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In the Matter of Gerald M. Saluti

August 25, 2011

IN THE MATTER OF GERALD M. SALUTI, AN ATTORNEY AT LAW


Per curiam.

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

IMO Gerald M. Saluti, an Attorney at Law (D-70-10) (067548)

Argued March 29, 2011 -- Decided August 25, 2011

PER CURIAM

In this attorney disciplinary matter, the Court addresses whether attorney fee arbitration determinations and the disciplinary proceeding that followed the attorney's failure to satisfy the arbitration awards in favor of clients are exceptions to the automatic stay provision of the U.S. Bankruptcy Code.

After hearings in three separate matters, the District V-A Fee Arbitration Committee issued awards in favor of three former clients of New Jersey attorney Gerald M. Saluti. When Saluti did not pay the awards by the deadlines for doing so, the Office of Attorney Ethics (OAE) filed a motion with the Disciplinary Review Board (DRB) for Saluti's temporary suspension from practice and the imposition of monetary sanctions because of the outstanding obligations. The DRB recommended to the Supreme Court that Saluti be immediately temporarily suspended from practice and sanctioned in the amount of $500 for each of the three outstanding awards. The Court ordered that Saluti be temporarily suspended from practice pending his compliance with the determinations of the fee arbitration committee and payment of the sanctions and until further Order of the Court.

Saluti and his wife filed a Chapter 7 bankruptcy petition prior to the effective date of the suspension and notified the DRB of the bankruptcy proceeding, which Saluti asserted automatically stayed the Supreme Court proceeding against him pursuant to §362 of the U.S. Bankruptcy Code. The Court ordered Saluti to show cause why he should not be temporarily suspended from practice for failure to comply with the fee arbitration determinations. The Court stayed the suspension from practice until further Order of the Court. The Court heard argument on behalf of Saluti and the OAE and accepted supplemental briefing, in which the New Jersey Lawyers' Fund for Client Protection (LFCP) participated as amicus curiae.

HELD: The action of the Supreme Court to suspend Gerald M. Saluti from the practice of law for failure to comply with fee arbitration committee determinations qualifies as an exception to the automatic stay provision of the U.S. Bankruptcy Code and Saluti is suspended from practice pending his compliance.

1. The U.S. Bankruptcy Code, 11 U.S.C.A. § 362(a)(1), imposes an automatic stay on collection actions against a debtor and the property of the debtor except in limited circumstances. One exception to the stay is an action by a governmental unit to enforce its police or regulatory power, including the enforcement of a judgment, other than a money judgment, obtained in a proceeding by a governmental unit to enforce its police or regulatory power. 11 U.S.C.A. §362(b)(4). The exception applies if (1) the disciplinary entities of the Court qualify as "governmental units"; (2) the action enforces the "police and regulatory power" of the Court; and (3) the proceeding enforces "a judgment other than a money judgment." The parties agree that the first two conditions for an exception are satisfied, but Saluti contends that the action by the Court effectively enforces a money judgment and therefore does not qualify for exception from the automatic stay provided by the Bankruptcy Code. (pp. 4-6).

2. If the government is pursuing a matter of public safety and welfare and not a governmental pecuniary interest (the pecuniary purpose test) or if the government action is intended to effectuate public policy rather than to adjudicate private rights (the public policy test), the action is not considered one to enforce a "money judgment," and is excepted from the automatic stay provision. (pp. 6-7)

3. In this matter, applying both the pecuniary purpose and the public policy test, the action against Saluti cannot be considered an action to enforce a money judgment. The Court does not have a governmental "pecuniary interest" in pursuing the matter because it will not gain financially from any payment made by Saluti, and, although it was Saluti's failure to satisfy the arbitration awards to his clients that triggered the proceedings, redress to the clients is not the primary purpose underlying the action. Saluti's refusal to uphold his professional obligation to charge "reasonable" fees and to comply with the disciplinary authority of the Court and its agencies led to the Court's intervention. (pp.7-9).

4. The attorney fee arbitration system in New Jersey has been used since 1978 to enhance the confidence of the public in the bar and the judicial system, an important governmental function. Attorneys are required to submit to fee arbitration proceedings, and ensuring attorneys' adherence to it is an important regulatory goal because it facilitates the expedited resolution of fee disputes between attorneys and clients and fosters public confidence in the legal profession. Bolstering of the fee arbitration process and restoration of public confidence in the authority of fee arbitration committees to resolve fee disputes are at the heart of the Court's action. (pp.9-10).

5. The action to suspend Saluti from practice is to redress his disregard of determinations of the fee arbitration committee in the exercise of the authority delegated to the committee by the Court, and although Saluti may have to satisfy the fee awards in favor of his clients to forestall suspension, that requirement is entirely collateral to the primary purpose of supporting the fee arbitration process and retaining public confidence in the system. (p.10).

6. The stay of suspension ordered by the Court is vacated and Saluti is suspended from the practice of law in accordance with the order accompanying this opinion, pending his full compliance with the terms of the January 27, 2011 order and the applicable provisions of Rule 1:20-20. (pp.10-11).

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, RIVERA-SOTO and HOENS join in the Court's opinion.

Argued March 29, 2011

On an Order to show cause why respondent should not be temporarily suspended from the practice of law.

Following separate hearings on July 22, 2010, the District V-A Fee Arbitration Committee (Committee) issued awards to three former clients of respondent Gerald M. Saluti, Esq. Saluti was ordered to pay the awards by three dates in November 2010. He did not do so. On January 3, 2011, the Office of Attorney Ethics (OAE) moved for Saluti's temporary suspension and the imposition of fines for each infraction because his obligations pursuant to the three awards were still outstanding. On January 25, 2011, after reviewing the OAE's motions, the Disciplinary Review Board (DRB) recommended to the Court that Saluti be "immediately temporarily suspended" and that he be fined $500 for each of the three outstanding awards. On January 27, 2011, the Court temporarily suspended Saluti, effective February 28, 2011, until he complied with the Committee's awards.

On February 22, 2011, Saluti and his wife filed a petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C.A. §§ 701-84. Saluti notified the DRB of the bankruptcy proceeding and transmitted a copy of the petition. Saluti asserted that the automatic stay provision of 11 U.S.C.A. § 362(a) was effective as of February 22, 2011, and prohibited

(i) the commencement or continuation of a judicial action or proceeding that was or could have been commenced before the bankruptcy filing, (ii) any act to recover a claim against the debtor that arose before the commencement of the case, and/or (iii) any act to obtain possession of or to exercise control over property of the estate.

On March 1, 2011, the Court entered an order requiring Saluti to show cause on March 29, 2011, why he should not be temporarily suspended from practice pursuant to Rule 1:20-15(k) and compelled to pay a monetary sanction. Saluti's suspension was stayed pending further action by the Court. On March 29, 2011, oral argument took place on the order to show cause and supplemental briefing was permitted.

I.

Saluti contends that the unsecured nature of the fee arbitration debt entitles him to a stay pending the resolution of his bankruptcy. He argues that the exception to the stay provision permitting the continuation of governmental regulatory actions against debtors does not apply to discipline for failure to pay an unsecured debt that is itself the subject of the automatic stay. Further, he argues that he should not be disciplined for the failure to pay general unsecured debts that may be discharged in his bankruptcy proceeding. Ultimately, Saluti asks that this Court await the resolution of his bankruptcy ...


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