The Disciplinary Board of the Supreme Court of Pennsylvania v. Allen L. Feingold

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-13817
________________________
D.C. Docket No. 1:11-cv-23230-KAM,
Bkcy No. 11-bkc-14166-AJC
IN RE: ALLEN L. FEINGOLD, Debtor,
____________________________________
THE DISCIPLINARY BOARD OF THE SUPREME
COURT OF PENNSYLVANIA,
Plaintiff-Appellee,
versus
ALLEN L. FEINGOLD,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(September 17, 2013)
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Before HULL and MARTIN, Circuit Judges, and HINKLE, * District Judge.
PER CURIAM:
Allen Feingold, a Chapter 7 debtor, appeals the district court’s reversal of
the bankruptcy court’s order denying relief from the automatic stay to the
Disciplinary Board of the Supreme Court of Pennsylvania (the “Disciplinary
Board”). This appeal presents the question of whether a debt’s dischargeability in
bankruptcy proceedings—standing alone—constitutes “cause” sufficient for a
bankruptcy court to provide relief from the automatic stay provisions of 11 U.S.C.
§ 362(a). We conclude that the debt is nondischargeable, but that the district court
erroneously relied solely on the debt’s dischargeability status in its ruling on the
“cause” issue. We therefore affirm the district court’s order in part, and vacate and
remand in part for further proceedings.
I. BACKGROUND
Before discussing Feingold’s Chapter 7 bankruptcy proceedings, we
provide a brief overview of the relevant background to put into context the issue
that arose between the Disciplinary Board and Feingold during his bankruptcy
proceedings.
A. Factual Background
*
Honorable Robert L. Hinkle, United States District Judge for the Northern District of
Florida, sitting by designation.
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In August 2008, Feingold was disbarred from the practice of law in the
Commonwealth of Pennsylvania.
In August 2009, the Disciplinary Board filed a complaint in Pennsylvania
state court seeking to (1) enjoin Feingold from the unlawful practice of law, and
(2) appoint a conservator to take possession of Feingold’s client files and take
other steps to protect Feingold’s clients.
On February 18, 2011, following a trial, the Pennsylvania state court entered
a final judgment against Feingold. The state court determined that the appointed
conservator had (1) “faithfully carried out his duties”; (2) “protected the interests
of those who may have had some legal contact with, or representation by,
[Feingold]”; (3) “faithfully protected the integrity of the profession”; and (4) “took
all necessary means to notify anyone who may have had an interest in the matter.”
The state court judgment also assessed Feingold $44,889.92 for the costs and
expenses associated with the appointed conservator and the disciplinary
proceedings, pursuant to Rule 208(g) of the Pennsylvania Rules of Disciplinary
Enforcement. This Rule provides that “[t]he Supreme Court in its discretion may
direct that the necessary expenses incurred in the investigation and prosecution of a
proceeding which results in the imposition of discipline shall be paid by the
respondent-attorney.” PA. R.D.E. 208(g)(1).
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B. Feingold’s Bankruptcy and the Disciplinary Board’s Motion for Relief
from the Automatic Stay
On the same day the Pennsylvania state court entered its judgment—
February 18, 2011 (the “Petition Date”)—Feingold filed a voluntary petition for
relief under Chapter 7 of the United States Bankruptcy Code. After the Petition
Date, the automatic stay provisions of the Bankruptcy Code went into effect. See
11 U.S.C. § 362(a) (providing that a filed petition operates as a stay against, inter
alia, “the enforcement, against the debtor or against property of the estate, of a
judgment obtained before the commencement of the case under this title,” id.§ 362(a)(2)).
On March 30, 2011, the Disciplinary Board filed a “Motion for Relief from
the Automatic Stay” in the bankruptcy court, requesting relief from the automatic
stay in order to enforce its judgment and terminate the disciplinary proceedings
against Feingold. The Disciplinary Board argued that the automatic stay did not
apply to actions taken against a debtor when those actions were performed
pursuant to a governmental unit’s police or regulatory powers. See 11 U.S.C.
§ 362(b)(4) (“[T]he filing of a petition . . . does not operate as a stay. . . . [against]
the enforcement of a judgment[,] other than a money judgment, obtained in an
action or proceeding by [a] governmental unit to enforce such governmental unit’s
or organization’s police or regulatory power.”)
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The Disciplinary Board contended that its attorney disciplinary proceedings
fell within this § 362(b)(4) exception to the automatic stay, that the “monetary
component of the [j]udgment was ancillary to the disciplinary proceedings and
simply designed to reimburse the Board and the Conservator for the costs
associated with their many years of litigation against [Feingold],” and that the
Disciplinary Board therefore should be permitted to move forward with collecting
on the judgment against Feingold.
In the event that the bankruptcy court found that the § 362(b)(4) exception
was inapplicable, the Disciplinary Board alternatively requested relief from the
automatic stay under the more general “for cause” exception in § 362(d)(1). See
11 U.S.C. § 362(d)(1) (“On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay . . . for cause, including the lack
of adequate protection of an interest in property of such party in interest.”
(emphasis added)).
On this “cause” ground, the Disciplinary Board argued that although the
Bankruptcy Code did not define “cause,” “serving the citizenry of the
Commonwealth of Pennsylvania and especially [Feingold’s] former clients by
returning their files and otherwise winding up the disciplinary process and ending
nearly 5 years of litigation still pending outside of Florida is sufficient cause to
grant stay relief.”
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Feingold opposed the Disciplinary Board’s motion for relief from the
automatic stay. Feingold maintained that the Disciplinary Board had taken actions
harmful to his bankruptcy estate by depriving it of files, referral fees,
reimbursement of costs and fees, and claims that he possessed. In addition,
Feingold argued that he sought only to stay the collection of money and destruction
of his property, which did not involve protecting the public. He also noted that
§ 362(b)(4) provided that the government was subject to the automatic stay to the
extent it sought a monetary recovery. Further, Feingold contended that because the
Disciplinary Board’s monetary claims against him were likely dischargeable, there
was no basis to permit the Disciplinary Board to resume collection attempts, as no
other disciplinary claims were pending against him.
C. The Bankruptcy Court’s Order Denying Relief
After a hearing, the bankruptcy court denied the Disciplinary Board’s
motion for relief from the automatic stay. The bankruptcy court explained that if
the judgment’s award of costs and expenses was “compensation for actual
pecuniary loss,” then the debt imposed by the judgment would be dischargeable
and the stay would apply to it. However, if the Disciplinary Board could show,
pursuant to 11 U.S.C. § 523(a)(7), that the debt was instead a nondischargeable
“fine, penalty, or forfeiture payable to and for the benefit of a governmental unit,
and [was] not compensation for actual pecuniary loss,” then there may be “cause
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sufficient to lift the automatic stay” and allow the Board to proceed with
collection.
The bankruptcy court then found that the $44,889.92 judgment was entered
“to reimburse the costs of litigation, rather than to fine or penalize [Feingold].” See
In re Taggart, 249 F.3d 987, 989 (9th Cir. 2001) (holding that costs owed to the
State Bar of California as the result of attorney disciplinary proceedings were for
“actual pecuniary loss,” and were therefore dischargeable in bankruptcy
proceedings).1 The bankruptcy court noted that Pennsylvania Rule of Disciplinary
Enforcement 208(g), used as the basis for the imposition of costs against Feingold,
did not mandate that costs be imposed on a disciplined attorney, but instead left the
imposition of costs to the discretion of the court. In so characterizing the monetary
judgment, the bankruptcy court also looked to the Disciplinary Board’s motion for
relief from the automatic stay, in which the Disciplinary Board had explained that
the monetary component of the judgment against Feingold was designed “to
reimburse the State Bar for the litigation costs.” (emphasis added).
1
Although Taggart is still technically good law, it was effectively overruled by the
California legislature, which amended its attorney disciplinary statutes in 2003 to expressly
provide that the costs in attorney disciplinary proceedings were “to promote rehabilitation and to
protect the public, rather than to provide compensation.” In re Findley, 593 F.3d 1048, 1052–53
(9th Cir. 2010) (internal quotation marks omitted). After Findley, “attorney disciplinary costs
imposed by the California State Bar Court . . . are excepted from discharge in bankruptcy.” Id. at
1054.
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Therefore, because the judgment “appear[ed] to be compensation for a
pecuniary loss,” i.e., it was imposed to reimburse the Disciplinary Board rather
than to serve as a “fine, penalty, or forfeiture,” the bankruptcy court found that the
debt was dischargeable in Feingold’s bankruptcy proceedings. And, because the
debt was dischargeable, the bankruptcy court denied the Disciplinary Board’s
motion for relief from the automatic stay.
D. The Disciplinary Board’s Appeal to the District Court
The Disciplinary Board appealed the bankruptcy court’s order denying relief
from the automatic stay to the district court, which reversed the bankruptcy court’s
order.
The district court held that the costs imposed by the judgment in Feingold’s
disciplinary proceedings fell within the ambit of 11 U.S.C. § 523(a)(7), which, as
noted above, makes nondischargeable a “fine, penalty, or forfeiture payable to and
for the benefit of a governmental unit, and is not compensation for actual
pecuniary loss.” Because the disciplinary costs in this case were discretionary and
furthered the purpose of Pennsylvania’s discipline system “to protect the public,
preserve the integrity of the courts, and deter unethical conduct,” Office of
Disciplinary Counsel v. Czmus, 889 A.2d 1197, 1203 (Pa. 2005), the district court
concluded that the assessment was a nondischargeable “fine, penalty, or forfeiture”
under § 523(a)(7). The district court therefore reversed the bankruptcy court on
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the dischargeability issue and ordered that the Disciplinary Board be granted relief
from the automatic stay. This appeal followed.
II. DISCUSSION
Our discussion of Feingold’s appeal proceeds in two parts. First, we must
determine whether the Disciplinary Board’s judgment against Feingold is
nondischargeable pursuant to 11 U.S.C. § 523(a). Then we must determine
whether “cause” for lifting the automatic stay exists with regard to the Disciplinary
Board’s attempt to collect on its judgment against Feingold. 2
A. Dischargeability of the Debt
Under 11 U.S.C. § 523(a), certain debts are excepted from discharge in
bankruptcy proceedings, including any debt “for a fine, penalty, or forfeiture
payable to and for the benefit of a governmental unit, [which] is not compensation
for actual pecuniary loss,” id. § 523(a)(7). Section 523(a)(7) applies both to civil
and criminal penalties. See U.S. Dep’t of Hous. & Urban Dev. v. Cost Control
Mktg. & Sales Mgmt. of Va., Inc., 64 F.3d 920, 927–28 (4th Cir. 1995) (citing Pa.
Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 562, 110 S. Ct. 2126, 2132–33
2
We independently review the bankruptcy court’s factual and legal conclusions,
employing the same standards of review as the district court. In re Mitchell, 633 F.3d 1319,
1326 (11th Cir. 2011). We review the bankruptcy court’s factual findings for clear error, and we
review the legal conclusions of both the bankruptcy court and the district court de novo. Id.Additionally, a “decision to lift the stay is discretionary with the bankruptcy judge, and may be
reversed only upon a showing of abuse of discretion.” Barclays-Am./Bus. Credit, Inc. v. Radio
WBHP, Inc. (In re Dixie Broad., Inc.), 871 F.2d 1023, 1026 (11th Cir. 1989).
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(1990)). Here, we agree with the district court, as well as the other courts that have
considered this issue, that the debt the Disciplinary Board seeks to collect from
Feingold is a debt “for a fine, penalty, or forfeiture payable to and for the benefit of
a governmental unit, [which] is not compensation for actual pecuniary loss,” and is
therefore nondischargeable under § 523(a)(7).
As an initial matter, the parties do not dispute that the Disciplinary Board is
a “governmental unit” within the meaning of § 523(a)(7), or that the debt at issue is
payable “to and for the benefit of” the Disciplinary Board. Therefore, our analysis
turns on whether the debt is “a fine, penalty, or forfeiture,” and whether it is
“compensation for actual pecuniary loss.” We examine each of these questions in
turn.
1. Fine, Penalty, or Forfeiture
On appeal, Feingold contends that the Disciplinary Board’s judgment for
costs and expenses associated with his disciplinary proceedings is not a fine or
punitive sanction because (1) Pennsylvania’s attorney disciplinary rules do not
state that cost awards are intended as a fine, penalty, or forfeiture, and (2) the
specific rule providing for cost awards is separate from the rule setting forth the
forms of punitive discipline that can be levied against attorneys. The Pennsylvania
disciplinary rule authorizing the assessment of costs and fees against disciplined
attorneys, Pennsylvania Rule of Disciplinary Enforcement 208(g)(1), provides that
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“[t]he Supreme Court in its discretion may direct that the necessary expenses
incurred in the investigation and prosecution of a proceeding which results in the
imposition of discipline shall be paid by the respondent-attorney.” A separate
Rule, Rule 204(a), sets out the types of discipline that may be imposed as a result
of an attorney’s misconduct, including, inter alia, disbarment, suspension, censure,
and probation. PA. R.D.E. 204(a).
Despite there being no express language in Rule 204 describing the
imposition of costs as a “punitive” measure, we are nevertheless persuaded that
such cost assessments in attorney disciplinary proceedings are properly viewed as
penalties. Nearly every other court to have considered this issue has concluded
that such cost assessments are fines or penalties within the meaning of § 523(a).
See Richmond v. N.H. Supreme Court Comm. on Prof’l Conduct, 542 F.3d 913,
919–20 (1st Cir. 2008) (citing Smith v. Attorney Grievance Comm’n (In re Smith),
317 B.R. 302, 313 (Bankr. D. Md. 2004); Supreme Court v. Bertche (In re
Bertsche), 261 B.R. 436, 438–39 (Bankr. S.D. Ohio 2000); Carlson v. Attorney
Registration & Disciplinary Comm’n (In re Carlson), 202 B.R. 946, 951 (Bankr.
N.D. Ill. 1996); State Bar v. Doerr (In re Doerr), 185 B.R. 533, 537 (Bankr. W.D.
Mich. 1995); Fla. Bar v. Cillo (In re Cillo), 159 B.R. 340, 343 (Bankr. M.D. Fla.
1993); In re Williams, 158 B.R. 488, 491 (Bankr. D. Idaho 1993); Attorney
Registration & Disciplinary Comm’n v. Lewis (In re Lewis), 151 B.R. 200, 203
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(Bankr. C.D. Ill. 1992); Attorney Registration & Disciplinary Comm’n v. Betts (In
re Betts), 149 B.R. 891, 896 (Bankr. N.D. Ill. 1993); Bd. of Attorneys Prof’l
Responsibility v. Haberman (In re Haberman), 137 B.R. 292, 295–96 (Bankr. E.D.
Wis. 1992)); see also In re Findley, 593 F.3d 1048, 1052–54 (9th Cir. 2010)
(“[A]ttorney discipline costs imposed by the California State Bar Court [are]
non-dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(7).”).
Many of these decisions rely heavily on the Supreme Court’s reasoning in
Kelly v. Robinson, 479 U.S. 36, 107 S. Ct. 353 (1986), which addressed whether
an order to pay restitution entered in a criminal proceeding created a
nondischargeable debt under § 523(a)(7). Kelly involved a debtor who attempted
to discharge a restitution order entered as a condition of her probation. Id. at 39,
107 S. Ct. at 355. Interpreting § 523(a)(7), the Supreme Court ultimately held that
11 U.S.C. § 523(a)(7) “preserves from discharge any condition a state criminal
court imposes as part of a criminal sentence.” Id. at 50, 107 S. Ct. at 361. The
Supreme Court reasoned that the decision to impose restitution is premised
primarily on state penal goals, including retribution and rehabilitation, rather than
on obtaining compensation for a crime victim, who has “no control over the
amount of restitution awarded or over the decision to award restitution.” Id. at 52,
107 S. Ct. at 362. It therefore held that § 523(a)(7) created “a broad exception for
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all penal sanctions,” concluding that restitution orders are sufficiently penal in
nature to fall under 11 U.S.C. § 523(a)(7). Id. at 51–53, 107 S. Ct. at 362–63.
The rationale of Kelly extends to cost assessments arising out of attorney
disciplinary proceedings. First, although attorney disciplinary proceedings are not
criminal in nature, the two types of proceedings share some common goals:
[t]he ultimate goal of both criminal and attorney disciplinary
proceedings is to protect the public. The imposition of sanctions and
costs protects the public by restricting a lawyer’s right to practice law
when warranted. Monetary penalties imposed against the offender,
whether part of an attorney disciplinary proceeding or a criminal
proceeding, promote the state's penal and rehabilitative interests.
Smith v. Attorney Grievance Comm’n (In re Smith), 317 B.R. 302, 309 (Bankr. D.
Md. 2004); see Office of Disciplinary Counsel v. Czmus, 889 A.2d 1197, 1203
(Pa. 2005) (“The primary purpose of our lawyer discipline system in Pennsylvania
is to protect the public, preserve the integrity of the courts, and deter unethical
conduct.” (citing In re Iulo, 766 A.2d 335, 339 (Pa. 2001)); Fla. Bar v. Cillo (In re
Cillo), 159 B.R. 340, 343 (Bankr. M.D. Fla. 1993), aff’d, 165 B.R. 46 (M.D. Fla.
1994) (“[T]he ultimate goal of both criminal and attorney disciplinary proceedings
is to protect the public. Sanctions imposed against the offender, whether as part of
an attorney disciplinary proceeding or a criminal proceeding, promote the state’s
penal and rehabilitative interests.”).
Second, the cost assessment provision in Rule 208(g) is discretionary, rather
than mandatory, which further suggests that such assessments should be viewed as
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penalties. The Pennsylvania court, in its discretion and in consideration of the
circumstances of the particular case before it, may find that the goals furthered by
the disciplinary proceedings either do or do not call for the payment of costs by a
disciplined attorney. In this way, the imposition of costs is rolled into the overall
sanction imposed against an attorney who engages in misconduct. By making the
imposition of costs discretionary, the Disciplinary Board has permitted them to be
used more like a sanction than like the civil litigation analogue of awarding costs
to prevailing parties as a matter of course.3 See Richmond, 542 F.3d at 919 (“We
believe that the cost assessments imposed by the . . . Supreme Court in attorney
disciplinary proceedings are not similar to costs awarded to prevailing parties in
civil litigation. While the latter are essentially routine, the former are quite
discretionary and are intended to sanction attorney misconduct.”).
In light of the purposes of Pennsylvania’s attorney disciplinary system—
deterrence and protection of the public—and the discretionary nature of cost
assessments imposed under Rule 208(g), we conclude that the Disciplinary Board’s
3
We are not persuaded by the authority cited by Feingold in support of his position that
the Disciplinary Board’s judgment against him is not a fine or penalty. As the district court
noted, In re Taggart, 249 F.3d 987 (9th Cir. 2001), In re Love, 442 B.R. 868 (Bankr. M.D. Tenn.
2011), and Lufkin v. Bd. of Prof’l Responsibility, 336 S.W.3d 223 (Tenn. 2011), all involved
rules mandating that disciplined attorneys pay the costs of their disciplinary proceedings, making
the cost assessments in those cases more like the award of costs to prevailing parties in civil
litigation and less like penal sanctions imposed for misconduct.
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judgment against Feingold is effectively a “fine, penalty, or forfeiture” within the
meaning of § 523(a)(7).
2. Not Compensation for Actual Pecuniary Loss
As to the “not compensation for actual pecuniary loss” element, we “look to
the context in which the penalty [was] imposed to determine whether its purpose is
truly compensatory.” Richmond, 542 F.3d at 919. Although Feingold stresses that
the amount of the judgment is determined by the costs actually incurred by the
Disciplinary Board, and that the Disciplinary Board stated in its motion for relief
from the automatic stay that the “monetary component of the [j]udgment was . . .
simply designed to reimburse the Board and the Conservator for the costs
associated with their many years of litigation against [Feingold],” this does not end
our inquiry.
As several other courts have held in examining this element, “[e]ven where a
debt is intended to help defray the expense of government, it may not be
dischargeable if its primary purpose is penal.” Cost Control, 64 F.3d at 928 & n.13
(noting that the “actual pecuniary loss phrase in § 523(a)(7) refers to the
government’s pecuniary loss”); see In re Smith, 317 B.R. at 312 (“[T]he primary
purpose for imposing costs is penal, and not compensatory, in that an attorney’s
rehabilitation is encouraged through the condition to reinstatement imposed by the
judgment. The mere fact that a penal sanction is calculated by reference to actual
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costs does not, in and of itself, transform the penalty into compensation for
pecuniary loss.”). That the cost assessment is determined based on the actual costs
incurred by the Disciplinary Board in disciplining Feingold does not automatically
transform the judgment into “compensation for actual pecuniary loss.” In Kelly,
the nondischargeable restitution order was calculated by reference to the victim’s
actual loss, but this fact was not outcome-determinative. Rather, what matters is
the Disciplinary Board’s purpose, which as we explained above, is penal in nature.
In addition, it would torture the statutory language and framework to hold
that the Disciplinary Board’s legal expenditures in furtherance of “its
governmental function to pursue disciplinary or remedial actions against attorneys”
amounted to an ‘actual pecuniary loss.’” In re Smith, 317 B.R. at 312. “The cost
of performing such a governmental function is not an actual pecuniary loss to the
State” insofar as the Disciplinary Board would perform its public function whether
it could recoup the costs associated with it or not. Id.; see Richmond, 542 F.3d at
921 (“Here, the [Disciplinary Board] is not concerned with recouping its litigation
costs to the degree that it is concerned with deterring unprofessional conduct.”).
In sum, because the Disciplinary Board’s judgment against Feingold is in the
nature of a “fine, penalty, or forfeiture payable to and for the benefit of a
governmental unit, [which] is not compensation for actual pecuniary loss,” it is
nondischargeable pursuant to 11 U.S.C. § 523(a)(7).
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B. Cause for Lifting the Automatic Stay
Having determined that the Disciplinary Board’s judgment against Feingold
creates a nondischargeable debt, we now evaluate whether the debt’s
nondischargeability suffices as the showing of “cause” necessary for the
Disciplinary Board to obtain relief from the automatic stay to enforce its judgment
against Feingold.
When a debtor files a bankruptcy petition, an automatic stay applies to the
enforcement of a judgment against the debtor or against the property of the estate
when that judgment was obtained before the bankruptcy petition was filed. See 11
U.S.C. § 362(a)(2). Additionally, the stay applies to any attempt to obtain
possession of estate property or exercise control over estate property, as well as to
attempts to collect, assess, or recover a claim against the debtor that arose before
the bankruptcy case commenced. Id. § 362(a)(3), (6). Congress enacted § 362(a)
and its subsections “to give debtors ‘breathing room’ after filing their petition.”
B.F. Goodrich Emps. Fed. Credit Union v. Patterson (In re Patterson), 967 F.2d
505, 512 n.9 (11th Cir. 1992). The automatic stay is “one of the fundamental
debtor protections provided by the bankruptcy laws,” which “permits the debtor to
attempt a repayment or reorganization plan, or simply to be relieved of the
financial pressures that drove him into bankruptcy.” Id.17
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Section 362(b) lists certain enumerated exceptions to the automatic stay.
For example, the automatic stay provisions of § 362(a) do not apply to “the
enforcement of a judgment[,] other than a money judgment, obtained in an action
or proceeding by [a] governmental unit to enforce such governmental unit’s or
organization’s police or regulatory power.” 11 U.S.C. § 362(b)(4). 4 Certain
attempts to collect on child support or alimony obligations are likewise exempt
from the automatic stay. Id. § 362(b)(2).
In addition to the enumerated exceptions listed in § 362(b), the bankruptcy
court may also grant relief from the automatic stay, “such as by terminating,
annulling, modifying, or conditioning such stay,” on “request of a party in interest
. . . for cause, including the lack of adequate protection of an interest in property of
such party in interest.” Id. § 362(d)(1) (emphasis added). The term “cause” is not
defined in § 362(d)(1) or elsewhere in the Bankruptcy Code. See Baldino v.
Wilson (In re Wilson), 116 F.3d 87, 90 (3d Cir. 1997) (“Section 362(d)(1) does not
define ‘cause,’ leaving courts to consider what constitutes cause based on the
totality of the circumstances in each particular case.”); Laguna Assocs. Ltd. P’ship
4
We note here that on appeal the Disciplinary Board has abandoned its argument that the
judgment against Feingold falls within the § 362(b)(4) exception to the automatic stay. This
exception is applicable to “the enforcement of a judgment[,] other than a money judgment,
obtained in an action or proceeding by [a] governmental unit to enforce such governmental unit’s
or organization’s police or regulatory power.” 11 U.S.C. § 362(b)(4). Even if not abandoned,
this argument is without merit, insofar as the exception by its plain language is inapplicable to
money judgments, and the portion of the judgment at issue in this appeal is a money judgment.
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v. Aetna Cas. & Sur. Co. (In re Laguna Assocs.), 30 F.3d 734, 737 (6th Cir. 1994)
(“Because the [Bankruptcy] Code provides no definition of what constitutes
‘cause’ . . . courts must determine whether discretionary relief is appropriate on a
case-by-case basis.”).
There is no set list of circumstances that a bankruptcy court is required to
consider in evaluating whether § 362(d)(1) “cause” exists to lift the automatic stay.
Rather, courts evaluating whether to grant stay relief have looked to a variety of
case-specific factors, including (1) whether the debtor has acted in bad faith, see
Barclays-Am./Bus. Credit, Inc. v. Radio WBHP, Inc. (In re Dixie Broad., Inc.),
871 F.2d 1023, 1026 (11th Cir. 1989); (2) the “hardships imposed on the parties
with an eye towards the overall goals of the Bankruptcy Code,” see In re C & S
Grain Co., 47 F.3d 233, 238 (7th Cir. 1995); and (3) pending state court
proceedings, see In re Wilson, 116 F.3d at 90. See also In re Brown, 311 B.R. 409,
412–13 (E.D. Pa. 2004) (“A court may consider the policies reflected in the
bankruptcy code, and the interests of the debtor, other creditors and any other
interested parties. Unsecured creditors are generally entitled to relief from an
automatic stay only in extraordinary circumstances.”); Milne v. Johnson (In re
Milne), 185 B.R. 280, 283 (N.D. Ill. 1995) (“Factors generally looked to in
determining whether to modify the stay for cause include interference with the
bankruptcy, good or bad faith of the debtor, injury to the debtor and other creditors
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if the stay is modified, injury to the movant if the stay is not modified, and the
proportionality of the harms from modifying or continuing the stay.”).
Here, the district court focused solely on the debt’s dischargeability—
presuming that a nondischargeable debt was per se sufficient to establish “cause”
to provide the Disciplinary Board relief from the automatic stay. Although we
have not addressed the issue previously, a majority of courts that have ruled on the
question have concluded that a debt’s nondischargeability, standing alone, does not
constitute “cause” justifying relief from the automatic stay. See In re Mu’min, 374
B.R. 149, 161–62 (Bankr. E.D. Pa. 2007) (“[T]he automatic stay remains in effect,
irrespective of a determination of dischargeability. . . . [I]f the stay did not apply to
a creditor who obtained a favorable judgment under § 523, such creditor would get
a head start on collection—precisely what the Bankruptcy Code was designed to
prevent so that creditors could share equally in the distribution of available
assets.”); In re Daniels, 316 B.R. 342, 354 (Bankr. D. Idaho 2004) (“[P]rior to the
entry of a discharge, even creditors holding nondischargeable debts are prohibited
by the automatic stay from resorting to judicial proceedings to collect.”); In re
Weatherly, 169 B.R. 555, 561–62 (Bankr. E.D. Pa. 1994) (“[S]imply because the
Debtor’s indebtedness to the IRS is nondischargeable does not automatically
compel relief from the stay in the IRS’s favor. . . . Of course, the IRS may be
entitled to relief from the automatic stay to proceed to levy against a taxpayer-
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debtor’s property where it presents evidence that it meets the requirements of 11
U.S.C. §§ 362(d)(1) or 362(d)(2).”); In re Miller, 98 B.R. 110, 113 (Bankr. N.D.
Ga. 1989) (“The stay is applicable to all claims, even nondischargeable and
priority claims, unless excepted by § 362(b).”).
We agree with these courts that nondischargeability alone cannot supply the
cause contemplated by § 362(d)(1), otherwise the statutory automatic exceptions
for the enumerated nondischargeable debts—like domestic support obligations—
found in § 362(b) would be meaningless. In re Mu’min, 374 B.R. at 161 (“[T]he
conscious decision of Congress to make an express exception for one
nondischargeable debt implies that Congress intended that collection of other
nondischargeable debts be subject to the automatic stay.” (internal quotation marks
omitted)); see Tug Allie-B, Inc. v. United States, 273 F.3d 936, 944 (11th Cir.
2001) (noting that “[w]here Congress explicitly enumerates certain exceptions to a
general prohibition, additional exceptions are not to be implied, in the absence of
evidence of a contrary legislative intent” (alteration in original) (internal quotation
marks omitted)). This is not to say that nondischargeability cannot be a factor, or
even a weighty factor, in a bankruptcy court’s evaluation of “cause,” but the
Disciplinary Board’s possession of a nondischargeable judgment against Feingold,
without more, is insufficient to warrant relief from the automatic stay.
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Here, the bankruptcy court, in its order denying the Disciplinary Board relief
from the automatic stay, erroneously concluded that the Disciplinary Board’s
judgment against Feingold was dischargeable, and thus, it denied the Disciplinary
Board relief from the automatic stay. The district court likewise focused on this
same dischargeability issue, and although it correctly concluded that the debt is
nondischargeable, it erred by focusing solely on that factor, to the exclusion of
other potentially relevant circumstances. See In re Dixie Broad., Inc., 871 F.2d at
1026.
III. CONCLUSION
Because the debt’s nondischargeability in this case did not settle the question
of whether the Disciplinary Board was entitled to relief from the automatic stay,
the bankruptcy court should have looked to the totality of the circumstances in
Feingold’s case to determine whether stay relief was warranted. However, the
parties, the bankruptcy court, and the district court all stopped short in their
analysis of this issue, and the record before us on appeal does not permit us to
conduct such a fact- and case-specific inquiry that has not been briefed by the
parties.
Consequently, although we affirm the district court’s order insofar as it
reverses the bankruptcy court and holds that the Disciplinary Board’s judgment
against Feingold is a nondischargeable “fine, penalty, or forfeiture,” we vacate the
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order insofar as it grants the Disciplinary Board relief from the automatic stay. We
remand this case to the district court with instruction to remand it to the bankruptcy
court for the purpose of evaluating, under the totality of the circumstances, whether
the Board is entitled to relief from the automatic stay as to the nondischargeable
debt at issue here.
AFFIRMED IN PART, VACATED AND REMANDED IN PART.
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