The Supreme Court's Holding in Milavetz, Gallop & Milavetz, P.A. v. United States

The Supreme Court's Holding in Milavetz, Gallop & Milavetz, P.A. v. United States

In this LexisNexis Emerging Issues Analysis, Professor Kenneth N. Klee discusses the holding in Milavetz, Gallop & Milavetz, P.A. v. United States, 2010 U.S. Lexis 2206 (2010), which concerns the constitutionality of bankruptcy legislation regulating attorney conduct.

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Professor Klee writes: In Milavetz, Gallop & Milavetz, P.A. v. United States, 2010 U.S. Lexis 2206, 176 L. Ed. 2d 79 (2010) [lexisONE unenhanced version], the Supreme Court granted certiorari to review the Eighth Circuit's decision in Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785 (8th Cir. 2008) [lexisONE unenhanced version], interpreting several aspects of the 2005 BAPCPA amendments dealing with debt relief agencies. Among other changes, BAPCPA imposed certain regulations on "debt relief agencies," defined by § 101(12A) of the statute as "any person who provides any bankruptcy assistance to an assisted person in return for . . . payment . . . or who is a bankruptcy petition preparer." BAPCPA further amended § 101(4A) of the Bankruptcy Code to define "bankruptcy assistance" as "goods or services 'provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors' meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding.'" BAPCPA also amended § 101(3) of the Bankruptcy Code to define an "assisted person" as "someone with limited nonexempt property whose debts consist primarily of consumer debts."

Under Bankruptcy Code § 528, as enacted by BAPCPA, debt relief agencies must self disclose as such and include prominent disclaimers in their advertisements informing the general public that they provide bankruptcy assistance services. Moreover, BAPCPA enacted Bankruptcy Code § 526(a)(4) to restrict debt relief agencies from "advis[ing] an assisted person . . . to incur more debt in contemplation of such person filing a case under this title." The statute was silent, however, on the precise contours of this provision, leading some to wonder if the provision was unconstitutionally overbroad. Milavetz, Gallop & Milavetz, P.A. ("Milavetz"), a debtors' firm located in Edina, Minnesota, brought just such a challenge.

The Eighth Circuit affirmed in part, and reversed in part, overruling the district court on the question of whether attorneys were debt relief agencies and subject to disclosure requirements, but affirming the district court's assessment that § 526(a)(4) was unconstitutionally overbroad. The Eighth Circuit's ruling on § 526(a)(4) differed from the Fifth Circuit's opinion Hersh v. United States ex rel. Mukasey [lexisONE free unenhanced version], 553 F.3d 743, 761, 764 (5th Cir. 2008), which had narrowly tailored the scope of § 526 to apply only to "advise to abuse or manipulate the bankruptcy system." The Supreme Court granted certiorari to consider all three questions and reconcile the circuit split.

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