Zelotes v. Martini

• Decision Date: 07 November 2006
• Docket Number: No. 3:05cv1591 (PCD).,3:05cv1591 (PCD).
• Citation: 352 B.R. 17
• Court: U.S. District Court — District of Connecticut
• Parties: Zenas ZELOTES, Esq., Plaintiff, v. Deirdre A. MARTINI, in her official capacity as Acting United States Trustee, Region 2, Defendant.

352 B.R. 17

Zenas ZELOTES, Esq., Plaintiff, v. Deirdre A. MARTINI, in her official capacity as Acting United States Trustee, Region 2, Defendant.

No. 3:05cv1591 (PCD).

United States District Court, D. Connecticut.

November 7, 2006.

COPYRIGHT MATERIAL OMITTED

Zenas Zelotes, New London, CT, pro se.

Marcia K. Sowles, U.S. Department of Justice, Washington, DC, Ann M. Nevins, U.S. Attorney's Office, Bridgeport, CT, for Defendant.

RULING ON MOTION TO DISMISS

DORSEY, District Judge.

Plaintiff brings this action challenging the constitutionality of one provision of the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Specifically, Plaintiff challenges 11 U.S.C. § 526(a)(4) as violative of the First Amendment. Defendant moves, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Plaintiffs Complaint in its entirety. For the reasons that follow, Defendant's Motion to Dismiss [Doc. No. 11] is denied.

I. BACKGROUND

Plaintiff is a bankruptcy attorney who maintains law offices in New London, Shelton and Hartford, Connecticut. (Compl.¶ 5.) Plaintiff asserts that he is a "Debt Relief Agency," as defined by 11 U.S.C. § 101(12A),¹ and his clients are "Assisted Persons," as defined by 11 U.S.C. § 101(3).² Defendant is being sued in her official capacity as Acting United States Trustee, Region 2. As a United States Trustee, Defendant is one of the officials charged with enforcing the provision at issue here.

II STANDARD OF REVIEW

The function of a motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim is "merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof." Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 776 (2d Cir.1984) (citation omitted). Therefore, when considering such a motion, the court must accept the facts alleged in the complaint as true. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Dismissal of a complaint under Rule 12(b)(6) is inappropriate unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." I. Meyer Pincus & Associates v. Oppenheimer & Co., 936 F.2d 759, 762 (2d Cir.1991); see also Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996) (Courts should not grant a Rule 12(b)(6) motion to dismiss merely because recovery seems unlikely or remote, as "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.").

III. DISCUSSION

Plaintiff brings this action as a facial challenge to the constitutionality of 11 U.S.C. § 526(a)(4), which provides:

A debt relief agency shall not ... advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.

11 U.S.C. § 526(a)(4). If an attorney violates this provision, he or she may be obligated to return "any fees or charges" paid to him or her by the debtor-client along with "actual damages" and "reasonable attorneys' fees." 11 U.S.C. § 526(c)(2)(A). Moreover, state attorneys general may bring actions to enjoin violations of § 526 and recover damages for debtors, and a court on its own motion, the United States Trustees or debtors may bring actions seeking injunctive relief or civil penalties. 11 U.S.C. §§ 526(c)(3), (5).

Plaintiff asserts that he "intends to advise clients (and prospective clients) to incur additional debt in contemplation of their seeking relief under the bankruptcy code and concurrently intends to advise his clients to incur additional debt to pay their attorney (the Plaintiff)." (Compl.¶ 8.) Plaintiff contends that § 526(a)(4) violates the First Amendment of the United States Constitution by impermissibly impairing, and threatening to chill, his free speech rights. (Id. ¶ 11.) Plaintiff asks the Court to declare § 526(a)(4) unconstitutional, to order preliminary and permanent injunctive relief enjoining its enforcement, to award costs, and direct such other relief as the Court deems just and equitable.

A. Standing

In a footnote, Defendant raises the issue of whether Plaintiff has standing to bring this claim, as no entity has taken action to enforce BAPCPA against him. (See Mot. Dismiss 7 n. 6.) In order for the Court to have jurisdiction over an action, it must satisfy Article III's "case or controversy" requirement:

Article III, § 2, of the Constitution confines federal courts to the decision of "Cases" or "Controversies." Standing to sue or defend is an aspect of the case-or-controversy requirement. To qualify as a party with standing to litigate, a person must show, first and foremost, "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent."

Arizonans For Official English v. Arizona, 520 U.S. 43, 64, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997). Three elements must be established for Plaintiff to satisfy Article III's case or controversy requirement of standing. First, Plaintiff must have suffered an "injury in fact" — i.e., "an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotations and citations omitted). Second, there must be a causal connection between the injury and the challenged conduct. Id. Third, it must be likely that Plaintiffs injury can be redressed by a favorable decision. Id. at 561, 112 S.Ct. 2130. The "party invoking federal jurisdiction bears the burden of establishing these elements." Id.

Although "as applied" challenges are generally preferred to facial ones,³ "the First Amendment challenge has unique standing issues because of the chilling effect, self-censorship, and in fact the very special nature of political speech itself." Ctr. for Individual Freedom v. Carmouche, 449 F.3d 655, 660 (5th Cir.2006) (citation omitted). In Virginia v. Am. Booksellers Ass'n, 484 U.S. 383, 392, 108 S.Ct. 636, 98 L.Ed.2d 782 (1988), the Supreme Court stated that "the alleged danger of [the challenged statute] is, in large measure, one of self-censorship; a harm that can be realized even without an actual prosecution." Plaintiff alleges that his speech is chilled by the provision at issue, (Complaint ¶ 11), and this alleged suppression since the enactment of the BAPCPA is sufficient to establish standing. See Am. Booksellers Ass'n, 484 U.S. at 392, 108 S.Ct. 636 (holding, in the context of a First Amendment claim, that the plaintiffs had standing, "as the law is aimed directly at plaintiffs, who, if their interpretation of the statute is correct, will have to take significant and costly compliance measures or risk criminal prosecution"); Laird v. Tatum, 408 U.S. 1, 12-13, 92 S.Ct. 2318, 33 L.Ed.2d 154 (1972) (stating that "constitutional violations may arise from the deterrent, or `chilling' effect of governmental regulations that fall short of a direct prohibition against the exercise of First Amendment rights"). The threat of civil penalties here and the concomitant suppression of Plaintiffs speech are very real injuries. See Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 298, 99 S.Ct. 2301, 60 L.Ed.2d 895 (1979) ("A plaintiff who challenges a statute must demonstrate a realistic danger of sustaining a direct injury as a result of the statute's operation or enforcement [but] ... does not have to await the consummation of threatened injury to obtain preventive relief."); Mastrovincenzo v. City of New York, 435 F.3d 78, 89 (2d Cir.2006) ("it is well settled that the loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury"); Vt. Right to Life Comm. v. Sorrell, 221 F.3d 376, 382 (2d Cir.2000) (noting that the fear of civil penalties can be as inhibiting of speech as the threat of criminal prosecution, and finding that plaintiffs had standing); Levin v. Harleston, 966 F.2d 85, 89-90 (2d Cir. 1992) (holding that the university's implicit threats of future censure against the faculty was sufficient to violate First Amendment rights). Accordingly, it is found that Plaintiff has standing to bring this facial challenge to 11 U.S.C. § 526(a)(4). See Hersh v. United States, 347 B.R. 19, 22 n. 3 (N.D.Tex.2006) (finding that plaintiffs had standing to challenge 11 U.S.C. § 526(a)(4) on the ground that it chilled their speech); Olsen v. Gonzales, 350 B.R. 906, 915 (D.Or.2006) (same); but see Geisenberger v. Gonzales, 346 B.R. 678 (D.Pa. 2006) (finding that the plaintiff lacked standing to challenge the constitutionality of 11 U.S.C. § 526(a)(4), in addition to other provisions of BAPCPA, because the plaintiff had failed to allege that "the federal government or the Commonwealth of Pennsylvania has threatened to enforce the `debt relief agency' provisions of BAPCPA against him," or that "he sustained or is in imminent danger of suffering an economic loss from the enactment of the BAPCPA provisions" at issue).

B. Facial Challenge to § 526(a)(4)

The two other district courts to address the question of the constitutionality of 11 U.S.C. § 526(a)(4) to date have both found the provision unconstitutional. See Hersh, 347 B.R. 19; Olsen, 350 B.R. 906. As in those cases, this Court finds, regardless of whether strict scrutiny or the Gentile standard is applied,⁴ 11 U.S.C. § 526(a)(4) is facially unconstitutional.

When strict scrutiny applies, the government may regulate the content of constitutionally protected speech only if the regulation is (1) narrowly tailored to promote (2) a compelling government...