Olsen v. Gonzales

• Decision Date: 11 August 2006
• Docket Number: No. 05-5365-HO.,05-5365-HO.
• Citation: 350 B.R. 906
• Parties: Eric OLSEN, Kevin Swartz, Jason C. McBride, Plaintiffs, v. Alberto GONZALES, in his official capacity as Attorney General of the United States of America, and Ilene Lashinsky, fin her official capacity as United States Truzstee, Defendants.
• Court: U.S. District Court — District of Oregon

350 B.R. 906

Eric OLSEN, Kevin Swartz, Jason C. McBride, Plaintiffs, v. Alberto GONZALES, in his official capacity as Attorney General of the United States of America, and Ilene Lashinsky, fin her official capacity as United States Truzstee, Defendants.

No. 05-5365-HO.

United States District Court, D. Oregon.

August 11, 2006.

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Douglas R. Ricks, Keith D. Karnes, Olsen Olsen & Dairies, Salem, OR, for Plaintiffs.

Justin Michael Sandberg, U.S. Department of Justice, Washington, DC, for Defendants.

ORDER

HOGAN, District Judge.

Plaintiffs brings this suit challenging the constitutionality of various provisions of the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Specifically, plaintiffs challenge 11 U.S.C. §§ 526(a)(4), 526(a)(1), 527, and 528 as violative of the First Amendment. In addition, plaintiffs contend that 11 U.S.C. §§ 526-528 are too vague in violation of the Fifth Amendment's Due Process Clause.

Sections 526, 527 and 528 require "debt relief agencies" who render "bankruptcy assistance" to enter written contracts with "assisted persons," disclose the extent of services provided and fees charged, and disclose clearly and conspicuously in all advertising that their services contemplate bankruptcy. Debt Relief agencies are required to provide a detailed written notice to all "assisted persons" of the disclosure requirements of the Code, the obligation of accuracy and truthfulness on those disclosures, and that failure to comply with those requirements carry potential civil and criminal sanctions. 11 U.S.C. § 527. They are also required to advise the "assisted person" that the person may proceed pro se, or may hire an attorney, or may hire a bankruptcy petition preparer, and that only attorneys and not petition preparers can render legal advice. Id. They are required to provide the "assisted person" with information on how to value assets, how to complete bankruptcy schedules, and how to determine what property is exempt. Id. Debt relief agencies are prohibited from failing to provide the services they contracted to provide, counselling any person to make false statements, or advising the 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." 11 U.S.C. § 526(a)(4). Section 526(c) creates civil liability for violation of the duties enumerated.

Plaintiffs Eric Olsen and Kevin D. Swartz are attorneys who practice bankruptcy law. Plaintiff Jason McBride is an attorney who does not represents clients in bankruptcy or file petitions for relief under the bankruptcy code.

Defendants move to dismiss the complaint contending that BAPCPA does not violate the First or Fifth Amendments. however, an issue that must first be addressed is whether attorneys and specifically plaintiffs are debt relief agencies for purposes of the Act. a plaintiffs do not fall within the definition of "debt relief agency," then they lack standing to bring this suit and the suit must be dismissed. In addition, even if plaintiffs are debt relief agencies, there is still an issue of whether a live case or controversy exists.

The challenged provisions of the BAPCPA apply to "debt relief agencies."

The term "debt relief agency" means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110, but does not include —

(A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;

(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;

(C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such assisted person to the creditor;

(D) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or any Federal credit union or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such depository institution or credit union; or

(E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity.

11 U.S.C. § 101(12A). "The term `assisted person' means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,0n." 11 U.S.C. § 101(3).

A. Standing

1. Are Attorneys Debt Relief Agencies?

The term "bankruptcy assistance" means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors' meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.

11 U.S.C. § 101(4A). This definition specifically includes "legal representation." One of the early decisions addressing this issue (in an advisory opinion on the court's own motion) concludes that attorneys are not "debt relief agencies within the meaning of the BAPCPA". See In re Attorneys At Law and Debt Relief Agencies, 332 B.R. 66 (Banke.S.D.Ga.2005).¹

Judge Lamar Davis acknowledged that the language defining debt relief agency is broad enough to include attorneys and law firms. Id. at 67-68. Judge Davis also noted, however, that the definition did not include the word "attorney" or "lawyer," but did include "bankruptcy petition preparer" which is elsewhere defined to exclude attorneys and their staffs. Id. at 69. Judge Davis also noted that the definition of attorney did not make reference to debt relief agency. Id.; 11 U.S.C. § 101(4). Judge Davis concluded that the inclusion of the term "legal representation" in the definition of "bankruptcy assistance" was Congress's effort to empower the Bankruptcy Courts presiding over a case with authority to protect consumers who are before the Court, who may have been harmed by a debt relief agency that may have engaged in the unauthorized practice of law, and whose existing remedies for any damage is more theoretical than real. In re Attorneys, 332 B.R. at 69. Judge Davis also took issue with the fact that Section 527(b) requires debt relief agencies to inform assisted persons that they have the right to hire an attorney or to represent themselves, that only an attorney can render legal advice, and how to perform services pro se that would be universally provided if the person hired an attorney. Judge Davis opined that the provision is a consumer protection provision intended to regulate that universe of entities who assist persons but are not attorneys. Id. at 69-70. Judge Davis also noted that to construe debt relief agency as including attorneys "would be a breathtakingly expansive interpretation of federal law to usurp state regulation of the practice of law via the ambiguous provisions of this Act, which in no clear fashion lay claim to the right to do any such thing." Id. at 71.

Nonetheless, the legislative history does provide a very strong indication that attorneys are included in the definition. "The bill's consumer protections include provisions strengthening professionalism standards for attorneys and others who assist consumer debtors with their bankruptcy cases." H.R.Rep. No. 109-31, 109th Cong. 1st Sess. at 4. reprinted in 2005 U.S.C.C.A.N. at 103. On March 9, 2005, Senator Feingold proposed amendment No. 93 to Congress which would have excluded lawyers from the definition of debt relief agencies. See 151 CONG. REC. S2306-02, 2316-17 (2005). The Senate dad not address Senator Feingold's proposal See id.² However, it is the plain language of the Act that leads to the conclusion that attorneys are to be included in the definition of "debt relief agency." Thus, further use of the tools of statutory construction is not necessary. "Bankruptcy assistance" is defined to include services provided for the purpose of counsel and legal representation. The definition of "debt relief agency" specifically lists five exclusions and Congress could have put attorney in the list if it meant to exclude attorneys.

2. Are Plaintiffs Debt Relief Agencies?

Assuming attorneys are included in the definition of debt relief agency, defendants contend that the plaintiffs have failed to properly allege they are regulated attorneys because they failed to allege they advise debtors with less than $150,000 in non-exempt assets whose debts coned primarily of consumer debts to file for bankruptcy. Such pleading deficiency can be overcome with a simple amendment and the court declines to dismiss on this ground. But this demonstrates another issue — whether a live case and controversy exists.

3. Is the Threat of Enforcement Real and Immediate?

The Court must first determine whether it has jurisdiction to rule on the allegations in plaintiffs' complaint. "The federal courts are under an independent obligation to examine their own jurisdiction, and standing `is perhaps the most important of [the jurisdictional] doctrines.' " U.S. v. Hays, 515 U.S. 737, 742, 115 S.Ct. 2431, 132L.Ed.2d 635 (1995). Plaintiffs bear the burden of demonstrating that this suit involves a "case or controversy." In Arizonans For Official English v. Arizona, the United States Supreme Court stated:

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 caseor-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...