In re Spielbauer
We find that the Review Department misinterpreted our precedents and that a restitution order is appropriate in this case. We therefore order that Spielbauer make restitution in accordance with the terms set forth at the end of this opinion. We otherwise adopt the Review Department‘s recommended
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2003, Spielbauer‘s brother, Dennis Spielbauer, obtained a $350,000 loan from Curtis Mitchell, a real estate investor. The loan was secured by three of Dennis‘s properties, including one located at 167 E. William Street in San Jose, California (167 Property). Because of a preexisting loan, Mitchell was in second position on the 167 Property. Faramarz and Afsaneh Yazdani, as trustees of their family trust (Yazdani Trust), later assumed third position on that property in connection with a $210,000 loan secured by a deed of trust on the 167 Property and four other parcels.
In 2007, Dennis obtained a second loan from Mitchell. That loan, in the amount of $585,000, was secured by Dennis‘s personal residence and two other properties, but not by the 167 property.
Dennis defaulted on both loans from Mitchell. When Mitchell initiated foreclosure proceedings on Dennis‘s residence and the 167 Property, Dennis filed for bankruptcy. By March 2010, the 167 Property was the only property Dennis still owned that secured the 2003 loan, and the outstanding balance on that loan was $7,152.03.
The first week of March 2010, Spielbauer incorporated Devine Blessings, Inc. (Devine Blessings). Its purpose was to “secur[e] financing and purchase lien position notes, particularly on the properties of Dennis Spielbauer” that were “facing foreclosure.” Spielbauer identified himself as its president and “sole shareholder.” On March 12, 2010, less than two weeks before the foreclosure sales, Spielbauer, on behalf of Devine Blessings, agreed to purchase the 2003 and 2007 loans
In late March 2010, after the purchase of the notes, the Yazdani Trust began foreclosure proceedings on the third deed of trust on the 167 Property. An agent for the Yazdani Trust subsequently purchased the property at a trustee‘s sale, with a newly formed company called 167 E. William, LLC (William LLC) taking title to the property. William LLC then sought to resell the property to a third party. In late April 2010, William LLC, after entering into an agreement to sell the property to a third party, asked Spielbauer for a payoff demand statement pursuant to
In May 2010, William LLC asked Spielbauer for an explanation or revision of the demand and for an accounting. Spielbauer failed to respond. Attorneys for William LLC then sent a letter to Spielbauer requesting a revised payoff demand and advising that the inflated payoff demand was jeopardizing the impending closing of the property‘s sale and thus exposing Spielbauer to civil liability for tortious interference. In a letter to William LLC‘s counsel dated May 28, 2010, Spielbauer stated that he was “responding . . . on behalf of Devine Blessings,” that he “need[ed] to investigate the issues” William LLC had raised, that he had not had sufficient “time” to do so, and that he would “respond on . . . the next business day,” June 1, 2010. Spielbauer wrote the letter on letterhead of his law firm — “The Spielbauer Law Office” — and identified himself on the typed signature line as “Thomas Spielbauer, Esq.” He never subsequently provided either an accounting or an explanation. As a result, William LLC canceled the sale, refunded the third
In July 2010, William LLC filed a complaint against Devine Blessings that included causes of action for declaratory relief, violation of
The court rejected Spielbauer‘s claim that he believed his payoff demand was justified by the deed of trust on the property and an “agreement” between himself and Dennis, entered into after he “bought the Mitchell note,” that “modif[ied] the note to include” the claimed “additional sums.” The only evidence of the alleged modification, the court explained, was Spielbauer‘s own “self-serving” testimony because Spielbauer had: (1) “failed to” present “the written [modification] document itself” despite having “had the opportunity to . . . do so“; and (2) “withheld” the document “during discovery” despite “admit[ting] that it was not privileged.” In the court‘s view, because Spielbauer did not produce the written agreement or “provide any explanation . . . as to how the note was supposedly modified,” “[t]here was simply no evidence” to provide “a factual basis” for the conclusion “that the note had been modified.” Instead, the court found, the payoff demand was simply an attempt to “shift” to William LLC “the financial burden” of both Spielbauer‘s work on Dennis‘s bankruptcy proceedings and the $126,000 payment to Mitchell.
In February 2014, the superior court entered judgment in favor of William LLC, and against both Spielbauer and Devine Blessings, for a total amount of $869,276.55, comprising $332,547.06 in compensatory damages on the claim for slander of title — which included a $7,152.03 reduction for the amount still owed on the 167 Property — $163,597.12 in attorney fees, $40,582.37 in costs, and $332,550 in punitive damages. In 2016, the Court of Appeal affirmed the judgment and we denied Spielbauer‘s petition for review.
In April 2014, about two months after entry of judgment
In June 2014, about four months after entry of judgment in the civil action and two months after Spielbauer filed for bankruptcy, an investigator for the Office of Chief Trial Counsel of the State Bar (OCTC) contacted Spielbauer about the civil fraud judgment in the William LLC matter. The investigator stated that OCTC had no record of Spielbauer reporting the judgment as required by On December 16, 2019, OCTC filed a Notice of Disciplinary Charges alleging five counts of misconduct by Spielbauer: (1) violating Both Spielbauer and OCTC appealed, with OCTC asking for a finding of culpability on all five counts and, in terms of discipline, actual suspension for six months “and until he pays restitution.” The Review Department found Spielbauer culpable of only four counts: failing to comply with The Review Department “decline[d] to recommend [that] Spielbauer be ordered to make restitution to William LLC.” After noting that William LLC was “a non-client entity,” the Review Department, quoting our decision in Sorensen v. State Bar (1991) 52 Cal.3d 1036 (Sorensen), stated that this court “has explicitly stated that restitution in the disciplinary context is not a ‘damage award‘” and “does not ‘approve imposition of restitution as a means of compensating the victim of wrongdoing . . . .‘” Although acknowledging decisions in which we had ordered restitution to compensate nonclients, the Review Department found those decisions “distinguishable.” On OCTC‘s motion for reconsideration, the Review Department affirmed its decision not to recommend restitution, stating: “The restitution OCTC seeks in this case constitutes a damages award based in tort, with a substantial portion of the award — the punitive damages portion — exceeding out-of-pocket losses, to a business entity to whom [Spielbauer] had no fiduciary duty. This is beyond the scope of every disciplinary case in which restitution has been imposed and that involved parties outside the attorney-client relationship. . . . [¶] OCTC contends that because this case does not involve an ordinary tort, but rather, a tort in fraud, restitution must be imposed as part of discipline, overlooking that the fraud [Spielbauer] committed was the basis for the punitive damages award, which is clearly beyond the reach of Sorensen‘s restitution for out-of-pocket losses in a limited situation. [Citation.] OCTC draws a comparison to misconduct involving moral turpitude as justification for requiring restitution, but that is of no help. We previously considered a case that involved misconduct OCTC petitioned for review, raising the following questions: “In attorney disciplinary cases involving harm to a non-client, should restitution be precluded simply because the attorney‘s misconduct is grounded in tort? And, in this attorney disciplinary case, should Respondent be ordered to pay restitution to a non-client for specific out-of-pocket losses incurred as a direct result of Respondent‘s intentional and fraudulent misconduct.” We granted the petition.2 “The basic objectives of attorney discipline are the protection of the public, the preservation of confidence in the legal profession, and the rehabilitation of errant attorneys where appropriate.” (Bach v. State Bar (1991) 52 Cal.3d 1201, 1206 (Bach).) Thus, “in imposing discipline, we do not simply impose retribution and punishment, but seek to protect the public, to preserve public confidence in the legal profession, and to maintain and enforce the highest possible professional standards for members of the bar.” (Coppock v. State Bar (1988) 44 Cal.3d 665, 684 (Coppock).) To accomplish these goals “and at the same time to rehabilitate the errant attorney” (Brookman Included within this power is the authority to order restitution. Indeed, as we have explained in the attorney discipline context, “[r]estitution is fundamental to the goal of rehabilitation.” (Hippard v. State Bar (1989) 49 Cal.3d 1084, 1094, italics added.) “[I]mposed as a condition of probation,” restitution “serves the state interest of rehabilitating culpable attorneys (and protecting the public) by forcing the attorney to ‘confront, in concrete terms, the harm [their] actions have caused.‘” (Brookman, supra, 46 Cal.3d at p. 1009; see Bach, supra, 52 Cal.3d at p. 1207 [“Ordering restitution in cases of financial injury is a rehabilitative measure designed to further the state‘s disciplinary objectives ‘by forcing [attorneys] to “confront, in concrete terms, the harm [their] actions [have] caused“‘“].) For this reason, in the attorney discipline context, “[r]estitution is routinely required . . . in cases of misappropriation of client funds,” “usually without discussion.” (Coppock, supra, 44 Cal.3d at p. 684.) However, as we have explained, “[i]t does not follow . . . that restitution is appropriate only in” cases involving misappropriation of client funds, or that attorneys who do not misappropriate client funds “should not be required to pay restitution to the victims of [their] culpable acts. [¶] Although part of the rationale for requiring restitution may be to prevent . . . attorney[s] from profiting from [their] wrongdoing, restitution is also intended,” among other things, “to discourage dishonest and unprofessional conduct.” (Coppock, supra, 44 Cal.3d at p. 685 and does not function “merely [as] compensation to the [victim] for ‘actual pecuniary loss.‘” (Brookman, supra, 46 Cal.3d at p. 1009.) We applied these principles in Sorensen, which was the linchpin of the Review Department‘s analysis. There, attorney Baldwin, after taking a deposition and obtaining a transcript from the business entity for which the reporter worked — “a deposition reporting firm” called “the Los Angeles Court Reporters” — decided that the “bill [for the transcript] was excessive” and convinced his client to pay only about half. (Sorensen, supra, 52 Cal.3d at p. 1038.) To recover the rest, the owner of the reporting firm — Ms. Brigante — “filed a small claims action against” Baldwin. (Id. at p. 1039.) In response, attorney Kerry Sorensen filed on Baldwin‘s behalf “a municipal court [action] against Brigante . . . for ‘fraud and deceit.‘” (Ibid.) After dismissal of the fraud action on summary judgment, a State Bar hearing panel found in a disciplinary proceeding that Sorensen, by filing the action, had “‘willfully violated‘” his “‘oaths and duties as‘” an attorney and had “‘abused and misused the process of the court.‘” (Id. at p. 1040.) The panel recommended that Sorensen “be required to reimburse Brigante‘s legal fees and expenses” in defending against the action. (Ibid.) The Review Department deleted this recommendation, reasoning: “‘[S]uch reimbursement would be an award of damages rather than restitution. The Review Department has declined to adjudicate or to award damages in attorney disciplinary proceedings.‘” (Id. at pp. 1040–1041.) “Exercising our independent judgment” (Sorensen, supra, 52 Cal.3d at p. 1045), we sided with the hearing panel and concluded that a restitution award was appropriate. After explaining that “the sanction” for the misconduct “must As earlier noted, the Review Department read this passage from Sorensen as an “explicit[] state[ment] that restitution in the disciplinary context is not a ‘damage award‘” and as our disapproval of imposing restitution “‘as a means of compensating the victim of wrongdoing.‘” Based on this reading, the Review Department reasoned that “a civil judgment in tort . . . cannot serve as the basis for restitution” because recovery in tort constitutes a damage award to compensate for injury. And because the “civil judgment [against Spielbauer] was primarily driven by tort damages,” under Sorensen, it “cannot [be] use[d] as a justification to impose We conclude that the Review Department has misread Sorensen and our other precedents. Contrary to the Review Department‘s analysis, our order of restitution in Sorensen did not rest on the fact that the attorney in that case had violated subdivisions (c) and (g) of Our comments in Sorensen about “restitution as a means of compensating the victim” or “as a ‘damage award‘” (Sorensen, supra, 52 Cal.3d at p. 1044) must be understood in context. Our point was not, as the Review Department concluded, that an award of restitution is impermissible insofar as it “compensat[es] the victim of wrongdoing.” (Ibid.) Rather, it was that the primary purposes of ordering “restitution [as] a necessary condition of probation” in attorney discipline cases are “effectuat[ing]” the attorney‘s “rehabilitation and . . . protect[ing] the public from similar future misconduct,” and that compensating the victim through an “award [of] restitutive monetary relief” is permissible “when doing so is ‘merely incidental to‘” these “‘proper, primary . . . purpose[s].‘” (Id. at p. 1044.) By “emphasiz[ing] the professional responsibility of lawyers to account for their misconduct,” requiring attorneys to pay for “specific out-of-pocket losses directly resulting from [their] misconduct . . . serves to both protect the public and instill public confidence in the bar.” (Id. at p. 1045.) This reading of Sorensen is fully consistent with our Amicus curiae Lawyers’ Mutual Insurance Company (Lawyers’ Mutual) argues that ordering restitution in this case would “cross the bright line between damages and restitution drawn in Sorensen.” It “is well-established in the law,” Lawyers’ Mutual asserts, that “‘[t]he object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.’ [Citations.] . . . [I]t ‘is designed to restore the aggrieved party to his or her former position by return of the thing or its equivalent in money‘” and “has ‘primarily been utilized by courts to prevent unjust enrichment’ by forcing a wrongdoer to disgorge ill-gotten gains.” It is both “distinct from” and “‘fundamental[ly] differen[t]‘” than damages, in that it “‘is measured by the defendant‘s gain‘” whereas damages are “‘measured by the plaintiff‘s loss.‘” “Put As previously discussed, in Sorensen, we did not, as Lawyers’ Mutual argues, draw a “bright line between damages and restitution.” Rather, we held that when “attorney misconduct” causes “private persons” to incur “specific out-of-pocket losses,” a restitution award is proper, and that “compensating the victim of wrongdoing” through an “award [of] restitutive monetary relief” is permissible “when doing so is ‘merely incidental to a proper, primary . . . purpose‘” of imposing discipline. (Sorensen, supra, 52 Cal.3d at pp. 1044–1045.) “[I]n this context,” we “view” restitution, not as “a ‘damage award,‘” but as “a necessary condition of probation designed to effectuate [the attorney‘s] rehabilitation and to protect the public from similar future misconduct.” (Id. at p. 1044.) “[F]orcing” wayward attorneys, through payment of restitution, “to ‘confront, in concrete terms, the harm [their] actions have caused’ . . . fundamentally serves the goal of rehabilitation.” (Brookman, supra, 46 Cal.3d at p. 1009.) Lawyers’ Mutual fails to adequately consider the purposes of restitution in this context when it argues we should strictly apply what it asserts is the “core definition of restitution” that “[c]ourts apply . . . in many [other] contexts.” (Cf. Walnut Creek Manor v. Fair Employment & Housing Com. (1991) 54 Cal.3d 245, 263 [“[r]estitutive damages,” which agencies may award when reasonably necessary to effectuate their primary, legitimate regulatory purposes, include “economic harm suffered by one party in consequence of another party‘s violation of a law,” i.e., “quantifiable amounts of money . . . to compensate for the pecuniary loss directly resulting from” a “violation of law“].) Lawyers’ Mutual also misreads some of the other decisions on which it bases its argument. In Slavkin v. State Bar (1989) 49 Cal.3d 894, 898 (Slavkin), we imposed discipline — including payment of restitution — on an attorney for, as relevant here, “wilfully fail[ing] to . . . perform any services” for a client after being retained, and paid an “advance,” “to take prompt action to evict a nonpaying tenant.” (Fn. omitted.) According to Lawyers’ Mutual, our discipline order in Slavkin “adhered to the traditional definition of restitution” by “condition[ing]” the attorney‘s suspension “on repayment of misappropriated client funds,” i.e., the prepaid legal fee. However, the “items of restitution” in our restitution order included “the full amount of [a] judgment” the client had obtained against the attorney in “[s]mall [c]laims [c]ourt” (Slavkin, at p. 906), and that judgment required the attorney to pay, in addition to “the prepaid [legal] fee,” an amount “representing rental losses incurred by [the attorney‘s] inaction” (id. at p. 898, italics added). Thus, Slavkin, although cited by Lawyers’ Mutual, actually supports a The Review Department, in addition to its mistaken view of Sorensen, relied on the fact that William LLC has never been Spielbauer’s client. However, its analysis is inconsistent with decisions of this court that the Review Department acknowledged but declared to be “distinguishable.” One of those decisions is Galardi v. State Bar (1987) 43 Cal.3d 683, 687 (Galardi), where we imposed discipline — including payment of restitution — based on an attorney’s “willful[] breach[]” of “fiduciary duties he owed,” not to his clients, but “to his joint venturers in various real estate investment projects.” Although noting that “the misconduct occurred in the course of [the attorney’s] business dealings and not during his representation of legal clients” — and citing this as a reason for reducing the terms of the suspension the Review Department had recommended — we nonetheless adopted the Review Department’s recommendation that the attorney be required to pay, over a five-year period, restitution to “his coventurers” in the total amount $186,000. (Id. at p. 694.) The Review Department’s rationale for distinguishing Galardi — it involved an attorney who “breached his . . . fiduciary duty and diverted funds or misappropriated money owed to a non-client” — is not supported by our precedents. In Sorensen, which we have already discussed, we ordered payment of restitution even though the attorney had no fiduciary duty to the owner of the deposition firm and had neither diverted nor misappropriated money owed to her. Coppock, which the Review Department did not discuss in connection with this issue, involved similar facts. There, the disciplined attorney “allowed a client to use his client trust In re Morse (1995) 11 Cal.4th 184 (Morse) is the last of our decisions involving payment of restitution to a nonclient that Morse, the Review Department declared in this case, is “distinguish[able]” because the civil enforcement action there at issue, unlike William LLC’s action, “was not one based in tort” and the “ ‘primary purpose’ ” of the “civil money penalties[]” sought in that enforcement action, “[u]nlike tort damages,” was “ ‘to secure obedience to statutes and regulations.’ ” In other words, the Review Department reasoned, the restitution ordered in Morse was “meant” not “to directly compensate victims of Morse’s misconduct” but “to benefit the public generally.” It “was a form of equitable relief as opposed to damages based on the individual harm to each victim,” whereas William LLC’s “civil judgment [against Spielbauer] was primarily driven by tort damages,” which, “per Sorensen,” “cannot [be] use[d] as a justification to impose restitution.” The Review Department’s rationale for distinguishing Morse rests on the same misreading of Sorensen earlier discussed. Sorensen, properly understood, does not stand for the proposition that a restitution award may not in any respect function like “tort damages” by compensating the victim “based on the individual harm to [the] victim.” It stands for the proposition that, in the attorney discipline context, any compensatory aspect of a restitution award “is ‘merely incidental to’ ” the primary purposes of such an award: “effectuat[ing]” the attorney’s “rehabilitation,” “protect[ing] the public from similar future misconduct,” and “instill[ing] public confidence in the bar.” (Sorensen, supra, 52 Cal.3d at pp. 1044–1045.) And that proposition rested on our conclusion that the “protective and rehabilitative principles” warranting restitution for misuse of client funds and unearned fees “apply” broadly Brookman, which the Review Department did not mention, is analogous to Morse. There, we disciplined an attorney for, among other things, failing to repay funds a client had provided as a loan, rather than for legal services. (Brookman, supra, 46 Cal.3d at pp. 1006–1007.) As here relevant, we ordered payment of restitution to the State Bar Client Security Fund, which had paid the client the outstanding amount of the loan. (Id. at pp. 1007–1009.) We explained that payment of restitution, by “forcing the attorney to ‘confront, in concrete terms, the harm his actions [had] caused,’ ” would “fundamentally serve[] the goal of rehabilitation” and was “not merely compensation to the government for ‘actual pecuniary loss.’ ” (Id. at p. 1009.) Notably, this is precisely how the Review Department itself has twice read Sorensen in concluding that attorneys should be required to pay restitution to nonclients based on damages for the tort of fraud. In In the Matter of Katz (Review Dept. 1995) 3 Cal. State Bar Ct. Rptr. 430, an attorney, in connection with his client’s purchase of a manufacturing company, “lied” to the sellers “when he endorsed [his client’s] false financial statement” knowing “it was false and grossly exaggerated.” (Id. at p. 434.) After the transaction closed, the company “became insolvent,” the client filed for bankruptcy, and one of the sellers obtained from the bankruptcy court “a nondischargeable judgment against” the attorney — “in the amount of $8,038.04” — on a “fraud claim” alleging that the attorney, along with his client, “defrauded” the seller “by giving him the false financial statement.” (Id. at pp. 434–435.) In a disciplinary action, the Review Department “conclude[d] that Six years later, in In the Matter of Petilla (Review Dept. 2001) 4 Cal. State Bar Ct. Rptr. 231 (Petilla), the Review Department similarly relied on Sorensen and Brookman as authority for awarding restitution to a nonclient in the amount of damages caused by the attorney’s fraud. The attorney obtained cash advances on credit cards “without intending to repay them,” “used and lost those cash advances while gambling,” and “[a]lmost immediately” afterwards “attempted to discharge the debts in bankruptcy.” (Id. at p. 236.) In the bankruptcy proceeding, the court, based on its finding that the attorney’s conduct constituted “actual fraud,” “entered a judgment declaring [the attorney’s] debts to [the credit card company] nondischargeable.” (Id. at p. 240.) In a disciplinary proceeding involving the same conduct, the Review Department found that the attorney had committed “ ‘act[s] of dishonesty’ ” (id. at p. 241) and it concluded he should “be required to make restitution to” the credit card company in the amount of the unpaid advances (id. at p. 248). Citing Brookman and Sorensen, the Review Department reasoned that payment of restitution was neither “a form of debt collection” nor “a means of compensating the victim of wrongdoing,” but was an “appropriate,” “necessary,” and “important part of rehabilitation We note one last decision demonstrating that under our precedents, William LLC’s nonclient status is not a basis for declining to order Spielbauer to make restitution. In Frazer v. State Bar (1987) 43 Cal.3d 564, 566 (Frazer), we disciplined an attorney for acts of misconduct in connection with several loans he had obtained. Two of those loans were “from a nonclient” (ibid.) — Marcy McCann — who had learned through a mutual friend that the attorney needed “money to use in a real estate development.” (Id. at pp. 572–573.) In obtaining these loans, the attorney “knowingly and intentionally misrepresented to McCann that she was to receive a second deed of trust when in fact there were already two deeds of trust against his residence.” (Id. at p. 573) As part of a five-year probation period, we ordered the attorney’s actual suspension “during the first 18 months of said period . . . and until he [made] restitution to” the nonclient for the amount she lent him “plus interest at the legal rate from” the date of the first loan.5 (Id. at p. 580.) The Review Department’s emphasis, in declining to recommend payment of Spielbauer offers several other arguments in support of his claim that a restitution order in this case would be improper. One of those arguments, which he makes for the first time in this court, is that the judgment in the William LLC matter “has now expired.” Under Even were Spielbauer correct that the civil judgment is no longer enforceable — an issue on which we express no opinion6 — his attempt to tie the propriety of a restitution Likewise at odds with our precedents is Spielbauer’s separate argument, in direct conflict with his assertion that the civil judgment is unenforceable, that an award of restitution would be improper because “the civil judgment provides for other processes for the LLC to obtain its payment of its judgment.” As we explained in Bach, supra, 52 Cal.3d at page 1207, “[t]he administration of attorney discipline, including such remedial orders as restitution, is independent of any remedy Nor do any of Spielbauer’s remaining arguments provide a persuasive legal basis for declining to require restitution. Spielbauer asserts that at the time he committed the acts underlying this disciplinary matter, he “believed” his conduct “was justified.” The Review Department, giving collateral estoppel effect to the superior court’s findings in William LLC’s civil action, rejected this claim, finding that Spielbauer: (1) “committed fraud within the meaning of Spielbauer next revives the argument from his July 2014 written response to OCTC’s investigator that the “activities” giving rise to the civil judgment against him were not “ ‘committed in [his] professional capacity’ ” — i.e., “as an attorney” — but “as a President of” Devine Blessings. He asserts in his brief that he “was acting,” “not . . . for the benefit of” William LLC “or any client,” but only “for himself.” Lawyers’ Mutual relatedly argues that under Kwasnik, “the public interest in restitution is lessened” in this case because “Spielbauer’s misconduct at least substantially fell outside his professional capacity as attorney.” According to Lawyers’ Mutual, “[i]t is undisputed that the precipitating event was a payoff demand Spielbauer issued as a business owner,” and that act “did not require that he be an attorney or rely on his license to practice law.” “Indeed,” Lawyers’ Mutual further asserts, “the hearing judge found that Spielbauer was not acting in a professional capacity when he presented the inaccurate payoff demand to the LLC and to the superior court,” and “[t]he Review Department, in turn, found only that some of Spielbauer’s misconduct — his submission of a declaration to the superior court — was ‘related to the practice of law,’ although it also noted that ‘Spielbauer was not the primary attorney litigating the case.’ ” The record, which we have a “duty to independently examine” (Connor v. State Bar (1990) 50 Cal.3d 1047, 1055), paints a different picture. To begin with, the hearing judge did not, as Lawyers’ Mutual asserts, make an affirmative finding More significantly, to the extent Spielbauer and Lawyers’ Mutual are correct that the appropriateness of restitution depends on whether Spielbauer’s misconduct was related to the practice of law — a point we do not address — the record contains clear and convincing evidence that it was. (See In re Bradshaw (2025) 17 Cal.5th 1095, 1107 [in disciplinary proceedings, OCTC has the burden “to prove culpability by clear and convincing evidence”].) First, regarding the payoff demand itself, Spielbauer’s signature appears in the blank designated for Devine Blessings as “Beneficiary.” His printed name appears on the next line, underneath “Devine Blessings” and beside the word “By,” but the space for indicating the capacity in which he signed the document for Devine Blessings — Next, when William LLC’s counsel requested a revised payoff demand, Spielbauer sent a letter in reply on the letterhead of his law firm — “The Spielbauer Law Office” — stating that he was “responding . . . on behalf of Devine Blessings” and identifying himself on the typed signature line as “Thomas Spielbauer, Esq.” The same day, he sent a second letter to William LLC’s counsel also on the letterhead of “The Spielbauer Law Office” and identifying Spielbauer on the typed signature line as “Thomas Spielbauer, Esq.” Moreover, throughout the civil action, Spielbauer acted as counsel of record, first for Devine Blessings alone when it was the only named defendant, and then for both Devine Blessings and himself after William LLC, in an amended complaint, added Spielbauer as a named defendant. He was sole counsel for the first 15 months of that litigation — from July 2010 when William LLC filed the original complaint until October 2011, when he and Devine Blessings notified the court that they were “associat[ing]” another attorney “as counsel of record” to “be lead counsel.” During those 15 months, Spielbauer signed and filed, among other things, multiple demurrers, motions to strike, and oppositions to William LLC’s request for a preliminary injunction. Even after associating another attorney, and throughout the rest of the litigation, Spielbauer continued to sign and file pleadings as counsel for himself and Devine Blessings, including a cross-complaint in which he and Devine Blessings sued William LLC. On this record, insofar as Spielbauer and Lawyers’ Mutual assert that restitution is not Spielbauer next argues that an award of restitution would be improper because William LLC suffered “no ‘out of pocket’ loss.” He reasons as follows: Tort claimants seeking recovery of attorney fees “are not entitled to recover more money then [sic] actually paid.” Thus, “[o]nly evidence of attorney fees actually paid [is] . . . admissible into evidence” in tort actions, and “no evidence was introduced” in the civil action that William LLC “or its principal actually paid its attorney any money, as opposed to granting its counsel a contingency fee for its services.” “Disciplinary proceedings cannot be used to compel an attorney to pay bills for fees that are not even admissible in evidence in a court of general jurisdiction,” and “no evidence was introduced in the State Bar Court regarding the attorney fees paid.” Therefore, an award of restitution may not be based on William LLC’s attorney fees in the civil action. Spielbauer’s argument is inconsistent with precedent. In West Coast Development v. Reed (1992) 2 Cal.App.4th 693, the Court of Appeal rejected the argument that an order pursuant to The decision Spielbauer cites in support of his contrary argument — Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 (Howell) — is not inconsistent with the authority discussed above. Howell involved a principle that is not at issue here: the “collateral source rule,” which precludes deducting from an injured person’s damage recovery compensation the injured person received from sources independent of the tortfeasor. (Id. at p. 548.) The question before us in Howell was whether this rule applies where the plaintiff’s medical provider, “pursuant to a preexisting contract with the [plaintiff’s] health insurer,” “accepts as full payment” for medical services a discounted amount that is “less than that stated in the provider’s bill” to the plaintiff. (Ibid.) In holding that the rule does not apply in that context — and that such plaintiffs may not recover more than the discounted amount — we noted: (1) an earlier decision in which “we suggested . . . that the collateral source rule applies to unpaid services . . . rendered ‘with the expectation of repayment out of any tort recovery’ ”; (2) “the widely held view,” “reflect[ed]” in the Restatement Second of Torts, “that the collateral source rule applies to gratuitous payments and services”; and (3) an appellate decision that, based on “other California cases, the law of sister states, and the policy of encouraging charitable action,” had applied the In this case, Spielbauer, who concedes in his briefing that the fee awarded in the civil action was “based on [actual] bills,” points to no evidence in any relevant record — from the civil action, his bankruptcy action, or this disciplinary proceeding — suggesting that William LLC’s attorneys in the civil matter, before providing legal services, agreed to accept in exchange for those services a lower amount than the amount billed. Nor, as far as our review of those records discloses, did Spielbauer assert in any of those proceedings — before he filed a supplemental brief in this court — that the amount billed was overstated, that William LLC was not obligated to pay the billed amount, or that On the contrary, in his written closing argument to the hearing judge in this disciplinary matter, he characterized the “attorney fees” awarded in the civil action as “damages incurred by” William LLC. Earlier, in a letter to the State Bar explaining why he failed to report the civil judgment, he similarly characterized the “attorney fees awarded” in the civil action as “fees incurred,” and he asserted that “[t]he only evidence received at the [civil] trial which pertained to attorney fees were those paid to” William LLC’s counsel. (Italics added.) In his new trial motion in the civil action, he repeatedly referred to the fees in question as fees “incurred,” and he asserted in his appeal in that action that “[a]ll of [those] fees were spent pursuing damage claims long after the April 27, 2010 [payment] demand had expired.” (Italics added.) Spielbauer’s representations were fully consistent with both the superior court’s decision in the civil action and the evidence submitted in that civil action. The superior court, in setting forth the damages that William LLC “proved” it had “suffered,” stated: “Plaintiff submits proof that it spent $336,484.09 on fees in this case to eliminate the cloud on title caused by the false payoff demand.” (Italics added.) In declarations submitted to the superior court, one of William LLC’s attorneys stated under penalty of perjury that her “time Insofar as Spielbauer now speculates — contrary to the evidence just cited and without any evidentiary support — that William LLC’s attorneys in the civil action may have agreed to work only for “a contingency fee,” his view that this would make an award of restitution improper is not supported by Howell. As noted above, Howell acknowledged, and did not reject, an earlier decision of this court suggesting “the collateral source rule applies to unpaid services . . . rendered ‘with the expectation of repayment out of any tort recovery.’ ” (Howell, supra, 52 Cal.4th at p. 558.) On the facts of this case, refusing to award restitution based on the asserted absence of evidence in the record that William LLC actually paid the attorney fees would, in the words of Howell, “result in a windfall for” Spielbauer and “distort the deterrent function of” restitution in the discipline context by providing him relief from the financial “cost of his . . . wrongdoing.” (Id. at p. 560.) Spielbauer’s secondary argument regarding the asserted absence of out-of-pocket losses is also unpersuasive. According to Spielbauer, William LLC actually “made substantially more money” as a result of his actions — issuing a payment demand that “compelled” William LLC “to keep the property” and to sue to clear the resulting cloud on title — because “during the litigation,” William LLC “retained all the rents on the property” and the property’s value “appreciated substantially.” However, the record is devoid of any evidence to support Spielbauer’s Finally, Spielbauer asserts that he “does not” — and “did not” — “have the ability to pay the $869,276.55 judgment.” In support of his assertion, he cites his numerous representations to the hearing judge that he lacked funds to pay the judgment. These self-serving assertions, considered in light of the record of all the related proceedings in this case, are an insufficient basis for declining to order payment of any restitution. In the civil action, the superior court discussed Spielbauer’s financial situation at length as part of setting the amount of the punitive damages award. According to its statement of decision: The only evidence Spielbauer submitted on the subject in the civil action was his own testimony, and that testimony was “not . . . credible.” Spielbauer “was evasive in his answers, even to very straightforward questions,” and he “refused to answer” questions even after the court overruled his objections. Although he “claim[ed] he own[ed] no interest in any real property,” “other evidence suggest[ed] he ha[d] control over real property assets and ha[d] used them as his own, actually converting value to his own use.” Although he made an “assertion” about the level of his monthly income, he “provided
The Court of Appeals affirmed the punitive damages award. It found that “the trial court did not err” by “infer[ring],” “[b]ased on the evidence presented during the hearing on punitive damages,” that Spielbauer had been “deceptive, had withheld complete documentation of [his] finances, and had more assets than [he] claimed.” “Therefore,” the appellate court continued, “we cannot conclude . . . the punitive damages award was so disproportionate to [Spielbauer‘s] wealth to render it excessive, exceeding what was necessary to properly punish and deter.” “[T]he award,” the court went on to state affirmatively, “was not disproportionate compared to [Spielbauer‘s] ability to pay.” Consistent with these findings, the hearing judge, after noting that Spielbauer “made a bare remark at trial that he was unable to” pay the civil judgment, found that “the record contains no documentary evidence to justify [Spielbauer‘s] We now turn to the terms of the restitution award. Regarding the six-month period of actual suspension that the Review Department recommended, OCTC asserts that we should further order that Spielbauer “remain suspended until he pays restitution for specific, out-of-pocket losses (compensatory damages, attorney fees and costs) in the amount of $536,726.49, plus interest.” It argues as follows: “[T]his case involves intentional acts of dishonesty. [Spielbauer] breached his duty of good faith and fair dealing to those with whom he was transacting business, causing an innocent victim to suffer a tangible pecuniary loss; and, when the victim was forced to seek judicial intervention to clear the slander of title caused by [Spielbauer‘s] fraudulently inflated payoff demand, [Spielbauer] dragged out the litigation, submitted a false declaration stating that the payoff demand was accurate, and breached his duty of candor to the court.” Spielbauer offers little in response to OCTC‘s discussion. Many of his arguments — the judgment has expired and is unenforceable; he believed he was justified in his conduct; William LLC was never his client and he owed it no fiduciary duties; William LLC had no out-of-pocket losses and actually made money as a result of his actions — have been earlier These arguments are well answered by the comments of both the hearing judge and the Review Department in concluding that Spielbauer‘s “indifference” to the nature and consequences of his misconduct merit “substantial weight” as an aggravating factor. In a written decision, the hearing judge, who personally observed Spielbauer testify, stated: “Spielbauer fails to recognize the magnitude of his transgressions or accept The Review Department, like the hearing judge, found that “Spielbauer is unable to recognize the wrongfulness of his misconduct.” He has not “accept[ed] responsibility for [his] wrongful acts and come to grips with [his] culpability,” “which demonstrates his lack of insight. Despite the superior court‘s civil fraud judgment, [he] maintains that his actions were supported under the law, and he has done nothing wrong.” “[H]is conduct goes beyond” proper defense of his actions and “reveal[s] a complete failure to understand the wrongfulness of his actions regarding the fraudulent payoff demand. Particularly troubling is his continued attempt . . . to relitigate the findings of the superior court [in the civil action], which were affirmed by the Court of Appeal and are fully supported by the record. [Citation.] [His] actions show indifference to the nature In this court, Spielbauer continues to demonstrate indifference to the nature and consequences of his actions, a refusal to take responsibility for those actions, and a lack of insight and remorse. He has doubled-down on the same excuses and explanations that have been rejected by every tribunal to consider them, and he has continued to blame others — including his victim, William LLC — for the predicament in which his own actions have left him. And he attempts to turn his own failure to make any payment on the civil judgment for over a decade — since entry of the civil judgment in 2014 — into yet another argument for avoiding responsibility: purported expiration of the civil judgment due to William LLC‘s failure to renew it. On this record, we agree with the hearing judge that Spielbauer‘s “lack of insight . . . makes him an ongoing danger to the public and legal profession.” We also agree with the Review Department that Spielbauer‘s “failure to understand the wrongfulness of his misconduct” gives rise to “concern that similar misconduct may recur and calls for strong preventive measures.” Spielbauer‘s misconduct was not garden-variety civil misbehavior, but was fraudulent activity, which raises questions about his ability to represent clients in a manner consistent with his professional obligations. Like OCTC, we therefore find that Spielbauer should be required to pay restitution in the amount of $536,726.55, plus interest, which reflects William LLC‘s damages and the out-of-pocket costs it Nevertheless, we are mindful of the hearing judge‘s concern about the potential “impact on [Spielbauer‘s] ability to practice” of requiring him to pay the entire amount of restitution “prior to returning to active status.” We have previously noted similar concerns in fashioning the terms of restitution. For example, in Beery v. State Bar (1987) 43 Cal.3d 802, 816, after finding that a restitution requirement “in the amount of $35,000” was “appropriate” given the facts of the case, we declined to require “completion of restitution . . . during the period of actual suspension” given “the financial hardship [that actual] suspension [was] likely to cause.” “It will be sufficient,” we concluded, that “restitution is made a condition of probation” (ibid.), and we included as a probation condition that the attorney make “restitution according to a payment program approved by the State Bar Court” (id. at p. 817). Galardi is also relevant on this issue. There, the Review Department‘s recommended discipline included “actual suspension for at least one year and until [the attorney paid] restitution totaling $186,000 to his joint venturers.” (Galardi, supra, 43 Cal.3d at p. 687.) Based on the attorney‘s personal circumstances — he “ha[d] gone through bankruptcy liquidation Our decisions reveal still other approaches regarding ability to pay restitution. In Prantil v. State Bar (1979) 23 Cal.3d 243, 245, we ordered payment of the total restitution amount — $4,500 plus interest — “in monthly installments of $200 or more,” and we specified that “the stay of execution of the suspension order [would] be lifted if [the attorney] misse[d] two consecutive payments.” In several cases, we have ordered payment within a specified period of time that was more than the period of actual suspension but less than or coextensive with the length of the probationary term. (Lipson v. State Bar, supra, 53 Cal.3d at p. 1023 [actual suspension for two years and payment of restitution “within the five-year probationary period“]; Coppock, supra, 44 Cal.3d at p. 687 [actual suspension for 90 days and payment of restitution “within the first year” of two-year probationary period]; Waysman v. State Bar (1986) 41 Cal.3d 452, 459 [no actual suspension, “complete restitution” to In Morse, we took yet another approach. The time period we specified for payment of $350,000 in restitution and civil penalties — “within the first 90 days of” a five-year probationary period — was much shorter than the three-year actual suspension we imposed. (Morse, supra, 11 Cal.4th at p. 212.) However, we went on to set forth a detailed procedure for seeking an extension if the attorney “contend[ed]” he was “unable to pay this amount” by the 90-day deadline: He “must submit to his probation monitor within the first 90 days of the probation period a written plan for prompt payment of as much of the amount as [he] is able to pay. The submission of any such plan . . . must include satisfactory proof of [his] financial condition and the amount he is able to pay. The State Bar Court is authorized to review de novo any decision by the monitor either to approve or to reject any payment plan proposed by [the attorney]. If, within two years, [he] pays in full the [entire amount] . . . he shall be entitled to have the State Bar Court reduce the period of actual suspension from three years to two years.” (Ibid.) In Petilla, the Review Department, citing Morse, took a similar approach. After recommending actual suspension for 60 days and a restitution payment of approximately $12,000 plus interest “[w]ithin 90 days after the effective date of the Supreme Court order in this matter,” the Review Department added: “If Petilla contends that he is unable to pay this amount, he must Considering all the circumstances in this case, we conclude that an approach modeled on Morse and Petilla is appropriate and would best promote the goals of restitution: “to effectuate [Spielbauer‘s] rehabilitation and to protect the public from similar future misconduct.” (Sorensen, supra, 52 Cal.3d at p. 1044.) On the one hand, the amount of restitution — over $500,000, plus interest — is substantial and, as the hearing judge observed, requiring Spielbauer to pay the entire amount “prior to returning to active status” could significantly “impact” his “ability to practice.” On the other hand, the judgment in the civil action was entered over 12 years ago — in February 2014 — and Spielbauer has made no payments on it during that period even though it was affirmed on appeal and we declined to review it in 2016, the bankruptcy court found it nondischargeable in 2017, and that decision was affirmed in 2018 by a federal district court and again in 2019 by the Ninth Circuit Court of Appeals. Nor, in this disciplinary proceeding, has Spielbauer shown any inclination or willingness to pay what he owes, or even the smallest portion of what he owes. Based on the above, we order that Thomas John Spielbauer, State Bar No. 78281, be suspended from the practice of law for two years, that execution of that suspension be stayed as set forth below, and that he be placed on probation for two years with the following conditions: Spielbauer‘s failure to submit, within the first 90 days of the probation period, both (1) a written plan for prompt payment of as much of the amount as he is able to pay and (2) satisfactory proof of his financial condition and the amount he is able to pay, shall constitute a forfeiture of any option to request or have a payment plan, such that he is bound to pay the full amount of restitution before being reinstated. The probation case coordinator shall have discretion to grant relief from the forfeiture upon a showing by Spielbauer of good cause, subject to the State Bar Court‘s de novo review of any decision by the probation case coordinator regarding relief from default. If Spielbauer has not obtained approval of a payment plan within the first six months of his probation period, his actual suspension will continue until a payment plan is approved. Payments Spielbauer makes on the civil judgment, excluding payments to satisfy the punitive damages component of that judgment, shall be credited toward his restitution obligation under this order. Likewise, any restitution payments he makes pursuant to this order shall be credited toward the civil judgment. EVANS, J. We Concur: GUERRERO, C. J. CORRIGAN, J. LIU, J. KRUGER, J. GROBAN, J. CASTILLO, J.* * Associate Justice of the Court of Appeal, Fourth Appellate District, Division One, assigned by the Chief Justice pursuant to II. DISCUSSION
A. Sorensen and other precedents.
B. Spielbauer’s remaining arguments.
C. The terms of the restitution award.
III. DISPOSITION