Cross v. USA

• Decision Date: 07 September 2010
• Docket Number: Docket Nos. 08-5901-cv (Con), 09-0015-cv (XAP).
• Citation: 620 F.3d 81
• Parties: CONNECTICUT BAR ASSOCIATION, National Association of Consumer Bankruptcy Attorneys, Charles A. Maglieri, Eugene S. Melchionne, Wayne A. Silver, Ira B. Charmoy, Jeffrey M. Sklarz, Gerald A. Roisman, Brown & Welsh PC, Anita Johnson, Plaintiffs-Appellants-Cross-Appellees, v. UNITED STATES of America, Eric H. Holder, Jr., Attorney General of the United States, Diana G. Adams, United States Trustee, Defendants-Appellees-Cross-Appellants. 1
• Court: U.S. Court of Appeals — Second Circuit

620 F.3d 81

CONNECTICUT BAR ASSOCIATION, National Association of Consumer Bankruptcy Attorneys, Charles A. Maglieri, Eugene S. Melchionne, Wayne A. Silver, Ira B. Charmoy, Jeffrey M. Sklarz, Gerald A. Roisman, Brown & Welsh PC, Anita Johnson, Plaintiffs-Appellants-Cross-Appellees,

v.UNITED STATES of America, Eric H. Holder, Jr., Attorney General of the United States, Diana G. Adams, United States Trustee, Defendants-Appellees-Cross-Appellants. ¹

Docket Nos. 08-5901-cv (Con), 09-0015-cv (XAP). ²

United States Court of Appeals,Second Circuit.

Argued: Sept. 24, 2009.

Decided: Sept. 7, 2010.

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Barry S. Feigenbaum (Jonathan S. Massey, Massey & Gail LLP, Washington, D.C., on the brief), Rogin Nassau LLC, Hartford, CT, for Plaintiffs-Appellants-Cross-Appellees.

Mark B. Stern (Tony West, Assistant Attorney General, Mark R. Freeman, Attorney, Civil Division, United States Department of Justice, on the brief), on behalf of Nora R. Dannehy, Acting United States Attorney for the District of Connecticut, for Defendants-Appellees-Cross-Appellants.

Before LEVAL, RAGGI, Circuit Judges, and GLEESON, District Judge. ³

REENA RAGGI, Circuit Judge:

Plaintiffs, the Connecticut Bar Association; the National Association of Consumer Bankruptcy Attorneys; the law firm of Brown & Welsh P.C.; attorneys Charles Maglieri, Eugene S. Melchionne, Wayne A. Silver, Ira B. Charmoy, Jeffrey M. Sklarz, and Gerald A. Roisman; and debtor Anita Johnson, sued defendants, the United States, the Attorney General of the United States, and United States Trustee Diana G. Adams, in the United States District Court for the District of Connecticut (Christopher F. Droney, Judge ) for a judgment declaring unconstitutional various provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109-8, 119 Stat. 23 (2005) (“BAPCPA”), and enjoining their enforcement. Plaintiffs now appeal from a November 7, 2008 judgment that granted in part defendants' motion to dismiss the complaint. See Connecticut Bar Ass'n v. United States, 394 B.R. 274, 280 (D.Conn.2008). Defendants, in turn, cross-appeal the judgment insofar as it granted in part plaintiffs' motion for declaratory and injunctive relief.

We review these cross-appeals with a benefit not available to the district court: the Supreme Court's decision in Milavetz, Gallop & Milavetz, P.A. v. United States, --- U.S. ----, 130 S.Ct. 1324, 176 L.Ed.2d 79 (2010), which clarified the construction of some of the statutory sections here at issue. Following Milavetz, and for the reasons stated in this opinion, we affirm that part of the judgment ordering dismissal and vacate that part of the judgment ordering declaratory relief. We dissolve the injunction and remand the case for further proceedings consistent with this opinion.

I. BackgroundA. BAPCPA

In 2005, Congress enacted BAPCPA, intended as a comprehensive reform measure to curb abuses and improve fairness in the federal bankruptcy system. See id. at 1329-30; see also H.R.Rep. No. 109-31, reprinted in 2005 U.S.C.C.A.N. 88, 89 (describing purpose of BAPCPA as “to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors”). The BAPCPA provisions here at issue, codified at 11 U.S.C. §§ 526-528, govern the conduct of “debt relief agencies,” defined at 11 U.S.C. § 101(12A) as “any person who provides any bankruptcy assistance to an assisted person ⁴ in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer.”

Certain persons and entities are specifically excluded from this definition. Attorneys are not among them. ⁵

B. Plaintiffs' Constitutional Challenge

Plaintiffs submit that any construction of “debt relief agency” that includes attorneys renders certain provisions of BAPCPA unconstitutional. Specifically attacked as facially violative of the First Amendment's guarantee of free speech are the following sections of Title 11:(1) § 526(a)(4), which prohibits debt relief agencies from advising their clients “to incur more debt in contemplation of [bankruptcy] 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 bankruptcy case; ⁶ (2) § 527(a) and (b), which require a debt relief agency to provide an assisted person with certain notices; ⁷ (3) § 528(a)(1)-(2), which require a debt relief agency to execute a written contract with an assisted person; ⁸ and (4) § 528(a)(3)-(4) and (b)(2), which mandate language to be included in debt relief agency advertisements. ⁹ Plaintiffs also contend that the contract requirements of § 528(a)(1)-(2) violate the Fifth Amendment's Due Process Clause.

C. The District Court Decision

In considering these arguments on plaintiffs' motion for declaratory and injunctive relief and defendants' motion for dismissal, the district court construed the term “debt relief agency” broadly to include attorneys representing not only consumer debtors but any person who met the statutory definition of “assisted person,” whether or not a bankruptcy proceeding concerned that person's own debts. See Connecticut Bar Ass'n v. United States, 394 B.R. at 280 (citing Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr.L.J. 571, 576-77 (2005)). The district court proceeded to hold that (1) § 526(a)(4)'s proscription on certain advice to assume debt was an unconstitutionally overbroad restriction on speech, see id. at 281-84; (2) the disclosure requirements of § 527 did not violate the First Amendment, see id. at 284-87; (3) § 528(a)(1)-(2)'s contract requirements did not violate either the First Amendment or the Due Process Clause, see id. at 287-88; and (4) the advertising mandates of § 528(a)(3)-(4) and (b)(2) violated the First Amendment, but only insofar as they applied to attorneys representing persons other than consumer debtors, see id. at 288-91. The district court dismissed those parts of plaintiffs' complaint found not to allege constitutional violations and granted plaintiffs' motion for a pre-enforcement injunction with respect to those provisions of §§ 526 and 528 found to violate the First Amendment. Both sides appealed.

D. The Milavetz Decision

After briefing and oral argument in this appeal, the Supreme Court decided Milavetz, Gallop & Milavetz, P.A. v. United States, --- U.S. ----, 130 S.Ct. 1324, 176 L.Ed.2d 79, which resolved a number of the questions here at issue. Specifically, the Supreme Court held that the term “debt relief agency” does apply to attorneys, see id. at 1331-32, but only those assisting consumer debtors contemplating bankruptcy, see id. at 1341.

The Supreme Court also construed § 526(a)(4)'s prohibition on advising clients to take on debt “in contemplation of” bankruptcy to apply only to “advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.” Id. at 1336. The Court explained that such advice “will generally consist of advice to ‘load up’ on debt with the expectation of obtaining its discharge- i.e., conduct that is abusive per se.” Id. The Court concluded that when the section was so construed, it raised no First Amendment overbreadth or vagueness concerns. See id. at 1337-38.

Further, the Supreme Court rejected a First Amendment challenge to the advertising requirements of § 528(a)(3)-(4) and (b)(2). Concluding that the requirements pertained to speech that was commercial in nature and compelled only disclosures, the Court determined that the appropriate standard of review was the rational basis test set forth in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 105 S.Ct. 2265, 85 L.Ed.2d 652 (1985). The Court held that the advertising requirements passed this test because they “govern only professionals who offer bankruptcy-related services to consumer debtors,” and, as such, reasonably relate to the government's interest in preventing deception of consumer debtors contemplating bankruptcy. See Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S.Ct. at 1341.

II. Discussion

Plaintiffs submit that the district court erred in construing the term “debt relief agency” in 11 U.S.C. § 101(12A) to include attorneys; and in dismissing their constitutional challenges to § 527(a) and (b) and § 528(a)(1)-(2) in their entirety, and to § 528(a)(3)-(4) and (b)(2) to the extent those provisions apply to attorneys advising consumer debtors contemplating bankruptcy. Defendants, in turn, fault the district court for declaring unconstitutional § 526(a)(4)'s prohibition on advice to assume debt, as well as the advertising requirements of § 528(a)(3)-(4) and (b)(2) to the extent those requirements apply to attorneys providing bankruptcy assistance to persons other than consumer debtors. We review constitutional challenges to a federal statute de novo. See United States v. Dhafir, 461 F.3d 211, 215 (2d Cir.2006).

A. Attorneys Providing Bankruptcy Assistance to Consumer Debtors Qualify as “Debt Relief Agencies ”

At its core, plaintiffs' complaint sought a judicial declaration that the challenged statutes do not apply to attorneys, either because the term “debt relief agency” does not include attorneys, or because, if the term does include attorneys, the statutes violate the Constitution. Plaintiffs' first argument is now foreclosed by Milavetz, Gallop, & Milavetz, P.A. v. United States, 130 S.Ct. at 1333, which holds that attorneys representing consumer debtors can qualify as debt relief agencies.

The Supreme Court observed that the term “debt relief agency” was statutorily defined as “ ‘any person who provides any bankruptcy assistance to an assisted person’ in return for payment.” Id. at 1332 (quoting 11 U.S.C. § 101...