Zelotes v. Adams, 3:05cv1591 (PCD).
Decision Date | 27 February 2007 |
Docket Number | No. 3:05cv1591 (PCD).,3:05cv1591 (PCD). |
Citation | 363 B.R. 660 |
Parties | Zenas ZELOTES, Esq., Plaintiff, v. Diana G. ADAMS, in her official capacity as Acting United States Trustee, Region 2, Defendant. |
Court | U.S. District Court — District of Connecticut |
Zenas Zelotes, Groton, 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 MOTIONS FOR SUMMARY JUDGMENT AND RECONSIDERATION
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. On July 31, 2006, Defendant moved, pursuant to Federal Rule of Civil Procedure 12(b)(6); to dismiss Plaintiffs Complaint for failure to state a claim. This Court denied Defendant's Motion to Dismiss on November 7, 2006, finding that 11 U.S.C. § 526(a)(4) was overbroad and restricted attorney speech beyond what was narrow and necessary to further the governmental interest in curbing abusive practices, and therefore holding that § 526(a)(4) is facially unconstitutional. Based on that decision, Plaintiff filed a Motion for Summary Judgment on November 16, 2006, asking this Court to enter a judgment declaring § 526(a)(4) unconstitutional and enjoining its enforcement. In response, Defendant moved for reconsideration of this Court's November 7, 2006 Ruling on Defendant's Motion to Dismiss and for summary judgment. For the reasons that follow, Plaintiffs Motion for Summary Judgment [Doc. No. 19] is granted; Defendant's Motion for Summary Judgment [Doc. No. 21] is denied; and Defendant's Motion for Reconsideration [Doc. No. 22] is granted, however, the prior ruling is adhered to.
Plaintiff is a bankruptcy attorney licensed in the State of Connecticut 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 (Id. ¶ 6.) Defendant Diana G. Adams3 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.
Reconsideration will generally only be granted when a party can point to "an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) (citations omitted) (cautioning that "where litigants have once battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again"). Reconsideration should therefore be granted when a "party can point to controlling decisions or data that the court overlooked-matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir.1995). This Court will not grant a motion to reconsider "where the moving party seeks solely to relitigate an issue already decided," to "plug gaps in an original argument or to argue in the alternative once a decision has been made." Id.; Horsehead Res. Dev. Co., Inc. v. B.U.S. Envtl. Serv., Inc., 928 F.Supp. 287, 289 (S.D.N.Y.1996) (citations omitted). The standard for granting a motion for reconsideration is strict in order to dissuade repetitive arguments on issues that have already been considered fully by the Court. Shrader, 70 F.3d at 257. Ultimately, however, the question is a discretionary one and the court is not limited in its ability to reconsider its own decisions prior to final judgment. See Virgin Atl., 956 F.2d at 1255.
11 U.S.C. § 526(a)(4), the provision at issue here, 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 reparer 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).
In the Ruling on Defendant's Motion to Dismiss, this Court, following the reasoning set forth in Hersh v. United States, 347 B.R. 19 (N.D.Tex.2006) and Olsen v. Gonzales, 350 B.R. 906 (D.Or.2006),4 stated that "[b]y prohibiting lawyers from advising clients to take lawful, prudent actions as well as abusive ones, § 526(a)(4) is overbroad and restricts attorney speech beyond what is `narrow and necessary' to further the governmental interest," and therefore held that it is facially unconstitutional. Zelotes v. Martini, 352 B.R. 17, 25 (D.Conn.2006).
Defendant does not raise new arguments in its Motion for Summary Judgment and Reconsideration, but merely reiterates and elaborates on an argument that was rejected in the Ruling on Defendant's Motion to Dismiss. Specifically, Defendant asserts that the Ruling on the Motion to Dismiss was predicated on an erroneous interpretation of the scope of § 526(a)(4)'s prohibition on attorney speech. Defendant notes that § 526(a)(4) prohibits an attorney only from advising an assisted person "to incur more debt in contemplation of" filing for bankruptcy. Defendant argues that this language should be read as "prohibit[ing] an attorney only from advising a debtor to take on more debt solely because he or she intends to file for bankruptcy, as such advice is aimed at allowing the debtor to violate the law (by running up debt primarily because it will not need to be repaid) or otherwise `game' the means test (by piling up enough debt to avoid a presumption of abuse)."5 (Def.'s Mem. Supp. 3.)
Defendant argues that its interpretation of § 526(a)(4)'s phrase was too narrow, holding that "[i]t is sufficient if contemplation of death be the inducing cause of the transfer whether or not death is believed to be near." Id. at 119, 51 S.Ct. 446.
This reasoning is applicable here, albeit not for the purposes noted by Defendant. Just as the phrase "in contemplation of death" was not capable of precise delineation, so with the phrase "in contemplation of filing for bankruptcy. As in Wells, the interpretation set forth by Defendant — i.e., that "a debt incurred in contemplation of bankruptcy is a debt incurred solely because the client is filing for bankruptcy (i.e., a debt incurred to `game' or `abuse' the system)" — is too narrow. (Def.'s Mem. Supp. 4.) The fact that Defendant found it necessary to add "i.e., a debt incurred to `game' or `abuse' the system" to its definition supports the Court's conclusion that the language in the statute should not be read so narrowly. Congress did not qualify or narrow the phrase as Defendant does, but chose the broad language "in contemplation of such person filing a case under this title." Under this language, it is sufficient if "contemplation of filing for bankruptcy is simply the inducing cause of the transfer, regardless of whether it is the only cause or whether the debt is incurred for a fraudulent purpose.
Notwithstanding Defendant's argument to the contrary, this Court finds that § 526(a)(4) encompasses and thereby prohibits attorneys from advising their clients to take various lawful, financially prudent actions prior to filing for bankruptcy. For example, it might be finally prudent for a debtor considering bankruptcy to (1) obtain a mortgage or refinance a mortgage at a lower rate in order to reduce payments, pay off various other debts or obtain a lower interest rate prior to entering bankruptcy, (2) take on secured debt, such as an automobile...
To continue reading
Request your trial-
Connecticut Bar Ass'n v. U.S.
...(4) take out a loan to convert a non-exempt asset to an exempt asset, or (5) co-sign undischargeable student loans." Zelotes v. Adams, 363 B.R. 660, 665 (D.Conn.2007), citing Hersh, 347 B.R. at 24; Olsen, 350 B.R. at 916; Milavetz, Gallop, & Milavetz P.A v. United States, 355 B.R. 758, 764 ......
-
Hersh v. U.S. ex rel. Mukasey
...addressed the constitutionality of § 526(a)(4) have also determined that the statute violates the First Amendment. See Zelotes v. Adams, 363 B.R. 660, 667 (D.Conn.2007) ("Because § 526(a)(4) is not sufficiently `narrowly tailored to achieve the desired objective,' it is unconstitutional as ......
- In re Peirce
-
In re Irons
...to the constitutionality of certain matters not relevant here, assumed that debtor's counsel was a Debt Relief Agency. Zelotes v. Adams, 363 B.R. 660 (D.Conn.2007). However, a District Court in Minnesota has ruled that the Debt Relief Agency provisions of the Bankruptcy Code are unconstitut......
-
Megan A. Taylor, Gag Me With a Rule of Ethics: Bapcpa's Gag Rule and the Debtor Attorney's Right to Free Speech
...758 (D. Minn. 2007); Olsen v. Gonzales, 350 B.R. 906 (D. Or. 2006); In re Reyes, 361 B.R. 276 (Bankr. S.D. Fla. 2007); Zelotes v. Adams, 363 B.R. 660 (D. Conn. 2007). Four courts have already held that the Gag Rule is unconstitutional. See Hersh, 347 B.R. at 28 (finding the Gag Rule in viol......
-
The Eighth Circuit loosens the grip of the bankruptcy gag rule, but holds attorneys to advertising disclosure requirement: Milavetz, Gallop & Milavetz, P.A. v. United States.
...(4) take out a loan to convert a non-exempt asset into an exempt asset, or (5) co-sign undischargeable student loans. Zelotes v. Adams, 363 B.R. 660, 665 (D. Conn. (66.) See, e.g., Hersh v. United States, 347 B.R. 19 (N.D. Tex. 2006); Olsen v. Gonzales, 350 B.R. 906 (D. Or. 2006); Zelotes v......
-
Milavetz, Gallop & Milavetz, P.a. v. United States: "in Contemplation Of" the Meaning, Applicability, and Validity of Attorney Restrictions in the Bapcpa - Joseph D. Orenstein
...the debtor to continue to get to work and make payments."). 60. Id. 61. 352 B.R. 17 (D. Conn. 2006). 62. Id. at 24-25. 63. Id. at 24. 64. 363 B.R. 660, 666 (D. Conn. 2007). 65. Id. at 664. The Government supported its argument with the Supreme Court's interpretation in United States v. Well......