired evidence.”). Even if Price was entitled to call witnesses in this fed-
eral hearing, it appears he was able to do so. Although the only witnesses
at the hearing were Price and debtor, Price submitted declarations from his
other client and from Boisvert, the potential lender.
IN THE MATTER OF LEHTINEN 4987
be sanctionable, and [was] furthermore aware that [he] stood
accused of having acted in bad faith.” Id. at 549 (internal quo-
tations omitted).
Price argues that “he did not receive such advance notice
of the particular alleged misconduct or the disciplinary rule
the court intended to base its sanctions upon.” The record
belies his argument.
1. Notice of Alleged Misconduct
[10] With respect to the “particular alleged misconduct,”
the Second OSC identified four instances of alleged miscon-
duct, stated that “the facts point to a clear conflict of interest,”
and specified the evidence required regarding the sanctionable
conduct. Accordingly, Price was fully aware of the conduct
charged against him.
Price argues that he had no notice of the possibility of sanc-
tions for his failure to appear at the meeting of creditors. In
the Second OSC, the bankruptcy court stated that it had issued
the First OSC based upon Price’s failure to appear at the
meeting of creditors and the confirmation hearing. It then
stated that the “non-appearance issue” had been resolved by
Price’s excuse and a $300 deduction from Price’s $1,500 flat
rate. Although the Second OSC indicated that the bankruptcy
court would again investigate Price’s failure to appear at the
confirmation hearing, it did not do so with respect to Price’s
failure to appear at the meeting of creditors. The bankruptcy
court did not clarify if this deduction resolved both instances
where Price failed to appear. Thus, Price argues that he could
have reasonably relied upon the Second OSC indicating that
it was no longer at issue. See id. at 550.
The BAP noted this but found that any error was harmless
because the “other derelictions . . . support the sanction
imposed.” Lehtinen, 332 B.R. at 414. Although Price is enti-
tled to a rebuttable presumption that the error was prejudicial,
4988 IN THE MATTER OF LEHTINEN
see Obrey v. Johnson, 400 F.3d 691, 699-701 (9th Cir. 2005),
based upon the record, it does appear that the bankruptcy
court would have imposed the same sanctions even if it did
not consider Price’s failure to appear at the meeting of credi-
tors. If anything, Price’s other (mis)conduct, like the conflict
of interest and the letter falsely stating that debtor’s case had
been dismissed, was far more egregious than his failure to
appear at a § 341 meeting.
2. Notice of the Basis for Sanction Authority
[11] Here, the bankruptcy court’s Second OSC expressly
stated that it was considering sanctions “pursuant to this
court’s inherent sanction powers (In re DeVille, 361 F.3d 539(9th Cir. 2004) for bad faith conduct.” The bankruptcy court
also ordered Price to show cause “why he should not be sus-
pended or disbarred from practice in this court.” While it is
true that the bankruptcy court’s final order relied in part on
specific provisions of the California Rules of Professional
Conduct and California Business and Professions Code that it
did not identify in the Second OSC, its invocation of its inher-
ent power is sufficient to satisfy due process concerns. See
DeVille, 361 F.3d at 548-50 (holding due process accorded
even when the order to show cause stated Rule 9011 as basis
for sanctions when attorney was ultimately sanctioned under
inherent sanction authority because sanctionee was aware that
he was accused of acting in bad faith). Furthermore, as just
explained, the factual bases for the violations of the Rules and
Codes were explicitly included in the Second OSC.
B. Bad faith/willful misconduct
[12] Furthermore, the bankruptcy court made the findings
of “bad faith” and “willful misconduct” required for the use
of the inherent sanction power. See Dyer, 322 F.3d at 1196.
Although the bankruptcy court did not explicitly state that
Price’s conduct was performed in “bad faith” or was “will-
ful,” it impliedly did so by finding that his “conduct in this
IN THE MATTER OF LEHTINEN 4989
case was outrageously improper, unprofessional and unethical
under any reading of California’s ethical standards for attor-
neys.” See Fink, 239 F.3d at 994 (“[S]anctions are available
if the court specifically finds bad faith or conduct tantamount
to bad faith.” (emphasis added)); Toombs v. Leone, 777 F.2d
465, 471 (9th Cir. 1985) (holding that explicit findings are not
required where record supports a conclusion that the sanc-
tioned attorney acted in bad faith).3 Finally, the evidence
adduced at the hearing (e.g., the five times Price solicited
debtor to serve as a real estate broker for the sale of her house
and the false letter), demonstrates “bad faith” and “willful mis-
conduct.”4
III. N.D. Cal. Civ. R. 11-6
[13] Price argues that, pursuant to N.D. Cal. Civ. R. 11-6,
the bankruptcy court should have referred the suspension
action to a standing committee.
“In the federal system there is no uniform procedure for
disciplinary proceedings. The individual judicial districts are
free to define the rules to be followed and the grounds for
punishment.” Weissman v. Quail Lodge, Inc., 179 F.3d 1194,
1198 (9th Cir. 1999) (internal quotations omitted). In the
Northern District of California, the bankruptcy court is
empowered to supervise and discipline attorneys pursuant to
N.D. Cal. Bankr. R. 1001-2, which incorporates N.D. Cal.
3
While Dyer notes that “[b]efore imposing sanctions under its inherent
sanctioning authority, a court must make an explicit finding of bad faith
or willful misconduct,” 322 F.3d at 1196 (emphasis added), the Dyer court
cited Fink for this proposition, and as explained above, Fink permits the
imposition of sanctions without an explicit finding, 239 F.3d at 994.
4
It is unclear “whether the bankruptcy court must find bad faith by clear
and convincing evidence or under a preponderance of the evidence stan-
dard.” Dyer, 322 F.3d at 1197 n.20 (noting that this “question [has] not yet
[been] resolved in this circuit”). We need not decide this question today
because here there is clear and convincing evidence of “bad faith” in this
case.
4990 IN THE MATTER OF LEHTINEN
Civ. R. 11-1 through 11-9. N.D. Cal. Civ. R. 11-6(a) (2004),
titled “Discipline,” provides:
(a) General. In the event that a Judge has cause to
believe that an attorney has engaged in unprofes-
sional conduct, the Judge may do any or all of the
following:
(1) Initiate proceedings for civil or criminal con-
tempt under Title 18 of the United States Code and
Rule 42 of the Federal Rules of Criminal Procedure;
(2) Impose other appropriate sanctions;
(3) Refer the matter to the appropriate disciplinary
authority of the state or jurisdiction in which the
attorney is licensed to practice;
(4) Refer the matter to the Court’s Standing Commit-
tee on Professional Conduct; or
(5) Refer the matter to the Chief Judge for her or him
to consider whether to issue an order to show cause
under Civ. L.R. 11-7.
The bankruptcy court apparently imposed Price’s suspen-
sion based on subsection (2), which authorizes “other appro-
priate sanctions.” See N.D. Cal. Civ. R. 11-6(a)(2).
[14] Although the BAP recommends that matters involving
attorney discipline be referred to the standing committee,
Crayton, 192 B.R. at 978, Price’s argument ignores the plain
language of N.D. Cal. Civ. R. 11-6(a), which states that its
procedures are discretionary. The Rule provides available
measures the judge “may” take, not must take, if she has
cause to believe an attorney has engaged in unprofessional
conduct.
IN THE MATTER OF LEHTINEN 4991
CONCLUSION
[15] We conclude that because Price was accorded due pro-
cess, the bankruptcy court possessed the inherent power to
suspend him. The BAP’s order is affirmed.
AFFIRMED.