Milavetz, Gallop & Milavetz, P.a. v. United States: "in Contemplation Of" the Meaning, Applicability, and Validity of Attorney Restrictions in the Bapcpa - Joseph D. Orenstein

• Publication year: 2011

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Milavetz, Gallop & Milavetz, P.A. v. United States: "In Contemplation Of" the Meaning, Applicability, and Validity of Attorney Restrictions in the BAPCPA

I. Introduction

In Milavetz, Gallop & Milavetz, P.A. v. United States,¹ the Supreme Court of the United States held that, under section 227 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),² attorneys who provide bankruptcy counsel are "debt relief agencies."³ The Court also held two BAPCPA provisions constitutional: one provision that prevented debt relief agencies from advising a debtor to incur more debt in contemplation of bankruptcy⁴ and another that imposed disclosure requirements on debt relief agencies.⁵ In light of the inconsistent and unclear interpretations of BAPCPA provisions

1. 130 S. Ct. 1324 (2010).

2. Pub. L. No. 109-8, § 227, 119 Stat. 23, 67 (codified as amended in scattered sections of 11 U.S.C.).

3. Milavetz, 130 S. Ct. at 1331.

4. Id. at 1334.

5. Id. at 1341.

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considered in this case, the Court's ruling acts to ease concerns that stem from incipient First Amendment⁶ challenges to BAPCPA.

II. Factual Background

Two clients came to the law firm of Milavetz, Gallop & Milavetz, P.A., seeking counsel on the possibility of incurring debt before filing for bankruptcy.⁷ The Milavetz law firm, along with the firm's president, a bankruptcy attorney within the firm, and the two clients (Milavetz), brought a pre-enforcement action in the united States District Court for the District of Minnesota, asking for a declaratory judgment that several provisions of BAPCPA § 227⁸ did not apply to attorneys or were unconstitutional as applied to attorneys.⁹ As a preliminary consideration, Milavetz asked whether attorneys are within the definition of debt relief agencies set forth in BAPCPA.¹⁰ Provided that attorneys are debt relief agencies, Milavetz further questioned the constitutionality of § 526(a)(4) of the Bankruptcy Code,¹¹ which prohibits a debt relief agency from advising a client to incur more debt when contemplating bankruptcy.¹² Milavetz also questioned the constitutionality of 11 U.S.C. § 528(a)(4)¹³ and (b)(2),¹⁴ which mandate certain disclosure requirements for debt relief agencies in their advertising.¹⁵ The suit asked the district court to find these provisions inapplicable or unconstitutional as to attorneys, such that they may advise their clients to incur additional debt and avoid the burden of disclosure requirements in advertisements.¹⁶

The district court granted Milavetz's motion for summary judgment, finding that attorneys were excluded from BAPCPA's definition of debt relief agency, and that the questioned provisions of BAPCPA were unconstitutional as to attorneys.¹⁷ The United States Court of Appeals for the Eighth Circuit affirmed in part and reversed in part.¹⁸ The

6. U.S. Const. amend. I.

7. Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785, 788 n.1 (8th Cir. 2008).

8. Pub. L. No. 109-8, § 227, 119 Stat. 23, 67 (2005).

9. Milavetz, 541 F.3d at 788.

10. Id. at 789.

11. 11 U.S.C. § 526(a)(4) (2006).

12. Id.; Milavetz, 541 F.3d at 788.

13. 11 U.S.C. § 528(a)(4) (2006).

14. 11 U.S.C. § 528(b)(2) (2006).

15. Milavetz, 541 F.3d at 788-89; see also 11 U.S.C. § 528(a)(4), (b)(2).

16. Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S. Ct. 1324, 1330-31 (2010).

17. Milavetz, 541 F.3d at 788.

18. Id.

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court determined that attorneys were included in BAPCPA's definition of debt relief agency¹⁹ and noted that the issue was one of first impression among federal courts of appeals.²⁰ In so determining, the court relied on a plain-language interpretation of BAPCPA and eschewed the district court's use of the canon of constitutional avoidance to read attorneys out of the definition of debt relief agency.²¹ The court of appeals also disagreed with the district court's finding on the § 528 disclosure requirements; the court of appeals held the disclosure requirements were a restriction on commercial speech and applied a rational basis standard of review, concluding that the requirements passed constitutional scrutiny.²² Having reversed on two issues, the court affirmed the district court's ruling that § 526(a)(4) was unconstitutional as applied to attorneys.²³ The court of appeals determined that the prohibition on advice to incur more debt was overbroad and would include nonabusive advice; therefore, the prohibition was not narrowly tailored to stand up to constitutional scrutiny.²⁴

The Supreme Court granted certiorari due to conflict among the federal courts of appeals on the breadth and constitutionality of § 526(a)(4).²⁵ Unanimously, the Court affirmed the Eighth Circuit's inclusion of attorneys in the definition of debt relief agency as well as the constitutionality of the disclosure requirements of § 528, while reversing the court of appeals finding on the unconstitutionality of

§ 526(a)(4).²⁶

19. Id. at 792.

20. Id. at 790.

21. Id. at 791-92. The canon of constitutional avoidance requires "that where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress." Id. at 791 (quoting Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988)) (internal quotation marks omitted). The court of appeals determined that interpreting the definition of debt relief agency to exclude attorneys would run contrary to the intent of Congress; thus, the canon of constitutional avoidance did not apply. Id.

22. Id. at 795-97.

23. Id. at 794.

24. Id. For examples of nonabusive advice to incur debt in contemplation of filing, see infra notes 59, 66.

25. Milavetz, 130 S. Ct. at 1331.

26. Id. at 1329.

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III. Legal Background

A. Enactment of the BAPCPA

on April 20, 2005, Congress enacted the Bankruptcy Abuse Prevention

and Consumer Protection Act of 2005 (BAPCPA).²⁷ The aim of BAP-

CPA was to reconstruct a national bankruptcy system such that the process would be "fair for both debtors and creditors," with the specific goal of restoring personal financial accountability in bankruptcy filings.²⁸ To increase systemic accountability, BAPCPA "substantially augment[ed] the responsibilities of those . . . who counsel debtors with respect to obtaining [consumer bankruptcy] relief."²⁹

BAPCPA includes several provisions that mandate certain behavior from debt relief agencies.³⁰ Debt relief agencies are defined in BAPCPA as "any person who provides any bankruptcy assistance to an assisted person,"³¹ with such assistance further defined as service provided to a person with the "purpose of providing information, advice, counsel,. . . or . . . legal representation with respect to a [bankruptcy] proceeding."³² Under BAPCPA, debt relief agencies cannot encourage an "assisted person"³³ to engage in specified financial behavior, including a prohibition against advice "to incur more debt in contemplation of filing for bankruptcy.³⁴ Furthermore, BAPCPA regulates debt relief agencies by requiring certain disclosures in advertisements.³⁵

27. Pub. L. No. 109-8, 119 Stat. 23.

28. H.R. Rep. No. 109-31, pt. 1, at 2 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 89. Despite the explicit purpose contained within the legislative history of BAPCPA, many critics believe that BAPCPA's purpose did not relate to curbing bankruptcy abuse but was an effort of consumer credit industry lobbies to reduce the total number of bankruptcies, abusive or otherwise. See, e.g., Sean C. Currie, The Multiple Purposes of Bankruptcy: Restoring Bankruptcy's Social Insurance Function After BAPCPA, 7 DePaul Bus. & Com. L.J. 241, 248-52 (2009); see also Michelle J. White, Bankruptcy Reform Gave Creditors Too Much, Wash. Post, Aug. 21, 2006, http://www.washingtonpost.com/wp-dyn/content/article /2006/08/19/AR2006081900413.html.

29. H.R. Rep. No. 109-31, pt. 1, at 2.

30. See, e.g., 11 U.S.C. §§ 526-528 (2006).

31. 11 U.S.C. § 101(12A) (2006).

32. 11 U.S.C. § 101(4A) (2006).

33. An "assisted person" is defined under the code as "any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,000." 11 U.S.C. § 101(3) (2006).

34. 11 U.S.C. § 526(a)(4) (2006).

35. 11 U.S.C. § 528(a)(4), (b)(2) (2006).

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B. Are Attorneys "Debt Relief Agencies"?

Aside from the Eighth Circuit's ruling in Milavetz, only one other appellate court had considered the scope of debt relief agencies under BAPCPA. In Hersh v. United States,³⁶ the United States Court of Appeals for the Fifth Circuit heard a suit filed by a Texas bankruptcy attorney, which alleged that attorneys were not debt relief agencies under BAPCPA.³⁷ The court held that bankruptcy attorneys were debt relief agencies for three key reasons.³⁸ First, the court noted that 11 U.S.C. § 101(12A) provides several exclusions to the definition of debt relief agency, yet attorneys are not one of those exclusions.³⁹ Second, the court recognized that the definition of "bankruptcy assistance" under 11 U.S.C. § 101(4A) includes services related to "legal representation."⁴⁰ Finally, the court cited the legislative history of BAPCPA as indicative of Congress's intent to include attorneys within the meaning of debt relief agency.⁴¹

Several federal district courts have ruled on the extent to which attorneys are included in the meaning of debt relief agency, yet these rulings did not yield a definitive statement on the inclusion of attorneys.⁴² In In re Attorneys at Law & Debt Relief Agencies,⁴³ the United States Bankruptcy Court for the Southern District of Georgia was the first to opine on the scope of the term.⁴⁴ Issuing an opinion on the effective date ofBAPCPA, the court found attorneys outside the meaning of debt relief agencies, reasoning that an inclusive reading...