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The Supreme Court and What Attorneys Can Say

posted by Bob Lawless

Some other obligations have kept me away from blogging for the past few weeks. One great thing about a group blog is having great colleagues who pick up the slack. I had wanted to say a few words about the Supreme Court's June 8 decision to hear United States v. Milavetz. At this point, the Court's announcement is old news. This post is about what is at stake in the Milavetz decision and why Credit Slips readers might want to watch this case when it gets argued in the fall.

There have been several Credit Slips posts (here and here) about the lower court decisions in Milavetz. Some issues that were raised in the lower court decisions have dropped away, and before the Supreme Court, the case will involve section 526(a)(4) of the Bankruptcy Code, a provision added by the 2005 amendments. It provides that "a debt relief agency shall not advise an 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 charge for services performed as part of preparing for or representing a debtor in a case under this title." Yes, that is language that perhaps only a lawyer could love but probably not even then. The upshot is that section 526(a)(4) aims to prohibit bankruptcy lawyers from advising clients to incur debt right before they file bankruptcy. It was not intended to prohibit bankruptcy lawyers from charging for their services, although that might be a natural reading of the language. Rather, the section also tries to prohibit lawyers from advising clients to borrow money to pay attorneys' fees for a bankruptcy filing.

These rules might seem to make a lot of sense. Why should attorneys be able to advise clients to incur debts that they intend to have immediately discharged in a bankruptcy case? The answer is simple--they shouldn't. Incurring debts that you have no intention of repaying is at best civil fraud and might even constitute criminal theft. Long before section 526(a)(4) was ever around, an attorney who advised clients to incur debts they had no intention of repaying was a party to fraud and a possible co-conspirator in a criminal act. In addition to possible professional disciplinary actions, numerous civil and criminal sanctions might have been imposed. Section 526(a)(4) was not really necessary and was part of the package of punitive provisions in the 2005 bankruptcy law against consumer debtors and their attorneys.

As a rule that tries to regulate what attorneys can and cannot say, section 526(a)(4) touches upon First Amendment free speech issues as well as due process considerations about access to legal counsel. Those are the issues the Supreme Court will consider. There are legitimate situations where an attorney might need to counsel a debtor to incur secured debt or nondischargeable unsecured debt before a bankruptcy case. It would seem beyond question that the First Amendment prohibits the government from passing laws that ban legitimate legal advice. A constitutional scholar once told me that her opinion was that section 526(a)(4) was "way unconstitutional" if applied in that way. I've always liked the "way unconstitutional" standard and wish it could be incorporated into our formal jurisprudence. I will be amazed if the Supreme Court lets section 526(a)(4) stand without cutting back on its scope.

One possibility is that the Court will interpret section 526(a)(4) only to ban advice that already was illegal. That is the route urged by the Solicitor General, the Department of Justice official who represents the United States before the Supreme Court and to whose opinion the Court often gives special weight. This is the outcome that I think is the most likely. There is no First Amendment right to commit fraud, and so construed, the statute should be constitutional. So construed, the statute also makes no practical changes to the law that came before it. Finally, the Court might strike down section 526(a)(4) entirely, on the theory that it is overbroad and might have a chilling effect on speech, an outcome that I think is possible but less likely.

Thus, I do not think Milavetz will have a very big practical effect on the advice given in bankruptcy lawyers' offices. Attorneys will not be entitled to give advice to commit civil fraud before or after the decision comes down. If others with a closer connection to the daily tribulations of a consumer bankruptcy practice see that point differently, the comments are open.

I am watching Milavetz for more symbolic reasons. The Supreme Court has not had a case that revolved around the harsher provisions of the 2005 bankruptcy law. Milavetz interests me not so much for the legal arguments in the case but because it might provide a window into how the Court perceives the 2005 bankruptcy law. Will the Court treat the law as just another congressional statute it has to interpret? Or will the Court see the law for the special interest legislation it was and interpret it with skepticism for its public-regarding claims? How the Court casts its opinion could be an important signal of how it will handle future issues that involve the 2005 law as well as an important signal to the lower courts on how to approach that particular statute.


What I thought was interesting is that the Commercial Law League of America a creditors trade group filed an Amicus brief in support of the Plaintiffs position. I was all "huh?". I guess my non-legal opinion is that if they can legislate away Attorney Client speech as it pertains to Bankrupt (or potential) debtors (the ones who need it the most) we could legislate it away from other groups as well.(Karl Rove take note!) Where does it stop?

There are some lawyers who are not giving clients advice that is legal and would be in the clients' best interest because of section 526(a)(4). others try to get around it by telling clients "what the law is" without affirmatively advising the client what to do. The problem with the second approach is that some clients aren't able to figure out the unspoken message; also, even if they kind of figure it out in the office, it is easier to forget once you leave the office if the attorney didn't spell it out for the client

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