Thursday, September 11, 2008

Connecticut Bar Association v. U. S. : Another U. S. District Court Agrees with Oregon's Olsen v. Gonzales about BAPCPA's Unconstitutionality





By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,
Andy@BLSforAttorneys.com


First a word of context: the first U. S. Circuit Court to rule on the constitutionality of BAPCPA's § 526(a)(4) and § 528(a)(4) and (b)(2)(B) published its opinion just last week: Milavetz, Gallop & Milavetz v. United States, 8th Circuit Case No. 07-2405. These provisions deal with BAPCPA's prohibition against attorneys advising clients to incur additional debt before filing bankruptcy, and the required "We are a debt relief agency ..." advertising disclosures. This 8th Circuit opinion was the subject of my Bankrutpcy Bulletin of 9/09/08. I referred there to Milavetz's potential impact in Oregon, particularly in light of our own U.S. District Court opinion of much earlier, Olsen v. Gonzales, 350 B. R. 906 (D. Or. 2006), which covered many of the same issues. My conclusion in that Bulletin was that the "holdings of and the rationales used in this 8th Circuit opinion give reason to believe that Oregon's Olsen v. Gonzales will continue to stand firm as least as to these issues."

Now just days after Milavetz, we have all the more reason to believe in our Olsen case. On 9/09/08 the U. S. District Court of Connecticut published an opinion that again covers these same BAPCPA provisions and rules largely the same as both Milavetz and Olsen but then goes a half-step further. Connecticut Bar Assn. v U.S., Civil Action No. 3:06-CV-729 (CFD). These two earlier opinions held that the prohibition against attorneys advising clients to incur additional debt was unconstitutional as applied to attorneys while the advertising disclosures were not. The Connecticut District Court agreed to the unconstitutionality of the advising-clients provision but also held that the advertising disclosures ARE ALSO unconstitutional as to "attorneys representing clients other than consumer debtors filing for bankruptcy."

The plaintiffs to whom this applied included a domestic relations attorney who "sometimes discusses bankruptcy with his clients," a law firm which represented only creditors, and an attorney who used to represent both creditors and debtors but had stopped representing debtors after BAPCPA. The District Court in Connecticut relied on the same "reasonably related to the State's interest" rule used by the 8th Circuit in Milavetz days earlier, with both courts basing much of their rationales on the same U.S. Supreme Court case, Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985). But as applied to these non-bankruptcy attorneys, the Court found that the required disclosure (the familiar: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”) was NOT reasonably related to the state's interest in preventing deceptive advertising. Because the definition of debt relief agency included "attorneys beyond those who actually do help people file for relief under the Bankruptcy Code and extends to attorneys for creditors, landlords and other clients whose legal issues relate to bankruptcy." For these attorneys the Court said that the required statement--"We help people file for bankruptcy relief under the Bankruptcy Code"--"is in fact a false statement--but the advertiser is nevertheless required to adopt it as its own view." The Court rejected the Government's argument that attorneys can just clarify the required language elsewhere in their advertising, saying that practically speaking attempting to do so would be confusing, with contradictory statements in the same advertising.

Maybe the most interesting parts of this Connecticut State Bar opinion are where it directly referenced the ink-is-barely-dry Milavetz 8th Circuit opinion (dated literally only 5 days earlier) and Oregon's Olsen opinion, managing to "respectfully disagree" with both.

This Court rejected the 8th Circuit's argument that non-bankruptcy attorneys "should tailor their advertisement disclosure statements to factually represent the 'bankruptcy assistance' they provide, basing this "tailoring" on the phrase in § 528(a)(4) and (b)(2)(B) which allowed language "substantially similar" to the "We are a debt relief agency..." verbiage. The Connecticut District Court retorted: "For such a disclosure to be accurate with respect to these attorneys, it would necessarily be substantially dis-similar from the statement prescribed by section 528." (Emphasis in original.)

As to Olsen, the Connecticut District "Court respectfully disagrees with the Olsen court to the extent that its decision upholds the requirement of the two-line advertising disclosure in situations in which the statement is indeed false." By this the Court presumably meant to include attorneys who do not help clients actually file bankruptcies but still deal with debt problems, such as attorneys who help with tax collections, disputes with landlords, unlawful debt collection and other consumer protections, but simply do not file bankruptcies.

Looking at the broader picture, all three of these cases agree that 1) attorneys are debt relief agencies, 2) § 526(a)(4)'s prohibition against debt relief agencies advising clients to incur additional debt is unconstitutional as to attorneys, and 3) § 528(a)(4) and (b)(2)(B)'s advertising disclosures are constitutional as to attorneys who do in fact help at least some of their clients file bankruptcies. These consistencies among these opinions far outweigh their modest differences, again reinforcing the likelihood that Olsen v. Gonzales will continue to be the law in Oregon for the foreseeable future.


By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

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