In In re Lacher, the Ninth Circuit’s Bankruptcy Appellate Panel (“BAP”) resolved two complex legal issues: whether a chapter 7 discharge prevents the California State Bar (the “Bar”) from disciplining an attorney and whether the Bar – as a governmental unit of California – is immune from the bankruptcy court’s jurisdiction under the Eleventh Amendment. 669 B.R. 548 (B.A.P. 9th Cir. June 11, 2025). The BAP ruled negatively on each: Discharge does not dispose of attorney discipline and the bankruptcy court retains jurisdiction over the Bar notwithstanding the Eleventh Amendment.
In 2001, Pamela Lacher, a California barred attorney, hired East County Investigations (“ECI”) on behalf of her clients. Ms. Lacher refused to pay the agreed upon $3,085.80 for ECI’s services. ECI filed suit, and the court granted a judgement awarding ECI the unpaid amount, plus attorney’s fees. Ms. Lacher countersued, lost, twice-appealed the decision, and lost both appeals. Ms. Lacher also received a monetary sanction for a frivolous appeal. Yet, Ms. Lacher still refused to pay ECI, or respond to ECI’s discovery requests, which resulted in additional sanctions entered against Ms. Lacher. In 2021, after another unsuccessful attempted appeal (and another sanction), ECI’s judgement against Ms. Lacher amounted to $220,815.00. The Bar initiated proceedings against Ms. Lacher for potential disbarment. During the course of the Bar’s disciplinary proceedings against her, Ms. Lacher filed a voluntary petition for bankruptcy under chapter 7.
After Ms. Lacher received her Chapter 7 discharge under § 727, the Bar resumed disciplinary proceedings against her, which prompted Ms. Lacher to return to bankruptcy court and contest the Bar’s ability to so, advanced by the following positions:
Section 524(a) Violation: Ms. Lacher argued that continuing the disciplinary action would violate the discharge injunction, which voids past judgments and enjoins future debt collection activities on account of pre-petition debts. Ms. Lacher characterized the Bar’s disciplinary proceedings against her as impermissible “debt collection” related to her now-discharged ECI judgment debt.
Section 525(a) Discrimination: Ms. Lacher claimed the Bar violated the anti-discrimination provision, which prohibits governmental units from denying license renewals “solely because” the applicant “is or has been a debtor.” She contended that since her potential suspension from the Bar stemmed from conduct related to discharged debt, and therefore, the Bar was engaging in prohibited debtor discrimination.
The BAP firmly rejected both of Ms. Lacher’s arguments, characterizing Ms. Lacher’s § 524(a) claim as frivolous. The court emphasized that disciplinary proceedings target professional misconduct including “frivolous lawsuits, meritless appeals, and contumacious conduct” rather than personal debt collection. Importantly, the BAP held that Chapter 7 discharge “does not give [debtors] a free pass for every bad act committed that is tangentially related to the underlying judgment.” To illustrate this principle, the court offered a hypothetical: a debtor who physically assaults a creditor cannot avoid liability for the assault merely because it related to now-discharged debt. The BAP applied similar reasoning to Ms. Lacher’s § 525(a) claim, clarifying that the Bar did not target Ms. Lacher based upon her debtor status, but rather her professional misconduct, judicial process abuse, and willful ethical violations. The Court clarified that discharge under Chapter 7 provides debt relief, not immunity from consequences of wrongful conduct.
The case took an unexpected turn when the Bar asserted Eleventh Amendment sovereign immunity, arguing that as a California state agency, it was immune from actions in federal bankruptcy court. The BAP rejected this defense, holding that sovereign immunity yields to the bankruptcy court’s in rem jurisdiction. The BAP explained that bankruptcy jurisdiction operates in rem (over property or assets) rather than in personam (over individuals). Drawing on Supreme Court precedent, the BAP emphasized that bankruptcy court authority rests on the “res” (the debtor’s estate) rather than the “persona” (the parties themselves), thereby circumventing Eleventh Amendment protections.
The BAP’s holding in In re Lacher serves as a cautionary tale for professionals who might view bankruptcy as a shield against accountability for ethical violations, and highlights the expansive authority of the federal bankruptcy courts. While, in most cases, after debtor receives a discharge under Chapter 7, the debtor is free from the shackles of prepetition debt, nefarious conduct related to such debt is not exempt post-discharge, no matter how long debtor prevaricates an admission of same.