The 9th Circuit's Interpretation of Inherent Power to Sanction Attorneys

The 9th Circuit's Interpretation of Inherent Power to Sanction Attorneys

Bankruptcy courts have broad authority to discipline attorneys pursuant to their inherent sanction power. In the recent Price v. Lehtinen (In re Lehtinen) decision, the Ninth Circuit stated that bankruptcy courts can exercise their inherent power to sanction attorneys in any way that is not punitive and that is based upon a finding of bad faith or willful misconduct. This commentary discusses the import of this significant decision.

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The author writes: The United States Court of Appeals for the Ninth Circuit has upheld a bankruptcy court's decision to suspend an attorney for bad faith or willful misconduct during representation of a debtor in a Chapter 13 case. The decision, Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052 (9th Cir. 2009), demonstrates that bankruptcy courts do not have to rely on statutory authority or rules of professional conduct in order to sanction attorneys for misconduct. The Circuit Court held that suspending the attorney from practicing before the bankruptcy court was a proper exercise of inherent authority because attorney suspension is a not a punitive sanction. Further, the attorney's due process rights were properly protected because he received sufficient notice of the several instances of misconduct upon which his three-month suspension was based.

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The court first held that the bankruptcy court possessed inherent authority to suspend Price. Attorney discipline proceedings are neither civil nor criminal, but "an investigation into the conduct of the attorney-respondent." Id. at 1059 (quoting Cantanella v. California, 404 F.3d 1106, 1110 (9th Cir. 2005)). They are not, like criminal proceedings, undertaken for the purpose of punishment, but rather to "maintain the integrity of the courts and the profession." Id. (quoting Patterson v. Standing Comm. Of Discipline of Bar of the U.S. Dist. Court of Or. (In re Patterson), 176 F.2d 966, 968 n.1 (9th Cir. 1949)). Because attorney suspensions are not punitive in nature, it is within the inherent sanction authority of bankruptcy courts to impose them.

The court then held that Price was accorded due process by the bankruptcy court. According to the Ninth Circuit, "due process is accorded as long as the sanctionee is 'provided with sufficient, advance notice of exactly which conduct was alleged to be sanctionable, and [was] furthermore aware that [he] stood accused of having acted in bad faith.'" Id. at 1060 (quoting Miller v. Cardinale (In re DeVille), 361 F.3d 539, 549 (9th Cir. 2004)). The bankruptcy court protected Price's due process rights by giving him notice of the particular alleged misconduct - the four instances cited in the second order to show cause. See id. The bankruptcy court's failure to notify Price of any other alleged misconduct was harmless, especially given the egregious nature of the four instances cited in the second order to show cause. See id. at 1060-1. Further, the bankruptcy court's failure to cite specific rules on which it based its decision to suspend Price was not fatal. Invoking the court's inherent sanction power was sufficient to protect Price's due process rights. See id. at 1061. The bankruptcy court also made an implied finding of bad faith or willful conduct by Price that was sufficient grounds for the suspension. See id.

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