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holding that an omnibus disciplinary proceeding initiated against an attorney was not a core proceeding because most of the ethical violations occurred in numerous bankruptcy cases previously closed, rather than in a pending bankruptcy proceeding and, therefore, could not be said to have involved the sort of routine case “administration” described in § 157(b)
Summary of this case from Murphy v. Felice (In re Felice)Opinion
No. 02-9007.
Heard May 6, 2003.
Decided March 29, 2004.
Appeal from the United States Bankruptcy Court for the District of New Hampshire.
William C. Sheridan, pro se.
Nancy H. Michels, with whom the Law Offices of Michels Michels and Carole A. Mansur were on the brief for appellee.
Before SELYA, Circuit Judge, CYR, Senior Circuit Judge, and LYNCH, Circuit Judge.
William C. Sheridan, Esquire, appeals from a bankruptcy court order which suspended him from the practice of law before the United States Bankruptcy Court for the District of New Hampshire and directed him to remit the fees due the special counsel appointed to investigate the various violations of the District of New Hampshire Rules of Professional Conduct for which Sheridan allegedly is responsible. We now vacate the bankruptcy court order, and remand for further proceedings.
I. BACKGROUND
In June 2000, the bankruptcy judge appointed Attorney Nancy Michels as Special Counsel to investigate the ethical violations alleged against Sheridan, an attorney and member of the bankruptcy court bar. Following an extensive investigation into Sheridan's representation of various clients between 1999 and 2000, Special Counsel lodged a complaint charging Sheridan with rendering incompetent representation in violation of N.H. Rule of Professional Conduct 1.1(a).
Although Sheridan, acting pro se, eventually stipulated to most of the allegations in the complaint, he contended that his conduct had been due either to a dopamine deficiency resulting in severe attention deficit disorder or to the uncooperativeness and obstinacy of the affected clients. Following a disciplinary hearing in June 2001, the bankruptcy court determined that Sheridan had committed eighty-eight ethical violations, most involving the failure to comply with such basic requirements as the timely filing of chapter 13 plans and motions for continuance.
In due course, Sheridan was suspended from practice before the bankruptcy court for one year; readmission contingent upon satisfactory proof that he was competent to represent clients before the bankruptcy court. Subsequently, the bankruptcy court approved an application for a $30,377.50 attorney fee to Special Counsel, then directed that Sheridan — as a precondition to his readmission to the bankruptcy bar — reimburse the bankruptcy court in that amount. Sheridan then appealed to the Bankruptcy Appellate Panel ("BAP"), which affirmed. Sheridan v. Michels ( In re Disciplinary Proceedings), 282 B.R. 79 (1st Cir. BAP 2002).
II. DISCUSSION
Sheridan contends that (i) the bankruptcy court, unlike Article III courts, lacks either the inherent or statutory power to suspend or discipline counsel who practice before it, see Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 86-87, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); (ii) moreover, even assuming the bankruptcy court possesses such disciplinary power, it cannot exercise it absent an explicit local court rule, but see U.S. Dist. Ct. Local Rule (D.N.H.) 83.5, and then only if the bankruptcy court were to determine that counsel acted in "bad faith," see Chambers v. NASCO, Inc., 501 U.S. 32, 45, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); (iii) Bankruptcy Code § 105 applies exclusively to such disciplinary proceedings against an attorney as arise in a particular, ongoing bankruptcy case, not to the instant type of omnibus investigation into alleged attorney misconduct spanning multiple bankruptcy cases no longer pending before the court; (iv) Administrative Order 2090-2, issued by the bankruptcy court below, explicitly authorizing such disciplinary hearings, is invalid due to the fact that it was promulgated without either advance notice or an opportunity for public comment, notwithstanding the rule-making provisions enunciated in Federal Rule of Civil Procedure 83, cf. U.S. Dist. Ct. Local Rule (D.N.H.) 77.4(b) ("Pursuant to [Fed.R.Bankr.P] 9029, the bankruptcy judges of this district are authorized to make such rules of practice and procedure as they may deem appropriate, subject to the requirements of Fed.R.Civ.P. 83."); (v) in all events, Administrative Order 2090-2, which was not in effect at the time the bankruptcy court initiated the Sheridan investigation, cannot be applied retroactively; and (vi) the disciplinary power wielded by the bankruptcy court in the instant case offends the doctrine of separation of powers, in that the bankruptcy court itself thereby assumes the inherently conflicting roles of accuser, investigator, prosecutor, and judge.
Bankruptcy Code § 105(a) provides, in pertinent part: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a).
In the particular circumstances of the instant case, due to the fact that the BAP lacked appellate jurisdiction to address Sheridan's claims on the merits, the case must be remanded to the bankruptcy court for further proceedings. We explain.
The BAPs are authorized to review only the "final judgments, orders and decrees" issued by the bankruptcy courts. 28 U.S.C. § 158(b)(1), (a)(1). Consequently, in the instant context the dispositive jurisdictional issue is whether the disciplinary orders issued by the bankruptcy court against Sheridan were "final." See Stanley v. S.S. Retail Shoes Corp. ( In re S.S. Retail Shoes Corp.), 162 F.3d 1230, 1232 (9th Cir. 1998) ("In making the [jurisdictional] determination, we must focus on the nature of the bankruptcy court's order. If that decision was not a final order, then the BAP's order also lacks finality.").
The finality of a bankruptcy court order depends, inter alia, upon whether the proceeding in which it was entered constitutes a "core" or "non-core" proceeding. Although the district court, as a tribunal established under Article III of the United States Constitution, possesses broad jurisdiction to adjudicate all proceedings which even tangentially "aris[e] under," or are "related to," a bankruptcy case [hereinafter: "related to" proceedings], the district court may opt to refer such cases or proceedings to the bankruptcy courts for hearing or adjudication. See 28 U.S.C. § 157(a). Of course, unlike the district court, the bankruptcy court is established pursuant to Article I, rather than Article III, and its jurisdiction is delimited accordingly. Although the bankruptcy court may hear all "related-to" proceedings which have been referred to it, whether core or non-core, it may enter a final appealable judgment only if (i) the proceeding itself is core, viz., closely intertwined with and integral to the bankruptcy court's mandate to administer a bankruptcy case; or (ii) the case or proceeding is non-core, but the litigants nonetheless have consented to the entry of a final disposition by the bankruptcy court, rather than by the district court. See Northern Pipeline, 458 U.S. at 86-87, 102 S.Ct. 2858.
If the proceeding is core, the bankruptcy court's final judgment is immediately appealable either to the district court or, with the consent of the parties, to the BAP. 28 U.S.C. § 158(b)(1); § 157(b)(1). In either instance, the appellate tribunal applies a deferential standard of review to the bankruptcy court's findings of fact, and will upset those findings only if clearly erroneous. See In re Spadoni, 316 F.3d 56, 58 (1st Cir. 2003).
In a non-core proceeding, however, the bankruptcy court is not empowered to enter final, appealable orders without the parties' consent. Instead, after it has conducted the required proceedings, it must submit its proposed findings of fact and conclusions of law for consideration by the district court. See 28 U.S.C. § 157(c)(1); Cong. Credit Corp. v. AJC Int'l, Inc., 42 F.3d 686, 690 (1st Cir. 1994). The role of the district court in turn is to conduct de novo review of the findings of fact and the conclusions of law submitted by the bankruptcy court. In so doing, the district court may receive further evidence, modify the findings proposed by the bankruptcy court, and/or remand to the bankruptcy court with instructions. See Fed.R.Bankr.P. 9033(d). At that stage, any appeal from the "final" district court order may be taken only to the court of appeals, which applies a deferential standard of review. Id. § 158(d).
In the instant case, the BAP did not address the core/non-core distinction in its decision, Sheridan, 282 B.R. at 86-89, perhaps because Sheridan's reference to it — included amongst other objections, in his appellate briefs, to the bankruptcy court's authority to impose sanctions — simply was not prominently advanced or distinguished. Unlike the issue of subject matter jurisdiction, which may neither be waived nor forfeited by the parties, see Quinn v. City of Boston, 325 F.3d 18, 26 (1st Cir. 2003), and into which the courts are duty-bound to inquire, sua sponte, even absent objection by any party, see Hicks, Muse Co. v. Brandt ( In re Healthco Int'l, Inc.), 136 F.3d 45, 50 n. 4 (1st Cir. 1998), the protections afforded by the Northern Pipeline core/non-core distinction may be waived or forfeited, either by (i) consenting to the bankruptcy court's treatment of an otherwise non-core proceeding as core, or (ii) failing to raise or pursue the issue adequately on appeal. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848-49, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986).
Although normally the proper designation of a proceeding as either core or non-core presents a pure question of law, subject to plenary review on appeal, see In re V M Mgmt., Inc., 321 F.3d 6, 7 (1st Cir. 2003); In re Graves, 279 B.R. 266, 270 (9th Cir. BAP 2002), if Sheridan failed to preserve his contention before the bankruptcy court or on appeal, we would review for plain error only, see Rivera-Torres v. Ortiz Velez, 341 F.3d 86, 102 (1st Cir. 2003) ("[C]laims 'forfeit[ed] through ignorance or neglect' are subject to plain error review.") (citation omitted). We now turn to these threshold issues.
A. Consent
Before the bankruptcy court, Sheridan did not expressly consent, either orally or in writing, to the treatment of his omnibus disciplinary proceeding as core. In In re G.S.F. Corp., 938 F.2d 1467 (1st Cir. 1991), we decided that in certain circumstances, at least where the parties' actions appear to speak as clearly as words, consent may be implied. The actions deemed to have evidenced "implied consent" in G.S.F. consisted of (i) the filing of stipulations and releases by the parties "for entry as a final judgment" in the bankruptcy court, which stipulations and releases subsequently were incorporated into the final order whereby the bankruptcy court dismissed the proceeding, and (ii) the decision by the parties not to appeal from that "final" order. Id. at 1477. Thus, it was their affirmative and unambiguous conduct before the bankruptcy court — rather than their mere failure to request prior to judgment that the proceeding be declared non-core — which constituted the functional equivalent of the parties' express consent. See infra note 5.
The advisory committee note to Federal Rule of Bankruptcy Procedure 7008, which implements the statutory core/non-core dichotomy, provides:
Proceedings before a bankruptcy judge are either core or non-core. 28 U.S.C. § 157. A bankruptcy judge may enter a final order or judgment in a core proceeding. In a non-core proceeding, absent consent of the parties, the bankruptcy judge may not enter a final order or judgment but may only submit proposed findings of fact and conclusions of law to the district judge who will enter the final order or judgment. 28 U.S.C. § 157(c)(1). The amendment to subdivision (a) of this rule requires an allegation as to whether a proceeding is core or non-core. A party who alleges that the proceeding is non-core shall state whether the party does or does not consent to the entry of a final order or judgment by the bankruptcy judge. Failure to include the statement of consent does not constitute consent. Only express consent in the pleadings or otherwise is effective to authorize entry of a final order or judgment by the bankruptcy judge in a non-core proceeding. Amendments to Rule 7012 require that the defendant admit or deny the allegation as to whether the proceeding is core or non-core.
Fed.R.Bankr.P. 7008 advisory committee's note (1987) (emphasis added).
In contrast, Sheridan's conduct did not unambiguously connote consent, either to the bankruptcy court's characterization of the proceeding as core or to its final adjudication of the proceeding as non-core. It is true that Sheridan did not suggest that the proceeding was non-core until he submitted the post-judgment motion for reconsideration, cf. Santiago v. Canon U.S.A., Inc., 138 F.3d 1, 4 (1st Cir. 1998) (noting that party normally may not raise new issues in post-judgment motion for reconsideration), but the entry of the judgment was the first procedural juncture in the bankruptcy proceeding in relation to which the core/none-core issue was broached. Until then, it remained unclear how the bankruptcy court viewed its own jurisdiction.
To be sure, Sheridan could have elected to place the issue in contention sooner, but the failure to do so can bear no inference of consent. When the district court refers a "related to" proceeding to the bankruptcy court, no presumption attaches that the proceeding is core. Indeed, the Rules of Bankruptcy Procedure, which serve to implement the statute itself, mandate that the complaint contain a statement or allegation regarding whether the proceeding is core or non-core, and if the latter, whether the plaintiff consents to the entry of a final judgment by the bankruptcy court. See Fed.R.Bankr.P. 7008(a). The complaint filed by Special Counsel failed to place the issue in contention by alleging that the proceeding was core. In cases where the plaintiff ( e.g., Special Counsel Michels) has the burden to plead the core/non-core issue, and has chosen the bankruptcy court as her forum, her silence might connote consent. See, e.g., Horwitz v. Alloy Auto. Co., 992 F.2d 100, 103 (7th Cir. 1993) ("Silence does not imply consent, but affirmatively invoking the bankruptcy court's jurisdiction most assuredly supplies whatever consent is necessary.") (citations omitted). As Michels is not the appellant, and appellant Sheridan did not initiate the disciplinary proceeding, we need not address this issue.
The dissent relies upon various cases, some cited with approval in In re G.S.F., in which the specific issue involved consent by a party — unlike Sheridan — who had invoked the bankruptcy court's jurisdiction. See Canal Corp. v. Finnman ( In re Johnson), 960 F.2d 396, 398 (4th Cir. 1992) (noting that appellant was plaintiff in adversary proceeding); Mann v. Alexander Dawson, Inc. ( In re Mann), 907 F.2d 923, 925-26 (9th Cir. 1990) (same); Daniels-Head Assocs. v. William M. Mercer, Inc. ( In re Daniels-Head Assocs.), 819 F.2d 914, 919 (9th Cir. 1987) (same); Pisgah Contractors, Inc. v. Rosen ( In re Pisgah Contractors, Inc.), 215 B.R. 679, 682 (W.D.N.C. 1995) ("[B]y asserting a counterclaim against the debtor in the adversary proceeding, the Rosens subjected themselves to the equitable power of the Bankruptcy Court."); Jefferson Nat'l Bank v. I.A. Durbin, Inc. ( In re I.A. Durbin, Inc.), 62 B.R. 139, 143 (S.D.Fla. 1986) (finding implied consent where counterclaimant-appellant had joined in a third party's counterclaim, knowing that her co-complainant already had admitted that her counterclaim involved a core proceeding); cf., e.g., Marshall v. Mich. Dep't of Agric. ( In re Marshall), 118 B.R. 954, 960 (W.D.Mich. 1990) (refusing to find implied consent where appellant's counterclaim was compulsory).
Similarly, Bankruptcy Rule 7012(b) prescribes that the defendant's answer "shall admit or deny an allegation that the proceeding is core or non-core," and that "[i]n non-core proceedings[,] final orders and judgments shall not be entered on the bankruptcy judge's order except with the express consent of the parties." By implication, therefore, there was no need for the Sheridan answer to challenge the core nature of the proceedings due to the fact that the complaint made no such allegation.
Again, the dissent relies upon inapposite case law and authorities wherein the defendant-appellant's answer had failed to deny an express allegation of core jurisdiction. See Pisgah Contractors, 215 B.R. at 682; Aero-Fastener, Inc. v. Sierracin ( In re Aero-Fastener, Inc.), 177 B.R. 120, 132 (Bankr.D.Mass. 1994); 1 Lawrence P. King, Collier on Bankruptcy § 3.02[6][b] ("The effect of failure to interpose an objection at the pleading stage should be consent to the final order being entered by the bankruptcy judge.") (emphasis added).
Moreover, absent the parties' allegations, the bankruptcy court is required in all cases to make a sua sponte determination as to whether or not a proceeding is core, 28 U.S.C. § 157(b)(3) ("The bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding.") (emphasis added), and it seems quite clear that this provision would have been phrased very differently were the Congress to have intended that all "related to" proceedings referred to the bankruptcy court were to be deemed presumptively core.
Of course, whether the Sheridan proceeding was core or non-core, the bankruptcy court was empowered to hear the case and receive evidence. See 28 U.S.C. § 157(c)(1) ("A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11."). Thus, the core/non-core distinction would have significance primarily at the time of judgment, when it would become necessary to characterize the bankruptcy court order either as a final judgment ( viz., enabling an immediate appeal either to the district court or the BAP), or as a recommended decision ( viz., necessitating its referral back to the district court for entry of a final, appealable judgment).
In contrast to our limited holding in G.S.F., other courts have split on the issue as to whether Bankruptcy Code § 157(c) consent may be implied merely from the party's failure to object, in a timely manner, to the hearing of the proceeding by the bankruptcy court. Compare, e.g., In re Hatfield, 117 B.R. 387, 388 n. 1 (Bankr.C.D.Ill. 1990) (drawing such inference), with Cont'l Airlines, Inc. v. First Sec. Bank of Utah, N.A. ( In re Cont'l Airlines, Inc.), 146 B.R. 534, 536 (Bankr. D.Del. 1992) ("Implied consent is not sufficient to waive constitutional [core/non-core] jurisdiction."). The rationale for those former cases, propounding the broad rule now embraced by our dissenting colleague, is not consonant with either the provisions in or the commentary to Federal Rule of Bankruptcy Procedure 7008, which plainly require "express consent." See supra note 2. Moreover, that rationale ignores the important reality that the bankruptcy court is empowered to conduct hearings in both core and non-core proceedings. See 28 U.S.C. § 157(c)(1). Thus, a party which acquiesces in the bankruptcy court's decision to hear the case would not necessarily presume that the court intended its post-hearing decision to be final, as distinguished from recommendatory.
Thus, in the instant case, until the bankruptcy court entered its "final" judgment characterizing the disciplinary proceeding as core, Sheridan was not placed on notice, either by the bankruptcy court or Special Counsel, that the hearing would be so characterized. Finally, Sheridan objected at the earliest available opportunity by submitting a timely postjudgment motion for reconsideration. Accordingly, in these circumstances we conclude that the actions taken by Sheridan did not sufficiently connote consent to the final adjudication of the omnibus disciplinary proceeding by the bankruptcy court.
The primary authority the dissent cites for its expansive interpretation of consent involved proceedings in which the courts determined that the appellants (unlike Sheridan) failed to object even after the bankruptcy court had entered a "final" judgment. See McFarland v. Leyh ( In re Tex. Gen. Petroleum Corp.), 52 F.3d 1330, 1337 (5th Cir. 1995) (finding an implied waiver because defendant-appellant "fail[ed] to object in the bankruptcy court," appealed to the district court instead of seeking de novo review, and "his objection to jurisdiction at this stage [ viz., on appeal to the court of appeals] 'more closely resembles an afterthought'") (citation omitted); Abramowitz v. Palmer, 999 F.2d 1274, 1276 (8th Cir. 1983) (implied consent found where defendant-appellant did not raise her non-core argument before the bankruptcy court, she appealed the bankruptcy court's dischargeability decision to the district court, rather than seeking its de novo review, and she raised her non-core argument "for the first time" before the court of appeals); Canal Corp. v. Finnman ( In re Johnson), 960 F.2d 396, 403 (4th Cir. 1992) (implied consent found because plaintiff-appellants were "apparently content" when bankruptcy court entered its "final" judgment to distribute monies to appellants, and objected only after the bankruptcy court had modified its judgment so as to reallocate the monies among various members of the plaintiff class); Men's Sportswear, Inc. v. Sasson Jeans, Inc. ( In re Men's Sportswear, Inc.), 834 F.2d 1134, 1138 (2d Cir. 1987) (noting that appellant failed to raise non-core issue even after bankruptcy court issued its judgment explicitly declaring the proceeding core, and even on appellant's appeal to the district court); DuVoisin v. Foster ( In re S. Indus. Banking Corp.), 809 F.2d 329, 331 (6th Cir. 1987) (finding implied consent where defendant-appellant's answer (i) stated without qualification that bankruptcy court had "jurisdiction," (ii) raised no jurisdictional challenge before judgment, and (iii) marked the bankruptcy court order as "agreed for entry").
B. Waiver/Forfeiture
In light of the BAP's failure to address the core/non-core issue, however, see Sheridan, 282 B.R. at 86-89, we now must determine whether Sheridan's argumentation on the core/non-core issue, as set forth both in his postjudgment motion for reconsideration and his appellate briefs before the BAP and this court, is sufficiently clear and developed to focus appellate attention upon the merits of the core/non-core issue. See Mulvihill v. Top-Flite Golf Co., 335 F.3d 15, 27 (1st Cir. 2003) (noting that issues raised in perfunctory manner on appeal are deemed waived). Our review reveals that Sheridan lumped together a host of jurisdictional and non-jurisdictional challenges predicated upon the central premise that the bankruptcy court lacked any "authority" whatsoever to impose monetary sanctions as a condition precedent to his reinstatement to the bar. Given this circumstance, therefore, we understand how the issue may have eluded the BAP's attention.
Although it may be that Sheridan, had he been represented by counsel, would have advanced his argument more prominently and distinctly than was done in his pro se submissions, we cannot fairly conclude that Sheridan failed either to raise the argument, or to discuss the criteria most pertinent to the core/non-core analysis. For instance, in his motion for reconsideration Sheridan plainly contended: "As such the Bankruptcy [C]ourt does not share all the powers of the district court. Thus in [ Northern Pipeline], the United States Supreme Court held that it was unconstitutional for the Bankruptcy Courts to exercise the 'essential attributes of the judicial power of the Article III district court,' and that the bankruptcy court's power was limited to ' core proceedings' of the administration of the bankruptcy estate under the bankruptcy code, 28 U.S.C. § 157(b)(1)." (Emphasis added; citations omitted.)
By way of bolstering its inference that Sheridan consented, the dissenting opinion adverts to Sheridan as "an experienced bankruptcy attorney," while failing to acknowledge that these disciplinary proceedings arose, at least in part, from Sheridan's numerous physical ailments and mental impairments. The district court has yet to be accorded the opportunity to make the requisite findings of fact on this issue.
Not only is Northern Pipeline the seminal case on the constitutional limitations which undergird the pivotal core/non-core distinction, but the utter absence of a close nexus between the Sheridan disciplinary proceeding and the administration of any particular pending bankruptcy proceeding is a crucial consideration in resolving the core/non-core issue. See 28 U.S.C. § 157(b)(2)(A) (noting that core proceedings involve, inter alia, "matters concerning the administration of the estate") (emphasis added); infra Section II.C. Moreover, Sheridan reiterated the same argument verbatim, both before the BAP and in the instant appeal, by relying upon the same citation to, and paraphrase of, the Northern Pipeline holding, then adding: "The disciplinary order in each of the cases cited by the [BAP] arose out of and during the administration of a single bankruptcy estate." (Emphasis added.) Thus, though Sheridan might have asserted the issue with somewhat more prominence and clarity, we are hard-pressed to find, on these submissions, that the argument was conclusively forfeited. "[A] court should not lightly infer from a litigant's conduct consent to have private state-created rights adjudicated by a non-Article III bankruptcy judge. Indeed, to do so would violate the spirit of [ Northern Pipeline]." In re Men's Sportswear, Inc., 834 F.2d 1134, 1138 (2d Cir. 1987).
Nor can the Sheridan decision to appeal to the BAP, rather than the district court, be deemed implied consent. Normally, a bankruptcy court decision in a non-core proceeding is not appealable to the BAP, but must be taken to the district court. Here, however, the bankruptcy court purportedly entered a decision on the merits in what it termed a core proceeding, thereby rendering its judgment (unless vacated on appeal) final and appealable. See In re M.A. Baheth Constr. Co., 118 F.3d 1082, 1084 (5th Cir. 1997) ("Until and unless the determination of bankruptcy court jurisdiction is overturned, Baheth was bound to comply with the court's judgment — and the procedural consequences thereof."). Appeals from such a judgment lie either with the BAP or the district court, sitting in its appellate capacity. See 28 U.S.C. § 158(c)(1). Thus, either the BAP or the district court would have jurisdiction to determine whether the bankruptcy court's designation of the proceeding as core constituted reversible error.
We find equally enigmatic the related suggestion in the dissenting opinion that Sheridan expressly abandoned his objection to the bankruptcy court's core treatment of the proceeding. In his 15-page supplemental brief Sheridan vehemently disputes that he ever consented, asserting instead that he promptly raised the core/non-core issue in his motion for reconsideration before the bankruptcy court. Michels, the party whose burden it was to allege that the proceeding was core, declined our invitation to submit supplemental briefing. Sheridan did note that he would "take no position" on the non-core issue, but not because he conceded that it lacked merit, nor that it was not in his interest to pursue it. Instead, he noted that it was supported by "ample authority." He believed (albeit incorrectly) that the jurisdictional issue became relevant only if we were to find that the bankruptcy court had issued the sanction under Administrative Order 2090-2 only, and not pursuant to Bankruptcy Code § 105. This is a far cry from abandonment. Assuming that further evidence that Sheridan had not abandoned this claim was needed, however, his supplemental brief, in its final citation, points to In re BN1 Telecommuns., 246 B.R. 845, 849 (6th Cir. BAP 2000), a case in which the Sixth Circuit reversed a bankruptcy court for improperly entering a final judgment in a non-core proceeding without appellant's consent.
No less importantly, even in the event we were to conclude that Sheridan forfeited the instant issue below, see Mulvihill, 335 F.3d at 27, it is within our discretion to address an issue de novo, in those rare instances where the issue poses "purely a question of law; where addressing the merits promotes judicial economy as the same issue will likely be raised in other cases; and the claim raises an issue of constitutional magnitude, which if meritorious, could substantially affect the rights of creditors and debtors in this and future bankruptcy proceedings." In re Weinstein, 164 F.3d 677, 685 (1st Cir.) (reaching unpreserved Fifth Amendment Takings Clause issue), cert. denied, 527 U.S. 1036, 119 S.Ct. 2394, 144 L.Ed.2d 794 (1999); United States v. La Guardia, 902 F.2d 1010, 1013 (1st Cir. 1990) (reaching unpreserved due process challenge to sentencing guidelines).
The core/non-core argument advanced by Sheridan suits the bill on all three criteria. The question as to whether the proceeding is core or non-core poses a pure question of law, subject to plenary appellate review. See In re Graves, 279 B.R. at 270. As the extended procedural travel of this case amply demonstrates, the proper characterization, ab initio, of this type of omnibus disciplinary proceeding — as either core or non-core — is likely to minimize substantially the waste of judicial resources in future cases. For example, had this proceeding been considered non-core from the outset, the Sheridan appeals to the BAP and to this court could not have occurred, the case would have proceeded directly to the district court to decide whether to adopt or reject the recommended findings of fact and legal conclusions made by the bankruptcy court, and Sheridan may well have averted almost two years of suspension from his professional livelihood.
The consequences of the core/non-core determination cannot fairly be understated. Thus, if the bankruptcy court decision were not a final judgment, but merely a recommendation for entry of judgment, the Sheridan suspension from law practice would be premature, and could never have taken effect unless and until the district court adopted the recommended decision entered by the bankruptcy court. Similarly, had the district court adopted the bankruptcy court recommendation, the issues upon which Sheridan might base his appeal would be drastically altered. That is to say, in that event the question would not be whether the bankruptcy court rules or administrative orders authorized this type of sanction, but whether the district court's rules and orders authorized such a sanction. See U.S. Dist. Ct. Local Rule (D.N.H.) 83.5.
Finally, the core/non-core distinction advanced in Northern Pipeline unquestionably is one of constitutional import, in that it concerns the authority of an Article I court to enter a final judgment in a non-core proceeding absent the consent of the parties. Thus, even assuming we were to conclude that Sheridan's presentation of the core/non-core contention before the bankruptcy court and the BAP was inadequate, we would consider this case an appropriate one in which to conduct de novo review, rather than plain error review.
With respect, we must note that our dissenting colleague's disapproval of our recourse to the La Guardia exception flows from several faulty premises. The dissent insists that Sheridan did not raise the core/non-core issue on appeal or if he did, inexplicably abandoned it after devoting several pages of supplemental briefing to a denial that he consented to core treatment. See supra note 8. The dissent further states that the non-core issue is not one of constitutional dimension. To the contrary, even the authorities cited by the dissent acknowledge that Northern Pipeline, which § 157 purports to implement, involved a litigant's constitutional right to have his case heard by an Article III court. See, e.g., In re Tex. Gen. Petroleum Corp., 52 F.3d at 1336 ("[Appellant's core/non-core] argument, however, is a constitutional one based on Article III. We must undertake the constitutional analysis."). The dissent then mischaracterizes our delineation of the factors which render this particular type of omnibus disciplinary proceeding non-core as involving a factual determination, whereas it is a purely legal determination as to what essential attributes of this proceeding satisfy the legal criteria set forth in § 157(b)(2). See, e.g., In re Graves, 279 B.R. at 270 (noting that the core/noncore determination is a question of law). The dissent further contends that the legal argument for characterizing the Sheridan disciplinary proceeding as non-core is not compelling, even though the dissent cites no contrary authority directly on point, and the Sheridan disciplinary proceeding meets none of the criteria set forth in Bankruptcy Code § 157(b)(2). See infra Section II.C.; Eleccion v. Sogge ( In re Hessinger Assocs.), 192 B.R. 211, 219-20 (N.D.Cal. 1996) (holding that omnibus disciplinary proceedings are non-core). Finally, despite its admission that these types of omnibus proceedings have occurred in the past, the dissent rejects our resort to the La Guardia exception based on its surmise that the bankruptcy courts are not likely to resort to such omnibus disciplinary proceedings in the future. One readily can envision, however, that an Article I court — once reassured that it is exercising its core authority — would be hard put to resist the streamlined disciplinary procedures and finality afforded by these proceedings.
C. Core v. Non-core
Notwithstanding the jurisdictional issues raised by Sheridan, see supra, the bankruptcy court failed to elaborate upon its rationale for ruling that the instant omnibus disciplinary action constitutes a core proceeding. See 28 U.S.C. § 157(b)(3). Generally speaking, a proceeding which "arises under" the bankruptcy laws is considered core. See 28 U.S.C. § 157(b)(1); Boroff v. Tully ( In re Tully), 818 F.2d 106, 108 (1st Cir. 1987). This statutory provision prescribes a non-exhaustive exemplar of core proceedings, 28 U.S.C. § 157(b)(2)(A)-(O), including the allowance and disallowance of proofs of claim, orders to turn over property to the estate, proceedings to avoid preferences or fraudulent conveyances, motions to lift automatic stays, and the adjudication of objections to discharge. Importantly, each of the enumerated matters relates to a function essential to the administration of the bankruptcy case.
The dissent advances but two arguments premised upon authority which predates the enactment of § 157(b). First, it proposes the following syllogism: (1) all non-core proceedings involve state contract claims, see Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 584, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985); (2) the Sheridan disciplinary proceeding involved no such claim; and (3) consequently, the Sheridan disciplinary proceeding is not a non-core proceeding. The initial premise is flawed, however. Thomas simply describes its Northern Pipeline holding, but does not announce that the Court would forbear in future cases from extending the Northern Pipeline rationale to other types of analogous claims. Second, the dissent cites our decision in In re Arnold Print Works, Inc., 815 F.2d 165 (1st Cir. 1987), for the proposition that attorney disciplinary actions against attorneys do not involve private contract-based rights, but "public rights" which non-Article III courts have always been permitted to adjudicate. However, Arnold addresses the somewhat arcane public rights doctrine, which describes a very narrow category of claims of a sort which Article III courts are institutionally capable of adjudicating, but which historically were resolved instead by legislative or administrative courts. See Northern Pipeline, 458 U.S. at 67-68, 102 S.Ct. 2858. Obviously, attorney disciplinary actions, long within the province of the federal courts, do not comport with this specialized "public rights" definition.
In addition to these more particular functions, there are two broadly phrased categories which relate more generally to other "matters concerning the administration of the estate," id. § 157(b)(2)(A), and "other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims," id. § 157(b)(2)(O). It is important to note that the matters adumbrated in Bankruptcy Code § 157(b)(2)(A) and (O) likewise typically arise within the context of a particular bankruptcy case, and are essential to the efficient administration of the bankruptcy case. Thus, to the extent that attorney misconduct may have thwarted the efforts of the bankruptcy court to bring a particular bankruptcy proceeding efficiently to conclusion, it is at least arguable that attorney disciplinary proceedings occurring during such a case can be classified as core.
The dissenting opinion suggests, incorrectly, that we rely upon the expressio unius principle to interpret § 157(b), thereby ignoring the explicit nonexclusivity of the § 157(b)(2) listing. See Lohnes v. Level 3 Communications, Inc., 272 F.3d 49, 61 (1st Cir. 2001) ("[T]he maxim expressio unius est exclusio alterius instructs that, 'when parties list specific items in a document, any item not so listed is typically thought to be excluded.'") (citation omitted). On the contrary, any attempted extrapolation of the § 157(b)(2) listing must be guided by reference to those essential characteristics which the listed proceedings share in common, see Aceros Prefabricados, S.A. v. TradeArbed, Inc., 282 F.3d 92, 101-02 (2d Cir. 2002); Callier v. Gray, 167 F.3d 977, 981 (6th Cir. 1999), and unlike the Sheridan omnibus disciplinary proceeding, all of the proceedings in the § 157(b) listing arise as part of the ongoing administration of "the" bankruptcy estate.
On the other hand, the omnibus disciplinary proceeding initiated against Sheridan is essentially different, in that the ethical violations in which Sheridan allegedly engaged, for the most part, occurred during the course of numerous bankruptcy cases previously closed, rather than in a pending bankruptcy proceeding, thus cannot be said to have involved the sort of routine case "administration" described in § 157(b)(2). Unlike disciplinary actions brought against counsel in the course of an ongoing bankruptcy case, the Sheridan disciplinary proceedings did not purport to adjust the legal relationships among the parties in these closed bankruptcy cases, but consisted largely of the bankruptcy court's exercise of its supervisory responsibility to oversee and regulate its bar so as to safeguard public confidence in the integrity and functionality of the bankruptcy court. See, e.g., Eleccion v. Sogge ( In re Hessinger Assocs.), 192 B.R. 211, 219-20 (N.D.Cal. 1996) (noting that disciplinary action conducted outside particular bankruptcy proceeding is non-core, "concerned solely with the issue of the [law] firm's professional misconduct [as defined by the California Rules of Professional Conduct] and addressed neither the assets of any bankruptcy estate nor the adjustment of debtor-creditor relations"). Indeed, no present or former client ever lodged a complaint against Sheridan.
All the cases the dissent cites in support of the so-called "core comes from core" principle involved discipline imposed for attorney misconduct in a single, ongoing bankruptcy case. See, e.g., In re Mem'l Estates, Inc., 950 F.2d 1364, 1370 (7th Cir. 1991) (finding that sanction "affect[ed] the liquidation of the assets of the estate").
In advancing its contention that this court cites no authority for the proposition that the § 157(b) listing restricts core proceedings to those which arise as part of the administration of a single bankruptcy case, the dissent fails to acknowledge Hessinger, the one and only extant case directly on point. In response, the dissent cites a string of cases involving omnibus disciplinary proceedings, while conceding that the parties in all those cases (unlike in Hessinger) never raised the core/non-core issue for resolution by those courts. See, e.g., Household Credit Servs., Inc. v. Dragoo ( In re Dragoo), 219 B.R. 460 (Bankr.N.D.Tex. 1998).
Although a determination that Sheridan breached ethical canons could conceivably enable these closed cases to be reopened, possibly with a view to recovering attorney fees paid to him by the respective estates, cf., e.g., id. at 220 (distinguishing non-core omnibus disciplinary action from two other cases under review where attorney sanctions were "pursued in the course of processing a bankruptcy petition," and where "finding that a law firm violated the Rules [of Professional Conduct] could lead to that firm forfeiting its fees . . . and such forfeiture would 'affect the liquidation of the assets of the estate'"), the disciplinary action against Sheridan had no such purpose or effect, since its remedial goal focused exclusively upon Sheridan's fitness to represent clients in future bankruptcy cases, rather than upon any recoupment of estate funds attributable to Sheridan's misconduct. Thus, no matter what the outcome of the disciplinary proceeding against Sheridan, no pending or closed bankruptcy case would be affected unless further independent proceedings were instituted in the future. At the present juncture, however, any prediction of such an eventuality would be pure speculative. See, e.g., Warren v. Calania Corp., 178 B.R. 279, 281 (M.D.Fla. 1995) (holding that attorney disciplinary proceedings were not core, since "[t]he fact that potential proceeds of the action may be distributed by the [bankruptcy] court if an award is received is not enough").
Similarly, some courts have held that the bankruptcy court may issue "final" contempt orders in an ongoing case to discipline counsel for noncompliance with court orders, since noncompliance obviously hampers the efficacy of liquidation and reorganization proceedings. See In re Woodward, 229 B.R. 468, 477 (Bankr.N.D.Okla. 1999); cf. Volpert v. Volpert ( In re Volpert), 186 B.R. 240, 245 (N.D.Ill. 1995) (noting that sanctions imposed under Fed.R.Bankr.P. 9001 for dilatory conduct by counsel in an ongoing bankruptcy case are core matters), aff'd, 110 F.3d 494 (7th Cir. 1997).
Omnibus disciplinary proceedings predicated upon alleged violations of ethical rules are further distinguishable in that the rights protected thereby do not derive from the Bankruptcy Code, but from state law, viz., in this instance, the New Hampshire Rules of Professional Conduct. See In re G.S.F. Corp., 938 F.2d at 1475 (noting that core proceedings normally involve rights derived from bankruptcy law, and "depend on the Bankruptcy [Code] for their existence"); Bethlahmy v. Kuhlman ( In re ACI-HDT Supply Co.), 205 B.R. 231, 236 (9th Cir. BAP 1997) ("[A] proceeding 'will not be considered a core matter, even if it falls within the literal language of § 157(b)(2)(A) or 157(b)(2)(O), if it is a state law claim that could exist outside of bankruptcy and is not inextricably bound to the claims allowance process or a right created by the Bankruptcy Code.'") (citation omitted); Jackson v. Wessel ( In re Jackson), 90 B.R. 126, 129 (Bankr.E.D.Pa. 1988) ("'[C]ontroversies that do not depend on the bankruptcy laws for their existence — suits that could proceed in another court even in the absence of bankruptcy — are not core proceedings.'") (citation omitted), aff'd, 118 B.R. 243 (E.D.Pa. 1990). Indeed, the standards for admission to the bar of the United States District Court for the District of New Hampshire essentially "piggyback" upon the state's rules of professional conduct (albeit that state law is expressly adopted by the federal court in the particular jurisdiction). See U.S. Dist. Ct. Local Rule (D.N.H.) 83.1(a) ("Any member in good standing of the bar of the Supreme Court of New Hampshire is eligible for admission."). Although the predominance of state-law issues, standing alone, cannot be determinative, see 28 U.S.C. § 157(b)(3) ("A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by state law.") (emphasis added), undoubtedly it is one relevant factor in the core/non-core inquiry.
The dissent contends that rules regulating attorney conduct in federal court are strictly a matter of federal law, not state law. We do not disagree. Our point is simply that the source of the rules governing Sheridan's case is the state rules, which in this instance were adopted wholesale as the federal district court's own rules. Cf. In re Snyder, 472 U.S. 634, 645 n. 6, 105 S.Ct. 2874, 86 L.Ed.2d 504 (1985) (noting that state rules were not applicable in federal court because "[t]he state code of professional responsibility [did] not by its terms apply to sanctions in federal court"). Nor does our case involve the wholly distinct question as to whether to apply a federal rule or a state rule which proscribes the identical conduct. See In re Larry's Apartment, L.L.C., 249 F.3d 832, 838-39 (9th Cir. 2001) (undertaking analysis under Erie doctrine, and holding that a state law imposing sanctions for an attorney's filing of a lawsuit for an improper purpose was inapplicable in federal court, given the existence of federal rules — viz., Federal Civil Rule of Procedure 11 or 28 U.S.C. § 1927 — proscribing the same misconduct). In attempting to demonstrate that our reference to the state ethical rules is wholly "beside the point," the dissent quotes Arnold Print Works, 815 F.2d at 169, where we stated that "[i]t is the nature of the proceeding — its relation to a basic function of the bankruptcy court — not the federal or state basis for the claim, that makes the difference here." (Emphasis added.) The quoted statement plainly does not support the dissent's contention that the primacy of state law can never be weighed as a factor in the core/non-core analysis; and were there to be any doubt, we further observed that "the fact that a bankruptcy matter raises issues of state, rather than federal, law does not by itself determine that it is non-core, rather than core." Id. (emphasis added).
Moving beyond the explicit constraints in the statute itself, sound policy concerns likewise compel such distinctions. Where, as here, the attorney misconduct occurred neither in the context of an ongoing bankruptcy case, nor in the presence of the bankruptcy court, the bankruptcy court may have no better vantage from which to make final findings of fact than would the district court. See Fed.R.Bankr.P. 9033(d) (empowering district court to receive further evidence before deciding whether to adopt bankruptcy court's recommended decision). Consequently, this sort of omnibus disciplinary proceeding is far different from the johnny-on-the-spot disciplinary proceedings relating to errant attorney conduct occurring during an ongoing bankruptcy case, which may be essential to the fair and efficient administration of the bankrupt estate.
The dissent further suggests that our holding will undermine the bankruptcy courts' ability to administer cases with efficiency and dispatch. Although we need not resolve the issue today, a strong argument could be made that § 157(b) contemplates that attorney discipline imposed in the midst of an ongoing case administration would be a core proceeding, even if the attorney's conduct itself occurred during a non-core proceeding, precisely because the discipline concerns the administration of the estate and the prospects that the bankruptcy court will be able to bring the case to successful conclusion. In those circumstances, immediate discipline serves the purpose of expedition, rather than thwarting it.
Throughout, the dissent inexplicably describes our non-core treatment of an omnibus disciplinary proceeding as a "penalty," which the bankruptcy courts will scurry to avoid at all costs, even if it means the tedious reopening of each constituent case, or the manipulation of the form of a disciplinary proceeding in a single bankruptcy case so as to introduce in evidence attorney misconduct arising in the other unrelated cases. In re Ludwick, 185 B.R. 238 (Bankr.W.D.Mich. 1995), however, clearly was not an attempt to manipulate the form of a disciplinary proceeding to avoid a non-core designation. The bankruptcy attorney was accused of forging one client's ( i.e., Ludwick's) signature. During disciplinary hearings, a second client of the attorney in an unrelated bankruptcy case testified that the attorney had also forged his signature. The court sanctioned the attorney only to compensate Ludwick for the Ludwick forgery, not the other forgery. Id. at 244 (noting that court used evidence of second forgery only on the issue of the attorney's credibility in denying the Ludwick forgery).
We can perceive no sound basis for the curious conclusion that the bankruptcy courts would be unreasonably covetous of the power to issue a final disciplinary order, rather than a recommendatory decision subject to de novo review by the district court. The mutual goal of the bankruptcy courts and the district courts alike is the deterrence of attorney misconduct. Thus, omnibus proceedings are — and will remain — an efficient means to investigate attorney conduct spanning dozens of bankruptcy cases, as well as a viable option for the bankruptcy courts following our decision.
In this type of omnibus disciplinary proceeding, which relates to multiple bankruptcy cases extending over a considerable period of time, the alleged misconduct may have occurred either before multiple bankruptcy judges in a multi-judge district, or entirely or partially outside the presence of the bankruptcy judge who hears the disciplinary case. Here, for instance, the bankruptcy court appointed Michels to investigate Sheridan's conduct, much of which allegedly occurred outside the courtroom. In such cases, the bankruptcy judge would seem to have no greater expertise as a factfinder than the district court.
We do not question that the case law overwhelmingly suggests that the bankruptcy court possesses the requisite authority, either inherent or statutory, to regulate its bar as necessary and appropriate. See supra note 1. Nor do we hold otherwise. In the instant case, however, the bankruptcy court exercised its authority to take disciplinary action against Sheridan, and we simply hold that — in these particular circumstances — the bankruptcy court was not empowered to arrive at a final resolution of the disciplinary matter absent further district court participation and oversight.
The requirement that the district court arrive at a final, plenary disciplinary disposition further recognizes that disbarment and suspension plainly are among the more grievous sanctions which can be imposed. Thus, the imposition of a $30,377.50 fine, as a condition precedent to readmission to the bar, is onerous indeed; the more so in the present circumstances where numerous ethical violations spanning numerous bankruptcy cases were conglomerated into a single disciplinary proceeding after the fact. Cf., e.g., Bone v. Judah ( In re Josey), 195 B.R. 511, 516 (Bankr.N.D.Ga. 1996) (noting that imposition of sanction of suspension pursuant to bankruptcy court's inherent powers is "very serious," and under local district court rule is to be referred for investigation to standing district court disciplinary committee). The consolidated nature of this type of omnibus disciplinary proceeding threatens to expose attorneys to much steeper sanctions than might otherwise have been incurred as a result of piece-meal disciplinary proceedings conducted at the time the misconduct arose in each constituent bankruptcy case. Thus, the de novo review conducted by the district court accords counsel additional procedural protections when confronting potentially harsh penalties. See Cunningham v. Ayers ( In re Johnson), 921 F.2d 585, 586 (5th Cir. 1991) (noting that district court undertook de novo review).
As suspensions and disbarments are "extreme" sanctions, the courts frequently require heightened procedural protections, such as a showing of "bad faith" and "clear and convincing" evidence. See, e.g., Fellheimer, Eichen Braverman, P.C., 57 F.3d at 1224; In re Cowboy Roofing, Inc., 193 B.R. at 446. In that vein, Sheridan argues on appeal that the bankruptcy court imposed a sanction unsupported by any evidence of bad faith on his part. We do not evaluate this argument, as it is more appropriately presented to the district court following remand.
Finally, these disciplinary proceedings inevitably place the bankruptcy court itself in an extremely awkward posture, vulnerable to the public perception (if not charge) that the bankruptcy court is inappropriately acting as accuser, investigator, prosecutor, and judge. See Peugeot v. U.S. Tr. ( In re Crayton), 192 B.R. 970, 978 (9th Cir. BAP 1996). Any such perception can be further allayed through recourse to the de novo review conducted before the district court. After all, attorneys are admitted to practice before the district court, which admission accords counsel the derivative right to practice before the bankruptcy court within the district, by virtue of the fact that the bankruptcy courts function as organizational units of the district court.
We close with a final admonition: our opinion is not to be construed as holding that all attorney disciplinary proceedings before the bankruptcy court are to be presumptively considered non-core. Thus, had the Sheridan ethical violations occurred either during the course of a bankruptcy case or within the immediate presence of the bankruptcy judge, or otherwise directly affected the administration, liquidation, or reorganization efforts, a stronger demonstration might be made for characterizing the disciplinary proceeding as a core matter. See, e.g., In re Hessinger, 192 B.R. at 220 (noting that within an individual bankruptcy case a suspension or disbarment of counsel may more readily be regarded as "affecting" asset liquidation, inasmuch as disqualification of counsel normally affects entitlement to attorney fees recoverable from the bankrupt estate, or requires reimbursement of attorney fees previously received, hence increasing the assets available for distribution). As the instant case implicates no such considerations, however, we reserve that matter for another day.
In summary, the case at bar is distinguishable due principally to the following factors: (i) the omnibus nature of the disciplinary proceeding; (ii) the case did not arise in the context of an ongoing bankruptcy case, cf. In re Desilets, 247 B.R. 660, 663 (Bankr.W.D.Mich. 2000) (holding that such an attorney suspension constitutes core proceeding), aff'd, 255 B.R. 294 (W.D.Mich. 2000), rev'd on other grounds, 291 F.3d 925 (6th Cir. 2002); (iii) these disciplinary charges were predicated upon alleged ethical-rule violations proscribed by state law, rather than by the Bankruptcy Code; and (iv) any potential effect the bankruptcy court order may have had upon a closed bankruptcy case is both remote and overly speculative, see Warren, 178 B.R. at 281.
As the BAP lacked subject matter jurisdiction in the instant case, it is unnecessary to reach the merits of the Sheridan contentions that the sanction imposed by the bankruptcy court was unwarranted in law or fact. Accordingly, the case must be remanded to the bankruptcy court for entry of its recommended findings of fact and conclusions of law, pursuant to 28 U.S.C. § 157(c)(1). The instant dismissal is not to be interpreted as reflecting our views on the underlying merits of the Sheridan appeal or the authority of the district court, vel non, to impose monetary sanctions as a condition precedent to Sheridan's readmission to the bar following the type of omnibus disciplinary proceeding conducted here.
Our decision is without prejudice to the right of a party to appeal from any district court order which finally disposes of the recommended findings of fact and conclusions of law entered by the bankruptcy court.
The BAP decision and the bankruptcy court decision are hereby vacated for want of jurisdiction. The case is remanded to the bankruptcy court for further proceedings consistent with this opinion. The parties are to bear their own costs. SO ORDERED.
I recognize that the appellant did not make his jurisdictional argument with crystalline clarity, either to the BAP or in this court. There are, however, extenuating circumstances, and in my view the LaGuardia/Weinstein exception is available here. I am comfortable in joining in the affirmative exercise of discretion needed to invoke that exception, and, thus, reaching the important issue of classification (core versus non-core) that permeates this proceeding. While that issue is not free from doubt, my resolution of it tracks Judge Cyr's: this omnibus disciplinary proceeding, which did not arise out of any matter(s) directly affecting the bankruptcy court's ability to administer one or more ongoing cases, is a non-core proceeding. Consequently, the bankruptcy court lacked the authority to enter a final judgment.
I therefore concur in the vacation of the improvidently entered judgment and the concomitant remand. If the appellant's conduct is deserving of discipline beyond the period of enforced suspension that he already has experienced — a matter on which I take no view — it is the district court which, in the circumstances of this proceeding, must impose it.
With regret, I dissent. The majority decides this case on an argument that Sheridan never raised in the bankruptcy court, in the BAP, or on appeal, and that Sheridan expressly refused to adopt when this court raised it sua sponte and asked for his view. The majority then decides that issue the wrong way. The result is to relegate Sheridan to a new round of litigation in the courts below, more than two years after the bankruptcy court suspended him from practice. For Sheridan, this is a pyrrhic victory, and one that he asked us not to give him.
It is true that, after the court's decision, the order suspending Sheridan will no longer be final. But the district court may simply reinstate the remedy chosen by the bankruptcy court.
The principal opinion by Judge Cyr and the opinion by Judge Selya concurring in the judgment agree on two points that I believe are not only mistaken but also certain to have consequences beyond the narrow realm of attorney discipline in bankruptcy cases: (1) that this is an appropriate case for invoking the LaGuardia/Weinstein doctrine to justify this court in addressing an issue that Sheridan elected not to raise; and (2) that the disciplinary proceeding against Sheridan was not a "core proceeding" under § 157. I also dissent from the principal opinion's conclusion that Sheridan neither consented nor waived his objections to entry of a final order in the bankruptcy court.
I.
The principal opinion reaches the "core proceeding" question in this case only by holding that while Sheridan perhaps forfeited the issue, he never consented to the entry of a final judgment or otherwise waived the requirements of § 157. I cannot join that conclusion: (i) it requires a restrictive interpretation of § 157(c) that conflicts with the views of at least five circuits and the leading commentator on bankruptcy law; and (ii) it undermines this court's jurisprudence of waiver and consent to say, on this record, that Sheridan ever disputed the finality of the bankruptcy court's order.
A. Section 157 and Finality
A bankruptcy judge's power to enter final orders is not limited to core proceedings. Rather, a bankruptcy court has the authority to enter a dispositive order in any proceeding, irrespective of core/non-core status, if the parties consent. See § 157(c)(2); see also In re S. Indus. Banking Corp., 809 F.2d 329, 331 (6th Cir. 1987) ("A related proceeding with the consent of all parties functionally has the same effect as a core proceeding. . . ."). This court held unequivocally in In re G.S.F. Corp., 938 F.2d 1467 (1st Cir. 1991), that such consent can be implied from a party's litigation conduct. See id. at 1477 ("[I]mplied consent will suffice."). We upheld appellate jurisdiction in that case because the parties had, by their conduct before the bankruptcy court, "acquiesce[d]" in the treatment of the proceeding as core. Id. If, by his conduct, Sheridan likewise indicated his knowing acquiescence in the bankruptcy court's treatment of his case as core, then the sanctions order was final, the BAP had appellate jurisdiction, and the core/non-core status of the disciplinary hearing is irrelevant.
In a non-bankruptcy case, this issue would normally be characterized as "waiver." In bankruptcy cases, the more common rubric is that of "implied consent." The difference in terminology is not important; notions of waiver and consent are closely intertwined in the context of a litigant's asserted right to an Article III tribunal, as the Supreme Court has made clear. See, e.g., Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 849, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) ("[T]he relevance of concepts of waiver to Article III challenges is demonstrated by our decision in Northern Pipeline, in which the absence of consent to an initial adjudication before a non-Article III tribunal was relied on as a significant factor in determining that Article III forbade such adjudication."). Indeed, several courts of appeals have used both terms to describe the inquiry under § 157(c)(2). See, e.g., In re Johnson, 960 F.2d 396, 403-04 (4th Cir. 1992); Home Ins. Co. v. Cooper Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989); see also In re Nell, 71 B.R. 305, 310 n. 4 (D.Utah 1987). The terms are used interchangeably in this opinion, as the substantive standard is the same: because Sheridan knew of his right to seek de novo review in the district court and chose not to do so, the sanctions order should have been deemed final and the entire core/non-core problem avoided.
The principal opinion seems to interpret In re G.S.F. to require some "affirmative" expression of consent before a party will be held to have waived the procedures required by § 157(c). Op. at 100-01. That decision does not announce such a restrictive and formalistic rule; it did not require any particular conduct, but merely examined the record for "indication[s] of acquiescence." 938 F.2d at 1477. Further, in concluding that "implied consent will suffice" under § 157(c)(2), this court cited cases like In re Daniels-Head Assocs., 819 F.2d 914 (9th Cir. 1987), In re S. Indus. Banking Corp., supra, and In re Hatfield, 117 B.R. 387 (Bankr.C.D.Ill. 1990), each of which held that the absence of a timely objection to the bankruptcy court's jurisdiction is enough to establish consent. See 819 F.2d at 919, 809 F.2d at 331, 117 B.R. at 389 n. 1.
The principal opinion contends that such cases must have been wrongly decided in light of the 1987 advisory committee notes to Fed.R.Bankr.P. 7008, which emphasize "express" consent. See Op. at 101 n. 2. That argument, however, is undercut by the Supreme Court's recent decision in Roell v. Withrow, 538 U.S. 580, 123 S.Ct. 1696, 155 L.Ed.2d 775 (2003), in which the Court held that consent to proceedings before a federal magistrate judge can be implied from a party's litigation conduct. Id. at 1703. In Roell, as in this case, a federal rule interpreting the underlying statute required advance, written consent from both parties. Id. at 1701. As in this case, that rule was not satisfied. Nevertheless, the Roell Court held that under the terms of the statute itself, implied consent was all that was required. Id. at 1703. The same logic applies under § 157(c), which requires only "consent," not "express consent." Moreover, Congress knew how to require express consent when it wanted that result — it did so in § 157 only a few paragraphs later. See 28 U.S.C. § 157(e) ("express consent" is required from all parties before the bankruptcy court may hold a jury trial). In light of Roell and Congress's calculated choice of words in § 157, the principal opinion's restrictive interpretation of the consent requirement in § 157(c) is unjustified.
Under the view adopted by the principal opinion today, a party's complete failure to object to core treatment is not sufficient to show consent. That position, if adopted by this court, would place this circuit directly in conflict with the views of at least five of our sister circuits. See In re Tex. Gen. Petroleum Corp., 52 F.3d 1330, 1337 (5th Cir. 1995) ("A party who fails to object to a bankruptcy court's assumption of core jurisdiction consents to that court's entry of final judgment."); Abramowitz v. Palmer, 999 F.2d 1274, 1280 (8th Cir. 1993) (finding implied consent where "[n]either party object[ed] to the bankruptcy court's entering a final judgment"); In re Johnson, 960 F.2d 396, 403-04 (4th Cir. 1992) (finding implied consent because the parties "failed to object to the bankruptcy court's determination" of the matters in dispute); In re Daniels-Head, 819 F.2d at 919 (failure to raise a timely objection to core treatment constitutes implied consent); In re Men's Sportswear, Inc., 834 F.2d 1134, 1137-38 (2d Cir. 1987) (party's failure to object to bankruptcy court's exercise of core jurisdiction despite multiple opportunities to lodge such an objection "can only be construed as implied consent"). The leading treatise on bankruptcy law likewise concludes that the failure to object to core treatment should be enough to show consent. See 1 Collier on Bankruptcy § 3.02[6][b] (rev. 15th ed. 2003) ("It is unstated, but probably implied in section 157(b)(3), and it has been held, that failure to make timely objection to the characterization of the proceeding as a core proceeding will be deemed a consent to the jurisdiction of the bankruptcy court to enter dispositive orders and judgments in like manner as section 157(c)(2)."); id. § 3.03[4] ("The effect of failure to interpose an objection [to core treatment] at the pleading stage should be consent to the final order being entered by the bankruptcy judge.").
But see Home Ins. Co., 889 F.2d at 749-50 (express consent required).
B. Waiver in the Bankruptcy Court
If the principal opinion's restrictive view of consent under § 157(c)(2) is wrong, it collapses. That is because under the test adopted by other circuits and (in my view) endorsed by this court itself in In re G.S.F., Sheridan waived any right he may have had to de novo review in the district court.
Sheridan utterly failed even to identify the core/non-core issue in the bankruptcy court, let alone raise a coherent objection to the core status of the proceeding, despite multiple opportunities to do so. Neither in his responsive pleadings nor in his various motions to the bankruptcy court did Sheridan — an experienced bankruptcy attorney — argue that the proceedings were non-core, that the bankruptcy court could not enter a final judgment against him, that he was entitled to de novo review of the facts and the law in the district court, or anything else that could be interpreted as a reference to § 157(c).
The bankruptcy court expressly found that Sheridan "is an experienced attorney who has practiced [bankruptcy law] for a significant period of time." 2001 WL 1757058, at *24. The court further found that in light of that extensive experience, Sheridan "was aware" of the applicable rules and practices in bankruptcy court. Id.
Nevertheless, the principal opinion says that Sheridan's extensive experience as a bankruptcy attorney does not support the inference that he knowingly acquiesced in core treatment because "these disciplinary proceedings arose, at least in part, from Sheridan's numerous physical ailments and mental impairments." Op. at 104 n. 7. That is a non-sequitur: whether Sheridan's misconduct was related to his alleged disabilities has nothing to do with whether Sheridan knew, based on his years of practicing bankruptcy law, that he was obliged to alert the bankruptcy judge if he objected to the treatment of his disciplinary proceeding as core. The principal opinion does not suggest that a disability actually prevented Sheridan from objecting to core treatment.
In any event, the principal opinion's willingness to attribute Sheridan's professional misconduct to his disabilities is puzzling, given that (1) the bankruptcy court made no finding of any disability, and (2) the BAP held that Sheridan utterly failed to support his claim of disability. See 282 B.R. at 92 n. 15.
Nor did Sheridan identify this issue at the bench trial. The bankruptcy court entered a pretrial scheduling order on January 16, 2001 that required the parties to identify all disputed issues of law and applicable defenses. Sheridan, in response, raised various legal objections, not one of which addressed the core/non-core status of the proceeding or the bankruptcy court's power to enter a final judgment against him. Even during the bench trial, Sheridan made no argument that the court was obliged to enter its findings as "proposed findings of fact" under § 157(c)(1). On October 12, 2001, the bankruptcy court entered a final opinion and order suspending Sheridan from practice. Michels v. Sheridan, No. 00-1140-JMD, 2001 WL 1757058 (Bankr.D.N.H. Oct. 12, 2001).
Sheridan's reply stated only that the complaint failed to allege violations of the applicable rules of ethics and that, in the alternative, his conduct should be excused because of his disabilities.
The principal opinion explains all of this by saying that Sheridan could not have raised the core/non-core issue prior to judgment because he had no idea that the bankruptcy court intended to enter a binding sanctions order. Op. at 103. That is simply not so. Sheridan has never claimed, and could not claim, that he was unaware that the bankruptcy court intended to sanction him directly. The bankruptcy court's January 16, 2001 pretrial scheduling order stated that the complaint against Sheridan had been commenced under Administrative Order 2090-2 of the New Hampshire bankruptcy courts. That order expressly allows the bankruptcy court to issue binding orders sanctioning and disbarring attorneys by deeming attorneys who practice before the bankruptcy court to have consented to disciplinary jurisdiction. Sheridan was clearly on notice that the bankruptcy court intended to hold such a proceeding, yet he did not dispute that it was a core proceeding or that any resulting order would be final.
AO 2090-2 provides, in relevant part, that "[a]ny attorney admitted or permitted to practice before [the bankruptcy] court shall be deemed to have conferred disciplinary jurisdiction upon th[e] court for any alleged attorney misconduct arising during the course of a case pending before th[e] court in which that attorney has participated in any way."
Sheridan argued in his opening brief that AO 2090-2 was not promulgated until February 2001, after the disciplinary complaint against him was filed. That is not true: the administrative order was adopted in October 2000, and Sheridan is fairly charged with knowledge of its contents. An amended version of AO 2090-2 became effective in February 2001, but the amendments did not affect any portion of the order relevant to Sheridan's case.
Even in his multiple motions for reconsideration after the bench trial, Sheridan failed to raise the core/non-core issue. In his October 22, 2001 motion, Sheridan responded to the bankruptcy judge's statement that bankruptcy courts have the substantive power to discipline attorneys under the "inherent power" doctrine of Ex parte Burr, 9 Wheat. 529, 22 U.S. 529, 6 L.Ed. 152 (1824). See Sheridan, 2001 WL 1757058, at *1. Because the principal opinion relies heavily on Sheridan's response to conclude that he raised and pressed the core/non-core argument, I quote it here:
First, Ex parte Burr, supra (U.S. 1824) concerns broad powers inherent in the exercise of the judicial power under Article III of the United States Constitution. However, although the United States Bankruptcy Court is a "unit of the [Federal] district court," it is well established that the powers of Bankruptcy judges are limited to those "conferred under" the United States Bankruptcy Code. 28 U.S.C. Section 151.
As such the Bankruptcy court does not share all of the powers of the district court. Thus, in Northern Pipeline Co. vs. Marathon Pipeline Co., 458 U.S. 50 [ 102 S.Ct. 2858, 73 L.Ed.2d 598] (1982) the United States Supreme Court held that it was unconstitutional for the Bankruptcy Courts to exercise the "essential attributes of judicial power of the Article III district court," and that the bankruptcy court's power was limited to "core proceedings" of the administration of the bankruptcy estate under the bankruptcy code. 28 U.S.C. section 157(b)(1).
It is axiomatic that since the bankruptcy court does not share in the "essential" powers of Article III judges, it follows that the bankruptcy court does not share in the "inherent authority" derived from the exercise of Article III judicial power.
This passage is quoted exactly from Sheridan's October 22 motion; any mistakes or grammatical errors are his.
This was Sheridan's sole reference to "core proceedings" or § 157 in the bankruptcy court.
As the context makes clear, Sheridan was not objecting in these paragraphs to the finality of the bankruptcy court's order against him. Nor did the bankruptcy court understand him to be making such an argument. Rather, Sheridan was contending only that bankruptcy courts do not enjoy the "inherent power" described in Ex parte Burr to discipline attorneys. This is simply an attack on one of the bankruptcy court's asserted sources of disciplinary authority. It is distinct from the contention that the principal opinion attributes to Sheridan: namely, that the bankruptcy court, while empowered to conduct disciplinary proceedings, was not permitted to enter a final order against Sheridan under § 157(c)(1). Sheridan, an experienced bankruptcy lawyer, knows the difference. Indeed, the principal opinion itself recognizes that the question whether a bankruptcy court has the power to discipline attorneys is a question independent of whether it has the power to enter a final order. Yet the principal opinion contends that by raising the former argument, Sheridan somehow also raised the latter. This is unfair to bankruptcy judges, who should not be asked to read tea leaves to discern a litigant's argument.
For example, the principal opinion concedes that bankruptcy courts have substantive disciplinary authority, but it holds that the exercise of that power in this particular case was not a "core proceeding." See Op. at 110. Sheridan essentially argued the opposite: he challenged the substantive power of bankruptcy courts to discipline attorneys, but did not contest that the invocation of that power, if valid, would be a core proceeding.
The principal opinion emphasizes Sheridan's citation to Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), which it describes as " the seminal case regarding the constitutional limitations which undergird the pivotal core/non-core distinction." Op. at 104 (emphasis in original). There is no doubt that the "core proceeding" concept reflects some of the Article III issues discussed in the plurality opinion in Northern Pipeline. But it is more than a stretch to say that Sheridan's reference to that case amounts to an argument that the proceeding below was non-core under § 157. Congress did not create the core/non-core distinction until after Northern Pipeline, so the citation alone hardly suffices to raise the issue.
More fundamentally, Northern Pipeline discussed at least five ways in which the Bankruptcy Act of 1978 unconstitutionally vested the "essential attributes" of judicial power in Article I bankruptcy judges, only one of which was the fact that bankruptcy judges were empowered to issue final orders that were binding and enforceable. See 458 U.S. at 85-86, 102 S.Ct. 2858. Significantly, another of the "essential attributes" cited by the Northern Pipeline Court was the power of bankruptcy judges to exercise "all ordinary powers of district courts," including issuing extraordinary writs and orders. Id. at 85, 102 S.Ct. 2858. This — and not the core/non-core distinction — was the proposition for which Sheridan cited Northern Pipeline. Sheridan has consistently argued that under Northern Pipeline, bankruptcy courts lack the "inherent power" that district courts enjoy to discipline attorneys in the absence of statutory authorization. As noted above, this is logically distinct from the argument that bankruptcy courts can discipline attorneys but cannot enter final orders.
All of this, in my view, requires the conclusion that the bankruptcy court's order was final and appealable. Sheridan was plainly aware of the core/non-core distinction. He simply elected not to assert the issue, perhaps for strategic reasons. Perhaps he gambled that the bankruptcy judge's factual findings would be favorable to him, hoping to benefit from a more favorable standard of review on appeal. Perhaps he preferred to retain the option of appealing to the Bankruptcy Appellate Panel, as he ultimately did. Whatever his reasons, Sheridan abandoned any right he may have had to de novo review in the district court by choosing not to object to core treatment. See In re G.S.F., 938 F.2d at 1477; accord In re Tex. Gen. Petroleum Corp., 52 F.3d at 1337; Abramowitz, 999 F.2d at 1280; In re Johnson, 960 F.2d at 403-04; In re Daniels-Head, 819 F.2d at 919; In re Men's Sportswear, 834 F.2d at 1137-38. By refusing to infer consent from Sheridan's conduct, the majority simply encourages future bankruptcy litigants to game the system by waiting until an adverse judgment before objecting to core treatment. "Inferring consent in these circumstances . . . checks the risk of gamesmanship by depriving parties of the luxury of waiting for the outcome before denying the [bankruptcy judge's] authority. Judicial efficiency is served; the Article III right is substantially honored." Roell, 123 S.Ct. at 1703.
C. Waiver on Appeal
Sheridan's conduct on appeal, both in the BAP and before this court, provides further assurance that he consented to core treatment. First, Sheridan elected to bring his appeal in the Bankruptcy Appellate Panel rather than in the district court, despite the fact that the BAP has no authority to review proposed findings of fact or conclusions of law under § 157(c)(1). The principal opinion dismisses this point, stating that Sheridan's appeal was proper because the bankruptcy judge ostensibly entered a final order. Op. at 104-05 n. 8. That is true, but it does not negate the inference of consent: although Sheridan had an absolute statutory right to bring his appeal in the district court irrespective of the core/non-core issue, see 28 U.S.C. § 158(c)(1), and although the BAP notified Sheridan of that right in writing, Sheridan nevertheless pursued his appeal in the BAP. If, as the principal opinion contends, Sheridan had believed he was entitled to de novo review in the district court, the obvious choice would have been to invoke his right to appeal to the district court and then to demand de novo review. His decision to appeal to the BAP instead is strong evidence of his consent to core treatment. Cf. Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 849-50, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986) (plaintiff's election to forgo review in federal court and seek relief instead in an Article I proceeding "constituted an effective waiver" of Article III objections because the party had the option of Article III adjudication but "chose to avail himself of the quicker and less expensive procedure Congress had provided him").
Sheridan never argued to the BAP that the proceeding in the bankruptcy court was non-core. He merely repeated his argument about "inherent power" under Ex parte Burr. The BAP opinion makes clear that the finality of the bankruptcy court's order was never in dispute. See, e.g., In re Disciplinary Proceedings, 282 B.R. 79, 85 (1st Cir. BAP 2002) (referring to "final bankruptcy court orders" and indicating that the bankruptcy court's factual findings would be reviewed for clear error).
The final and most telling indication of Sheridan's consent to core treatment came before this court. Invited by the court to file a supplemental brief on the core/non-core question, Sheridan expressly declined to argue that the disciplinary hearing was non-core. His supplemental brief acknowledged the core/non-core issue and even cited § 157(c)(1), the provision barring bankruptcy judges from entering final orders in non-core proceedings absent the consent of the parties. Nevertheless, Sheridan refused to assert that the disciplinary proceeding was non-core — he stated simply that he "takes no position" on whether the bankruptcy court order was final, and he urged this court to provide prompt and clear guidance on the merits of his appeal because his case had already been pending too long.
The principal opinion emphasizes that before Sheridan stated he "takes no position" on the core/non-core issue, he successfully briefed the argument that the proceeding below was non-core. Op. at 104-05 n. 8. Of course he did — the whole point of the supplemental briefing was to address that argument, and Sheridan duly traced its contours. Yet despite demonstrating that he knew how to make the argument if he were so inclined, Sheridan expressly stated that he "takes no position" on the matter. The principal opinion attributes the argument to him anyway.
II.
The second reason I cannot join the judgment is the majority's extension of the LaGuardia/Weinstein exception to our rules of waiver and forfeiture. See Op. at 104-06. The LaGuardia exception is inapplicable on these facts, and by invoking it here, the majority approves a novel and extremely unwise expansion of that doctrine.
Under LaGuardia and its progeny, the court of appeals may review de novo an argument that is raised for the first time on appeal only if: (1) the argument involves a purely legal question of constitutional import that can be resolved with certitude on the existing record; (2) addressing the argument will promote judicial economy because the same issue will arise in nearly identical terms in other cases; and (3) the argument, if meritorious, would almost certainly entitle the appellant to prevail, so that failing to address it would result in a miscarriage of justice. See United States v. LaGuardia, 902 F.2d 1010, 1013 (1st Cir. 1990); see also Castillo v. Matesanz, 348 F.3d 1, 12 (1st Cir. 2003); In re Weinstein, 164 F.3d 677, 685 (1st Cir. 1999); Sammartano v. Palmas del Mar Props., Inc., 161 F.3d 96, 98-99 (1st Cir. 1998). Until today, LaGuardia provided a narrow exception to the raise-or-waive rule, which this court ordinarily applies "with a near-religious fervor." Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622, 627 (1st Cir. 1995). Cases qualifying for the exception, we have said, are "few and far between." Id.
The majority's resort to LaGuardia on facts like these is unprecedented in multiple respects. First, this court has never invoked the LaGuardia exception when the party on whose behalf the court would intervene has not actually raised the issue on appeal. Here, not only did Sheridan fail to raise the core/non-core issue on appeal, but he also explicitly declined to advocate the position when asked.
In addition, the usual predicate conditions for invoking LaGuardia are absent here. The core/non-core distinction is not a matter of constitutional law or import, no more than any other question of statutory interpretation under the Bankruptcy Code. Nor is the core/non-core determination "strictly a question of law." LaGuardia, 902 F.2d at 1013. The principal opinion itself recognizes that the core/non-core question in this case is not a purely legal one — the court does not hold that attorney disciplinary proceedings are always non-core, but rather that the proceeding was non-core "[i]n the particular circumstances of the instant case." Op. at 99. And the core/non-core status of an omnibus attorney disciplinary proceeding initiated by a bankruptcy court is hardly a question that is "almost certain to be presented in identical terms in other cases." LaGuardia, 902 F.2d at 1013.
The principal opinion insists that the core/non-core question is a question of "constitutional import," presumably because Congress created the core/non-core distinction in response to a Supreme Court case predicated on Article III. Op. at 106 n. 10. That argument is misplaced for two reasons. First, the fact that a statutory scheme reflects considerations of constitutional law does not elevate the statute itself to constitutional stature. We do not say, for example, that service of process under Fed.R.Civ.P. 4 is a question of constitutional dimensions, even though that Rule was plainly written to comport with constitutional due process concerns. Indeed, if the core/non-core issue is a matter of constitutional law, so too is the rest of the Bankruptcy Code insofar as it reflects Congress's judgment about how best to implement its powers under the Bankruptcy Clause, U.S. Const. Art. I, § 8, cl. 4.
Second, the core/non-core distinction is nothing like the problems of constitutional law or import that have previously served as a predicate for this court's resort to LaGuardia. See, e.g., Castillo v. Matesanz, 348 F.3d 1, 11-16 (1st Cir. 2003) (ineffective assistance of counsel under the Sixth Amendment); In re Weinstein, 164 F.3d 677, 684-85 (1st Cir. 1999) (takings claim under the Fifth Amendment); Nat'l Ass'n of Soc. Workers v. Harwood, 69 F.3d 622, 629 (1st Cir. 1995) (immunity of state legislature from First Amendment claim under federal common law, by analogy to the Speech and Debate Clause); United States v. Mercedes-Amparo, 980 F.2d 17, 19 (1st Cir. 1992) (due process concerns in prosecutorial breach of plea bargain agreement). In the few cases in which this court has invoked LaGuardia in the absence of a claim based directly in constitutional law, we have done so to vindicate a strong governmental interest of a kind not present here. See, e.g., Chestnut v. City of Lowell, 305 F.3d 18, 21 (1st Cir. 2002) (per curiam) (en banc) (relieving a city of punitive damages award under City of Newport); In re 604 Columbus Ave Realty Trust, 968 F.2d 1332, 1343-44 (1st Cir. 1992) (permitting the FDIC to raise special governmental defenses based on federal common law).
Similarly, the merits of the core/non-core issue in this case are neither "highly persuasive," Harwood, 69 F.3d at 628, nor "so compelling as virtually to insure [the appellant's] success," Sammartano, 161 F.3d at 98-99; United States v. Slade, 980 F.2d 27, 31 (1st Cir. 1992). Sheridan has not advanced the core/non-core argument at all, let alone advanced it in a "highly persuasive" manner, and the principal opinion's reasoning is not "so compelling" that the outcome is essentially predetermined. See Correa v. Hosp. San Francisco, 69 F.3d 1184, 1196 (1st Cir. 1995) (declining to invoke LaGuardia where the forfeited argument merely advanced one of two possible constructions of a statute).
Lastly, this case does not meet the final criterion for invoking LaGuardia: that if the issue were meritorious, failing to reach it would constitute a "miscarriage of justice." 902 F.2d at 1013. It could hardly be a miscarriage of justice to reach the merits of Sheridan's appeal given that both parties have urged us to do so. If there is any miscarriage of justice in this case, it is the disservice done to both sides in remanding this case for another round of litigation below.
If LaGuardia can apply here, it can apply in any case in which an appellate judge wishes to raise and decide an issue sua sponte, no matter how compelling the evidence of waiver or forfeiture and regardless of whether a party advocates that position. I will not be surprised if this aspect of the court's decision today is regretted by this court and the bar for years to come.
III.
Finally, I disagree with the majority's conclusion that the proceeding against Sheridan was non-core. In my view, the only interpretation of § 157 that is consistent with the purposes of the federal bankruptcy laws and Congress's intent in the 1984 bankruptcy amendments is that the disciplinary proceeding against Sheridan, which arose out of misconduct occurring in indisputably core proceedings, constituted a core proceeding.
A. Interpretation of 28 U.S.C. § 157 1. Plain text of § 157
Whether the disciplinary proceeding against Sheridan was a "core proceeding" under 28 U.S.C. § 157 is a matter of statutory construction. The plain text of § 157 makes no explicit reference to attorney discipline, sanctions, contempt, or anything similar, just as it fails to describe other proceedings that courts have recognized as core. Nor is the statutory term "core proceeding" self-defining.
See generally 1 Collier on Bankruptcy § 3.02[3] (rev. 15th ed. 2003) (listing examples of proceedings recognized as "core" even though they do not fall within the express terms of § 157(b)).
Nevertheless, the principal opinion purports to find support in the text of § 157. It discusses the various categories of core proceedings in § 157(b)(2), emphasizing that "each of the enumerated matters relates to a function essential to the administration of the bankruptcy case." Op. at 106-07. The proceeding against Sheridan, the principal opinion contends, was different: it did not arise in any single bankruptcy case, so there was no relevant "case" to administer. Accordingly, it must have been non-core. This is an expressio unius rationale: Congress provided a list of core proceeding categories in § 157(b); that list does not include omnibus attorney disciplinary hearings or similar proceedings spanning multiple bankruptcy cases; therefore Congress meant to exclude such proceedings from "core" treatment.
This is flawed logic. As the Supreme Court reiterated last Term, the expressio unius canon applies only when the statutory list in question "justif[ies] the inference that items not mentioned were excluded by deliberate choice." Barnhart v. Peabody Coal Co., 537 U.S. 149, 168, 123 S.Ct. 748, 154 L.Ed.2d 653 (2003). No such inference is possible here. It is true that Congress, in drafting the categories of core proceedings in § 157(b)(2), referred to " the estate" ( i.e., in the singular), but that choice of words merely reflects the reality that the vast majority of bankruptcy proceedings pertain to a single debtor. Nothing in the statute says a proceeding is non-core if it involves more than one estate, and Congress knew how to exclude matters from § 157(b) when it wished to do so. See, e.g., § 157(b)(2)(O) (excluding personal injury and wrongful death claims from core treatment). The clincher is that Congress specifically provided that the list of examples in § 157(b)(2) is not exhaustive. See 28 U.S.C. § 157(b)(2) (core proceedings "are not limited to" the listed categories); see also 1 Collier on Bankruptcy, supra, § 3.02[3] ("It should be emphasized at the outset that section 157(b)(2) is not limiting. . . .").
This brings us back to where we started. The underlying question on the merits of the core/non-core issue is this: whether, in light of the structure and purpose of the core/non-core distinction and the Bankruptcy Code as a whole, § 157(b)(2) should be interpreted to embrace disciplinary proceedings like Sheridan's. See In re Hart, 328 F.3d 45, 48 (1st Cir. 2003). The principal opinion undertakes no such analysis. 2. Background to the 1984 Bankruptcy Amendments
In fact, there is every reason to believe that Congress wanted and expected bankruptcy judges to enforce the professional responsibilities of bankruptcy attorneys through final and binding orders where the misconduct in question occurred in a core bankruptcy proceeding or proceedings. In 1984, when Congress amended the Bankruptcy Code to create the core/non-core distinction, the case law available to Congress provided no reason to think that bankruptcy courts' status as Article I tribunals would bar them from entering final disciplinary orders. In 1926, the Supreme Court itself held in Goldsmith v. U.S. Bd. of Tax Appeals, 270 U.S. 117, 46 S.Ct. 215, 70 L.Ed. 494 (1926), that the U.S. Board of Tax Appeals, an Article I tribunal, possessed the authority not only to promulgate ethical rules for admitting attorneys to practice, but also to disbar attorneys who failed to meet those standards. See id. at 121-22, 46 S.Ct. 215 (emphasizing, in holding that the Board possessed this power, "the character of the work to be done by the board, the quasi judicial nature of its duties, [and] the magnitude of the interests to be affected by its decisions"). The Court explicitly rejected the contention that such a tribunal cannot disbar or discipline lawyers absent express statutory authority, observing that the power of the Board to do so is "so necessary . . . and so usual" that the statute creating it would be interpreted to include that power. Id. at 122, 46 S.Ct. 215.
Long before Northern Pipeline and Congress's 1984 enactment of § 157, the Supreme Court recognized that a court's power to regulate the conduct of the bar, including the power to suspend and disbar attorneys, is essential to the administration of justice and the protection of the public. See, e.g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-67, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980); Theard v. United States, 354 U.S. 278, 281, 77 S.Ct. 1274, 1 L.Ed.2d 1342 (1957); Ex parte Bradley, 7 Wall. 364, 74 U.S. 364, 374, 19 L.Ed. 214 (1868); Ex parte Garland, 71 U.S. (4 Wall.) 333, 378-79, 18 L.Ed. 366 (1867); Ex parte Burr, 22 U.S. (9 Wheat.) 529, 531, 6 L.Ed. 152 (1824); see also In re Snyder, 472 U.S. 634, 643-45, 105 S.Ct. 2874, 86 L.Ed.2d 504 (1985) ("Courts have long recognized an inherent authority to suspend or disbar lawyers.").
Furthermore, Congress knew that federal courts before 1984 had upheld the power of other Article I tribunals to issue binding disciplinary orders against counsel appearing before them. See, e.g., Kivitz v. SEC, 475 F.2d 956, 962 (D.C. Cir. 1973) (power of SEC to disbar attorney for ethical misconduct); Herman v. Dulles, 205 F.2d 715, 715-16 (D.C. Cir. 1953) (similar, International Claims Commission); Francis v. Virgin Islands, 11 F.2d 860, 864 (3d Cir. 1926) (upholding the contempt powers of the U.S. District Court for the Virgin Islands); Fleming v. United States, 279 F. 613, 616 (9th Cir. 1922) (similar, United States Court for China). Consistent with this line of cases, some courts had by 1984 already upheld the authority of bankruptcy courts to discipline attorneys for unethical conduct in bankruptcy cases. As early as 1979, for example, the Second Circuit described as "nothing novel" the proposition that a debtor's counsel could be sanctioned for breaching his ethical responsibilities to the bankruptcy court. See In re Arlan's Dep't Stores, Inc., 615 F.2d 925, 943-44 (2d Cir. 1979).
Congress enacted the 1984 bankruptcy amendments against this background. Nothing in the 1984 Act or its legislative history suggests that Congress intended to deny bankruptcy judges the authority to regulate the bankruptcy bar. On the contrary, this court has held that Congress's purpose in the 1984 amendments was to press the jurisdiction of the bankruptcy courts "to its constitutional bounds" in the wake of Northern Pipeline. See In re Arnold Print Works, Inc., 815 F.2d 165, 168 (1st Cir. 1987) (Breyer, J.). The congressional sponsors of the 1984 amendments described non-core proceedings as " Marathon-type" cases, referring to the Northern Pipeline decision, and they understood that category to be "very limited." Id. Accordingly, this court concluded that "Congress intended that 'core proceedings' would be interpreted broadly, close to or congruent with constitutional limits." Id. 3. Article III and attorney discipline
Congress had no reason to think that Article III is offended when a bankruptcy court enters a binding order against a bankruptcy attorney for professional misconduct in a core bankruptcy proceeding. Even the principal opinion does not so contend. Indeed, less than a year after its decision in Northern Pipeline, the Supreme Court emphasized the limits of its holding: "The Court's holding in that case establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellate review." Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 584, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985) (emphasis added).
The Supreme Court endorsed this narrow reading of Northern Pipeline again the following year, repeatedly citing that case for the proposition that Congress's power to assign matters to non-Article III tribunals is constrained "where private, common law rights are at stake." Schor, 478 U.S. at 854, 106 S.Ct. 3245; see also id. (noting that "private, common law rights were historically the types of matters subject to resolution by Article III courts," citing Northern Pipeline).
The proceeding at issue in Sheridan's case is fundamentally different from a traditional common-law cause of action. The privilege to practice law, including the privilege to practice before a federal tribunal, is a matter of public license. See In re Snyder, 472 U.S. 634, 644, 105 S.Ct. 2874, 86 L.Ed.2d 504 (1985). It is well-settled that courts have the authority to revoke that license where necessary to protect the public. See id.; In re Ruffalo, 390 U.S. 544, 550, 88 S.Ct. 1222, 20 L.Ed.2d 117 (1968); Theard v. United States, 354 U.S. 278, 281, 77 S.Ct. 1274, 1 L.Ed.2d 1342 (1957); Ex parte Wall, 107 U.S. 265, 288-89, 2 S.Ct. 569, 27 L.Ed. 552 (1882). Further, a disciplinary proceeding is a matter between the court and the attorney only; no right to a jury trial attaches. See Ex parte Wall, 107 U.S. at 288, 2 S.Ct. 569. It is akin to the enforcement of a "public right," and as then-Judge Breyer noted for this court in Arnold Print Works, the Supreme Court in Northern Pipeline found nothing unconstitutional in a bankruptcy judge issuing dispositive orders in such cases. See 815 F.2d at 170.
4. Purposes of the Bankruptcy Code
Nor is there any reason to infer from the overarching purposes of the Bankruptcy Code that Congress wanted to limit bankruptcy judges' power to issue final and binding orders disbarring, suspending, or otherwise disciplining attorneys who act unethically in core proceedings. On the contrary, the need to maintain attorney discipline and enforce the rules of professional responsibility is, if anything, stronger in the bankruptcy context, where considerations of speed and cost-effectiveness are paramount:
A sine qua non in restructuring the debtor-creditor relationship is the court's ability to police the fiduciaries . . . who are responsible for managing the debtor's estate in the best interest of creditors. The bankruptcy court must be able to assure itself and the creditors who rely on the process that court-approved managers of the debtor's estate are performing their work, conscientiously and cost-effectively.
In re Southmark Corp., 163 F.3d 925, 931 (5th Cir. 1999) (holding that a professional malpractice claim by a Chapter 11 debtor against a court-appointed accountant was a core proceeding). Bankruptcy courts are charged with the rehabilitation of financially distressed debtors and the reorganization or liquidation of their assets, often under the press of time because of the threat of financial loss. In re McLean Indus., 68 B.R. 690, 695 (Bankr.S.D.N.Y. 1986); see also United States v. Mourad, 289 F.3d 174, 179 (1st Cir. 2002) (observing that the power to regulate attorney behavior is necessary "if the bankruptcy courts are to carry out efficiently and effectively the duties assigned to them by Congress" (quoting In re Volpert, 110 F.3d 494, 500 (7th Cir. 1997))). Involving the district court in such disciplinary matters would "unduly burden the already complex and congested calendars of the district courts, and undermine the reasons for the district court's reference of Code cases to the bankruptcy courts." In re McLean Indus., 68 B.R. at 696; see also In re Mem'l Estates, Inc., 116 B.R. 108, 112 (N.D.Ill. 1990) (imposition of sanctions must be a core proceeding because "any other interpretation would seriously hamper the bankruptcy court in its administration of the estate and would provide additional methods of multiplying litigation for those seeking to hinder and delay the proceedings in the bankruptcy court").
Congress, moreover, must have been aware that problems of attorney discipline are particularly acute in the consumer bankruptcy area, see In re Bruzzese, 214 B.R. 444, 450-51 (Bankr.E.D.N.Y. 1997), such as the Chapter 13 proceedings in which Sheridan specialized. Consumer debtors, like those whom Sheridan represented, rarely have the resources or sophistication to bring tort claims for legal malpractice. Indeed, because of the high volume of consumer bankruptcy filings and the speed at which bankruptcy courts must process such petitions, many consumer debtors "never discover that their attorneys have committed malpractice." Id. at 450. Direct discipline by the bankruptcy court may be the only feasible means in many cases of protecting debtors and ensuring the ethical conduct of the consumer bankruptcy bar in core proceedings. For this reason, "[b]ankruptcy judges are expected by Congress, the public, the appointing courts of appeals, and the leadership of the bar to maintain high standards of performance by all lawyers appearing before them. This is 'part of the job description.'" Id. at 450-51.
5. "Core comes from core"
I do not contend that Congress intended all attorney disciplinary proceedings in the bankruptcy courts to be core proceedings, regardless of how they arise. There are situations in which the justifications for permitting bankruptcy judges to issue binding disciplinary orders are less compelling — for example, when an attorney acts unethically in a non-core proceeding in which the parties have refused to consent to the entry of a final order on the merits. In such cases, the bankruptcy court must recommend findings of fact and conclusions of law to the district court in any event; there is little reason to treat the disciplinary issues alone as within the bankruptcy court's core powers.
As to unethical conduct in core proceedings, however, Congress's purposes in the Bankruptcy Code are much better served by a rule that permits bankruptcy judges to issue final and binding disciplinary orders directly, without resort to the district court but with normal rights to appeal. In fact, there is a widely accepted rule in attorney discipline cases that "core comes from core" — that is, disciplinary hearings arising out of core proceedings are themselves core proceedings. See, e.g., Memorial Estates, 950 F.2d at 1370; In re O'Connor, 2001 WL 1335883, at *1 (N.D.Tex. 2001); In re French Bourekas, Inc., 183 B.R. 695, 696 (Bankr.S.D.N.Y. 1995) ("[T]he power to sanction parties for conduct in a core matter is itself core."), aff'd, 195 B.R. 19 (S.D.N.Y. 1996); In re VIII S. Mich. Assocs., No. 94C-5593, 1994 WL 698489, at *5 (N.D.Ill. 1994); Fed. Sav. Loan Ins. Corp. v. Sutherlin, 109 B.R. 700, 703 (E.D.La. 1989); In re Usoskin, 61 B.R. 869, 872 (Bankr.E.D.N.Y. 1986); In re Emergency Beacon Corp., 52 B.R. 979, 987 (Bankr.S.D.N.Y. 1985), aff'd, 790 F.2d 285 (2d Cir. 1986); see also In re Monarch Capital Corp., 173 B.R. 31, 35-39 (D.Mass. 1994) (contempt proceeding against debtor's attorneys was core because the contempt occurred in a core proceeding).
The "core comes from core" rule also makes practical sense. One chief functional difference between a core proceeding and a non-core proceeding is the deference accorded to the bankruptcy court's findings of fact. Compare Fed.R.Bankr.P. 8013 (review of core proceedings), with Fed.R.Bankr.P. 9033(d) (review of non-core proceedings); see generally In re Delta Petroleum (P.R.), Ltd., 193 B.R. 99, 106 (D.P.R. 1996). In a core proceeding, the bankruptcy judge is empowered to make factual findings on the merits and to have those findings reviewed only for clear error. No useful purpose is served by denying the bankruptcy court the power to make equally authoritative findings of fact about the conduct of the very attorneys who appear before it. "If the bankruptcy courts are to administer 'the restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power,' they must also have the power to sanction parties that interfere with such administration." In re Emergency Beacon Corp., 52 B.R. at 987.
Under the "core comes from core" principle, the proceeding against Sheridan was plainly a core proceeding. The overwhelming majority of the ethical violations of which Sheridan was accused occurred in core proceedings. The bankruptcy court found that Sheridan committed at least 83 ethical violations over 33 separate bankruptcy cases. It is clear from the record that at least 80 of those 83 violations, accounting for fully 31 of the 33 cases, occurred in core proceedings (specifically, proceedings to propose, file, modify, and confirm Chapter 13 plans). Further, there has been no showing that the remaining three instances of misconduct occurred in non-core proceedings; rather, it is simply impossible to tell from the record whether those proceedings were also core. As a result, the only impediment to applying the "core comes from core" rule in this case is a set of 3 ethical violations in proceedings whose core/non-core status is unknown. Even assuming that those violations (which accounted for less than 1/20th of the charges against Sheridan) occurred in non-core proceedings, there is no reason to think that they materially affected the bankruptcy court's choice of sanction. Cf. Sheridan, 2001 WL 1757058, at *23 (declaring that the evidence at trial "clearly establishes" that Sheridan is not professionally competent).
In addition, the court determined that Sheridan committed five violations in the disciplinary proceeding itself, bringing the total to 88 violations in 34 cases.
The vast majority of Sheridan's infractions involved failing to file certificates of service for his clients' Chapter 13 plans (17 times in 16 cases); failing to file documents or motions related to his clients' Chapter 13 petitions in a timely manner (39 times in 28 cases); and failing to appear or appearing late at court hearings (8 occasions) and § 341 meetings (3 occasions) related to Chapter 13 petitions. Matters concerning the confirmation of a debtor's plan for reorganization, including Chapter 13 plans, are core proceedings. See 28 U.S.C. § 157(b)(2)(L).
6. Summary
The court's constrained reading of § 157 contradicts Congress's intent in the 1984 amendments, which was not to shrink the powers of the bankruptcy courts but to extend them to their jurisdictional limits in the wake of Northern Pipeline. In light of the open-ended statutory text of § 157; the clear congressional intent that courts should interpret the term "core proceeding" broadly; the binding precedent in our own circuit commanding that we do so; the absence of relevant constitutional constraints; the legitimate functional need for bankruptcy courts to have "core" jurisdiction over attorney misconduct arising in core proceedings; and the broadly accepted rule that "core comes from core," I think we would be obliged to hold, were the issue properly presented, that the disciplinary proceeding against Sheridan was a "core proceeding" under § 157.
B. The Principal Opinion's Four Distinguishing Factors
The principal opinion reserves the question of whether attorney disciplinary proceedings may ever enjoy core status, holding instead that Sheridan's case is distinguishable on four grounds: (1) the disciplinary proceeding against Sheridan did not take place in the context of an ongoing bankruptcy case, but rather was an "omnibus" proceeding spanning multiple cases; (2) the rule of decision in Sheridan's disciplinary proceeding came from state-law ethics rules, rather than federal law; (3) any potential effect on a closed bankruptcy case is remote and speculative; and (4) the bankruptcy court's disciplinary order was "extreme" relative to Sheridan's misconduct. See Op. at 111-12. Not one of these grounds is valid basis for distinguishing this case.
1. Omnibus v. individual disciplinary proceedings
The principal opinion first argues that Sheridan's case merits different treatment because it was an "omnibus" disciplinary investigation — that is, because the bankruptcy court consolidated the ethical issues arising in multiple, independent bankruptcy cases into a single disciplinary hearing.
This objection is without merit. Nothing in § 157 restricts core proceedings to proceedings that concern a single bankruptcy case, and the principal opinion cites no authority for its suggestion that § 157(b) should be interpreted so narrowly. Compare Arnold Print Works, 815 F.2d at 168. There is no functional reason to discourage bankruptcy courts from combining disciplinary issues spanning multiple bankruptcy cases into a single proceeding for expeditious administration. Normally this court encourages and respects the efforts of lower courts to manage their dockets efficiently. In re Atlantic Pipe Corp., 304 F.3d 135, 143-45 (1st Cir. 2002); A.M. Capen's Co., Inc. v. Am. Trading Prod. Corp., 202 F.3d 469, 472 n. 4 (1st Cir. 2000); Rosario-Diaz v. Gonzalez, 140 F.3d 312, 315 (1st Cir. 1998). Moreover, attorney discipline in the federal courts outside of the bankruptcy context is frequently imposed in "omnibus" proceedings. See, e.g., United States v. Johnson, 327 F.3d 554, 558, 561-62 (7th Cir. 2003); In re Smith, 76 F.3d 335, 336 (10th Cir. 1996) (per curiam). Surely Congress would not have wanted the bankruptcy judge to hold 30 separate disciplinary hearings before entering a binding sanctions order against Sheridan.
The case law confirms that "omnibus" disciplinary hearings in the bankruptcy courts are generally treated as core proceedings. For example, the Fifth Circuit in 1999 affirmed a four-year suspension imposed by a bankruptcy court in a proceeding that involved evidence of misconduct in three separate bankruptcy cases. See In re Dragoo, 219 B.R. 460, 465-68 (Bankr.N.D.Tex. 1998), aff'd, 186 F.3d 614 (5th Cir. 1999). The court of appeals did not take issue with the bankruptcy court's express entry of a final order under Fed.R.Bankr.P. 7052. See 219 B.R. at 468 n. 2. See also In re Melendez, 235 B.R. 173, 181-82, 201-04 (Bankr.D.Mass. 1999) (imposing sanctions in an omnibus disciplinary hearing initiated sua sponte by the bankruptcy court against several debtors' attorneys for inadequate representation of their respective clients, and expressly entering its findings under Bankruptcy Rule 7052); In re Nesom, 76 B.R. 101, 102 n. 1 (Bankr.N.D.Tex. 1987) (suspending an attorney for misconduct in two bankruptcy cases after a sua sponte disciplinary hearing by the court, and expressly terming the proceeding core).
Bankruptcy Rule 7052 makes Fed.R.Civ.P. 52 applicable to bankruptcy proceedings. An order entered under Rule 7052 is a final judgment. See Fed.R.Civ.P. 52(a); see also In re Werthen, 329 F.3d 269, 272 (1st Cir. 2003) (findings of fact under Bankruptcy Rule 7052 are reviewed for clear error).
The principal opinion's objection to consolidated disciplinary proceedings also makes little sense in light of the rules of evidence. By the principal opinion's reasoning, the bankruptcy court in Sheridan's case could simply have framed its hearing as an investigation into Sheridan's misconduct in a single bankruptcy case, then admitted evidence of Sheridan's misconduct in other cases under Fed.R.Evid. 404(b) and entered a final order on that basis. See In re Ludwick, 185 B.R. 238, 242-47 (Bankr.W.D.Mich. 1995) (en banc) (following this approach in suspending a bankruptcy attorney from practice for two years); see also id. at 239 (determining that the hearing was a core proceeding). It elevates form over substance to hold that the functionally equivalent approach selected by the bankruptcy court in this case rendered the proceeding non-core. 2. Source of law
For similar reasons, there is no justification for the principal opinion's suggestion that the power of a bankruptcy judge to enter binding disciplinary orders should depend on whether the bankruptcy judge personally witnesses the attorney's misconduct.
The principal opinion next argues that the proceeding against Sheridan should be characterized as non-core because the underlying substantive ethics rules "derive . . . from state law." Op. at 108-09. That is flatly wrong. The rules of attorney conduct in federal court are federal law, not state law. The Supreme Court so held in In re Snyder, in which the court of appeals had asserted that an attorney's ethical obligations in federal court are defined by state law. The Supreme Court disagreed: "The state code of professional responsibility does not by its own terms apply to sanctions in the federal courts. Federal courts admit and suspend attorneys as an exercise of their inherent power; the standards imposed are a matter of federal law." 472 U.S. at 645 n. 6, 105 S.Ct. 2874 (emphasis added); see also In re Larry's Apartment, L.L.C., 249 F.3d 832, 837-38 (9th Cir. 2001) (federal law, not state law, governs the imposition of sanctions in federal bankruptcy cases). This case did not involve a "state law claim that could exist outside of bankruptcy." In re ACI-HDT Supply Co., 205 B.R. 231, 236 (9th Cir. BAP 1997). Rather, it involved a federal bankruptcy judge's enforcement of federal standards of conduct against an attorney who practiced in the federal bankruptcy courts.
In any event, the focus on the source of the applicable law is beside the point. As this court held in Arnold Print Works, "[i]t is the nature of the proceeding — its relation to the basic function of the bankruptcy court — not the state or federal basis for the claim, that makes the difference here." 815 F.2d at 169 (emphasis added).
3. Closed cases
The principal opinion also attempts to distinguish the proceeding against Sheridan on the grounds that much of the charged misconduct occurred in now-closed bankruptcy cases, so that any remedy ordered by the bankruptcy court is unlikely to concern the administration of those clients' estates. Therefore, the principal opinion argues, the proceeding cannot be core because it neither "concern[s] the administration of [an] estate," § 157(b)(2)(A), nor "affect[s] the liquidation of the assets of [an] estate," § 157(b)(2)(O).
Neither the principal opinion nor the concurring opinion acknowledges that several of the underlying bankruptcy cases were still pending at the time the disciplinary proceeding against Sheridan was instituted in October 2000. Indeed, several of the instances of misconduct proven during the bench trial occurred as late as November 2000, after the disciplinary proceedings had begun. At least in these cases, the disciplinary action against Sheridan was literally a "matter concerning the administration of the estate." § 157(b)(2)(A).
This, too, is unpersuasive. The bankruptcy court's imposition of sanctions on Sheridan did in fact "concern the administration of the estate" in each of the underlying bankruptcy cases within the meaning of § 157(b)(2)(A). That section conspicuously does not require that the proceeding in question contemporaneously affect the ongoing administration of the estate; the matter must simply "concern" the administration of the estate. Compare § 157(b)(2)(O) (core proceedings include "other proceedings affecting . . . the debtor-creditor . . . relationship" (emphasis added)). And the imposition of sanctions against the debtor's attorney necessarily "concern[s]" the administration of the debtor's estate because, in a Chapter 13 case, the debtor's attorney is paid with funds from the estate in an amount "based on a consideration of the benefit . . . of [the attorney's] services to the debtor." 11 U.S.C. § 330(a)(4)(B); see also id. § 503(b)(2) (authorizing payments to attorneys under § 330(a) as "administrative expenses" of the estate); cf. Delta Petroleum, 193 B.R. at 106 (disputes over the appointment and compensation of attorneys are core proceedings because they concern the administration of the estate).
The majority's rule would require a bankruptcy court even in a single core proceeding to interrupt its adjudication of the debtor's petition to decide, then and there, an attorney disciplinary matter. It would preclude the court, on penalty of converting the proceeding from core to non-core, from waiting to deal with the attorney until after it had dealt with debtor's and creditors' arguments. That priority is backwards.
Moreover, even in the majority's terms, the order sanctioning Sheridan "concern[ed]" the administration of the underlying estates because it provided a clear basis for re-opening those cases, which the bankruptcy court may do whenever it finds "cause." See 11 U.S.C. § 350(b) ("A case may be reopened . . . to administer assets, to accord relief to the debtor, or for other cause."). The principal opinion characterizes the possibility of reopening the underlying cases as "remote and overly speculative." Op. at 111. But at least one bankruptcy court has reopened a case "for cause" due to evidence of ineffective representation by the debtor's counsel. See Bruzzese, 214 B.R. at 449-50. Moreover, there is no warrant in § 157(b)(2) for insisting on proof that a proceeding will alter the administration of the estate; the statute requires only that the proceeding "concern" its administration. The narrower reading is contrary to this court's conclusion in Arnold Print Works that Congress intended the term "core proceeding" to be interpreted expansively.
Lastly, there is no independent problem with imposing sanctions on an attorney for misconduct that occurred in a since-closed case. Disciplinary proceedings against attorneys do not depend on the continued pendency of the underlying action and can be imposed long after a judgment on the merits. See Chambers v. NASCO, Inc., 501 U.S. 32, 56, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 396, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). This has been the rule in bankruptcy cases as well. See In re Hasan, 287 B.R. 308, 311-12 (Bankr.D.Conn. 2002) (collecting cases); see also In re Rambo, 209 B.R. 527, 528-29 (10th Cir. BAP 1997) (dismissal of underlying Chapter 13 case did not affect BAP's jurisdiction to decide appeal of sanctions order); In re Balboa Improvements, Ltd., 99 B.R. 966 (9th Cir. BAP 1989) (similar).
4. "Extreme" nature of the sanction
Finally, the principal opinion cites the "extreme" nature of the sanction imposed on Sheridan as a justification for holding that the proceeding against him was not core. Op. at 111-12. This conflates the core/non-core question with the merits of Sheridan's appeal. Whether the bankruptcy court's chosen sanction was "extreme" has nothing to do with whether it had the statutory authority to enter a binding order embodying that sanction. Suspensions and disbarments are severe sanctions that merit close review. But that review should have been done here.
IV.
For the foregoing reasons, I respectfully dissent.