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Are portions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) as applied to attorneys unconstitutional? The answer to these questions were determined by the U.S. District Court of Minnesota in the matter of Milavetz Gallop & Milavetz P.A., Robert J. Milavetz, Barbara N. Nevin, John Doe, and Mary Doe v. United States of America decided Dec. 7 in an opinion signed by U.S. Chief District Judge James M. Rosenbaum. The court struck down the provisions of the BABCPA that apply to attorneys and advertising. The BAPCPA was signed into the law April 20, 2005, and became effective Oct. 17, 2005. Among its terms, BAPCPA defines a new category of bankruptcy service provider called a “debt relief agency,” according to 11 U.S.C. Section 101(12A)(2005). The law forbids debt relief agencies from doing certain things, and requires them to do others. This present lawsuit challenged a number of these provisions. BAPCPA bars a debt relief agency from advising a client to “incur more debt in contemplation” of a bankruptcy filing. It further requires that debt relief agencies’ advertisements declare: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code,” or a substantially similar statement. The plaintiffs in this case are bankruptcy attorneys, their law firm and two unnamed members of the public. Their attack on the statute is based on the First Amendment to the U.S. Constitution. The plaintiffs alleged that BAPCPA’s debt relief agency provisions are unconstitutional as applied to them. In filing the action, they initially claim BAPCPA’s regulation of attorney advice violates the First Amendment. Second, they claim BAPCPA’s advertising requirements contravene the First Amendment. Finally, they contend Congress did not intend the debt relief agency requirements to apply to attorneys. The government moved to dismiss the plaintiffs’ First Amendment claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The court denied the government’s motion. The court pointed out that in Rule 12(b)(6), motion to dismiss must be denied unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief. As to the issue of attorney advice, the plaintiffs argued that the statute in Section 526(a)(4) titled “Restrictions on Debt Relief Agencies” had “a chilling effect upon lawyers” in violation of their First Amendment rights. Section 626(a)(4) states: “A debt relief agency shall not . . . advise an assisted person or prospective assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.” The government and the plaintiffs disagree as to the standard of review applied to the constitutional analysis of this section. The plaintiffs claim the standard review for a restriction on lawful and truthful attorney advice is strict scrutiny. The government replies that Section 526(a)(4)’s restrictions are merely a species of ethical regulation, invoking the more lenient standard outlined in Gentile v. State Bar of Nev. The government argued that under the Gentile case, the court would balance the First Amendment rights of attorneys against the government’s legitimate interest in regulating the activity in questions, and then determine whether the regulations impose “only narrow and necessary limitations on lawyers’ speech.” The court rejected the government’s proposed standard, stating the “ethical rule” of which the government speaks appears to exist only in its pleadings; the statute discloses no quasi-religious or ethical principle. The government “cannot foreclose the exercise of constitutional rights by mere labels,” according to NAACP v. Button. A review of the section indicates that certainly nothing in the rule alluded to ethics. The section is titled “Restrictions of debt relief agencies” and plainly prohibits certain acts. The advice the section foreclosed may be potentially advantageous to creditors, but this does not make it equivalent to ethics either in logic or in law. The court pointed out that Section 526(a)(4) is a content-based regulation of attorney speech � it restricts attorneys from giving particular information and advice to their clients. Attorneys are forbidden to advise their clients concerning an entire subject � incurring more debt in contemplation of filing for bankruptcy. This is a plain regulation of speech. Beyond this, the forbidden speech trenches on two other important areas of concern. First, the lawyer’s advice to take on certain additional financial obligation in contemplation of bankruptcy may well be in the client’s best interest. Here, the court pointed out that the highest duty is to the client and the statute’s forbidden advice may indeed be helpful to the client. Second, this statute does not restrict false statements � arguably implicating some “ethical” precept � it forbids truthful and possibly efficacious advice. It this is the government’s view of legal ethics; it is a form of ethics unfamiliar to the court. The court cited the U.S. Supreme Court in Turner Broad. Sys. v. FCC, stating “[g]overnment action that stifles speech on account of its message, or that requires the utterance of a particular message favored by the Government, contravenes th[e] essential [First Amendment] right[s]” of private citizens. For this reason, “ government control over the content of messages expressed by private individuals” is unconstitutional except in narrow circumstances. The court found that since Section 526(a)(4) is a content-based restriction on protected speech, it is subject to strict scrutiny. Such a restriction can only survive if it is narrowly tailored to achieve and a compelling state interest., according to United States v. Playboy Entm’t Group Inc. The district court found that the government has failed to meet its burden on the first point: Section 526(a)(4) is not narrowly tailored. The government suggests Section 526 (a) (4) advances compelling interest. First, it asserts an interest in protecting creditors; second, it claims Section 526(a)(4) protects debtors from attorneys who might lead them to abusive practices that could ultimately result in a denial of discharge. Third, the government argues that Section 523(a)(2)(c) protects the integrity of the bankruptcy system. Even if the court assumes the asserted interests are compelling, the restrictions are not narrowly tailored. The government claims the section is narrowly tailored because “it does not limit more speech that is necessary to accomplish this purpose.” The court stated that the government was mistaken. The court, in its opinion, stated that the attorneys have a First Amendment right � let alone an established professional ethical duty � to advise and zealously represent their clients. Section 526(a)(4) bars an attorney from advising a client to incur any kind of debt, including legitimate debt, in contemplation of bankruptcy. The lawyer has no duty to assist creditors, who are scarcely without their own resources, and may indeed have contributed to the potential bankrupt’s straits by making credit easy to obtain. The attorney’s only duty is to the client, and to the law. Despite what the statute says, incurring debt on the eve of bankruptcy can scarcely be considered malum in se. To the contrary, for some individuals incurring further obligations, even those that must be adjusted or set aside in bankruptcy may be financially prudent. If the client intends to reaffirm the debt after filing of bankruptcy, there is no prejudice to the bankruptcy process. BAPCPA’s Section 526(a)(4) limitation in speech extends beyond any need to protect the bankruptcy process. A lawyer who represents consumers contemplating bankruptcy bears the duty of zealous representation. Conversely, Congress does not have the power “to effect [a] serious and fundamental restriction on advocacy of attorneys,” according to Legal Serv. Corp v. Velazquez. The court further pointed out that this law would prevent lawyers from adequately and competently advising their clients. As such, it unconstitutionally impinges on expressions protected by the First Amendment. On the issue of advertising, the plaintiffs challenged the statutes disclosure requirements, claiming Section 528 violates their First Amendment rights. The section requires the class, termed “debt relief agencies,” to include particular, or substantially similar, language in their advertisements. Congress has prescribed what particular agencies should state. Here again the court must determine the appropriate standard of review. The choice turns on whether the statute regulates deceptive or truthful advertising. Statutes regulating deceptive commercial speech need only to withstand rational basis review, but restrictions on nondeceptive advertising must employ means that directly advance a substantial government interest. The government argued that the statute regulates deceptive advertising, and the plaintiff responded that when Congress imposed these requirements on all advertisements of bankruptcy assistance, it mandated a blunderbuss that strikes truthful, as well as false or deceptive advertising. The court agreed. With few exceptions, any party advertising debt relief must include the Section 528 statutory statement. The lawyer-plaintiffs, in this matter, advertise themselves as bankruptcy attorneys in newspapers, telephone directories, television, etc. There is no evidence suggesting bankruptcy assistance advertisements are deceptive in any regard. Even assuming some debt relief agencies advertise an ability to make “debts disappear,” there is no showing such advertising is deceptive. Under these circumstances, the court finds it appropriate to analyze this question by applying intermediate scrutiny. The court pointed out in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio and similar cases indicated that the government may only regulate truthful bankruptcy assistance advertisements if the regulation directly advances a substantial government interest and is “narrowly drawn.” The court found that BAPCPA’s Section 528 advertising requirements fail to directly advance the government’s purported substantial interest and are not narrowly drawn. The term “debt relief agency” is simply a legislative contrivance. Furthermore, the court indicated the public is more likely to be confused by an advertisement containing this Congressionally invented term than one that advertises the services of a bankruptcy attorney. Furthermore, the term “debt relief agency” is almost all encompassing. The court pointed out that such language instantly swallows all persons who engage in “bankruptcy assistance,” attorneys and non-attorneys alike. Congress’s merger of attorneys and non-attorneys is, itself, likely to confuse the public. This confusion fails to directly advance the government’s stated interest in clarifying bankruptcy service advertisements. The plaintiffs asked the court to find attorneys beyond the scope of a BAPCPA “debt relief agency.” According to the statute, “[t]he term �debt relief agency’ means 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 under Section 110.” This section makes no direct reference to either “attorney” or “lawyer.” It does include the term “bankruptcy petition preparer,” which, by definition, expressly excludes attorneys and their staff. The plaintiffs argued the omission of any reference to attorneys or lawyers, while including a term excludes attorneys, shows Congress must have intended to exclude attorneys for the “debt relief agency” definition. They also claim it would be absurd for attorneys to provide a statement telling their clients they have a right to an attorney and that only attorneys can provide legal advise as required for debt relief agencies under 11 U.S.C. Section 527(b). The government argued that the statute includes attorneys because legal representation is included in “bankruptcy assistance.” The court pointed out that at first glance, this language might include attorneys. However, the glance is deceiving: the statute contains a rule of construction for the term “debt relief agency.” The statute provides that nothing in sections 526, 527 and 528 � those sections imposing requirement on debt relief agencies � “shall be deemed to limit or curtail the authority or ability � of a State or subdivision or instrumentality thereof, to determine and enforce qualifications for the practice of law under the laws of that State.” If lawyers are placed within the ambit of Section 101(4)(A), that placement conflicts with Section 526(d)(2)(A). The conflict exists because states would be deprived of their ability “to determine and enforce qualification for the practice of law.” If the present statute would apply to attorneys, it means Congress has taken upon itself the authority to determine the advice attorneys can give their clients and what attorney advertisements must say, thereby infringing on the state’s traditional role of regulating attorneys. In Leis v. Flynt, the Supreme Court held “since the founding of the Republic, the licensing and regulation of lawyers has been left exclusively to the States.” This view, according to the district court, is supported by the doctrine of constitutional avoidance, which specifically provides that in construing a statute for ambiguity, the court must opt for construction that avoids grave constitutional questions, according to Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council. The court stated “a clear ambiguity in this statute � on one hand it appears to regulate a lawyer’s practice; on the other, such regulation is specifically reserved to the states.” This section is clearly unconstitutional as it applies to attorneys and the court found sections 526, 527 and 528 do not apply to attorneys. This is one of several attacks on the much discussed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Other states have determined that attorneys are not subject to this restriction, including the Southern District of Georgia in 2005. As this BAPCPA statute makes its way through district courts and appellate courts, lawyers can expect more and more challenges to what many consumer attorneys believe are the overbearing provisions of the statute. Clearly, the next several years will provide more detailed guidance for those who are involved in consumer bankruptcies. Charles M. Golden is a partner with Obermayer Rebmann Maxwell & Hippel. He is chairman of the firm’s creditors’ rights, bankruptcy and financial reorganization department.

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