Court Opinion

ID: 6215730
Source: CourtListenerOpinion
Date Created: 2022-02-07 19:00:37.910461+00
Date Added: 2024-06-11T08:57:05.536042
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 21-1566
TIM OSICKA,
                                                  Plaintiff-Appellant,
                                 v.

OFFICE OF LAWYER REGULATION,
                                                 Defendant-Appellee.
                     ____________________

         Appeal from the United States District Court for the
                   Western District of Wisconsin.
         No. 20-cv-478-jdp — James D. Peterson, Chief Judge.
                     ____________________

  ARGUED NOVEMBER 16, 2021 — DECIDED FEBRUARY 7, 2022
               ____________________

   Before BRENNAN, SCUDDER, and JACKSON-AKIWUMI, Circuit
Judges.
    SCUDDER, Circuit Judge. In an issue of ﬁrst impression for
our court, Tim Osicka challenges a bankruptcy court’s ruling
that the costs of his attorney disciplinary proceedings im-
posed by the Wisconsin Supreme Court were not dischargea-
ble under a provision of the Bankruptcy Code, 11 U.S.C.
§ 523(a)(7). The district court upheld the ruling, and we af-
ﬁrm.
2                                                   No. 21-1566

                                I
                               A
    In 2009 the Wisconsin Oﬃce of Lawyer Regulation com-
menced disciplinary proceedings against Tim Osicka. A ref-
eree ruled that Osicka engaged in “professional misconduct”
in violation of the Wisconsin Supreme Court’s Rules of Pro-
fessional Conduct by failing both to respond to client griev-
ances and to cooperate with an investigation into his work for
those same clients. See Wis. S.C.R. 20:8.4(f); 20:1.4(a);
22.001(9)(a); 22.03(2), (6). As for the appropriate sanction, the
referee found that Osicka’s oﬀense was aggravated by this
most recent misconduct following a public reprimand for
similar shortcomings in 2002. On the mitigation side, the ref-
eree observed that Osicka’s misconduct reﬂected negligence,
not intentional wrongdoing. See Wis. S.C.R. 22.24(1m). Fur-
ther observing that the Wisconsin Supreme Court follows a
policy of “progressive discipline,” the referee recommended
temporary suspension of Osicka’s license, restitution of $150
to a client, and imposition of the full cost of his disciplinary
proceedings—$12,878.14. See In re Disciplinary Proceedings
Against Osicka, 765 N.W.2d 775, 783, 787 (Wis. 2009).
    Osicka appealed aspects of the recommendation to the
Wisconsin Supreme Court. The Court reduced Osicka’s
suspension to a public reprimand, but upheld the restitution
and the cost order, reducing the amount of costs to $12,500.64.
See id. at 787–88. When Osicka failed to pay the costs by the
prescribed deadline, the State Bar of Wisconsin suspended his
license.
  In 2011 Osicka closed his law practice and ﬁled for
Chapter 7 bankruptcy protection. See 11 U.S.C. § 727. He
No. 21-1566                                                   3

listed the OLR as an unsecured creditor to which he owed
$12,500 in “fees,” and, for its part, the OLR did not challenge
the requested discharge. When Osicka received a general
discharge, he believed it covered his debt to the OLR. But that
understanding changed when he later petitioned the
Wisconsin Supreme Court for readmission to the state bar,
only to learn that the OLR required payment of the
disciplinary costs before recommending reinstatement. See In
re Osicka, No. 11-15541-7, 2020 WL 2516492, at *1–*2 (Bankr.
W.D. Wis. May 15, 2020).
    In 2019 Osicka reacted to these developments by moving
to reopen his bankruptcy case and then ﬁling an adversary
proceeding against the OLR. The Wisconsin Supreme Court
placed Osicka’s reinstatement petition on hold pending the
outcome of that litigation. See id. at *1.
                               B
    In the proceedings that followed, Osicka contended that
his prior bankruptcy had discharged his disciplinary costs be-
cause the exception to dischargeability in 11 U.S.C. § 523(a)(7)
did not apply. See 11 U.S.C. § 727(b). In his view, the costs—
though owed to a government unit—were not a “ﬁne, pen-
alty, or forfeiture” within the meaning of § 523(a)(7), and in-
stead served only to compensate the OLR for the expense it
incurred in the underlying disciplinary proceeding against
him.
   The bankruptcy court disagreed and entered summary
judgment for the OLR. Relying on the Supreme Court’s deci-
sion in Kelly v. Robinson, 479 U.S. 36, 50, 52 (1986), the bank-
ruptcy court concluded that the purpose of the cost order was
“not simply compensation for pecuniary loss” because the
4                                                   No. 21-1566

Wisconsin Supreme Court “intended to penalize Osicka un-
der the context of the disciplinary proceeding.” In re Osicka,
2020 WL 2516492, at *4–*5.
    From there the bankruptcy court invoked our decision in
In re Zarzynski, 771 F.2d 304, 306 (7th Cir. 1985), and explained
that setting the penalty at the amount of costs incurred by the
OLR in the disciplinary proceeding did not “convert” those
costs into a form of compensation for the OLR. In no way, the
bankruptcy court reasoned, did the OLR suﬀer any pecuniary
loss while performing its “critical public function” of holding
Wisconsin attorneys like Osicka accountable for their miscon-
duct. In re Osicka, 2020 WL 2516492, at *5. To the contrary, the
bankruptcy court saw the cost order as furthering the state’s
“penal and rehabilitative interests” and thus as part and par-
cel of the other punishment, including the Wisconsin Su-
preme Court’s public reprimand of Osicka. In the end, then,
the bankruptcy court concluded that the cost order was a non-
dischargeable “penalty” under the exception Congress sup-
plied in § 523(a)(7). Id. at *5–*6. So the court closed the Chap-
ter 7 case.
    Osicka then sought review in the district court. See 28
U.S.C. § 158(a). Much like the bankruptcy court, the district
court relied on In re Zarzynski and rejected the contention that
the costs were compensatory just because they were, in
Osicka’s words, in the “exact dollar amount” of the OLR’s ex-
penditures for his disciplinary proceedings. The district court
added that it made little sense to think of the OLR as experi-
encing any “actual pecuniary loss” within the meaning of
§ 523(a)(7) because in no way did Osicka’s misconduct inﬂict
ﬁnancial harm on the Wisconsin Supreme Court or the OLR.
The district court further emphasized that the Court imposed
No. 21-1566                                                     5

those costs only after the referee weighed “culpability fac-
tors,” much like a court imposes a cost order or ﬁne in crimi-
nal proceedings. In short, the district court concluded that
Osicka’s debt to the OLR was not dischargeable under
§ 523(a)(7).
   Osicka now appeals.
                                II
                                A
    We begin, as we must, with the language Congress used
in § 523(a)(7). See Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S,
566 U.S. 399, 412 (2012). By its terms, the provision creates a
dischargeability exception “to the extent [the] debt [in ques-
tion] is for a ﬁne, penalty, or forfeiture payable to and for the
beneﬁt of a governmental unit, and is not compensation for
actual pecuniary loss, other than a [particular] tax penalty.”
11 U.S.C. § 523(a)(7).
    The parties agree that Osicka owes the debt to a unit of
government, the Wisconsin Oﬃce of Lawyer Regulation, so
the only question is whether the cost order satisﬁes the other
statutory criteria.
   We start with whether the cost order is a form of a “ﬁne,
penalty, or forfeiture” within the meaning of § 523(a)(7). Con-
gress did not deﬁne these terms. So we are left to give them
their ordinary meanings, informed by the context in which
they operate both within § 523(a)(7) and other provisions of
the Bankruptcy Code. See Niz-Chavez v. Garland, 141 S. Ct.
1474, 1480 (2021).
   Looking to the end of the statutory list, we have a hard
time seeing the cost order as any form of “forfeiture.” The
6                                                     No. 21-1566

edition of Black’s Law Dictionary in place as of the last amend-
ment of § 523(a)(7) in 2019 tells us that “forfeiture” is the “loss
of a right, privilege, or property because of a crime, breach of
obligation, or neglect of duty,” Forfeiture (2), Black’s Law Dic-
tionary (11th ed. 2019). Courts have likewise tended to con-
strue forfeiture as entailing an oﬀender’s return of “guilty
property” to its rightful owner or custodian. United States v.
Bajakajian, 524 U.S. 321, 330 (1998). Although the Wisconsin
Supreme Court conditioned reinstatement of Osicka’s law li-
cense on the payment of his disciplinary costs, the costs them-
selves were based on the OLR’s expenses, not the losses
Osicka caused any clients. It is diﬃcult for us to believe that
the term “forfeiture” encompasses the cost order entered by
the Wisconsin Supreme Court.
    Moving on to Congress’s use of the term of “ﬁne” in
§ 523(a)(7). A ﬁne is “[a] pecuniary criminal punishment or
civil penalty payable to the public treasury.” Fine (5), Black’s
Law Dictionary (11th ed. 2019). On this understanding of
“ﬁne”—as a form of punishment—it is not clear what
diﬀerentiation Congress intended between “ﬁne” and
“penalty,” as those terms appear in § 523(a)(7). See United
States v. Melvin, 948 F.3d 848, 852 (7th Cir. 2020) (explaining
that diﬀerent language ordinarily conveys diﬀerent
meaning). Indeed, it is easy to see the cost order as a form of
a ﬁne payable to an arm of state government, as the Wisconsin
Supreme Court imposed the order only after the OLR found
that Osicka had engaged in professional misconduct. On the
other hand, Osicka is right to suggest that courts historically
have not treated cost orders and ﬁnes as one and the same for
all purposes.
No. 21-1566                                                   7

    We need not resolve the question, though, as it is plain the
cost order is a “penalty” within the meaning of § 523(a)(7). A
penalty is a “[p]unishment imposed on a wrongdoer” that can
take the form of a “sum of money exacted as punishment for
either a wrong to the state or a civil wrong.” Penalty (1),
Black’s Law Dictionary (11th ed. 2019). Although there are
several types of proceedings in which the Wisconsin Supreme
Court may order costs, see Wis. S.C.R. 22.24(1), attorney
discipline uniquely requires a “ﬁnding of misconduct” as a
precondition for doing so. Wis. S.C.R. 22.24(1m). That rule
also grants referees the discretion to set the cost order after
weighing culpability factors—including the nature of the
misconduct, the number of charges, the attorney’s
disciplinary history, and the attorney’s cooperation. See id.
   The structure of Rule 22.24(1m) unambiguously singles
out attorney discipline as a penal endeavor. And that
conclusion has a statutory consequence under § 523(a)(7). The
Supreme Court emphasized in Kelly that § 523(a)(7) creates a
“broad exception” to dischargeability for all “penal
sanctions.” 479 U.S. at 51. And in Osicka’s case, the referee
imposed costs only after assessing various aggravating and
mitigating factors:
       •   Osicka’s failure both to respond to client
           grievances and to cooperate with an investi-
           gation into his work for those clients;
       •   Osicka’s commission of four instances of
           similar professional misconduct seven years
           earlier;
8                                                   No. 21-1566

       •   Osicka’s display of a “negative, unremorse-
           ful attitude” throughout the 2009 discipli-
           nary proceeding; and
       •   On the mitigation side, “no evidence of a dis-
           honest or selﬁsh motive in the misconduct.”
In re Disciplinary Proceedings Against Osicka, 765 N.W.2d at 777,
781–83; see also Wis. S.C.R. 22.24(1m). After doing so, the
Court “conclude[d] that Attorney Osicka should be responsi-
ble” for paying the costs of the proceeding, less the costs of a
motion made by the OLR, and entered an order to that eﬀect.
In re Disciplinary Proceedings Against Osicka, 765 N.W.2d at
787–88.
   Going further, we cannot conclude that the cost order
amounts to “compensation for actual pecuniary loss” under
11 U.S.C. § 523(a)(7). Osicka argues that disciplinary costs are
nothing but compensatory because they “defray” the OLR’s
operating expenses, and, as he pressed at oral argument, his
cost order reﬂects the OLR’s expenses “to the penny.” We are
not convinced.
    The incurrence of operating expenses to prosecute a
disciplinary investigation is not an actual pecuniary loss.
“Loss” is “[t]he disappearance or diminution of value,
usu[ally] in an unexpected or relatively unpredictable way.”
Loss (1), Black’s Law Dictionary (11th ed. 2019). An “actual
loss” is a “loss resulting from the real and substantial
destruction of … property.” Actual Loss, Black’s Law
Dictionary (11th ed. 2019). And a “pecuniary loss” is a “loss
of money or something having monetary value.” Pecuniary
Loss, Black’s Law Dictionary (11th ed. 2019). Reading these
deﬁnitions together, an actual pecuniary loss is the
No. 21-1566                                                    9

disappearance or diminution of something having monetary
value resulting from the real and substantial destruction of
property, which usually occurs in an unexpected or relatively
unpredictable way and often because of another’s
misconduct. Fraud is the classic example.
    The OLR’s use of its operating budget to investigate and
prosecute attorneys for potential malfeasance falls outside of
this deﬁnition. This is because the OLR simply expended
money that it had already allocated “in the furtherance of its
public responsibilities,” In re Zarzynski, 771 F.2d at 306, which
include “disciplinary investigations and actions.” Wis. Stat.
§ 20.680(3)(h). The OLR’s use of its operating budget neither
resulted in the disappearance or diminution of value, nor the
real and substantial destruction of property. It was instead
“an expenditure by the government, part of the expense of
governing” that was not undertaken “expecting to create a
debtor-creditor relationship”—the exact use of the funds
contemplated by Wisconsin law. In re Zarzynski, 771 F.2d at
306; see also Wis. Stat. § 20.680(3)(h).
                               B
   Our conclusion that Osicka’s disciplinary costs are nondis-
charegable under 11 U.S.C. § 523(a)(7) ﬁnds ﬁrm support in
Supreme Court precedent and our own case law.
   The cost order is of a type that the Supreme Court has
identiﬁed as punitive rather than compensatory. In Kelly, the
Court excepted from discharge under § 523(a)(7) a broad
category of penal sanctions imposed as part of a criminal
sentence and that further the state’s “interests in
rehabilitation and punishment.” 479 U.S. at 51–53. Osicka’s
cost order shares these purposes: he was oﬀered
10                                                   No. 21-1566

reinstatement if he paid his disciplinary costs or continued
suspension if he did not. And he was sanctioned in
accordance with the OLR’s mandate to “supervise the
practice of law and protect the public from misconduct by
persons practicing law in Wisconsin.” Lawyer Regulation,
https://www.wicourts.gov/services/public/lawyerreg/process
.htm (last visited Feb. 7, 2022); see also Wis. S.C.R. 21.12
(stating that the OLR maintains the “integrity of the lawyer
regulation system”).
    Osicka’s insistence that Kelly applies only to criminal pen-
alties likewise fails. What he overlooks is the Supreme Court’s
express extension of its holding in Kelly to the civil context. In
Pennsylvania Department of Public Welfare v. Davenport, the
Court understood Kelly to exempt from discharge “both civil
and criminal ﬁnes.” 495 U.S. 552, 562 (1990). And in Cohen v.
de la Cruz, the Court upheld the nondischargeability of a ﬁne
levied by a rent-control administrator on a landlord for vio-
lating a local ordinance. 523 U.S. 213, 220–21 (1998). Indeed,
the Court reiterated that § 523(a)(7) “connot[es] broadly any
liability arising from” penalties for misconduct. Id. at 220; see
also In re Towers, 162 F.3d 952, 954–56 (7th Cir. 1998) (applying
Kelly to civil restitution orders).
    Supreme Court precedent also supports the conclusion
that the OLR did not suﬀer actual pecuniary loss. The Court
has read § 523(a)(7) to encompass both ﬁnes not strictly based
on harm and restitution orders “in the amount of the harm
caused,” provided they are imposed for “rehabilitation and
punishment.” Kelly, 479 U.S. at 51–53. That is exactly what
happened here: the OLR imposed the penalty of a cost order
in the amount of the expenses incurred in the underlying
investigation. It did not, by doing so, “convert” the penalty
No. 21-1566                                                    11

into compensation because the punitive and rehabilitative
purposes of the cost order remain. In re Zarzynski, 771 F.2d at
306; see Kelly, 479 U.S. at 53. The cost order is therefore akin
to the monetary sanctions federal courts routinely impose on
vexatious litigants, which also “survive[] the bankruptcy
case.” Law v. Siegel, 571 U.S. 415, 427 (2014); see also Alpern v.
Lieb, 11 F.3d 689, 690 (7th Cir. 1993) (excepting attorney
disciplinary proceedings from automatic stays in
bankruptcy).
    Adhering to Kelly, we also understand § 523(a)(7) to
prevent discharge of Osicka’s cost order because it was a
punishment and did not make the OLR whole for actual loss.
In In re Zarzynski, we held—albeit in an abbreviated manner—
that criminal prosecution expenses are “part of the expense of
governing,” and are not undertaken with the expectation of
creating a debtor-creditor relationship between the party
sanctioned and the state because investigation and
prosecution are among the state’s existing public
responsibilities and are paid out of its regular expenditures.
771 F.3d at 306. Osicka faced disciplinary costs under the
Wisconsin Supreme Court’s policy of progressive discipline,
which includes “monetary payment” among penalties that
”may be imposed on an attorney as discipline for
misconduct.” Wis. S.C.R. 21.16(1m). He attempts to challenge
that policy, but his argument is unavailing because it rests on
an inapposite concurring opinion, In re Disciplinary
Proceedings Against Konnor, 694 N.W.2d 376, 386–87, 392–93
(Wis. 2005) (Abrahamson, C.J., concurring), which merely
considers the adoption of clearer criteria for modifying cost
orders.
12                                                    No. 21-1566

    Finally, every other circuit to have confronted the question
presented has come to the same conclusion. See, e.g., In re
Albert-Sheridan, 960 F.3d 1188, 1192–93 (9th Cir. 2020); In re
Feingold, 730 F.3d 1268, 1275 (11th Cir. 2013); Richmond v. N.H.
Supreme Court. Comm. on Prof’l Conduct, 542 F.3d 913, 920–21
(1st Cir. 2008).
    Bankruptcy courts in our circuit likewise have found no
contradiction between punishing attorney misconduct and
measuring that punishment based on the government’s ex-
penses. See, e.g., In re Netzer, 545 B.R. 254, 259–61 (Bankr. W.D.
Wis. 2016); In re Betts, 149 B.R. 891, 896 (Bankr. N.D. Ill. 1993).
Indeed, such a method responds to Kelly’s directive to “tai-
lor[]” remedies to “the defendant’s situation.” 479 U.S. at 53.
     For these reasons, we AFFIRM.