Milavetz, Gallop & Milavetz, P.A. v. United States, No. 08-1119 (March 9, 2010) (click here for opinion). The majority opinion was written by Justice Sotomayor. Justices Scalia and Thomas filed opinions concurring in part in the opinion, and the judgment.
The issue before the Court was whether Bankruptcy lawyers were "debt relief agencies" as defined by 11 U.S.C. §101(12A) (added in the BAPCPA in 2005). The BAPCPA amendments "prohibit such "agencies" from “advis[ing] an assisted person . . . to incur more debt in contemplation of [filing for bankruptcy] . . . .” §526(a)(4). It also requires them to disclose in their advertisements for certain services that the services are with respect to or may involve bankruptcy relief, §§528(a)(3), (b)(2)(A), and to identify themselves as debt relief agencies, §§528(a)(4), (b)(2)(B)."
The plaintiff lawyers argued that they were not "debt relief agencies" and were therefore not bound by the above-stated restrictions. The District Court agreed. The Eighth Circuit affirmed in part and reversed in part. It held that lawyers were debt relief agencies and bound by the disclosure requirements, but §526(a)(4) was unconstitutional.
The United States Supreme Court held today that:
1) Attorneys who provide bankruptcy assistance to assisted persons are debt relief agencies under the BAPCPA.
… a debt relief agency is “any person who provides any bankruptcy assistance to an assisted person” in return for payment. §101(12A). By definition, “bankruptcy assistance” includes several services commonly performed by attorneys. Indeed, some forms of bankruptcy assistance, including the “provi[sion of] legal representation with respect to a case or proceeding,”§101(4A), may be provided only by attorneys… Moreover, in enumerating specific exceptions to the definition of debt relief agency, Congress gave no indication that it intended to exclude attorneys. See §§101(12A)(A)–(E). Thus, as the Government con-tends, the statutory text clearly indicates that attorneys are debt relief agencies when they provide qualifying services to assisted persons…
But Milavetz does not contend, nor could it credibly, that only professionals expressly included in the definition are debt relief agencies. On that reading, no professional other than a bankruptcy petition preparer would qualify—an implausible reading given that the statute defines “debt relief agency” as “any person who provides any bankruptcy assistance to an assisted person . . . or who is a bankruptcy petition preparer.”
2) "Section 526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. The statute’s language, together with its purpose, makes a narrow reading of §526(a)(4) the natural one"
The Government’s sources show that the phrase “in contemplation of” bankruptcy has so commonly been associated with abusive conduct that it may readily be understood to prefigure abuse. As used in §526(a)(4), however, we think the phrase refers to a specific type of misconduct designed to manipulate the protections of the bankruptcy system… [W]e conclude that §526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose... That “[n]o other solution yields as sensible a” result further persuades us of the correctness of this narrow reading.
3) Section 528’s disclosure requirements are valid as applied, as it is directed at misleading commercial speech and imposes a disclosure requirement rather than an affirmative limitation on speech.
§528’s required disclosures are intended to combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs. Additionally, the disclosures entail only an accurate statement identifying the advertiser’s legal status and the character of the assistance provided, and they do not prevent debt relief agencies like Milavetz from conveying any additional information… Other information that Milavetz must or may include in its advertisements for bankruptcy-assistance services provides additional assurance that consumers will not misunderstand the term. The required statement that the advertiser “‘help[s] people file for bankruptcy relief’” gives meaningful context to the term “debt relief agency.” And Milavetz may further identify itself as a law firm or attorney. Section 528 also gives Milavetz flexibility to tailor the disclosures to its individual circumstances, as long as the resulting statements are “substantially similar” to the statutory examples. §§528(a)(4) and (b)(2)(B).
I find it difficult to disagree that Bankruptcy lawyers don’t fall within the definition of "debt relief agencies" as defined in the Code. Instead, it is simply one of the many BAPCPA amendments that add absolutely nothing of substance to Bankruptcy law. I will read the opinion in more detail later and will likely update this post.