IN RE: the Application for REINSTATEMENT OF Jami Lynn STEWART a/k/a Jami Watts to Membership in the Oklahoma Bar Association and to the Roll of Attorneys. (2009)

¶ 1 On February 11, 2003, we suspended the attorney for four years retroactive to September 20, 2002, the date an order of interim suspension issued pursuant to Stewart's conviction for failure to file her 1996 federal income tax return and for contempt for wilfully failing to disclose her fees in a bankruptcy proceeding. When we decided State ex rel. Oklahoma Bar Association v. Stewart (Stewart I ), 2003 OK 13, 71 P.3d 1, the attorney was serving a four-year probationary sentence. We deemed the extended suspension appropriate considering: 1) Stewart's having entered into agreed suspensions in other jurisdictions, one for three years and the other for five years; and 2) the impact on the judicial system resulting from allowing an attorney to engage in the practice of law during a criminal sentence.

¶ 2 Rather than satisfying tax assessments which the attorney testified totaled between $200,000.00 and $500,000.00 with penalty and interest,¹ Stewart chose to discharge in bankruptcy her tax liability. The attorney's decision to do so makes relevant cases in which this Court has refused reinstatement based, in part, on the existence of unpaid tax obligations.² In consideration of our jurisprudence and upon a de novo review,³ we determine that the attorney did not present clear and convincing evidence that, if readmitted, her conduct would conform to the high standards required of a member of the Bar Association.⁴ Therefore, we deny reinstatement and impose the costs of the proceeding in the amount of $1,105.53.⁵

FACTS RELEVANT TO REINSTATEMENT PROCEEDINGS

¶ 3 Stewart was admitted to the practice of law in 1984. Until we entered an interim suspension⁶ on September 20, 2002, the attorney had an unmarred disciplinary history. The suspension arose from the attorney's criminal conviction on May 21, 2002 in the United States District Court for the Western District of Oklahoma for failure to file her 1996 federal income tax return⁷ and for contempt for wilfully failing to disclose her fees in a bankruptcy proceeding. The attorney's actions also led to suspensions from the practice of law in the United States Bankruptcy Court for the Western District of Oklahoma and in the United States Bankruptcy Court for the Eastern District of Texas.

¶ 4 Stewart pled guilty to charges of income tax evasion and to contempt charges related to failing to disclose fees collected in numerous bankruptcy proceedings. She was placed on probation for four years, ordered confined in her home for 180 days, and directed to complete 104 hours of community service. Having met the conditions of her probation, Stewart was successful in having her probation terminated on October 1, 2004, approximately 16 months earlier than originally scheduled.

¶ 5 On February 11, 2003, we suspended the attorney for four years retroactive to the date of the interim suspension order.⁸ At that time, Stewart had made payments in restitution to her bankruptcy clients totaling approximately $30,000.00 and had entered an agreement with the Internal Revenue Service to pay a tax debt of approximately $20,000.00 for the 1996 and 1997 tax years.

¶ 6 After completing her home confinement, Stewart worked preparing marketing materials for gas exploration projects until she was injured in a serious car accident. Following her recovery, the attorney became qualified to conduct domestic and other civil mediations, often doing so on a volunteer basis. She also took writing classes, authored a novel, and was employed as a human resources manager for a manufacturing facility. When she petitioned for reinstatement, Stewart was unemployed.

¶ 7 The attorney originally filed a petition for reinstatement on January 5, 2007, less than a month after having filed a petition in bankruptcy seeking to discharge her tax liability. When Stewart was advised by the General Counsel's Office of the Bar Association that other attorneys who had not satisfied tax obligations had been denied reinstatement, she withdrew the application.⁹

¶ 8 On March 19, 2007, Stewart received her discharge in bankruptcy. She filed a second petition for reinstatement on September 8, 2008 pursuant to Rule 11, Rules Governing Disciplinary Proceedings, 5 O.S.2001, Ch. 1, App. 1-A. The hearing on reinstatement was held before the trial panel on December 5, 2008. The trial panel issued its report on January 28, 2009 determining that Stewart had not met the burden of proof for reinstatement and recommending that reinstatement be denied and that costs be imposed. Three weeks earlier, the Bar Association filed its application for the assessment of costs in the amount of $1,015.53. The order setting a briefing schedule issued on February 26, 2009. The briefing cycle was completed with the filing of the attorney's reply brief on March 11, 2009.

JURISDICTION, STANDARD OF REVIEW, AND BURDEN OF PROOF

¶ 9 It is this Court's nondelegable, constitutional responsibility to regulate both the practice and the ethics, licensure, and discipline of practitioners of the law. The duty is vested solely in this department of government.¹⁰ Our determinations are made de novo.¹¹ Although given great weight,¹² neither the finding of facts of the trial panel nor its view of the evidence or the credibility of witnesses bind this Court. The recommendation is merely advisory.¹³ We are bound neither by its findings nor its assessments as to the weight or credibility of the evidence.¹⁴ A thorough and complete exploration of all relevant facts is mandatory in consideration of matters to regulate the practice of law and legal practitioners.¹⁵ Attorneys suspended for disciplinary reasons will not automatically be reinstated on a prima facia showing that the attorney has not engaged in improper conduct during the suspension period.¹⁶

¶ 10 A suspension from the practice of law for a period of two years and one day is tantamount to disbarment in that the suspended lawyer must follow the same procedures for readmittance as would a disbarred counterpart.¹⁷ Before an attorney who has been disciplined for more than two years may be readmitted to the practice of law, it must be established that the lawyer's conduct will conform to the high standards required of a member of the Oklahoma Bar. The burden is on the applicant to demonstrate by clear and convincing evidence that the prerequisites for reinstatement are satisfied.¹⁸ The applicant must present stronger proof of qualifications than one seeking first time admission.¹⁹

¶ 11 Rule 11.5, Rules Governing Disciplinary Proceedings, 5 O.S.2001, Ch. 1, App. 1-A requires the trial panel to make specific findings regarding whether: 1) the petitioner possesses the good moral character which would entitle her to be admitted to the Bar Association; 2) the petitioner has engaged in the unauthorized practice of law during the period of suspension; and 3) the petitioner possesses the competency and learning in the law required for admission to the practice of law in the State of Oklahoma. In addition, this Court considers the following eight factors in making a reinstatement decision: 1) the applicant's present moral fitness; 2) demonstrated consciousness of the conduct's wrongfulness and the disrepute it has brought upon the legal profession; 3) the extent of rehabilitation; 4) the original misconduct's seriousness; 5) conduct after resignation; 6) time elapsed since suspension; 7) the applicant's character, maturity, and experience when suspended; and 8) present legal competence.²⁰ Each reinstatement decision is determined on a case-by-case basis, carefully weighing all factors.²¹

¶ 12 a. The attorney has not demonstrated the clear and convincing evidence necessary for her readmittance to the practice of law in Oklahoma.

¶ 13 Stewart asserts that she is truly remorseful for the events leading up to her suspension. She contends that: the conduct for which she was disciplined occurred during an aberrant period in her life; since her suspension, she has demonstrated both true remorse for the repercussions of her actions and her worthiness for reinstatement; and her lack of ability to pay her back taxes does not demonstrate an unwillingness to satisfy the debt but, rather, an inability to do so. The Bar Association agrees with the assessments made by the trial panel that Stewart did not engage in the unauthorized practice of law during her suspension and that she showed her competency and learning in the law but that she does not fully understand the seriousness of her actions. The Bar Association urges us to adopt the findings of the trial panel that Stewart has not presented clear and convincing evidence demonstrating: 1) conduct which, if reinstated, will conform to the high standards required of a member of the Bar; or 2) stronger evidence than required of one seeking first time admission.

¶ 14 1) Stewart presented clear and convincing evidence of her: remorse for the damage she caused her clients and the judicial system; present ability to competently practice law; and lack of any unauthorized practice of law during suspension.

¶ 14 Stewart testified that she understood the seriousness of her offenses and expressed her regret for the damage she caused her clients and the legal system.²² We agree with the attorney that the record supports her genuine regret regarding her former actions. The Court is also persuaded, as was the trial panel, that Stewart demonstrated her intellectual ability to practice law through the completion of numerous hours of continuing legal education, study of Bar Journals, and training in civil mediation.²³ Stewart also presented the evidence necessary to demonstrate that she has not engaged in the unauthorized practice of law during her suspension.²⁴ Stewart averred²⁵ that, at the time of her suspension, she had no clients to notify of their need to obtain new counsel and no pending cases from which she would be required to withdraw.²⁶ Nevertheless, like the trial panel and the Bar Association, we are unconvinced that the attorney has presented clear and convincing evidence sufficient to support reinstatement to the practice of law in Oklahoma.

¶ 15 1) The attorney's discharge of her tax liabilities in bankruptcy will not equate to restitution of taxes owed.

¶ 16 The attorney presented five witnesses who unanimously recommended reinstatement. The Bar Association presented no contrary evidence. However, reinstatement is not automatic even where the undisputed evidence favors the petitioning attorney.²⁷

¶ 17 Restitution will neither preclude discipline nor insure reinstatement.²⁸ Failing to make any attempt at restitution is germane to reinstatement proceedings.²⁹ Furthermore, our concern is heightened when an attorney takes the position that a debt has been satisfied yet the economic equilibrium clearly has not been restored.³⁰

¶ 18 It appears that all clients who suffered economic harm due to Stewart's having failed to report fees of $200.00 per bankruptcy filing have been made financially whole. When the suspension was imposed, the attorney had a plan in place to pay her debt to the Internal Revenue Service.³¹ Because of limited income, Stewart did not comply with the payment schedule.³² Ultimately, the attorney sought bankruptcy protection as a means of “clearing up” her tax debt.³³

¶ 19 We view applications seeking reinstatement with the utmost seriousness.³⁴ Nevertheless, each application for reinstatement is considered on its own merits and will fail or succeed on the evidence and the unique facts of the cause.³⁵ In an attempt to be evenhanded and fair in proceedings,³⁶ we look to causes in which attorneys have had difficulties in filing and paying their individual income tax returns. Three cases are particularly instructive here.

¶ 20 The facts of today's cause are substantially similar to those the Court addressed in Matter of Reinstatement of Hardin, 1996 OK 115, 927 P.2d 545. Like Stewart, Hardin presented multiple witnesses in support of reinstatement. The trial panel in Hardin, as it did here, recommended reinstatement be denied at least partially on the failure to pay state and federal income taxes. We denied reinstatement primarily on those grounds. The only thing that separates Stewart from Hardin is that she no longer has a legal obligation to pay arrearages in her taxes because she chose to discharge the debt in bankruptcy.

¶ 21 Also instructive is the Matter of Reinstatement of Clifton, SCBD # 3451, 59 O.B.J. 1632, No. 25 (June 14, 1988). In that cause, we denied the attorney's application for reinstatement because of his failure to pay his back taxes. Nevertheless, after establishing a history of making timely payments to the federal government to satisfy his tax obligations and through the satisfaction of a loan taken to meet his state tax liabilities, we found that Clifton had shown the good moral character necessary for reinstatement to the practice of law.³⁷

¶ 22 Finally, in Matter of Reinstatement of Crabtree, 1990 OK 49, 793 P.2d 296, the attorney petitioned for reinstatement after having been suspended from the practice of law based on a conviction of federal income tax evasion. At the time the petition was filed, Crabtree had made full restitution to the Internal Revenue Service including penalties and interest and had made provision for repayment of any state taxes were any shown to be due and owing. Under those facts, we determined that the attorney possessed the moral fitness to practice law.

¶ 23 Seeking bankruptcy protection cannot be treated as tantamount to having paid the debt as did the attorneys in Clifton and Crabtree. Undoubtedly, the discharge relieved Stewart from any legal duty to pay the arrearages. However, being relieved from the obligation to pay does not equate to actually satisfying the attorney's debt by payment in full to the federal government.³⁸ The attorneys in Clifton, and Crabtree demonstrated their good moral character by making restitution for taxes owed. Stewart has not done so.

¶ 24 The dissent would allow reinstatement based on the premise that a failure to allow Stewart to return to the practice of law based solely on her failure to meet her federal tax obligations violates concepts of federal constitutional principles. It is significant to note that the constitutional argument is raised sua sponte and was not relied upon by the attorney as a basis for her reinstatement petition. Furthermore, the dissent's analysis oversimplifies the decision to deny reinstatement.

¶ 25 Reinstatement is denied on the basis of Stewart's failure to present clear and convincing evidence that, if readmitted, her conduct would conform to the high standards required of a member of the Bar Association.³⁹ Stewart's omission in meeting her monetary obligations to the federal government is a reflection upon her character in that it demonstrates her failure to understand that the general public, the judiciary, and this Court must be able to rely upon her representations.

¶ 26 In Stewart I, the attorney argued that her misconduct called for either a public censure or, at most, a six month suspension. At that time Stewart had been suspended or disbarred in six jurisdictions: the United States Bankruptcy Court for the Western District of Oklahoma, the United States Bankruptcy Court for the Eastern District of Texas, the United States District Courts for the Eastern District, the Northern District, and the Southern District of Texas, and from the United States District Court for the Western District of Oklahoma. Stewart had also been convicted for contempt for violating the United States Code involving the overcharging of clients for fees and the failure to report the collection of such fees to the respective bankruptcy courts. She admitted failing to pay her tax obligations for at least two years. Most instructive is the fact that one factor this Court considered in imposing a four-year suspension rather than disbarring the attorney was the fact that Stewart had an agreement with the Internal Revenue Service to pay her tax debt. The same agreement for repayment was a condition of the attorney's probation.⁴⁰

¶ 27 The decision that the attorney does not possess the character necessary for reinstatement is not based merely on the failure to repay her debt. It encompasses a character flaw related to her promise to pay. If Stewart cannot be relied upon to meet her contractual duties to the federal government, this Court has no assurance that she will carry out promises entered in with regard to her clients, other attorneys, or the courts in which she might appear.

¶ 28 Another factor which causes this Court pause in allowing reinstatement is the attorney's failure to realize that her prior conduct is relevant to a determination of her current good character. Before the trial panel, the attorney testified that she did not believe that the reinstatement proceedings should encompass a “retrial of the original conduct.”⁴¹ In her reply brief, filed on March 11, 2008, the attorney argued that “due to claim preclusion (res judicata) it is inappropriate to re-litigate the original offense in this case.” Stewart makes this argument despite a long line of Oklahoma jurisprudence making it clear that the seriousness of the original misconduct is one factor to be considered in any reinstatement proceeding.⁴²

CONCLUSION

¶ 29 We agree with the trial panel that there is no evidence to indicate that the attorney engaged in the unauthorized practice of law during her suspension and that she successfully demonstrated her present ability to competently practice law. Unlike the trial panel and the Bar Association, we also determine that Stewart's testimony reflects an understanding both of the wrongfulness of her acts and sincere remorse for the injury she caused to her clients, the practicing bar, and the judicial system. However, although there is evidence in support of Stewart, we cannot equate her having discharged federal income tax obligations with the payment of the same.⁴³

¶ 30 In making a reinstatement decision, this Court must disregard feelings of sympathy,⁴⁴ recognizing that the petitioner's burden of proof is a heavy one.⁴⁵ While we are concerned with any adverse effect reinstatement might have on the practicing bar, our foremost consideration is always to protect the public welfare.⁴⁶ After having given due consideration to the evidence contained in this record and the appropriate factors examined in reinstatement proceedings along with relevant jurisprudence,⁴⁷ we determine that the petitioner has failed to carry her burden to show by clear and convincing evidence⁴⁸ that she is entitled to reinstatement. Therefore, reinstatement is denied and costs of $1,015.53⁴⁹ are imposed.

PETITION FOR REINSTATEMENT IS DENIED; PETITIONER IS ORDERED TO PAY COSTS.

¶ 1 This case leaves me utterly unconvinced that either the petitioner's value system or her sense of voluntary commitment to the Bar's ethical standards underwent the slightest change since she was required to quit practising law in the wake of serious transgressions of professional discipline. See State ex rel. Oklahoma Bar Ass'n v. Stewart, 2003 OK 13, 71 P.3d 1. The risk of relapse is still much too great to permit her readmission to the ranks of licensed legal practitioners. Confidence once lost is slow to return and hard to regain. In re Reinstatement of Massey, 2006 OK 21, 136 P.3d 610, 614.

¶ 1 The Court's refusal to reinstate petitioner faults her for failing to make restitution of tax indebtedness discharged in bankruptcy. The Court finds this shows petitioner lacks the good moral character necessary to return to the practice of law. I do not agree. I believe the petitioner presented the requisite evidence of her rehabilitation, and in my opinion the ruling contravenes federal bankruptcy law and the supremacy clause of the federal Constitution.

¶ 2 The Court acknowledges that petitioner otherwise sustained her heavy burden of showing by clear and convincing evidence that she is rehabilitated and meets the standards required for reinstatement. Indeed, the record establishes that she: possessed the requisite consciousness of her wrongful conduct; understood the seriousness of her offenses and expressed genuine regret for her actions and the disrepute caused to the profession; had not engaged in the practice of law during her suspension; and demonstrated the intellectual ability and competence in legal skills through the completion of numerous hours of continuing legal education, professional reading and training in civil mediation. Petitioner had completed paying restitution to her bankruptcy clients in the amount of $30,000 prior to the issuance of our decision in the disciplinary action.

¶ 3 Five witnesses, four of whom are were attorneys, appeared on petitioner's behalf and all urged her reinstatement. The witnesses attested to petitioner's intelligence, competence, trustworthiness, honesty and high moral standards. They stated that she was very remorseful of her past wrongdoing and very careful not to engage in the unauthorized practice of law. The bar did not present any evidence in opposition to her application.

¶ 4 The majority recognizes that petitioner filed for bankruptcy because she was without funds and did not have the ability to pay her tax indebtedness. Her testimony was undisputed that she lost her livelihood when she lost her practice. She filed for bankruptcy after she became unable to pay the Internal Revenue Service. The investigator for the bar association testified that petitioner had a “very small” income. The court nonetheless determines that petitioner's failure to make full restitution for the tax obligation which was discharged in bankruptcy demonstrates a lack of the good moral character required to practice law.

¶ 5 In my view, the court is penalizing petitioner for availing herself of the beneficial intention of the federal bankruptcy laws, contrary to the decision of the United States Supreme Court in Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971). There the Court struck down a state statute providing that a discharge in bankruptcy did not relieve an individual from having his driving privileges suspended if he failed to satisfy a judgment against him from a previous automobile accident. The Court found the effect of the statute was to coerce a person to reaffirm the discharged debt in order to have driving privileges, which contravened the Bankruptcy Act's primary purpose of giving debtors “ ‘a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’ “ (Citations omitted.) Id. at 648, 91 S.Ct. 1710.

¶ 6 In reliance on the holding of Perez, other courts have determined the issue before us and concluded it is improper to deny reinstatement to an attorney based on his failure to make restitution for a debt discharged in bankruptcy. In Matter of Batali, 98 Wash.2d 610, 657 P.2d 775, 39 A.L.R.4th 577 (Wash.1983), the Supreme Court of Washington upheld the recommendation of the bar association's board of governors that an attorney's reinstatement following disbarment would be conditioned on payment of certain obligations owed as a result of his misconduct that had been previously discharged in bankruptcy but which he had voluntarily reaffirmed, holding that those debts had become legally enforceable obligations. But the court refused to compel the attorney to repay or reaffirm other debt discharged in bankruptcy, rejecting the requirement that the attorney pay his federal tax liability discharged in bankruptcy as a condition of reinstatement to the practice of law. The Court determined the case was controlled by Perez and the reinstatement condition contravened the federal policy of giving discharged debtors a fresh start. Batali at 780.

¶ 7 In Application of Gahan, 279 N.W.2d 826, 4 A.L.R.4th 426 (Minn.1979), the Supreme Court of Minnesota recognized that under Perez, the denial of an applicant's admission to the bar based on the fact of his filing bankruptcy or his refusal to reaffirm an obligation discharged in bankruptcy would be a violation of the supremacy clause. The court held that while those constitutional limitations do not preclude inquiry into issues of a bar applicant's financial responsibility and commitment to the rights of others, the assessment must not be on the “mere fact of bankruptcy.” Id. at 827. The court affirmed denial of admission to the bar based on its finding that the circumstances surrounding applicant's character prior to discharge in bankruptcy showed a lack of good character as he had acted irresponsibly, neglectfully and in flagrant disregard of the rights of others by defaulting on important obligations in the absence of compelling financial or other hardship.

¶ 8 The following observations of the Gahan court regarding constitutional limitations surrounding inquiry into a bar applicant's bankruptcy are relevant to the matter before us:

The inquiry is impermissible only when the fact of bankruptcy is labeled “immoral” or “irresponsible,” and admission is denied for that reason. In other words, we cannot declare bankruptcy a wrong when Federal law has declared it a right.

Thus, [the applicant's] conduct prior to bankruptcy surrounding his financial responsibility and his default on the student loans may be considered to judge his moral character. However, the fact of his bankruptcy may not be considered, nor may his present willingness or ability to pay the loans be considered because under Federal bankruptcy law, he now has a right to not pay the loans.

¶ 9 Title 11 U.S.C. § 525(a) of the bankruptcy code provides in relevant part that a “governmental unit may not deny, revoke, suspend or refuse to renew a license ․ of ․ a bankrupt or debtor under the Bankruptcy Act ․ solely because such debtor is or has been a debtor ․ under the Bankruptcy Act ․ or has not paid a debt ․ that was discharged under the Bankruptcy Act.” In Matter of Discipline of Schwenke, 849 P.2d 573 (Utah 1993), the attorney relied upon that statute and also upon a section in the Historical and Statutory Notes of the code addressing the courts' development of the Perez rule in support of his argument that the Bar could not refuse to reinstate him for failure to pay a debt discharged in bankruptcy. The Notes section states:

“ ‘This section permits further development to prohibit actions by governmental or quasi-governmental organizations that perform licensing functions, such as a State bar association ․ that can seriously affect the debtors' livelihood or fresh start ․ 11 U.S.C.A. § 525 (1984).” Id, at 577.

¶ 10 The court concluded that the statute would not allow the attorney's reinstatement to be conditioned on his payment of the discharged obligation and directed the Bar to reinstate the attorney.

¶ 11 I would reinstate the petitioner. She has met every burden imposed upon an applicant for reinstatement and the majority's refusal to reinstate her because she has not repaid an obligation discharged in bankruptcy offends the Constitution of the United States.

WATT, J.

TAYLOR, V.C.J., OPALA, WATT, WINCHESTER, REIF, JJ., concur. EDMONDSON, C.J., KAUGER, COLBERT, JJ., dissent. HARGRAVE, J., not participating.