BROWN v SMITH, 9915742
U.S. 9th Circuit Court of Appeals
BROWN v SMITH
9915742
IN RE MARY POOLE,
Debtor.
No. 99-15742
RUSSELL A. BROWN, Chapter 13
BAP No.
Trustee,
AZ-98-1681
Appellant,
OPINION
v.
MICHAEL T. SMITH,
Appellee.
Appeal from the Bankruptcy Appellate Panel
Russell, Ryan and Meyers, Judges, Presiding
Argued and Submitted
July 5, 2000--San Francisco, California
Filed August 25, 2000
Before: John T. Noonan, Sidney R. Thomas and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge Thomas
_________________________________________________________________
COUNSEL
Russell A. Brown, Phoenix, Arizona, Chapter 13 Trustee.
Michael T. Smith, Schaumburg, Illinois, appellee Pro Se.
_________________________________________________________________
OPINION
THOMAS, Circuit Judge:
In this appeal, we consider whether a bankruptcy attorney,
properly admitted to practice in the relevant federal district
court, may be denied fees pursuant to 11 U.S.C.S 101(4)
because he is not admitted to practice in the state where the
district court sits. We conclude he may not, and we affirm the
judgment of the Bankruptcy Appellate Panel.
I
Debtor Mary Poole filed a voluntary petition in bankruptcy
pursuant to Chapter 13 of the United States Bankruptcy Code
in 1997. She was represented by Defendant Michael T. Smith,
who listed his place of business in the bankruptcy petition as
being in Scottsdale, Arizona. Poole paid Smith $750 for legal
services and $160 for filing fees. Her original Chapter 13 Plan
and Application for Administrative Expense states that the
services rendered by Smith included advice and counsel
regarding bankruptcy law, assistance with form preparation,
representation at the first meeting of creditors and client con-
sultations. Poole's Chapter 13 plan further proposed that
Smith be paid an additional $500 as an administrative
expense.
Smith is a member of the Illinois State Bar and in 1991 was
admitted by the United States District Court for the District of
Arizona to practice in the Arizona federal courts. He is not a
member of the Arizona State Bar. Chapter 13 trustee Brown
objected to Poole's plan because he believed that since Smith
was unlicensed by the State Bar of Arizona, he was not an
"attorney" for compensation purposes under 11 U.S.C.
S 101(4). The trustee objected to the payment of future
administrative expenses as requested in paragraph 3.a.(2) of
the Chapter 13 plan, and also requested that Smith disgorge
the $750.00 paid to him. Smith withdrew his request for
administrative expenses. After a number of hearings, the
bankruptcy court eventually denied the trustee's motion to
disgorge fees and overruled the trustee's plan objection. The
Bankruptcy Appellate Panel affirmed the judgment of the
bankruptcy court. This timely appeal followed.
II
[1] Admission to practice law before a state's courts and
admission to practice before the federal courts in that state are
separate, independent privileges. "The two judicial systems of
courts, the state judicatures and the federal judiciary, have
autonomous control over the conduct of their officers, among
whom, in the present context, lawyers are included. " Theard
v. United States, 354 U.S. 278, 281 (1957). Thus, for exam-
ple, "disbarment by federal courts does not automatically flow
from disbarment from state courts." Id. at 282; accord In re
Ruffalo, 390 U.S. 544, 547 (1968). This is true even when
admission to a federal court is predicated upon admission to
the bar of the state court of last resort. See Selling v. Radford,
243 U.S. 46, 49 (1916); see also Theard, 354 U.S. at 281
("While a lawyer is admitted into a federal court by way of
a state court, he is not automatically sent out of the federal
court by the same route."). Once federal admission is secured,
a change in circumstances underlying state admission -- such
as a shift in domicile -- is "wholly negligible " on the right to
practice before a federal court. Selling, 243 U.S. at 49.
[2] In short, "a federal court has the power to control
admission to its bar and to discipline attorneys who appear
before it." Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)
(citing Ex parte Burr, 9 Wheat. 529, 531 (1824)). The power
of courts to disbar or otherwise discipline attorneys must be
exercised consistent with the requirements of the Due Process
Clause. See Schware v. Board of Bar Exam. of N.M., 353 U.S.
232, 238 (1957). This means that the attorney must be
afforded fair notice of the charge and a meaningful opportu-
nity to respond. See Ruffalo, 390 U.S. at 550. A federal court
may impose discipline or disbarment based upon another
court's disciplinary adjudication only if an independent exam-
ination of the other court's record shows:
(1) no deprivation of due process; (2) sufficient
proof of misconduct; and (3) no grave injustice
would result from the imposition of such discipline.
In re Kramer, 193 F.3d 1131, 1132 (9th Cir. 1999) (citing
Selling, 243 U.S. at 50-51). In such circumstances, a show
cause hearing must be afforded. See id. at 1133.
[3] Pursuant to their exclusive authority over members of
their bar, federal courts have promulgated local rules pertain-
ing to admission and discipline. See 28 U.S.C. S 2071; Fed.
R. Civ. P. 83; Zambrano v. City of Tustin, 885 F.2d 1473,
1479 (9th Cir. 1989). The District of Arizona requires resident
Arizona attorneys to be members in good standing of the State
Bar of Arizona as a condition of admission to the federal bar.
See Ariz. R. of Practice 1.5(b) (1998). Although the rules
have since changed, during the time relevant to this appeal,
non-resident attorneys could also be admitted to practice in
federal courts in the District of Arizona under Ariz. R. of
Practice 1.5(c) (1998), which provided:
Any member in good standing of the bar of any Fed-
eral Court, and who neither resides nor maintains an
office for the practice of law in the District of Ari-
zona, may be admitted to practice in this District
upon appropriate application, completion of the oath
upon admission, and payment of an admission fee of
fifty dollars ($50) to the Clerk, U.S. District Court.
The Clerk will issue and mail the certificate of
admission. If the applicant becomes an Arizona resi-
dent and/or intends to maintain a principal office or
practice in Arizona, he or she must reapply under
paragraph (b) of this Rule.
[4] The bankruptcy courts are, of course, units of the dis-
trict courts. See 28 U.S.C. S 151. District courts are empow-
ered to make local rules governing bankruptcy procedure
within the district and may also authorize bankruptcy courts
to issue local rules. See Fed. R. Bankr. P. 9029. The District
regulates practice before Arizona bankruptcy courts: under
the bankruptcy rules adopted by the District of Arizona,
"[a]ny attorney admitted to practice before the United States
District Court of Arizona may practice before this bankruptcy
court." Ariz. R. of Bankr. P. 2090-1.
III
[5] Defendant Smith was duly admitted to practice in the
District of Arizona as a non-resident lawyer pursuant to Ariz.
R. of Practice 1.5(c) (1998). He has practiced before the
United States Bankruptcy Court for the District of Arizona
from the time of his admission.
Despite Smith's admission to the Arizona bankruptcy bar,
the trustee contends Smith is not eligible to receive compen-
sation for his services. The trustee founds his claim on 11
U.S.C. S 101(4) which provides that the term "attorney" as
used in the Bankruptcy Code means "attorney, professional
law association, corporation, or partnership, authorized under
applicable law to practice law." The trustee argues that the
"applicable law" referenced in S 101(4) means the rules per-
taining to practice in Arizona promulgated by the Arizona
Supreme Court, specifically Ariz. St. Ct. R. 31(a) and Ariz.
St. Ct. R. 33(c). Arizona Supreme Court Rule 31(a)(3) pro-
vides:
Privilege to Practice. [N]o person shall practice law
in this state or hold himself out as one who may
practice law in this state unless he is an active mem-
ber of the state bar, and no member shall practice
law in this state or hold himself out as one who may
practice law in this state while suspended, disbarred,
or on disability inactive status.
Arizona Supreme Court Rule 33(c) provides:
Practice in Courts. No person shall practice law in
the State of Arizona without being admitted to the
bar by compliance with the following rules, provided
that an attorney practicing in another state or terri-
tory or insular possession of the United States or the
District of Columbia may be permitted by any court
to appear in a matter pro hac vice, in accordance
with the procedures set forth in subpart (d) of this
Rule.
From the assumption that the Arizona Supreme Court's
admission rules govern practice in the United States Bank-
ruptcy Courts, the trustee then reasons that Smith does not
qualify as an "attorney" entitled to compensation under the
Bankruptcy Code.
[6] As we have discussed, and as nearly a century of
Supreme Court precedent makes clear, practice before federal
courts is not governed by state court rules. Further, and more
importantly, suspension from federal practice is not dictated
by state rules. Although state disciplinary proceedings are
accorded "high respect" in federal court, they are not "conclu-
sively binding." Theard, 354 U.S. at 282. Thus, the Arizona
Supreme Court rules cannot be the "applicable law " to which
the Bankruptcy Code refers.
The trustee argues that Congress has preempted state law
regarding the practice of law in only a few areas, citing Sperry
v. Florida ex rel. Florida Bar, 373 U.S. 379, 383 (1963).
Sperry does not assist the trustee. In Sperry, the attorney was
charged by the State of Florida with the unauthorized practice
of law because he practiced patent law in Florida without also
obtaining a state license to practice law. The Court held that
because Congress had authorized the Commissioner of Pat-
ents to prescribe regulations governing the conduct of attor-
neys practicing before the Patent Office, Florida could not
enforce licensing requirements which gave the State a power
of review over the federal determination of practice authority.
See id. at 383-385.
The trustee argues that the Bankruptcy Code is driven by
state law and therefore cannot be equated with federal patent
law. He is incorrect. Congress has the constitutional power to
establish "uniform Laws on the subject of Bankruptcies
throughout the United States." U.S. Const., art. I, S 8. The
exercise of bankruptcy power is exclusively federal. See Kalb
v. Feuerstein, 308 U.S. 433, 439 (1940). "[J]urisdiction and
authority over bankruptcies has been vested, from the begin-
ning of the Republic, in the federal district courts." Gruntz v.
County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1080
(9th Cir. 1999) (en banc); see also 28 U.S.C. S 1334. Thus,
the trustee's reliance on Sperry is unavailing.
More importantly, Sperry involved an antipodal situation:
potential federal interference with the operation of state law.
The State of Arizona is not a party to this case. It has not
imposed any discipline upon Smith, nor has it charged him
with unauthorized practice of law. In short, this case is not
about any federal effort to displace state discipline; it is about
the inappropriate reliance on state authority to impose federal
discipline.
The trustee also relies upon Spanos v. Skouras Theatres
Corporation, 364 F.2d 161 (2d Cir. 1966), in which the Sec-
ond Circuit indicated that perhaps an out-of-state attorney
could avail himself of a federal practice exception to the
state's prohibition of unauthorized practice of law only by
working with an in-state lawyer on a specific matter. How-
ever, the attorney in Spanos, unlike Smith, was not admitted
to practice before the federal district court. Thus, the case is
completely inapposite.
[7] The only appropriate method of challenging Smith's
right to practice before the United States Bankruptcy Courts
in Arizona is to seek his suspension or disbarment from prac-
tice before the District of Arizona using procedures that com-
port with Due Process. The trustee cannot employ a collateral
attack based on state law to prevent Smith from practicing
federal bankruptcy law in Arizona. The bankruptcy court and
the Bankruptcy Appellate Panel were entirely correct in
reaching a similar conclusion.
We affirm the judgment of the Bankruptcy Appellate Panel.
AFFIRMED