Kassas was disbarred in January 2014, Judge Robles' opinion said.

Part of the misconduct that led to Kassas' disbarment was his solicitation of business from distressed homeowners who would pay him advance fees ranging from $1,500 to $4,500 on the promise that he could help them modify their home mortgages, the opinion said.

Judge Robles said Kassas failed to competently perform the promised legal services.

In addition to being disbarred, the California Supreme Court ordered Kassas to pay restitution totaling $201,706 plus interest to 56 former clients.

He was also ordered to pay the state bar $61,112 as reimbursement for the costs of his disciplinary proceeding.

Because Kassas failed to make restitution, 51 of the 56 clients were subsequently reimbursed from the state bar's client security fund. The client security fund also reimbursed an additional 305 applicants found to be victims of Kassas' misconduct.

"When the client security fund makes payments to clients who were victims of an attorney's dishonest conduct, California law requires the attorney to reimburse the client security fund for such payments, plus interest and processing costs," Judge Robles said.

Kassas owed about $2.1 million to the client security fund when he filed for Chapter 7 relief in December 2019.

After receiving a discharge in March 2020, Kassas asked Judge Robles to determine whether he still had to pay his debt to the client security fund.

Bankruptcy Code Section 523(a)(7), 11 U.S.C.A. § 523(a)(7), excludes from discharge a debt to the extent it 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."

Kassas asserted that Section 523(a)(7) did not apply because the amount of his debt was based on the amount paid by the client security fund to his former clients. He argued that the state bar was merely a conduit to reimburse them for their actual pecuniary losses.

In Kelly v. Robinson, 479 U.S. 36 (1986), the U.S. Supreme Court held that restitution imposed in connection with a criminal conviction is excepted from discharge under Section 523(a)(7).

"In reaching this conclusion, the court emphasized that the overriding purpose of criminal restitution is to benefit society by rehabilitating offenders," Judge Robles said.

Following the Supreme Court's reasoning, bankruptcy courts have found that the primary purpose of requiring attorneys to reimburse a client security fund is rehabilitative and not compensatory, he noted.

He cited Virginia v. Young (In re Young), 577 B.R. 227 (Bankr. W.D. Va. 2017), as one such case in which an attorney's obligation to reimburse the client fund was excepted from discharge.

Judge Robles agreed with this thinking and found that Kassas' obligation to the client security fund was a penalty imposed in furtherance of the state's interest in punishing and rehabilitating errant attorneys, rather than compensation for actual pecuniary loss.

He rejected Kassas' argument that his debt could not be a fine, penalty or forfeiture for purposes of the discharge exception because the state bar was required to seek reimbursement of every dollar paid to victims, and lacked discretion to tailor the debt to the gravity of his offenses.

Judge Robles said Kassas overlooked the fact that the amounts paid to his victims were proportional to his wrongdoing.

"Victims can obtain reimbursement only for money that they transferred to an attorney that was subsequently lost through the attorney's dishonest conduct. This means that Kassas' obligation to the client security fund is directly proportional to the amount of money he wrongfully obtained from clients through dishonest conduct," he said.

Therefore, Kassas' obligation to reimburse the client security fund was precisely tailored to the gravity of Kassas' offenses and bore the hallmarks of a "fine, penalty, or forfeiture," Judge Robles concluded.

Acting on his own motion, Judge Robles certified his ruling for direct appeal to the 9th U.S. Circuit Court of Appeals because the 9th Circuit had not resolved the issue and it presented a matter of public importance.

"Whether client security fund obligations are dischargeable will affect the size of the client security fund and its ability to compensate victims of attorney misconduct. The issue has arisen in at least two other cases in this district and is likely to continue to arise," he said.

M. Jonathan Hayes of Resnik Hayes Moradi LLP in Encino, California, represented Kassas. Assistant General Counsel Suzanne C. Grandt represented the state bar.