This fifth post of the BAPCPA Consumer Bankruptcy Outline addresses the issue of attorney liability under BAPCPA arising from the new "debt relief agency" provisions of Sections 526, 527, and 528 (see pdf at pp. 88-91). Absent a court order holding otherwise (like the one entered here), it’s generally agreed that these provisions regulate the day-to-day relationships between consumer bankruptcy lawyers and their clients.
I and others have wondered why it is that consumers, treated under BAPCPA as the "moral equivalents of shoplifters" (at least according to Judge Brooks in In re Ott, cited here at Outline Section I.A.5), can’t get the same type of unfettered representation from their attorneys that persons charged as shoplifters (and much worse) get from their criminal attorneys.
In the end, the "debt relief agency" provisions look more like an effort to create a consumer bankruptcy lawyer clone who, much like the ever-multiplying "Agent Smith" from The Matrix-Reloaded, speaks and does precisely as directed with ruthless efficiency. Such micromanagement of the attorney-client relationship and attorney speech has spawned three important court challenges to the DRA provisions. Links to important pleadings filed in these three cases are found below.
Section A of this Part III references bankruptcy court decisions that address (or refuse to address) whether attorneys are "debt relief agents" under BAPCPA. Section B cites to two federal court cases in which local attorneys have brought suit against local US Trustees to directly challenge the constitutionality of BAPCPA’s DRA provisions.
Good luck to all you agents out there!
III. Attorneys as Debt Relief Agencies (DRA’s)
A. Court Decisions on Whether Attorneys are DRA’s
1. Attorneys who are members of the bar of that court, as well as those admitted pro hac vice, are not "debt relief agencies" within the meaning of BAPCPA so long as their activities fall within the scope of the practice of law and do not constitute a separate commercial enterprise. In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005). This case is on appeal to the District Court for the Southern District of Georgia, Savannah Division, In re Attorneys at Law and Debt Relief Agencies, Case No. 05-206, with the US Trustee as appellant, arguing for reversal based on (A) the absence of a "case or controversy," (B) the absence of jurisdiction in the bankruptcy court to enter the order, and (C) the fact that DRA’s in fact do apply to licensed attorneys, and thus Judge Davis’s ruling was incorrect as a matter of law. (Also reviewed in this post).
2. Local bankruptcy attorney files "Motion to Determine Attorney Status" following his post-petition employment by joint pro se chapter 7 debtors. In the motion, attorney asked court to hold that attorneys who practice in the Middle District of Georgia are not "debt relief agencies" under Section 101(12)(A) of the Bankruptcy Code. The UST objects. Court rules no "case or controversy" exists and dismisses the case. Court states: "In the case at bar, no party has threatened to enforce against Movant the debt relief agency provisions of BAPCPA. Movant has not sustained any real, actual, or direct harm or injury. Movant has not shown that he is in danger of sustaining any immediately impending harm or injury. The Court can only conclude that Movant has failed to satisfy the case or controversy requirement. The Court is persuaded that Movant’s motion must be dismissed." In re McCartney, 336 B.R. 588 (Bankr. M.D. Ga. 2006) (Hershner, J.). (Also reviewed in this post).
B. Other Prominent Challenges to Constitutionality of DRA Provisions
1. Milavetz, Gallop & Milavetz v. United States, No. 05-2626 (D. Minn.): Minnesota law firm, two of its attorneys, and two unnamed members file complaint seeking declaratory judgment that the DRA provisions of BAPCPA "unconstitutionally restrict attorneys from giving accurate, lawful information to their clients. The complaint challenges the DRA provisions under the First and Fifth Amendments. The complaint challenges BAPCPA’s DRA provisions that: "limit attorneys’ ability to ethically and competently advise and represent their clients and illegally restrict attorneys’ First Amendment right[s]"; "illegally restrict the public’s right to receive information from attorneys, a right presumptively protected under the First Amendment"; and they "also conflict directly with the Minnesota Rules of Professional Responsibility, which require attorneys to provide ‘competent representation’ to their clients." The complaint challenges the DRA provisions as unconstitutionally vague. It also challenges (A) Section 526(a)(4)’s prohibition of a DRA’s advising consumer debtors to incur more debt in contemplation of filing a petition as violating the First Amendment and (B) Sections 528(a)(4) and 528(b)(2), which require DRA’s to insert specified statements in its advertisements of bankruptcy assistance services or assistance with debts, violate the First Amendment.
Update: See this post of 12/11/06 on Judge Rosenbaum’s decision holding that the "debt relief agency" provisions are unconstitutional as applied to attorneys.
2. Connecticut Bar Ass’n v. United States, et al., No. 06-729 (D. Conn.): National Association of Consumer Bankruptcy Attorneys (NACBA), the Connecticut Bar Association, six attorneys, and one law firm file complaint on May 11, 2006 seeking declaratory and injunctive relief against the US, the US Attorney General, and the local US Trustee, challenging the constitutionality of Sections 526, 527, and 528 of BAPCPA (the Debt Relief Agency provisions). The complaint states that "[t]he Defendants who are charged with the statute’s enforcement have taken the official position that attorneys are subject to the requirements imposed upon debt relief agencies.[under Code Sections] 526, 527, and 528. Under this construction of the statute, these provisions censor attorneys and restrict their ability to give their clients complete and competent counsel; they limit attorneys’ ability to describe the relative merits and consequences of various courses of action legally available to clients; they compel attorneys to provide false and misleading information to their clients; they restrict attorney advertising in a manner inconsistent with the First Amendment; they deter attorneys and clients from entering into attorney-client relationships when they otherwise would have done so; and they infringe upon the traditional power of the States to regulate the practice of law."
[NB: Certain links are to Westlaw. Those who do not have access to Westlaw may contact me directly if they would like to view a particular case, though all federal courts maintain their own websites where judicial opinions may be accessed by the public free of charge (e.g., Bankr. N.D. Ill. – Judge Wedoff opinions). Because all the outline’s case references identify the deciding judge, you should be able to find the opinions online with minimal effort.]
© Copyright 2006, Steven Jakubowski
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