Dismissed lawyer can’t pay off debt owed to state bar for client losses, bankruptcy judge says

Bankruptcy law

Dismissed lawyer can’t pay off debt owed to state bar for client losses, bankruptcy judge says

A California lawyer struck off the bar can’t use bankruptcy to pay off more than $ 2 million in debt owed to a fund used to pay off former clients, a federal bankruptcy judge has ruled.

U.S. bankruptcy judge Ernest M. Robles of Los Angeles has ruled against former lawyer Anthony Joseph Kassas in a June 14 opinion.

The California State Bar Client Safety Fund had made more than $ 1.3 million in payments to 356 of Kassas’ former clients. Along with interest and processing fees, Kassas owes the state bar more than $ 2 million.

Kassas was struck off the bar in 2014 partly for professional misconduct in representing homeowners in financial difficulty.

According to Robles, Kassas falsely stated in an advertisement that he took legal action against various banks. He then collected fees ranging from $ 1,500 to $ 4,500 to help homeowners obtain loan modifications, but “failed to competently perform the legal services promised,” Robles said.

The state bar recognized that Kassas could pay the more than $ 200,000 in damages ordered by the California Supreme Court. And Kassas agreed that he could not pay the assessed disciplinary costs.

But the parties disagreed on whether the debt of the security fund could be discharged. California argued that the debt is a fine, penalty, or forfeiture payable to a government unit that cannot be discharged. Kassas argued that debt can be written off because the state bar acts as an intermediary to pay off third parties.

Other bankruptcy courts have ruled that the client’s security fund debt cannot be discharged on the assumption that the lawyer’s reimbursement is rehabilitation, not compensation.

“The court finds the reasoning of these cases convincing,” Robles wrote.

Robles certified a direct appeal of his decision to the 9th U.S. Court of Appeals in San Francisco.

Hat tip to Bloomberg Law, who had the coverage of the decision.

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