The very day that BAPCPA took effect, Judge Lamar W. Davis, Jr., Chief Bankruptcy Judge for the Southern District of Georgia, entered a sua sponte ruling that attorneys practicing in his court were not Debt Relief Agencies under the provisions of BAPCPA. Just two weeks later, another Georgia Judge declined to rule on a petition for a similar ruling, determining that there was no “case or controversy” before the Court.
Those disparate decisions kicked off a battle over the applicability of BAPCPA’s Debt Relief Agency provisions to attorneys and the Constitutionality of those restrictions, and that battle is still raging in Bankruptcy Courts and District Courts across the country.
Last week’s ruling in Milavetz, Gallop & Milavetz, P.A., et al v. United States of America may be the most comprehensive ruling to date on the Debt Relief Agency provisions of BAPCPA as they apply (or don’t) to bankruptcy attorneys.
First, the Court determined that strict scrutiny applied to the restrictions on attorney advice contained in 526(a)(4). Just a few weeks earlier, the U.S. District Court for the District of Connecticut had declared the same provisions unconstitutional, but had avoided the question of the appropriate standard of review by determining that the outcome was the same under either test.
The Minnesota Court, however, determined that 626(a)(4) amounted to a content-based regulation of attorney speech, and as such was subject to strict scrutiny.
Thus, the provision could stand only if it was narrowly tailored to achieve a compelling state interest.
The Court determined that section 526(a)(4) failed the first prong of that test.
Even if the Court accepted the compelling interests asserted by the government (protecting creditors and protecting debtors from attorneys who might lead them into abusive practices), the restrictions limited speech more than was necessary to accomplish those purposes because they prohibited advice that was wholly legal and might be in the best interests of the client.
The Court went on to discuss and rule on the issues of BAPCPA’s section 528 advertising requirements and the applicability of the Debt Relief Agency provisions to attorneys in general; those discussions will be the subject of additional posts later this week.
