Attorneys serve as “debt relief agencies”

Below, Keisha Stanford, a law student at Stanford, discusses Monday’s opinion in Milavetz, Gallop, & Milavetz v. United States (08-1119).  For background on the briefs and oral argument in the case, see the Milavetz SCOTUSwiki page.

On March 8, 2010, in an opinion by Justice Sotomayor, the Court held that attorneys who provide bankruptcy assistance to “assisted persons” are “debt relief agencies” (DRAs) for purposes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  Moreover, the Court held, the two other provisions of the BAPCPA at issue in the case – Section 526, which prohibits bankruptcy professionals from advising clients to incur more debt in contemplation of bankruptcy, and Section 528, which creates advertising disclosure requirements – do not violate the First Amendment as applied to attorneys.

Noting that some forms of bankruptcy assistance may only be provided by attorneys, the Court reasoned that, under a plain reading of the statute, attorneys are DRAs whenever they provide the services outlined in the Act.  And in enumerating specific exceptions to the definition of DRA, the Court explained, Congress provided no indication that it intended to exclude attorneys.  Similarly, the Court rejected the attorneys’ argument that including them within the definition of DRAs would impose upon the authority of the states, holding instead that Congress and bankruptcy courts have authority to oversee attorney conduct in an area of substantial federal concern.

In concluding that Section 526 is constitutionally valid as applied to attorneys, the Court rejected the interpretations proffered by both sides.  Instead, it held, Section 526 only prohibits DRAs from affirmatively advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.  Regarding the provision as an additional safeguard against the practice of loading up on debt prior to filing for bankruptcy, the Court emphasized that Section 526 is not triggered whenever an attorney is merely aware of the possibility of bankruptcy.  Thus, attorneys remain free to “tal[k] fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.”  The Court’s construction also foreclosed the attorneys’ challenge to Section 526 as impermissibly vague, because it did not link the test to any notion of abuse.  However, the Court did note that the concept of “abuse” could be adequately defined by making reference to its use in other provisions of the Bankruptcy Code.

Finally, the Court rejected the attorneys’ as-applied challenge to Section 528’s advertising disclosure requirements.  The Court held that because the challenged provisions imposed a disclosure requirement (as opposed to an affirmative limitation on speech), the “reasonably related” test established in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985) was the appropriate standard of review.  Under that test, the requirements were permissible for three reasons: 1) they are intended to prevent the deception of consumer debtors; 2) they entail only an accurate statement identifying the advertiser’s legal status and the character of the assistance provided; and 3) they do not prevent DRAs from conveying additional information.  Justice Thomas concurred in the judgment but declined to join this portion of the opinion.  In a separate opinion, he questioned the lower standard of scrutiny applied by the Court to cases involving disclosures of commercial speech and noted his willingness to revisit the Zauderer holding should an appropriate case arise.  Justice Scalia joined all of the Court’s opinion except for a footnote discussing BAPCPA’s legislative history, and he filed a separate opinion regarding the use of legislative history.