High Court Considers Restrictions on Attorneys Giving Bankruptcy Advice

Marcia Coyle, The National Law Journal

In a constitutional challenge involving a Minnesota law firm, the U.S. Supreme Court on Tuesday seemed troubled by a federal restriction on legal advice to potential bankruptcy clients, but less concerned about the requirement that lawyers advertise as a "debt relief agency" if they give bankruptcy advice.

The justices heard arguments in Milavetz, Gallop & Milavetz v. U.S., one of three bankruptcy cases on the Court’s docket this term.

Milavetz, a general-practice law firm in Edina, Minn., is challenging several provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The firm contends that, if those provisions are applied to lawyers, they would violate the First Amendment, put lawyers in conflict with state ethics regulations and compel lawyers to make misleading disclosures in their advertising.

Milavetz’s high court counsel, G. Eric Brunstad of Dechert’s Hartford, Conn., office, told the justices that a provision barring debt relief agencies from advising certain persons to "incur more debt in contemplation" of filing for bankruptcy "whipsaws" lawyers trying to apply it.

"This provision requires truncated advice," he said, adding that the practical effect is to make it impossible for lawyers to comply with their ethical obligation to truthfully advise a client.

The provision also has a chilling effect on lawyers, Brunstad said, noting that penalties for violating the provision are serious and have driven "conscientious bankruptcy lawyers" from this practice area.

Assistant to the Solicitor General William Jay countered that the restriction on advice is limited to advice intended to abuse the bankruptcy system. But he quickly ran into a fast series of questions and hypotheticals from a skeptical Chief Justice John Roberts Jr.

"Under your construction, it seems a lawyer trying to give correct, ethical advice has to pause before every sentence," Roberts said. "This is a regulation of the attorney-client relationship to pursue an unrelated objective."

Jay insisted the objective was not unrelated. "The statute protects the client from unethical advice," he said. "The attorney is the sophisticated player here."

Brunstad told the justices that they could avoid the constitutional issues raised by the advice prohibition and a requirement that attorneys giving bankruptcy advice disclose in advertisements that they are a "debt relief agency" if the justices find that lawyers are not covered by the debt relief agency provisions.

Justices Stephen Breyer and Ruth Bader Ginsburg challenged his argument that the statute’s language did not explicitly include lawyers as other provisions in the Bankruptcy Code do.

The definition of bankruptcy assistance, Breyer said, includes "provides legal representation," which implies lawyers. And Ginsburg said the 2005 law’s legislative history included examples of lawyer misconduct.

Brunstad called those examples "scattered" and said Congress actually intended to clamp down on abuses by nonlawyer bankruptcy-petition preparers.

The Milavetz case is an appeal from the 8th U.S. Circuit Court of Appeals, which found the advice prohibition unconstitutional, but which upheld the other challenged provisions.

High Court Considers Restrictions on Attorneys Giving Bankruptcy Advice | Law.com





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