Legal News

Silenced! High Court Upholds Ban on Type of Legal Advice

By Ashby Jones

The Supreme Court has, alas, handed another counterpoint to Tennessee law professor Benjamin Barton’s thesis, elucidated in this Alabama Law Review article from 2007, that in their rulings, judges systematically favor the interests of the legal profession.

The Supreme Court on Monday issued this ruling, in a case called Milavetz, Gallop & Milavetz v. United States, holding that the First Amendment did not stand in the way of 2005’s Bankruptcy Abuse Prevention and Consumer Protection Act’s prohibition on bankruptcy advisers giving certain kinds of advice to clients. Specifically, the court found constitutional a provision in the law barring debt relief services, including lawyers, from advising clients to incur more debt for filing for bankruptcy. Click here for the early writeup from the BLT Blog; here for background on the case from Scotusblog’s Scotus Wiki.

On its face, it might seem a bit strange — is Congress really allowed to prohibit attorneys from giving a certain advice?

Of course, the First Amendment states that “Congress shall make no law . . . abridging the freedom of speech . . . .”

Seems easy enough, right? Au contraire. The Supreme Court has carved out a variety of exceptions to the First Amendment’s free-speech clause. Generally speaking, Congress may impinge speech when it can prove that it has a substantial interest in restricting speech, and that the law that does so is adequately tailored to constrain only that speech.

In this case, the Supreme Court found that the government did, in fact, have a substantial interest in limiting this type of speech — advice from a lawyer to a client to incur more debt “in contemplation of bankruptcy.” The court agreed with the government’s reading of that statute — that advice to incur more debt in this context is tantamount to taking “actions to abuse the bankruptcy system.”

Justice Sonia Sotomayor, writing for the Court, said:

As used in §526(a)(4), however, we think the phrase ["in contemplation of"] refers to a specific type of misconduct designed to manipulate the protections of the bankruptcy system. In light of our decision in Pender, and in context of other sections of the Code, we conclude that §526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.

Later, Sotomayor continues:

It would make scant sense to prevent attorneys and other debt relief agencies from advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors. That construction serves none of the purposes of the Bankruptcy Code or the amendments enacted through the BAPCPA.

So there you go, bankruptcy lawyers. As of today, for better or worse, your tongues are just a bit more tied than they used to be.

Full post as published by Law Blog - WSJ.com on March 08, 2010 (boomark / email).