In re Application of William W.
Gahan for Admission to the Bar of Minnesota
No. 49690
Supreme Court of Minnesota
279 N.W.2d 826;
1979 Minn. LEXIS 1510;
5 Bankr. Ct. Dec. 512;
4 A.L.R.4th 426
May 11, 1979
PRIOR HISTORY:
[**1]
Petition for Review Supreme Court. County; Judge.
DISPOSITION: Affirmed.
SYLLABUS:
1. The Supremacy Clause of the United States Constitution precludes the denial
of admission to the Minnesota bar on the basis of a prior bankruptcy or on the
basis of an applicant's unwillingness to pay debts previously discharged in
bankruptcy. However, the Supremacy Clause does not preclude the assessment of
an applicant's financial responsibility and commitment to the rights of others,
including creditors, provided the assessment is not based on the mere fact of
bankruptcy.
2. Applicants to the Minnesota bar who flagrantly disregard the rights of
others and default on serious financial obligations, such as student loans, are
lacking in good moral character if the default is neglectful, irresponsible,
and cannot be excused by a compelling hardship that is reasonably beyond the
control of the applicant.
COUNSEL: William W. Gahan, Pro Se, St. Paul, Minnesota, for Appellant.
Gislason, Dosland, Malecki, Gislason
& Halvorson, C. Allen Dosland, and C. Thomas Wilson, New Ulm, Minnesota, (for
Minnesota State Board of Law Examiners).
Richard E. Klein, Director of Bar Admissions, St. Paul, Minnesota, for
Respondent.
JUDGES:
[**2]
Heard, considered, and decided by the court en banc. Todd, Justice.
OPINIONBY: TODD
OPINION:
[*827] William Gahan seeks admission to the bar of the State of Minnesota. After his
successful completion of the bar examination, he was requested by the
Board of Law Examiners to appear before them to review the
circumstances surrounding the
discharge in bankruptcy of certain student loans obtained by Gahan to finance his education. After
formal hearing, the Board determined that Gahan did not meet the standards
required of applicants for admission to
practice law in Minnesota. We affirm.
The facts in this matter are not in dispute. Gahan received his law degree from
the University of San Francisco, California. He was
admitted to practice law in California in 1976 and subsequently was
admitted to practice law in Wisconsin. Gahan is single, has never been married, and has no
dependents. During the time of his education, at both the undergraduate and
graduate level, Gahan required financial assistance to obtain his law degree.
To achieve this goal, he
obtained a series of student loans under a Federally funded guaranty program.
At the time of his
graduation from
law school, the total amount
[**3] of these loans was approximately $ 14,000. At the time he received the loans,
Gahan agreed to
repay and understood that he would be expected to
repay the loans upon or shortly after
graduation. Generally, student loans are amortized over a 10-year period with interest at
7 percent, and the first payment is to commence about 9 months after
graduation. A monthly payment of approximately $ 175 would be required to
repay the loans under such a
repayment schedule.
In December 1976, Gahan was employed by an Oakland, California, law firm at an
annual salary of $ 15,000. In the summer of 1977, his employer experienced financial
difficulties and Gahan was not paid for 2 months, and, as a result, he
terminated his employment on August 15, 1977. Shortly
thereafter, he received all of his unpaid wages and expenses, except a small
amount of out-of-pocket travel expenses. Gahan was unemployed until October
1977, a period of 2 months, when he obtained employment with another California
law firm at an
annual salary of $ 18,000.
Gahan claims he made some initial payments upon the loan. Subsequently,
however, he defaulted. On September 27, 1977, during his period of
unemployment, Gahan obtained legal
[**4] counsel and filed a voluntary petition for bankruptcy in the United States
District Court of the Northern District of California. Immediately prior to
filing his petition for bankruptcy, Gahan mortgaged his 1959 Jaguar automobile
to a friend for a loan of $ 2,500. He deposited $ 1,000 of the loan funds in
an
exempt account at a savings and loan institution and deposited the remaining $ 1,500
in an
exempt account at a co-op credit union. Under California law, these deposits were the maximum amounts
which could be claimed as
exempt from creditors.
At the time of the filing of the
bankruptcy petition, Gahan had a number of current
[*828] obligations. He owed the balance on the student loans and $ 1,600 on a loan
from the Hibernia Bank of San Francisco. These were the only debts scheduled in
the
bankruptcy petition. However, Gahan did disclose
exempt items of $ 4,000, consisting of the $ 2,500 in the two bank deposits, the
equity in the Jaguar automobile of $ 1,000, and $ 500 in household goods and
wearing apparel. In addition, he disclosed the mortgage on the automobile in
the amount of $2,500 and an $ 1,800 life insurance loan against a policy having
a market value of $ 1,500.
[**5] Gahan's
bankruptcy petition showed total liabilities of $ 19,717.40 and $ 4,007 worth of assets, $ 4,000
of which was
exempt.
After regaining employment and before his
discharge in bankruptcy, Gahan reinstated his $
1,600 obligation to Hibernia Bank and has paid this debt in full. He did so
because he knew an officer at the bank and he believed he might need an
additional loan from the bank some time in the future. Following his
discharge in bankruptcy on February 7, 1978, Gahan used the balance of the $ 2,500 loan obtained from
his friend and other funds to discharge the loan against his automobile which
remained in his possession, free of encumbrances. As a result of these
undertakings, the only debts actually
discharged in the bankruptcy proceedings were the Federally insured student loans.
There is nothing connected with Gahan's bankruptcy to suggest that there was
any fraud, deceit, or conduct which could be considered to involve moral
turpitude. However, based on this evidence, the
Board of Law Examiners found in part:
"XXIII.
"Procuring discharge of this indebtedness (and no other) with so little effort
to
repay or extend the same and with only temporary loss of employment,
[**6] no exceptional financial or health problems and no
major
misfortunes, while neither illegal nor constituting action evincing moral turpitude,
nonetheless is conduct which would cause a reasonable man to have substantial
doubt concerning applicant's honesty, fairness, and respect for the rights of
others and for the laws of this state and nation amounting thereby to a lack of
good moral character having a rational connection with applicant's
fitness or capacity to
practice law.
"XXIV.
"Applicant continues to have and maintain a lack of recognition and appreciation
of the underlying moral obligation and social (as opposed to legal)
responsibility which arose when he was
entrusted with the
student loan funds in question."
As a result of these findings, the Board found Gahan was not a person of
good moral character within the contemplation of our Rules of Admission and recommended that he not
be
admitted to practice law in Minnesota. Gahan petitioned this court for review of this
recommendation.
The issue on appeal is whether, in view of the facts of this
case and the applicable Federal rights protecting those who elect to file
voluntary bankruptcy, the applicant to the Minnesota
[**7] bar was properly denied admission on the grounds of insufficient
moral character.
1.
Federal Bankruptcy Rights.
Initially, we observe that persons discharging their debts in bankruptcy are
afforded certain rights under Federal law. The fact of filing bankruptcy or the
refusal to reinstate obligations
discharged in bankruptcy cannot be a basis for denial of admission to the bar of the
State of Minnesota. Any refusal so grounded would violate the Supremacy Clause
of the United States Constitution since applicable Federal law clearly
prohibits such a result. The leading case on this issue is
Perez v. Campbell, 402 U.S. 637, 91 S. Ct. 1704, 29 L. Ed. 2d 233 (1971). In that case, the Supreme Court considered the constitutionality of a
state statute which precluded a
person from driving if he had an unsatisfied judgment arising out of an
automobile accident. In effect, a person who had such a judgment
discharged in bankruptcy could not drive unless he reaffirmed the
discharged debt. The court held the statute violated the Supremacy
[*829] Clause, and overruled
Kesler v. Department of Public Safety, 369 U.S. 153, 82 S. Ct. 807, 7 L. Ed. 2d 641 (1962), and
Reitz v. Mealey
[**8] , 314 U.S. 33, 62 S. Ct. 24, 86 L. Ed. 21 (1941), by changing its focus from the
purpose of the
state statute to the
effect of the
state statute. The court reasoned that the effect of the statute was to coerce the person
into paying a
discharged debt, and that such coercion contravened the bankruptcy act's objective of
giving debtors a
"'new opportunity in life and a clear field for future effort,
unhampered by the pressure and discouragement of pre-existing debt.'"
402 U.S. at 648, 91 S. Ct. at 1710, 29 L. Ed. 2d at 241. See, also,
Handsome v. Rutgers University, 445 F. Supp. 1362 (D.N.J. 1978);
Rutledge v. City of Shreveport, 387 F. Supp. 1277 (W.D.La. 1975);
Matter of Loftin, 327 So. 2d 543 (La. Ct. App. 1976), writ denied,
331 So. 2d 851 (La. 1976);
Grimes v. Hoschler, 12 Cal. 3d 305, 115 Cal. Rptr. 625, 525 P. 2d 65 (1974),
certiorari denied,
420 U.S. 973, 95 S. Ct. 1394, 43 L. Ed. 2d 653 (1975). n1
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n1 For cases holding
Perez not applicable to private institutions or actions,
see
Girardier v. Webster College, 563 F.2d 1267 (8 Cir. 1977), and
McLellan v. Mississippi Power & Light Co., 545 F.2d 919, 930, n. 57 (5 Cir. 1977).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[**9]
In
Marshall v. District of Columbia Government, 182 U.S. App. D.C. 105, 559 F.2d 726 (1977), a Federal Circuit Court of Appeals sustained the constitutionality of a city
policy which denied an application for employment with the police force if the
applicant was an
adjudicated
bankrupt. The court sought to distinguish
Perez, but we reject its reasoning because the effect of the policy in that case was
to frustrate the purposes of the bankruptcy act. Federal law has established
the right to
declare bankruptcy, and state law may not chill the exercise of that right.
However, these constitutional limitations do not preclude a court from
inquiring into the
bar applicant's responsibility or
moral character in financial matters. 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, in the present case, Gahan'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
[**10] 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.
2.
Applicant's
Moral Character.
Rule II of the Rules for Admission to the bar of the State of Minnesota states
in part:
"No person shall be
admitted to practice law who has not established to the satisfaction of the State
Board of Law
Examiners:
* * * *
"(2) That he is a person of
good moral character; *
* * * *
"* Character traits that are relevant to a determination of
good moral character must have a rational connection with the applicant's present
fitness or capacity to
practice law, and accordingly must relate to the State's legitimate interest in protecting
prospective clients and the system of justice."
A requirement of
good moral character has been recognized by the Supreme Court as a
constitutionally permissible condition to bar admission, provided that the Constitution is not violated in
the determination of
moral character.
In re Stolar, 401 U.S. 23, 91 S. Ct. 713, 27 L. Ed. 2d 657 (1971);
Baird v. Arizona, 401 U.S. 1, 91 S. Ct. 702, 27 L. Ed. 2d 639 (1971);
Konigsberg
[**11] v. State Bar, 353 U.S. 252, 77 S. Ct. 722, 1 L. Ed. 2d 810 (1957);
Schware v. Board of Bar Examiners, 353 U.S. 232, 77 S. Ct. 752, 1 L. Ed. 2d 796 (1957).
The Board found that petitioner did not have
good moral character because of conduct surrounding his failure to
repay several
[*830] student loans. No other discernible grounds for showing lack of
good moral character -- such as fraud or dishonesty -- appear in the record. Consistent with the
above discussion on
constitutionally permissible factors, the specific question thus becomes whether petitioner showed a lack
of
good moral character prior to
discharge in bankruptcy because he did not undertake or prepare for
repayment of the student loans.
The conduct of a bar applicant in
satisfying his financial obligations has been widely recognized as a relevant factor in
assessing
good moral
character. See,
In re Heller, 333 A. 2d 401 (D.C. Ct. App.),
certiorari denied,
423 U.S. 840, 96 S. Ct. 70, 46 L. Ed. 2d 59 (1975);
In re Cheek, 246 Ore. 433, 425 P. 2d 763 (1967). The failure of a person to honor his legal commitments
adversely reflects on his ability to
practice law, evincing a disregard for the rights of others.
[**12] See,
Matter of Connor, 256 Ind. 610, 358 N.E. 2d 120 (1976). See, generally, Annotation,
64 A.L.R. 2d 301.
The Florida court is apparently the only court to specifically consider whether
a bar applicant's failure to
repay his student loans demonstrates lack of
good moral character so as to justify denial of admission. The Florida court has considered the
issue twice, and the
contrast in the cases is
instructive. In the case of
Florida Bd. of Bar Examiners re G.W.L. 364 So. 2d 454 (Fla. 1978), the applicant, G.W.L., had approximately $ 10,000 in student loans upon
graduation from
law school. As of several months before
graduation, he had not obtained law-related employment. Three days before
graduation, he executed a voluntary petition for bankruptcy. Approximately 7 months later,
the applicant was
adjudicated
bankrupt and released from his debts. At approximately the same time, the applicant
obtained a job as law clerk at $ 70 per week. He applied for admission to the
Florida bar, and the Board recommended that applicant not be admitted. The
Florida Supreme Court agreed with the Board, stating
(364 So. 2d at 459):
"* * * We find that the Board had ample record evidence
[**13] from which it could conclude that the principal motive of the petitioner in
filing his petition for
bankruptcy was to defeat creditors who had substantially funded seven years of
educational training. Whether that motive was present as the debts were
incurred or was formed toward the end of his
law school training, the Board could fairly conclude from the petitioner's own testimony
and prior behavior that he exercised his legal right to be freed of debt by
bankruptcy well before the first installments on his debt became due, with
absolutely no regard for his moral responsibility to his creditors. The
petitioner's admittedly legal but unjustifiably precipitous action, initiated
before he had obtained the results of the July bar examination, exhausted the
job market, or given his creditors an opportunity to adjust
repayment schedules, indicates a lack of the moral values upon which we have a right to
insist for members of the legal profession in Florida. The petitioner's course
of conduct in these personal affairs raises serious questions concerning the
propriety of his being a counselor to
others in their legal affairs, and is rationally connected to his
fitness to
practice law.
*
[**14] * * *
"To foreclose any misconstruction of this decision, we must emphasize that this
ruling should not be interpreted to approve any general principle concerning
bankruptcies nor to hold that the securing of a
discharge in bankruptcy is an act inherently requiring the denial of admission to the bar. We further
do not wish this decision to be construed to hold that any comparable exercise
of a clear legal right will necessarily imperil bar admission."
Three justices dissented because, even though they did not condone the
applicant's actions, the applicant had a Federal right to bankruptcy and
therefore the court could not constitutionally deny admission on the basis of
exercising that right. The majority did not address the constitutional issue or
cite the
Perez case.
In the second Florida case,
Florida Bd. of Bar Examiners re Groot, 365 So. 2d 164 (Fla.
[*831] 1978), the court held that an applicant who had
discharged his
student loans in bankruptcy should nevertheless be admitted because the
circumstances surrounding his
default were justified. In distinguishing the case from
Florida Bd. of Bar Examiners re G.W.L., supra, the court said
(365 So. 2d at 168):
[**15]
"Unlike G.W.L., Groot was the father and legal custodian of two children born of
his recently-terminated marriage. His expenses included not only his own living
costs and those of his dependents, but to some degree those of his former wife.
When his personal resources became exhausted, he was forced to prevail upon
family members to loan him the money, to meet current living expenses while he
was without a job. Thus, unlike G.W.L., Groot had suffered unusual
misfortune at the time he finally secured employment, and he had a valid present need to
devote his entire employment income to his current, not past, financial
responsibilities. His circumstances warranted his turning to the remedy
provided by federal law for persons
in just such situations, and we hold that Groot's conduct under these
circumstances is not morally reprehensible or indicative of a present unfitness
for admission to the bar."
In these two cases, the Florida court failed to squarely address the
constitutional issue of denying employment licenses on the basis of bankruptcy.
We have reservations as to whether it was constitutional for the Florida court
to consider the morality of any motivations for filing
[**16] bankruptcy when the Federal Government has declared the bankruptcy proceeding
to be legal and presumably beneficial to the welfare of the individual and
society.
Nevertheless, the Florida cases are
instructive of the judicial concern over admitting to the bar those persons who disregard
the rights of others and do not pay their debts even when they are reasonably
able to do so. We hold that applicants who flagrantly disregard the rights of
others and
default on serious financial obligations, such as student loans, are lacking in
good moral character if the
default is neglectful, irresponsible, and cannot be excused by a compelling
hardship that is
reasonably beyond the control of the applicant. Such
hardships might include an unusual
misfortune, a catastrophe, an overriding financial obligation, or unavoidable unemployment.
We are, under the Minnesota Constitution,
entrusted with the exclusive duty to assure the high moral standards of the Minnesota
bar. We have no difficulty in concluding that Federal law does not preclude us
from evaluating the responsibility of a bar applicant in
satisfying his or her financial obligations. This is particularly true where, as here,
the obligation
[**17] has the significance of $14,000 in Federally insured student loans. A
student loan is
entrusted to a person, and is to be repaid to creditors upon
graduation when and if financially able. Moreover,
repayment provides stability to the
student loan program and guarantees the continuance of the program for future student
needs. A flagrant disregard of this
repayment responsibility by the loan recipient indicates to us a lack of moral
commitment to the rights of other students and particularly the rights of
creditors. Such
flagrant financial irresponsibility reflects
adversely on an applicant's ability to manage financial matters and reflects
adversely on his commitment to the rights of others, thereby reflecting
adversely on his
fitness for the practice of law. It is appropriate to prevent problems from such
irresponsibility by denying admission, rather than seek to remedy the problem
after it occurs and victimizes a client.
Applying the above principles to this case, we conclude that Gahan's failure to
satisfy his obligations on the student loans cannot be excused for some
compelling
hardship reasonably beyond his control. During the period prior to bankruptcy, he was
employed for most
[**18] of the time at an
annual salary of $ 15,000 and then $ 18,000. Monthly, he grossed from $ 1,250 to $ 1,500,
and he accounted for monthly expenses of approximately $ 500. The record
indicates that his monthly payments on the loans would be approximately $ 175.
He was healthy, single, and not subject to any unusual
hardship. He was reasonably able to satisfy his legal and moral obligation to prepare
for
[*832]
repayment and
continue
repayment of his student loans. His failure to do so demonstrates lack of
good moral character and reflects
adversely on his ability to perform the duties of a lawyer.
Consistent with Gahan's Federal bankruptcy rights, we expressly state that our
decision is in no way influenced by any assessment of Gahan's motivation in
seeking bankruptcy. Nor are we interested in whether Gahan has any present
willingness or ability to reaffirm the debts. We have based our decision solely
on the
circumstances surrounding Gahan's
default on the student loans and the resulting failure to satisfy this important
obligation. Gahan's subsequent conduct of obtaining
discharge in bankruptcy and release from the
default is of no concern to us.
The decision of the
Board of
[**19] Law Examiners to deny membership to the bar of the State of Minnesota is affirmed.
