THE COURTS
Title 204—JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
[ 204 PA. CODE CH. 83 ]
Proposed Amendments to the Rules of Disciplinary Enforcement to Require Certain Attorneys Who Become Debtors in Bankruptcy to Provide Written Notice of the Bankruptcy Filing
[50 Pa.B. 5975]
[Saturday, October 31, 2020]Notice is hereby given that The Disciplinary Board of the Supreme Court of Pennsylvania (''Disciplinary Board'') is considering a recommendation to the Supreme Court of Pennsylvania that the Court amend Rules 208 and 218 of the Pennsylvania Rules of Disciplinary Enforcement (''Enforcement Rules''), as set forth in Annex A. In addition, the Disciplinary Board and the Board of The Pennsylvania Lawyers Fund for Client Security (''Fund'') are considering jointly recommending to the Court that the Court adopt new Enforcement Rule 532, as set forth in Annex B. The intent of the revisions is that the Disciplinary Board and the Fund receive timely notice of a bankruptcy filing in which either agency or both agencies have an interest in order that action can be taken to contest the dischargeability of the debt, thereby promoting the disciplinary system's penal and rehabilitative interests, preserving the Fund's interest in securing restitution, and helping to defray the expense of agency proceedings.
Amendment to Enforcement Rule 208(g) (Annex A):
Subsections (g)(1)—(5) of Enforcement Rule 208 provide for the taxation of expenses incurred in the investigation and prosecution of a proceeding that results in discipline, an administrative fee, and assessed penalties on unpaid taxed expenses and administrative fees. Attorneys with unpaid judgments under this Enforcement Rule who attempt to discharge the debt in bankruptcy should be required to give timely written notice of the attorney's filing for bankruptcy protection to the Executive Director of the Disciplinary Board as set forth in proposed subsection (g)(6) of Enforcement Rule 208, for three reasons.
First, establishing a uniform procedure for notice eliminates any uncertainty about the person to whom notice is to be directed as well as any potential problems arising from a bankruptcy court's sending notice of a bankruptcy filing to any one of a number of agency locations, such as a district office many years after the entry of the judgment. Designating the Executive Director, who oversees all agency operations and finances, as the recipient of the notice ensures that the agency will have an opportunity to adequately assess and take appropriate steps to protect the agency's disciplinary and financial interests.
Second, prompt receipt of notice strengthens the Disciplinary Board's ability to take timely action in the bankruptcy proceeding, when warranted, to contest the dischargeability of the debt in furtherance of the goals of discipline. The Eleventh Circuit Court of Appeals has held that the costs and expenses assessed against an attorney under Enforcement Rule 208(g)(1) are non-dischargeable in bankruptcy because they are in the nature of a fine or penalty, are ''rolled into the overall sanction imposed against an attorney who engages in misconduct,'' and promote the Commonwealth's penal and rehabilitative interests. Disciplinary Board v. Allen L. Feingold (In re Feingold), 730 F.3d 1268, 1273-77 (11th Cir. 2013). See also In re Iulo, 564 Pa. 205, 214, 766 A.2d 335, 340 (2001) (''. . .Pennsylvania concerns itself with punishment as a prerequisite to rehabilitation.'') The rehabilitative component of Enforcement Rule 208(g) is further illustrated in D.Bd. Rules § 89.272(c), which provides that the Disciplinary Board will not entertain a petition for reinstatement filed before a formerly admitted attorney has paid in full any costs taxed in relation to formal proceedings.
Third, disciplinary enforcement and administration is funded almost exclusively through the annual attorney registration fees collected by the Disciplinary Board pursuant to Enforcement Rule 219(a). Collection of taxed expenses, administrative fees, and assessed penalties helps to defray the expense of government and to maintain the attorney disciplinary system's self-sustaining status.
Amendment to Enforcement Rule 218(f) (Annex A):
The Board will also not entertain a petition for reinstatement filed before the formerly admitted attorney has paid in full any costs taxed under § 89.209 (relating to expenses of formal proceedings) or under § 89.278 (relating to expenses of reinstatement proceedings) with respect to any previous reinstatement proceeding and has made any required restitution to the Lawyers Fund for Client Security under Enforcement Rule 531 (relating to restitution a condition for reinstatement). Subsections (f)(2)-(3) of Enforcement Rule 218 provide for the taxation of necessary expenses incurred in the investigation and processing of a petition for reinstatement and the assessment of a penalty, levied monthly on the unpaid principal balance. Attorneys with an unpaid judgment under this Enforcement Rule who attempt to discharge the debt in bankruptcy should be required to give timely written notice of the attorney's filing for bankruptcy protection to the Executive Director of the Disciplinary Board as set forth in proposed subsection (f)(4) of Enforcement Rule 218, as all three considerations identified in the previous discussion—establishing a uniform procedure for notice, enhancing the Disciplinary Board's ability to contest dischargeability of the debt, and defraying the cost of government—apply with equal force to this proposed subsection. With respect to the second consideration, expenses taxed and penalties assessed under Enforcement Rule 218(f) further Pennsylvania's rehabilitative goal and should not be dischargeable in bankruptcy because their payment is a logical extension of the rehabilitative process. Cf. D.Bd. Rules § 89.272(c) (providing in part that the Disciplinary Board will not entertain a petition for reinstatement filed before a formerly admitted attorney has paid in full any costs taxed in connection with any previous reinstatement proceeding).
New Enforcement Rule 532 (Annex B):
Proposed Enforcement Rule 532 applies to an attorney who is either the subject of a claim pending with the Fund or who has received notice that the Fund has made a disbursement in connection with a claim against the attorney and the attorney has not repaid the Fund in full plus interest (''Covered Attorney''). The new rule would require the Covered Attorney to give timely written notice of the Covered Attorney's filing for bankruptcy protection to the Executive Director of the Fund.
The Fund's receipt of the notice required by proposed Enforcement Rule 532 would allow the Fund to be proactive in protecting the Fund's ability to collect an existing obligation owed to the Fund, or to protect the Fund's potential subrogation interest in a pending claim. A claimant who has a pending claim with the Fund may receive notice of the Covered Attorney's bankruptcy filing and may not understand the significance of the deadlines set forth on the notice. A claimant may not be inclined, or may not have the financial resources, to discuss the bankruptcy filing notice with an attorney. If the claimant does not file a proof of claim in the Covered Attorney's bankruptcy and an award is subsequently approved and paid, the Fund, by virtue of a subrogation agreement with the claimant, will stand in the shoes of the claimant and may have lost the opportunity to file a proof of claim or a Complaint in Nondischargeability. This lost opportunity may inhibit the Fund's ability to recover the obligation that is owed to the Fund by the Covered Attorney.
By receiving a notice of the filing of a bankruptcy, particularly when a claim is pending with the Fund, the Fund may enter an appearance in the Covered Attorney's bankruptcy as a party in interest in order to request an extension of the deadline to file a proof of claim or adversary proceeding. The Fund could also choose to expedite the review of the claim(s) pending with the Fund regarding the Covered Attorney who is now a debtor in bankruptcy, to be able to assess the Fund's potential subrogation rights should the pending claim(s) appear to fall within the definition of a Reimbursable Loss.
Finally, recoveries obtained from Covered Attorneys increase the Fund's available financial resources in order to accomplish the Fund's mission of reimbursing misappropriated client funds to the victims. Restitution, which is a condition for reinstatement under Enforcement Rule 531, also furthers the disciplinary system's goal of rehabilitation.
Interested persons are invited to submit written comments by mail or facsimile regarding the proposed amendments to the Executive Office, The Disciplinary Board of the Supreme Court of Pennsylvania, 601 Commonwealth Avenue, Suite 5600, PO Box 62625, Harrisburg, PA 17106-2625, Facsimile number (717-231-3382), Email address Dboard.comments@pacourts.us on or before December 4, 2020.
By the Disciplinary Board of the
Supreme Court of PennsylvaniaBy the Pennsylvania Lawyers
Fund for Client SecurityJESSE G. HEREDA,
Executive DirectorKATHRYN PEIFER MORGAN,
Executive Director and Counsel
Annex A
TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart B. DISCIPLINARY ENFORCEMENT
CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT
Subchapter B. MISCONDUCT Rule 208. Procedure.
* * * * * (g) Costs—
(1) The 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. All expenses taxed under this paragraph pursuant to orders of suspension that are not stayed in their entirety or disbarment shall be paid by the respondent-attorney within 30 days after notice transmitted to the respondent-attorney of taxed expenses. In all other cases, expenses taxed under this paragraph shall be paid by the respondent-attorney within 30 days of entry of the order taxing the expenses against the respondent-attorney.
(2) In the event a proceeding is concluded by informal admonition, private reprimand or public reprimand, the Board in its discretion may direct that the necessary expenses incurred in the investigation and prosecution of the proceeding shall be paid by the respondent-attorney. All expenses taxed by the Board under this paragraph shall be paid by the respondent-attorney within 30 days of entry of the order taxing the expenses against the respondent-attorney. The expenses which shall be taxable under this paragraph shall be prescribed by Board rules.
(3) Failure to pay taxed expenses within 30 days after the date of the entry of the order taxing such expenses in cases other than a suspension that is not stayed in its entirety or disbarment will be deemed a request to be administratively suspended pursuant to Rule 219(l).
(4) In addition to the payment of any expenses under paragraph (1) or (2), the respondent-attorney shall pay upon final order of discipline an administrative fee pursuant to the following schedule:
Informal Admonition: $250 Private Reprimand: $400 Public Reprimand: $500 Public Censure: $750 Suspension (1 year or less): $1,000 Suspension (more than 1 year): $1,500 Disbarment: $2,000 Disbarment on Consent: $1,000 Transfer to Inactive Status following discipline $1,000 (i) Where a disciplinary proceeding concludes by Joint Petition for Discipline on Consent other than disbarment prior to the commencement of the hearing, the fee imposed shall be reduced by 50%.
(ii) Where a disciplinary proceeding concludes by Joint Petition for Discipline on Consent other than disbarment subsequent to the commencement of the hearing, the Board in its discretion may reduce the fee by no more than 50%.
(5) Assessed Penalties on Unpaid Taxed Expenses and Administrative Fees.
(i) Failure to pay taxed expenses within thirty days of the assessment becoming final in accordance with subdivisions (g)(1) and (g)(2) and/or failure to pay administrative fees assessed in accordance with subdivision (g)(4) within thirty days of notice transmitted to the respondent-attorney shall result in the assessment of a penalty, levied monthly at the rate of 0.8% of the unpaid principal balance, or such other rate as established by the Supreme Court of Pennsylvania, from time to time.
(ii) Monthly penalties shall not be retroactively assessed against unpaid balances existing prior to the enactment of the rule; monthly penalties shall be assessed against these unpaid balances prospectively, starting 30 days after the effective date of the rule.
(iii) The Disciplinary Board for good cause shown, may reduce the penalty or waive it in its entirety.
(6) An attorney who becomes a debtor in bankruptcy when the administrative fee, expenses or penalties taxed under this subdivision (g) or any other provision of these Rules have not been paid in full, shall notify the Executive Director of the Board in writing of the case caption and docket number within 20 days after the attorney files for bankruptcy protection.
(h) Violation of probation. Where it appears that a respondent-attorney who has been placed on probation has violated the terms of the probation, Disciplinary Counsel may file a petition with the Board detailing the violation and suggesting appropriate modification of the order imposing the probation, including without limitation immediate suspension of the respondent-attorney. A hearing on the petition shall be held within ten business days before a member of the Board designated by the Board Chair. If the designated Board member finds that the order imposing probation should be modified, the following procedures shall apply:
* * * * * Rule 218. Reinstatement.
* * * * * (f)(1) At the time of the filing of a petition for reinstatement with the Board, a non-refundable reinstatement filing fee shall be assessed against a petitioner-attorney. The filing fee schedule is as follows:
Reinstatement from disbarment or suspension for more than one year: $1,000 Reinstatement from administrative suspension (more than three years): $500 Reinstatement from inactive/retired status (more than three years): $250 Reinstatement from inactive status pursuant to Enforcement Rule 301: $250 (2) The Supreme Court in its discretion may direct that the necessary expenses incurred in the investigation and processing of the petition for reinstatement be paid by the petitioner-attorney. After the Supreme Court Order is entered, the annual fee required by Rule 219(a) for the current year shall be paid to the Attorney Registration Office.
(3) Failure to pay expenses taxed under Enforcement Rule 218(f)(2) within thirty days of the entry of the Supreme Court Order shall result in the assessment of a penalty, levied monthly at the rate of 0.8% of the unpaid principal balance, or such other rate as established by the Supreme Court from time to time. The Board, for good cause shown, may reduce the penalty or waive it in its entirety.
(4) An attorney who becomes a debtor in bankruptcy when the expenses or penalties taxed in connection with a reinstatement proceeding have not been paid in full, shall notify the Executive Director of the Board in writing of the case caption and docket number within 20 days after the attorney files for bankruptcy protection.
(g)(1) Upon the expiration of any term of suspension not exceeding one year and upon the filing thereafter by the formerly admitted attorney with the Board of averified statement showing compliance with all the terms and conditions of the order of suspension and of Enforcement Rule 217 (relating to formerly admitted attorneys), along with the payment of a non-refundable filing fee of $250, the Board shall certify such fact to the Supreme Court, which shall immediately enter an order reinstating the formerly admitted attorney to active status, unless such person is subject to another outstanding order of suspension or disbarment.
Annex B
TITLE 204—JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart B. DISCIPLINARY ENFORCEMENT
CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT
Subchapter E. PENNSYLVANIA LAWYERS FUND FOR CLIENT SECURITY
REINSTATEMENT (Editor's Note: The following rule is proposed to be added and printed in regular type to enhance readability.)
Rule 532. Duty to Report Bankruptcy Filing.
If a Covered Attorney becomes a debtor in bankruptcy after having received notice either of a claim pending with the Fund against the Covered Attorney or of any disbursement by the Fund with respect to a claim against the Covered Attorney and the Covered Attorney has not repaid the Fund in full plus interest in accordance with Rule 531, the Covered Attorney shall notify the Executive Director of the Fund in writing of the case caption and docket number within 20 days after the Covered Attorney files for bankruptcy protection. If the Covered Attorney receives notice of a pending claim or disbursement after the filing of the bankruptcy petition and before the conclusion of the bankruptcy case, the Covered Attorney shall give the written notice required by this rule within ten days after receipt of the notice of the pending claim or disbursement.
[Pa.B. Doc. No. 20-1484. Filed for public inspection October 30, 2020, 9:00 a.m.]
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