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.