Milavetz, Gallop
& Milavetz, P.A. v.
541 F.3d 785 (8th Cir. 2008)
cert. granted 2009 U.S. LEXIS 4255 (
![]()
Appeal
from the United States District Court for the District of Minnesota. James M.
Rosenbaum,
The
attorneys and law firm were self represented by Alan Scott Milavetz, Chad Schulze, Milavetz
& Gallop,

The
United States was represented by Marcia Kay Sowles,
Senior Counsel, U.S. Department of Justice, Civil Division, Washington, DC; Roylene A. Champeaux, Assistant
U.S. Attorney, U.S. ATTORNEY'S OFFICE, District of Minnesota,
An
amicus brief was filed for the Commercial Law League of America on Behalf of Appellee by DeWitt Brown, William H. Schorling
of Buchanan & Ingersoll,

The Case was
heard by Circuit Judges Kermit Bye,
Lavenski Smith, & Steven Colloton
OPINION
Smith, Circuit Judge.
Milavetz, Gallop & Milavetz,
P.A., a law firm that practices bankruptcy law, the firm's president, a
bankruptcy attorney within the firm, and two clients[1] who sought
bankruptcy advice from the firm brought suit against the United States seeking
a declaratory judgment that certain provisions of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (BAPCPA)—11 U.S.C. §§ 526(a)(4)
and 528(a)(4) and (b)(2)—did not apply to attorneys and law firms and are
unconstitutional as applied to attorneys. The district court granted summary
judgment to the plaintiffs and issued an order declaring that: (1) attorneys in
the District of Minnesota were excluded from the definition of a "debt
relief agency" as defined by BAPCPA; and (2) the challenged provisions were
unconstitutional as applied to attorneys in the District of Minnesota. We
affirm in part and reverse in part.
I. Background
On April 20, 2005, BAPCPA was signed into law,
amending and adding multiple sections of the Bankruptcy Code ("the
Code"). … One BAPCPA amendment added a new term, "debt relief
agency," which is defined in § 101(12A) of the Code. 11 U.S.C. § 101(12A). The amended Code restricts some actions of debt relief
agencies, while requiring them to do others. See 11 U.S.C. § 526
("Restrictions on debt relief agencies"); 11 U.S.C. § 528
("Requirements for debt relief agencies"). For example, § 526(a)(4)
bars a debt relief agency from advising a client "to incur more debt in
contemplation" of a bankruptcy filing, 11 U.S.C. § 526(a)(4), while §§
528(a)(4) and (b)(2) require debt relief agencies to include a disclosure in
their bankruptcy-related advertisements directed to the general public
declaring: "'We are a debt relief agency. We help people file for
bankruptcy relief under the Bankruptcy Code[,]'or a substantially similar
statement." 11 U.S.C. § 528(a)(4), (b)(2). The plaintiffs sought
alternative remedies. First, plaintiffs requested a declaratory judgment that
attorneys did not fall within the definition of "debt relief agency."
If the court determined that attorneys fell within the definition of debt
relief agency, they challenged the constitutionality of §§ 526(a)(4) and
528(a)(4) and (b)(2), as applied to attorneys.
II. Discussion
A. Debt Relief Agencies

Initially, we address whether attorneys fall within
the Code's definition of debt relief agencies. If they do not, we will have no
need to address the constitutionality of §§ 526(a)(4) and 528(a)(4) and (b)(2),
which only 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) (emphasis added).
Further, the Code defines
the term "bankruptcy assistance" to mean: 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.
Additionally, the Code defines the term "assisted
person" as "any person whose debts consist primarily of consumer
debts and the value of whose nonexempt property is less than $164,250."
The plaintiffs argue that attorneys are not "debt
relief agencies" because the definition of debt relief agencies makes no
direct reference to attorneys, even though "attorney" is a defined
term in the Code,[2]
but does include the term "bankruptcy petition preparer" which, by
definition, excludes debtor's attorneys and their staff.[3]
. . . [The court then engages in substantial statutory
construction]
The plain reading of the definition of debt relief
agency, and the defined terms that make up that definition, leads us to conclude
that attorneys who provide "bankruptcy assistance" to "assisted
persons" are unambiguously included in the definition of "debt relief
agencies." See Olsen, 350 B.R. at 912 ("[I]t 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,'" and "[t]hus, further use of the tools of statutory construction is
not necessary"). The statutory language sweeps broadly and clearly covers
the legal services provided by attorneys to debtors in bankruptcy unless
excluded by another provision.
Congress specifically listed five exclusions from the
definition of "debt relief agency," and if it meant to exclude
attorneys from that definition it could have explicitly done so.
Moreover, if attorneys were not included in the
definition of debt relief agencies, Congress would have had no reason to
include § 526(d)(2), which expressly provides that nothing in §§ 526, 527, or
528 (the sections covering debt relief agencies) "shall be deemed to limit
or curtail the authority or ability of a State . . . to determine and enforce
qualifications for the practice of law under the laws of that State; or of a
Federal court to determine and enforce the qualifications for the practice of
law before that court." 11 U.S.C. § 526(d)(2)(A)
and (B). The legislative history provides further indication that attorneys are
included in the definition. See H.R. Rep. No. 109-31, 109th Cong. 1st
Sess. at 4 (April 8, 2005) ("The bill's consumer protections include provisions
strengthening professionalism standards for attorneys and others who
assist consumer debtors with their bankruptcy cases") (emphasis added).[4]

Because attorneys were not specifically excluded from the
definition of debt relief agencies, we hold that attorneys that provide
"bankruptcy assistance" to "assisted persons" are
"debt relief agencies" as that term is defined by the Code.
Interpreting the definition of "debt relief agency" to exclude
bankruptcy attorneys would be contrary to Congress's intent.
B. Constitutionality of § 526(a)(4)
Having concluded that attorneys providing bankruptcy
assistance to assisted persons are debt relief agencies under the Code, we now
must determine whether the challenged provisions placing restrictions and
requirements on debt relief agencies are unconstitutionally overbroad as
applied to these types of attorneys.[5] One of the sections challenged by the
plaintiffs in this case is § 526(a)(4), which states:
(a) A debt relief agency shall not–
. . .
(4) 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).
Plaintiffs assert that the prohibition against
advising an assisted person or prospective assisted person to incur more debt
in contemplation of bankruptcy violates the First Amendment. The parties
disagree as to the level of scrutiny we apply to the constitutional analysis of
this limitation on speech. Plaintiffs claim that we should review the
constitutionality of § 526(a)(4) under the strict scrutiny standard as the
restriction on attorney advice is content-based. See Turner Broad. Sys.,
Inc. v. FCC, 512
In contrast, the government argues that § 526(a)(4)'s
restrictions are a type of ethical regulation, invoking the more lenient
standard outlined in Gentile v. State Bar of

According to the government, § 526(a)(4) should be
interpreted as merely preventing an attorney from advising an assisted person
(or prospective assisted person) to take on more debt in contemplation of
bankruptcy when the incurrence of such debt is done with the intent to
manipulate the bankruptcy system, engage in abusive conduct, or take unfair
advantage of the bankruptcy discharge. However, the plain language of the
statute does not permit this narrow interpretation. Rather, § 526(a)(4) broadly
prohibits a debt relief agency from advising an assisted person (or prospective
assisted person) to incur any additional debt when the assisted person
is contemplating bankruptcy. The statute's blanket prohibition applies even if
the additional debt would not be discharged during the bankruptcy proceedings.
11 U.S.C. § 526(a)(4).

Thus, regardless of whether the government's interest
in prohibiting the speech was legitimate (Gentile standard) or
compelling (strict scrutiny standard), § 526(a)(4) is
unconstitutionally overbroad as applied to attorneys falling within the
definition of debt relief agencies because it is not narrowly tailored, nor
narrowly and necessarily limited, to restrict only that speech that the
government has an interest in restricting. Instead, § 526(a)(4) prohibits
attorneys classified as debt relief agencies from advising any assisted person
to incur any additional debt in contemplation of bankruptcy; this prohibition
would include advice constituting prudent pre-bankruptcy planning that is not
an attempt to circumvent, abuse, or undermine the bankruptcy laws. Section
526(a)(4), as written, prevents attorneys from fulfilling their duty to clients
to give them appropriate and beneficial advice not otherwise prohibited by the
Bankruptcy Code or other applicable law.
There are certain situations where it would likely be
in the assisted person's, and even the creditors', best interest for the
assisted person to incur additional debt in contemplation of bankruptcy.
However, under § 526(a)(4)'s plain language an attorney is prohibited from
providing this beneficial advice—even if the advice could help the assisted
person avoid filing for bankruptcy altogether. For instance, it may be in the
assisted person's best interest to refinance a home mortgage in contemplation
of bankruptcy to lower the mortgage payments. This could free up additional
funds to pay off other debts and avoid the need for filing bankruptcy all
together. Hersh, 347 B.R. at 24. Moreover, it
may be in the client's best interest to incur additional debt to purchase a
reliable automobile before filing for bankruptcy, so that the debtor will have
dependable transportation to travel to and from work, which will likely be
necessary to maintain the debtor's payments in bankruptcy.

Factual scenarios other than these few hypothetical
situations no doubt exist and may further illustrate why incurring additional
debt in contemplation of bankruptcy may not be abusive or harmful to creditors.
Nonetheless, § 526(a)(4), as written, does not allow attorneys falling within
the definition of debt relief agencies to advise assisted persons (or
prospective assisted persons)—i.e. clients (or prospective clients) meeting the
definition of assisted person—to incur such debt. Thus, § 526(a)(4) is not
narrowly tailored nor narrowly and necessarily limited to prevent only that
speech which the government has an interest in restricting.
Therefore, we hold that § 526(a)(4) is substantially
overbroad, and unconstitutional as applied to attorneys who provide bankruptcy
assistance to assisted persons, as those terms are defined in the Code.
[An additional issue, regarding the constitutionality
of the BPA’s requirements that attorneys include certain disclosures in their
advertising was upheld as constitutional.]
III. Conclusion
In sum, attorneys who provide bankruptcy assistance to
assisted persons are debt relief agencies under the Bankruptcy Code, and §
526(a)(4) is unconstitutional as applied to these attorneys, but §§ 528(a)(4)
and (b)(2) are constitutional. Accordingly, we affirm in part and reverse in
part.
COLLOTON, Circuit Judge, concurring in part and
dissenting in part.
…. I disagree … with the court’s holding that 11
U.S.C. § 526(a)(4) is unconstitutionally overbroad in violation of the First
Amendment, and I would therefore reverse the district court’s decision
declaring this statutory provision unconstitutional.
Milavetz, Gallop, & Milavetz,
P.A., mounts a facial attack on §526(a)(4), arguing that the section’s
potential application to attorneys in hypothetical situations requires that the
statute be declared impermissibly overbroad and unconstitutional. This case
involves a facial challenge in the First Amendment context, “under which a law
may be overturned as impermissibly overbroad because a substantial number of
its applications are unconstitutional, judged in relation to the statute’s
plainly legitimate sweep.” Wash. State Grange v.
To resolve the constitutional challenge brought by Milavetz, we must first construe the disputed statute. When
presented with a constitutional challenge to an Act of Congress, we have not
only the power, but the duty, to adopt a narrowing construction that will avoid
constitutional difficulties whenever possible. Boos v. Barry, 485
The challenged provision in this case provides in part
that “[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.” 11 U.S.C. § 526(a)(4). Milavetz
argues that according to this provision, a debt relief agency may not advise a
client to incur any debt for any purpose when the client is
contemplating the filing of a petition for bankruptcy. As such, Milavetz contends that an attorney could be sanctioned for
“fulfilling his duty to his client to give legal and appropriate advice not
otherwise prohibited by the Bankruptcy Code.” (Brief of Appellee
30). Even under Milavetz’s broad construction of the
statute, a facial challenge resting on a “few hypothetical situations,” ante,
at 12, is unlikely to justify invalidating a statute in all of its
applications, because “the mere fact that one can conceive of some
impermissible applications of a statute is not sufficient to render it
susceptible to an overbreadth challenge.” Vincent,
466
It is unnecessary to resolve whether § 526(a)(4) is
impermissibly overbroad when given its broadest reading, however, because the
government suggests an acceptable narrowing construction of the statute that
would avoid most constitutional difficulties. The government contends that “in
contemplation of” filing for bankruptcy is a term of art that denotes an action
taken with the intent to abuse the protections of bankruptcy laws. Under this
view, the statute should be construed to prohibit only advice that a client
engage in conduct for the purpose of manipulating the bankruptcy system.
The text, structure, and legislative history of §
526(a)(4) provide adequate support for a narrowing construction. Particularly
given the latitude of federal courts to narrow a text to avoid constitutional
difficulties, see Boos, 485
The structure of § 526(a)(4) also supports a narrowing
construction. The prohibitions of this statute can be enforced only through the
civil remedies provided in § 526(c). An attorney who violates § 526(a)(4) can
be sanctioned in just three situations: if a debtor sues the attorney for the
available remedies – remittal of fees, actual damages, and reasonable
attorney’s fees and costs; if a state attorney general sues for a resident’s
actual damages; or if a court finds that the attorney intentionally violated §
526(a)(4), and chooses to “impose an appropriate civil penalty.” 11 U.S.C. §
526(c). The remedies for a violation thus emphasize actual damages.
But legal and appropriate advice that would be
protected by the First Amendment, yet prohibited by a broad reading of § 526(a)(4), should cause no damage at all. If an attorney advises
a debtor to refinance his home to lower mortgage payments, or to purchase a
reliable car to enable him to pay off his debts, see ante, at 11-12,
then a debtor following that advice would suffer no damage. There is no reason
to believe that a client could recover the remittal of attorney’s fees or that
a court would find a civil penalty “appropriate” as a remedy for legal advice
that benefits both the debtor and his creditors. Rather, a debtor
is likely to have a remedy against an attorney only in the case of an abusive
bankruptcy petition, where the debtor may suffer damages if the petition is
dismissed as abusive, see 11 U.S.C. § 707(b)(1), and where an attorney
general or a court has reason to seek or impose sanctions against an abusive
debt relief agency. The remedial focus of § 526 thus bolsters the proposition
that § 526(a)(4) was aimed only at advice given by a debt relief agency that is
designed to abuse the bankruptcy process.
The incorporation of an abusive purpose requirement
into §526(a)(4) is also consonant with the evident purpose of the statute. The
government argues, and Milavetz acknowledges, that a
principal goal of Congress in passing the statute was to “preclude debtors from
taking on more debt knowing that it will later be discharged during
bankruptcy.” (Brief of Appellee 34). A narrowing construction of § 526(a)(4) is
in accord with expressions of desire in the legislative history to address
“misconduct by attorneys and other professionals,” and “abusive practices by
consumer debtors who, for example, knowingly load up with credit card purchases
or recklessly obtain cash advances and then file for bankruptcy relief.” H.R.
Rep. No. 109-31, pt.1, at 5, 15 (2005) (internal quotation omitted), as
reprinted in 2005 U.S.C.C.A.N. 88, 92, 101. Milavetz
itself argues that a broad construction of § 526(a)(4) “goes beyond” this
congressional purpose, and is “absurd,” because it would prevent an attorney
from advising a client to take actions that might avoid the need for filing
bankruptcy altogether. (Brief of Appellee 34). Given
our duty to construe an Act of Congress in a manner that eliminates
constitutional doubts, there is no need to adopt a construction that one party
says is absurd, that the other party says was unintended by Congress, and that
sweeps in salutary legal activity that would be a strange target for a statute
entitled the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

For these reasons, I would reverse the district court’s decision declaring unconstitutional the provision codified at 11 U.S.C. § 526(a)(4).

[1] The client-plaintiffs sought prebankruptcy advice regarding the incurrence of additional debt prior to filing bankruptcy. The Bankruptcy Code precludes a debt relief agency from advising an assisted person from incurring additional debt in contemplation of bankruptcy. 11 U.S.C. § 526(a)(4). Thus, these client-plaintiffs are appearing on behalf of themselves and all others similarly situated who desire to exercise their First Amendment rights with attorneys regarding bankruptcy information.
[2] "The term 'attorney' means attorney, professional law association, corporation, or partnership, authorized under applicable law to practice law." 11 U.S.C. § 101(4). This definition makes no reference to "debt relief agencies" or to subsection (12A).
[3] "'[B]ankruptcy petition preparer' means a person, other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing [by the debtor in connection with his bankruptcy case]." 11 U.S.C. § 110(a)(1) (emphasis added); see also id. at § 110(a)(2) (defining "document for filing" as used in § 110(a)(1)).
[4] Additionally, while we recognize that the Supreme Court has stated that "failed legislative proposals are a particularly dangerous ground on which to rest [a statutory interpretation]," Lockhart v. United States, 546 U.S. 142 (2005) (internal quotation marks and brackets omitted), we note that on March 9, 2005, Senator Feingold proposed amendment No. 93 to Congress which would have excluded attorneys from the definition of debt relief agencies, see 151 Cong. Rec. S2306–02, 2316 (daily ed. Mar. 9, 2005) (statement by Sen. Feingold) ("This amendment would exclude lawyers from the provisions dealing with 'debt relief agencies' . . . ."), but the Senate did not address the proposal.
[5]
Even though a more narrowly drawn version of § 526(a)(4) would likely be valid
as applied to the plaintiffs in this case, our analysis applies to all
attorneys falling within the definition of debt relief agencies, not merely the
plaintiff-attorneys. See Members of City Council of City of
[6]
The district court purported to consider only an “as-applied” challenge to §
526(a)(4), rather than an overbreadth challenge, and
ultimately declared the section “unconstitutional as applied to attorneys.” Milavetz, Gallop & Milavetz,
P.A. v. United States, 355 B.R. 758, 766 n.4, 769 (D. Minn. 2006). The
majority correctly recognizes that the district court’s approach is really an overbreadth analysis, and considers the statute under that
framework. See ante, at 9 & n.7, 11, 13 & n.10. The “as applied”
method of analysis, by contrast, considers the statute’s application to a
“particular claimant” based on “harm caused to the litigating party.” Turchick v. United States, 561 F.2d 719, 721
n.3 (8th Cir. 1977). “The ‘as applied’ method vindicates a claimant whose
conduct is within the First Amendment but invalidates the challenged statute only
to the extent of the impermissible application.”