Article Courtesy of David Simonds of Hogan Lovells
Lacher v. State Bar of California (In re Lacher), 669 B.R. 548 (B.A.P. 9th Cir. June 11, 2025).
The Bankruptcy Appellate Panel for the Ninth Circuit (the “BAP”) held that neither Eleventh Amendment sovereign immunity nor the Younger abstention doctrine barred a bankruptcy court from considering whether state attorney disciplinary proceedings violated the Bankruptcy Code’s discharge and antidiscrimination provisions under 11 U.S.C. § 525(a), which prohibits governmental discrimination in licensing a person merely because he or she has been a debtor under the Bankruptcy Code. Although the BAP ultimately affirmed the bankruptcy court’s denial of the debtor’s requested relief, it made clear that bankruptcy courts have jurisdiction to enjoin such proceedings where they discriminate against a debtor in violation of Bankruptcy Code section 525(a).
Pamela Lacher (“Debtor”), a California-licensed attorney, became involved in extended litigation with East County Investigations (“ECI”), a private investigations firm that she hired on behalf of a client, after disputing a $3,830.85 judgment against her for non-payment of ECI’s invoices. The litigation spanned more than a decade and resulted in a judgment against Ms. Lacher that, through accumulated sanctions, costs, and interest, grew to over $150,000 by April 2021. State courts issued multiple orders sanctioning Ms. Lacher for frivolous filings, failure to comply with court orders, prosecution of meritless appeals, failure to report sanctions, and commingling client trust funds.
Ms. Lacher’s conduct prompted disciplinary proceedings by the State Bar of California (the “State Bar”). In 2009, Ms. Lacher was sanctioned for failing to report to the State Bar two instances of judicial sanctions imposed in the ECI matter, resulting in a stayed one-year suspension and two years’ probation. In 2022, the State Bar initiated another proceeding tied to Debtor’s ECI litigation conduct. Following trial, a State Bar Court judge found that Ms. Lacher had failed to comply with court orders, prosecuted a meritless appeal, failed to report sanctions, and commingled client trust funds. Although the State Bar Court recommended suspension until payment of the ECI judgment, the Review Department of the State Bar later escalated the sanction to disbarment, citing Ms. Lacher’s pattern of misconduct and prior disciplinary history. Her license was placed on involuntary inactive status pending final review by the California Supreme Court.
In October 2024, Ms. Lacher filed a chapter 7 bankruptcy petition, scheduling the ECI judgment as an unsecured claim. Ms. Lacher then sought emergency relief in the bankruptcy court, requesting that the bankruptcy court determine that the automatic stay applied to the disciplinary proceedings. She argued that the automatic stay precluded disciplinary proceedings and that those proceedings were discriminatory under Bankruptcy Code section 525(a) because the suspension and pending disbarment were due to her failure to pay a dischargeable prepetition debt. The bankruptcy court rejected her arguments, holding that the proceedings were not subject to the automatic stay, that the discharge injunction did not bar disciplinary measures, and that the State Bar’s actions were not discriminatory because they were not based “solely” on her failure to pay the ECI judgment.
On appeal, the BAP considered whether sovereign immunity under the Eleventh Amendment or Younger abstention (which ordinarily prevents federal courts from enjoining criminal or quasi-criminal proceedings in state court) prevented the bankruptcy court from enjoining the disciplinary proceedings. The BAP concluded that sovereign immunity did not bar enforcement of the Bankruptcy Code’s discharge and antidiscrimination provisions against state entities. Relying on the United States Supreme Court’s decisions in Tennessee Student Assistance Corp. v. Hood and Central Virginia Community College v. Katz, the BAP emphasized that bankruptcy jurisdiction is fundamentally in rem (i.e., premised on the debtor and its estate), and enforcement of discharge provisions falls within that jurisdiction.
The BAP also rejected Younger abstention as a bar to bankruptcy courts enforcing the antidiscrimination provisions of Bankruptcy Code section 525(a). While federal courts ordinarily avoid interfering with state disciplinary actions, the BAP held that bankruptcy courts are expressly authorized by Congress to enforce the discharge, and Bankruptcy Code section 525(a) and abstention doctrines cannot override that statutory authority.
Accordingly, the BAP affirmed the bankruptcy court’s rulings. It held that the discharge injunction did not nullify the ECI judgment or preclude disciplinary sanctions. It explained that a discharge relieves a debtor’s personal liability, but not the non-financial consequences of the discharged debt, such as the disciplinary proceedings. Similarly, the BAP held that Bankruptcy Code section 525(a) was not violated because the disciplinary proceedings were not based “solely” on the debtor’s unpaid judgment or her bankruptcy filing, but on her broader misconduct, including failure to obey court orders, frivolous litigation, and commingling of funds.
In affirming, the BAP clarified that bankruptcy courts possess jurisdiction to enforce discharge and nondiscrimination protections against state entities but emphasized that such protections do not insulate debtors from accountability for independent misconduct.
