Connecticut Bar Ass'n v. U.S.

Decision Date09 September 2008
Docket NumberCivil Action No. 3:06-CV-729 (CFD).
Citation394 B.R. 274
CourtU.S. District Court — District of Connecticut
PartiesCONNECTICUT BAR ASSOCIATION, et al. v. UNITED STATES of America, et al., Defendants.

Barry S. Feigenbaum, Rogin, Nassau, Caplan, Lassman & Hirtle, Hartford, CT, Jonathan S. Massey, Jonathan S. Massey, Esq., Bethesda, MD, for Plaintiffs.

Marcia K. Sowles, U.S. Department of Justice, Washington, DC, Ann M. Nevins, U.S. Attorney's Office, Bridgeport, CT, Dewitt Brown, William H. Schorling, Klett, Rooney, Lieber & Schorling, PC, Philadelphia, PA, Thomas D. Goldberg, Day Pitney LLP, Stamford, CT, for Defendants.



The plaintiffs in this action are the Connecticut Bar Association ("CBA"), the National Association of Consumer Bankruptcy Attorneys ("NACBA"), several individual bankruptcy attorneys, a family law attorney, a creditors' law firm, and an individual client of an attorney. The defendants (collectively, the "Government") are the United States of America, Alberto Gonzales (in his official capacity as Attorney General of the United States), and Diana G. Adams (in her official capacity as acting United States Trustee).1 The plaintiffs challenge as unconstitutional sections 227, 228, and 229 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA" or "the Act"), additions to the Bankruptcy Code codified at 11 U.S.C. §§ 526, 527, and 528, if those provisions are construed by the Government to apply to licensed attorneys at law. Plaintiffs allege that the provisions, as interpreted by the Government, violate the First and Fifth Amendments to the United States Constitution and restrict the ability of attorneys to practice law. The plaintiffs filed a motion for a preliminary injunction to enjoin the Government from enforcing these sections against them. The Government then filed a motion to dismiss the plaintiffs' complaint for failure to state a claim for which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), and for lack of subject matter jurisdiction under Rule 12(b)(1).

I. Background

On April 20, 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, the relevant provisions of which became effective on October 17, 2005. BAPCPA defines a category of bankruptcy service providers called "debt relief agencies" and imposes a series of restrictions and requirements on entities falling within this category. The United States has taken the position that attorneys are "debt relief agencies" within the meaning of the statute. The provisions at issue are described in the analysis below.

The plaintiffs seek a declaratory judgment that the debt relief provisions do not apply to them as attorneys, or in the alternative, that to the extent that the provisions do apply to them they are unconstitutional. In addition, the plaintiffs seek preliminary and permanent injunctive relief enjoining the defendants from enforcing the sections against them.

II. Legal Standards
A. Preliminary Injunction

Plaintiffs argue that sections 526, 527, and 528 of Title 11 violate, on their face, plaintiff's constitutional rights if they are construed to apply to attorneys. To obtain a preliminary injunction the plaintiffs must demonstrate: (1) that they will be irreparably harmed if an injunction is not granted, and (2) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation, and a balance of the hardships tipping decidedly in their favor. Lusk v. Village of Cold Spring, 475 F.3d 480, 485 (2d Cir.2007).

B. Motion to Dismiss
1. Failure to State a Claim—Rule 12(b)(6)

The threshold for surviving the motion to dismiss does not rise to the level of likelihood of success. When considering a Rule 12(b) motion to dismiss, the court accepts as true all factual allegations in the complaint and draws inferences from these allegations in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984); Grandon v. Merrill Lynch & Co., Inc., 147 F.3d 184, 188 (2d Cir.1998). The Second Circuit noted in Iqbal v. Hasty that the Supreme Court created "[c]onsiderable uncertainty concerning the standard for assessing the adequacy of pleadings" in Bell Atl. Corp. v. Twombly, but explained that Twombly did not heighten the pleading standard for all cases. Iqbal v. Hasty, 490 F.3d 143, 155, 157 (2d Cir.2007) (citing Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Rather, Twombly "instead [requires] a flexible `plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Id. at 157-58 (emphasis in original). "Nevertheless, even after Iqbal and Twombly, the issue on a motion to dismiss `is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" Ciacciarella v. Bronko, 534 F.Supp.2d 276, 277 (D.Conn.2008) (quoting Desiano v. Warner-Lambert Co., 326 F.3d 339, 347 (2d Cir.2003)). "[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss" from being granted. Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d Cir.2002) (internal quotation marks omitted). In determining the adequacy of a claim under Rule 12(b)(6), consideration is limited to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. See Fed.R.Civ.P. 12(c); Courtenay Commc'ns Corp. v. Hall, 334 F.3d 210, 213 (2d Cir.2003); Leonard F. v. Israel Discount Bank of N.Y., 199 F.3d 99, 107 (2d Cir.1999).

2. Lack of Subject Matter Jurisdiction—Rule 12(b)(1)

A motion to dismiss for lack of subject matter jurisdiction is governed by Federal Rule of Civil Procedure 12(b)(1). Under that rule, a case is properly dismissed "when the court lacks the statutory or constitutional power to adjudicate the case." Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.1996). A district court evaluating a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) "must look to the way the complaint is drawn to see if it claims a right to recover under the laws of the United States." IUE AFLCIO Pension Fund v. Herrmann, 9 F.3d 1049, 1055 (2d Cir.1993) (quoting Goldman v. Gallant Secs. Inc., 878 F.2d 71, 73 (2d Cir.1989)), cert. denied, 513 U.S. 822, 115 S.Ct. 86, 130 L.Ed.2d 38 (1994). As with a motion to dismiss pursuant to Rule 12(b)(6), "the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of [the] plaintiff." Raila v. United States, 355 F.3d 118, 119 (2d Cir.2004); see Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir.2003), cert. denied, 540 U.S. 1012, 124 S.Ct. 532, 157 L.Ed.2d 424 (2003) (noting that "[t]he standards for dismissal under Rules 12(b)(1) and 12(b)(6) are substantially identical"). "Dismissal is inappropriate unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief." Raila, 355 F.3d at 119. Both the moving and non-moving parties "may use affidavits and other materials beyond the pleadings themselves in support of or in opposition to a challenge to subject matter jurisdiction." Matos v. United States Dept. of Housing & Urban Dev., 995 F.Supp. 48, 49 (D.Conn.1997) (citing Land v. Dollar, 330 U.S. 731, 735, 67 S.Ct. 1009, 91 L.Ed. 1209 (1947)). The district court also "may inquire, by affidavits or otherwise, into the facts as they exist." Land, 330 U.S. at 735 n. 4, 67 S.Ct. 1009; see also Exchange Nat'l Bank v. Touche Ross & Co., 544 F.2d 1126, 1130-31 (2d Cir.1976).

III. Discussion
A. Standing

The defendants argue that four plaintiffs (Brown & Welsh, Jeffrey Sklarz, Gerald Roisman, and Wayne Silver) should be dismissed for lack of standing because they cannot show that they have suffered any injury in fact as a result of the challenged provisions because they are not "debt relief agencies" under defendants' interpretation of BAPCPA. To have standing under Article III of the U.S. Constitution, a plaintiff must show: (1) he has suffered an injury in fact that is concrete or imminent, not conjectural or hypothetical; (2) there is a causal connection between the injury and the defendant's conduct; and (3) the injury is likely to be redressed by a favorable decision of the Court. Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 187, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000).

When faced with a motion to dismiss, a plaintiff bears the burden of pleading facts that, if true, would establish standing for each of his claims. Id. at 190, 120 S.Ct. 693. A federal court must dismiss a claim unless all three elements are satisfied. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 126 S.Ct. 1854, 1861, 164 L.Ed.2d 589 (2006); Bennett v. Spear, 520 U.S. 154, 167, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997). At the pleading stage, "general factual allegations of injury resulting from the defendant's conduct may suffice," and the court "presum[es] that general allegations embrace the specific facts that are necessary to support the claim." Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).

Brown & Welsh represents only creditors and thus does not meet the defendants' definition of debt relief agency, which only includes attorneys representing debtors. Attorney Sklarz has not stated...

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