High Court Finds Lawyers and Their Advice Covered by Bankruptcy Reform Law
March 09, 2010
Consumer bankruptcy lawyers are "debt relief agencies" under a 2005 federal bankruptcy law and restrictions on the type of advice they can give clients are constitutional, the U.S. Supreme Court ruled on Monday.
In a challenge brought by a Minnesota law firm, the justices unanimously held that the plain language of the Bankruptcy Abuse Prevention and Consumer Protection Act clearly indicates that lawyers function as debt relief agencies when they provide bankruptcy help to consumers covered by the law. The 2005 law was enacted to combat abuse of the bankruptcy system.
The Supreme Court case, Milavetz, Gallop & Milavetz v. U.S., actually raised three issues for the justices:
Whether lawyers are debt relief agencies.
Whether a provision prohibiting lawyers from advising clients to incur more debt "in contemplation" of filing for bankruptcy violates First Amendment free speech guarantees.
Whether provisions requiring a debt relief agency to include the sentence "We are a debt relief agency," or one substantially similar, in all advertisements mandate unconstitutional compelled speech.
The 8th U.S. Circuit Court of Appeals had ruled in favor of the law firm only on the second issue -- the restriction on lawyers' advice. That ruling prompted a cross-petition for Supreme Court review by the government.
In her opinion for the Court, Justice Sonia Sotomayor said the law's definition of "bankruptcy assistance" included several services commonly performed by lawyers. "Indeed, some forms of bankruptcy assistance, including the 'provision of legal representation with respect to a case or proceeding,' may be provided only by attorneys," she wrote, adding that, in listing specific exceptions to the definition of debt relief agency, Congress gave no indication that it intended to exclude lawyers.
The justices also rejected the view of the 8th Circuit and the Milavetz firm that the restriction on lawyers' advice prohibits lawyers broadly from advising a client to incur additional debt when contemplating bankruptcy even if that advice could help the person avoid bankruptcy.
Tracing the history and context of the law, Sotomayor wrote that the advice restriction "is best understood to provide an additional safeguard against the practice of loading up on debt prior to filing." She wrote that the provision is intended to prohibit advising a debtor to incur more debt "because the debtor is filing for bankruptcy, rather than for a valid purpose."
That narrower reading, she wrote, will allow professionals to talk fully and candidly about incurring debt when a client is thinking about filing for bankruptcy and ensures that they don't "unknowingly run afoul" of the prohibition.
Finally, the Court rejected the law firm's arguments that the disclosure requirements for advertising were unduly burdensome and chilled protected speech.
"The disclosures entail only an accurate statement identifying the advertiser's legal status and the character of the assistance provided," Sotomayor wrote, "and they do not prevent debt relief agencies like Milavetz from conveying any additional information."
Although disappointed that the Court found lawyers included in the definition of debt relief agencies, Alan Milavetz said he was encouraged by the Court's narrowing of the restriction on advice about incurring debt.
"We felt the most important part of the case was to ensure that members of the public who want honest advice can get honest advice," he said. "The Court didn't adopt the government's view and didn't adopt our view, either. It narrowed the prohibition so attorneys can give advice to take on debt, such as lowering car payments. That's exactly the kind of thing practitioners are concerned about -- giving advice about taking on debt when it would be helpful to the client."
G. Eric Brunstad, a partner in Dechert's Hartford, Conn., office, argued the case for the Milavetz firm. The American Bar Association, the Consumer Law League of America, the Brennan Center for Justice and others supported the law firm in the Supreme Court.
Justices Antonin Scalia and Clarence Thomas filed opinions concurring in part and concurring in the judgment.
Source:
Law.com
March 09, 2010
Consumer bankruptcy lawyers are "debt relief agencies" under a 2005 federal bankruptcy law and restrictions on the type of advice they can give clients are constitutional, the U.S. Supreme Court ruled on Monday.
In a challenge brought by a Minnesota law firm, the justices unanimously held that the plain language of the Bankruptcy Abuse Prevention and Consumer Protection Act clearly indicates that lawyers function as debt relief agencies when they provide bankruptcy help to consumers covered by the law. The 2005 law was enacted to combat abuse of the bankruptcy system.
The Supreme Court case, Milavetz, Gallop & Milavetz v. U.S., actually raised three issues for the justices:
Whether lawyers are debt relief agencies.
Whether a provision prohibiting lawyers from advising clients to incur more debt "in contemplation" of filing for bankruptcy violates First Amendment free speech guarantees.
Whether provisions requiring a debt relief agency to include the sentence "We are a debt relief agency," or one substantially similar, in all advertisements mandate unconstitutional compelled speech.
The 8th U.S. Circuit Court of Appeals had ruled in favor of the law firm only on the second issue -- the restriction on lawyers' advice. That ruling prompted a cross-petition for Supreme Court review by the government.
In her opinion for the Court, Justice Sonia Sotomayor said the law's definition of "bankruptcy assistance" included several services commonly performed by lawyers. "Indeed, some forms of bankruptcy assistance, including the 'provision of legal representation with respect to a case or proceeding,' may be provided only by attorneys," she wrote, adding that, in listing specific exceptions to the definition of debt relief agency, Congress gave no indication that it intended to exclude lawyers.
The justices also rejected the view of the 8th Circuit and the Milavetz firm that the restriction on lawyers' advice prohibits lawyers broadly from advising a client to incur additional debt when contemplating bankruptcy even if that advice could help the person avoid bankruptcy.
Tracing the history and context of the law, Sotomayor wrote that the advice restriction "is best understood to provide an additional safeguard against the practice of loading up on debt prior to filing." She wrote that the provision is intended to prohibit advising a debtor to incur more debt "because the debtor is filing for bankruptcy, rather than for a valid purpose."
That narrower reading, she wrote, will allow professionals to talk fully and candidly about incurring debt when a client is thinking about filing for bankruptcy and ensures that they don't "unknowingly run afoul" of the prohibition.
Finally, the Court rejected the law firm's arguments that the disclosure requirements for advertising were unduly burdensome and chilled protected speech.
"The disclosures entail only an accurate statement identifying the advertiser's legal status and the character of the assistance provided," Sotomayor wrote, "and they do not prevent debt relief agencies like Milavetz from conveying any additional information."
Although disappointed that the Court found lawyers included in the definition of debt relief agencies, Alan Milavetz said he was encouraged by the Court's narrowing of the restriction on advice about incurring debt.
"We felt the most important part of the case was to ensure that members of the public who want honest advice can get honest advice," he said. "The Court didn't adopt the government's view and didn't adopt our view, either. It narrowed the prohibition so attorneys can give advice to take on debt, such as lowering car payments. That's exactly the kind of thing practitioners are concerned about -- giving advice about taking on debt when it would be helpful to the client."
G. Eric Brunstad, a partner in Dechert's Hartford, Conn., office, argued the case for the Milavetz firm. The American Bar Association, the Consumer Law League of America, the Brennan Center for Justice and others supported the law firm in the Supreme Court.
Justices Antonin Scalia and Clarence Thomas filed opinions concurring in part and concurring in the judgment.
Source:
Law.com
