C. David Butler & Frank J. Perch, Iii, Debate 2: the Ethical Quandary and Financial Disincentives Imposed on Attorneys by the New Act

• Citation: Vol. 22 No. 2
• Publication year: 2011

DEBATE 2:

THE ETHICAL QUANDARY AND FINANCIAL DISINCENTIVES IMPOSED ON ATTORNEYS

BY THE NEW ACT

Moderator: MS. FELICIA S. TURNER Arguing for the changes: C. DAVID BUTLER Arguing against the changes: FRANK J. PERCH, III

MS. TURNER¹: Our topic is: The Ethical Quandary and Financial Disincentives Imposed on Attorneys by the New Act. We have chosen to break this issue down into three related subtopics. We're going to debate each topic for about thirty minutes. Let me first introduce David Butler, who will be arguing in favor of the changes to the law. He is of counsel with Shapiro Fussell and has over thirty years of experience in bankruptcy law. Prior to going of counsel with Shapiro Fussell, he was the U.S. Trustee for Region 21 from 1997 through 2004. And prior to that, he was a partner with Alston & Bird. He was one of the founding directors and twice president of the SBLI. He's a member of the American College of Bankruptcy and has also received the Atlanta Bar Bankruptcy Law Section's Pollard Award. He received his B.A. and J.D. from the University of Georgia.

Arguing against the changes to BAPCPA is Frank Perch. Frank is of counsel with Hunter Maclean in Savannah. Prior to this, he was the assistant U.S. Trustee for Delaware for two years. Before his time in Delaware, he worked at several different firms in Philadelphia in the fields of bankruptcy, insurance coverage, and commercial litigation. He's been a frequent speaker at the National Bankruptcy Training Institute in Columbia, South Carolina for the Department of Justice. He received his B.A. from Haverford College and his J.D., cum laude, from the University of Pennsylvania.

Our first issue is whether attorneys are debt relief agencies under BAPCPA. BAPCPA creates a new entity called a "debt relief agency." That definition, found in Sec. 101(12A), says a debt relief agency is any person who provides any "bankruptcy assistance" to an "assisted person" in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer. Section 101(12A) has certain exclusions for any person who is an officer, director, employer, or agent of a person who provides this assistance. Non-profit organizations exempt from taxation under Sec. 501(c)(3) of the Internal Revenue Code are excluded as well as creditors of an assisted person; depository institutions; and authors, publishers, distributors, or sellers of works subject to copyright protection.

The definition of debt relief agency requires that one look at two other new definitions, which are in Sec. 101(3) and 101(4A). Section 101(3) defines the term "assisted person" to mean any person whose debt consists primarily of consumer debt with the value of his non-exempt property being less than

$150,000. The definition does not differentiate between encumbered and unencumbered assets-it's just nonexempt property. Section 101(4A) defines "bankruptcy assistance" to mean any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, or document preparation; attendance at a creditors' meeting; appearing in a case or proceeding on behalf of another; or providing legal representation with respect to a case or proceeding under the Code.

Those are the three new definitions-debt relief agency, assisted person, and bankruptcy assistance. If you are a debt relief agency, then you're subject to the new Sec. 526, 527, and 528. I want to just give you a brief summary of each of those sections so you understand the potential impact this has on an attorney if an attorney is indeed a debt relief agency.

Section 526 sets forth certain restrictions on debt relief agencies. The debt relief agency cannot fail to perform the services they tell the assisted person they're going to perform. The debt relief agency cannot make any statement or advise an assisted person to make a statement in a filing that is untrue or misleading or that they should have known would be untrue or misleading. The debt relief agency cannot misrepresent the services they're going to provide or the benefits and the risks of filing for bankruptcy. The debt relief agency cannot advise the assisted person to incur more debt in contemplation of bankruptcy or to pay a bankruptcy attorney or petition preparer for services.

Section 526 has other provisions that void any contract not in compliance with these sections. It also says the debt relief agency will be liable for fees and actual damages if they're found to have been intentionally or negligently noncompliant with these sections. It gives the state, the district court, the bankruptcy court, and the U.S. Trustee standing to raise these issues. It also says that Sec. 526 through 528 do not excuse a debt relief agency from complying with state law, nor does it curtail state or federal courts from enforcing qualifications for the practice of law.

Section 527 sets forth the disclosures that a debt relief agency has to make to an assisted person. It requires that the debt relief agency give written notice of several things. They have to give the written notice that's set forth in

Sec. 342(b)(1). They also have to give written notice of all the different information the debtor is going to be required to provide in bankruptcy. This information must be truthful, and the debt relief agency must make a reasonable inquiry and may be subject to an audit under the new provisions of the law. Section 527(b) requires that the debt relief agency give the assisted person a specific, lengthy written statement. Section 527(c) also requires that the agency give the assisted person reasonably sufficient information on how to provide the information that Sec. 521 requires. So, for example, the debt relief agency has to give the assisted person information about how to value assets at replacement value, how to calculate the current monthly income for the means test, how to create a list of creditors, and how to determine your exemptions.

Section 528 addresses requirements other than disclosure requirements for debt relief agencies. The debt relief agency must enter into a contract with the assisted person within five days of giving any assistance. If a debt relief agency runs an advertisement, the ad has to say something like: "We are a debt relief agency and we help people file for bankruptcy."

On October 17th, the day these provisions became effective, Chief Judge Davis in Savannah issued an opinion shortly after 9:00 a.m. It was a sua sponte order declaring the lawyers in his district were not debt relief agencies. I certainly did not expect the opinion. I have appealed that decision as U.S. Trustee. The common question is: "Who's arguing the other side?" Two groups of intervenors sought to appear in the case. We did not object because we generally thought it would be better to have both sides argued. Briefs have been submitted to the district court and we're awaiting either a determination about oral argument or an actual ruling. So I, as moderator, am not allowed to comment on the substance of this. I'm going to leave that to Frank and David.

Frank is representing a group of intervenors in this appeal; he is the one who wrote the briefs. The only other thing I want to say before they get into this topic is we have decided not to address the case or controversy issue. The first issue in the appeal is whether Judge Davis had authority to issue the sua sponte opinion on a substantive matter not within the context of a particular case. We felt what was more interesting from your standpoint and from an ethical standpoint is whether attorneys are debt relief agencies.

I'm going to start with Frank since he's arguing the con side, which is

Judge Davis' side.

MR. PERCH: The only thing I would add is that I can't take sole credit for the briefing on our side of this issue because it was really a cooperative effort among a couple of people in my firm and several other lawyers in Savannah who are very interested in this issue. I want to make sure that I don't leave them out of the credit for this.

As Felicia indicated, what we're going to talk about here is whether these provisions of BAPCPA that create this entity called a "debt relief agency" should be interpreted to include bankruptcy lawyers representing consumer debtors. Judge Davis acknowledged in his opinion that conventional wisdom out there, including a number of articles published prior to the enactment or effective date of the statute, says the term "debt relief agency" is intended to apply to lawyers whether we like it or not.

But conventional wisdom, as we know, is not always right. When the court decides this issue, the standard by which they will decide it is not whether they agree or disagree with the conventional wisdom. Instead, what the court will need to do is to apply the principles of statutory construction. So I will spend a couple of minutes talking about how we apply the principles of statutory construction to the debt relief agency provisions of BAPCPA.

The first principle of statutory construction is to start with the plain language of the statute. We must assume Congress says what it means and means what is says. In looking at the plain meaning of the statute, we don't see the word "attorney" or "lawyer" anywhere in the definition of what a debt relief agency is. We know from the recent history of bankruptcy jurisprudence that Congress knows how to include attorneys in a provision of the Code and how not to. We know the Supreme Court says whether the word "attorney" is in the statute or not is very important. What I'm referring to in particular is the decision in Lamie v. U.S. Trustee²where the U.S. Supreme Court ruled when

Sec. 330(a)(1) was amended to remove the phrase "or the debtor's...