Thoughts on the Supreme Court's Bankruptcy Decision, Attorney Advice, and the Law of Lawyering

As John noted yesterday, the Court has issued its opinion in Milavetz, Gallop & Milavetz, P.C. v. U.S. and the decision has generated a fair amount of commentary (see, for example, here, here, here, and here).  In my mind, the ruling may be more significant for what the Court declined to decide than for what it actually decided.

Justice Sotomayor authored the essentially unanimous opinion (Justice Scalia wrote a separate concurrence taking issue with a legislative history point and Justice Thomas wrote a separate concurrence questioning the relaxed scrutiny applied by the Court to the advertising disclosures).  The Court reached three conclusions.  First, the Court held that the term "debt relief agencies" as used in the Bankruptcy Abuse and Reform Act of 2005 includes attorneys.  Second, the Court determined that the advertising disclosures required by the Act for any attorney providing bankruptcy services survived the less exacting scrutiny applied to statutes that target misleading commercial speech under Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio.  Third, the Court found that the Act’s prohibition on offering advice to debtors about the accumulation of additional debt in contemplation of filing for bankruptcy was not unconstitutionally overbroad or vague so long as construed narrowly.   As Justice Sotomayor explained:

After reviewing these competing claims, we are persuaded that a narrower reading … is sounder,  although we do not adopt precisely the view the Government advocates. The Government's sources show that the phrase “in contemplation of” bankruptcy has so commonly been associated with abusive conduct that it may readily be understood to prefigure abuse. …[W]e think the phrase refers to a specific type of misconduct designed to manipulate the protections of the bankruptcy system … [and] conclude that [it] prohibits [an attorney] only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.

The Court declined to decide, however, “whether the statute so construed withstands First Amendment scrutiny.”  It will be interesting to see if the Court reaches a similar result in Holder v. Humanitarian Law Project, another case this term that raises the question of the First Amendment’s application to attorney advice. 

Also worth noting about the Milavetz opinion is the reference to an additional lawyering case, Mohawk Industries, Inc. v. Carpenter.  In a footnote justifying the Court's narrow reading of the ban on advice, Justice Sotomayor wrote:  "Earlier this Term, we acknowledged the importance of the attorney-client privilege as a means of protecting that relationship and fostering robust discussion.  Reiterating the significance of such dialogue, we note that [the ban], as narrowly construed, presents no impediment to full and frank discussions."  Yet, as readers of this blog will recall, the Court declined in Mohawk to provide a right of immediate appeal for attorney-client privilege rulings, a decision leading some to question the Court's commitment to protecting the unique relationship between attorneys and their clients.

Comments

[John Steele]

Renee,

Great post. A couple of things jumped out at my during my first read-through. (1) When it came to statutory interpretation, the SCOTUS didn't start with a norm of "we must, and Congress presumably did, accord the lawyers extraordinary deference." While the court did acknowledge, in a footnote, the important of the attorney client relationship and privilege, for the most part the court analyzed the statute like you'd expect them to analyze any other statute that regulated any other occupation. That made me wonder about the future of federal regulation of lawyers. My guess: Congress will regulate it more, and once the opposition of the state supreme courts is worn down, there will be a new sheriff in town. That could take a decade or two, but my guess is that it's inevitable. I'd also guess that Congressional regulation during Democrat administrations will go down more smoothly than did the attempts by Ashcroft. (I'm just predicting, not accusing.)

(2) When tbe court emphasized that the statute merely banned abusive advice, it brought to mind 1.2(d). At the same time, it's my sense that some portion of the practicing bar has grown sufficiently comfortable with the protections afforded by attorney client privilege that they are comfortable giving privileged advice, overtly and between the lines, well into the gray zone of 1.2(d). If so, this type of Congressional regulation will in fact chill speech that some lawyers currently feel is perfectly normal to give. In that sense, federal statutory regulation will have different effects on the profession than will the normal sorts of state regulation by supreme courts and ethics commitees.

[Renee Newman Knake]

Thanks for the comments, John. As to the first point, I agree with your thoughts about increasing federal regulation of lawyers. Regardless of the outcomes in Milavetz and Humanitarian Law Project, I think it is a pretty safe bet that the Court has not seen the last case challenging congressional constraints on legal advice. For reasons you mention in the second point, among others, it seems to me that strict scrutiny should be applied to laws that regulate the advice lawyers give clients. (Indeed, at the oral argument in Humanitarian Law Project, both Chief Justice Roberts and Justice Sotomayor raised questions about possibly sending the case back to the lower court to apply strict scrutiny. Surely this dialogue must have been in the back of Justice Sotomayor’s mind when she wrote specifically that the Court in Milavetz did not consider whether the narrowed reading of the advice ban would withstand First Amendment scrutiny.) Your reference to Model Rule 1.2(d) also is interesting. I was struck by the way Court cited MR 1.2(d) in support of the narrowed reading of the advice ban, and implicitly seemed to suggest that the federal statute ought not be interpreted to conflict with the Model Rule.

[John Steele]

Renee,

Thanks. I'm not an expert in the jurisprudence of "chilling effects," so I'm curious to see how a First Amendment analysis might play out. When i see this debate played out in the context of the law of lawyering, I sometimes hear people rhetorically eliminate any possibility of a gray area in 1.2(d) by saying that if the advice is legitimate it won't be chilled and if it's illegitimate it ought to be chilled. When I talk to lawyers about how they counsel in privileged settings, many of them believe that some advice could reasonably be characterized either way, given the context, the nuances, the biases of the interpreter, etc. If there is a large and important category of "gray area" advice, then a ruling on the First Amendment issue will have big consequences.