Supreme Court Finds Attorneys are “Debt Relief Agencies” and Upholds Constitutionality of Disclosure Requirements.

The Supreme Court, in a unanimous opinion written by Justice Sotomayor, upheld the constitutionality of sections 526 and 528 of the BAPCPA. In Milavetz v. United States, 559 U.S. ____ (2010), the Court addressed three issues: 1) whether attorneys are “debt relief agencies,” 2) the appropriate scope of section 526(a)(4) which prohibits a debt relief agency from advising a debtor to incur more debt in contemplation of bankruptcy, and 3) whether the disclosure requirements of section 528 are unconstitutional as applied to attorneys.

After finding that the plain language of the BAPCPA mandates a finding that attorneys are “Debt Relief Agencies” the Court turned to the scope of section 526(a)(4), finding that the prohibition against advising a client to incur more debt was limited to “advice to ‘load up’ on debt with the expectation of obtaining its discharge—i.e, conduct that is abusive per se.” The Court did not interpret the provision to prohibit frank discussion between client and attorney about incurring debt. With respect to the disclosure requirement of section 528, the Court, applying a “reasonably related” standard of scrutiny, found that the requirements were reasonably related to the State’s interest in preventing deception of consumers.

Justices Scalia and Thomas each wrote separate opinions concurring in part and concurring in judgment.

Justice Scalia wrote to protest the allusion in the majority opinion to the congressional record which he found unhelpful and disingenuous.

Justice Thomas expressed the opinion that that as in other First Amendment contexts, there is no significant distinction between required disclosures and prohibited speech and that a lower standard of scrutiny should not be applied to disclosure requirements. Thomas interpreted the majority’s opinion to say that restrictions on commercial speech were permissible “only where the particular advertising is inherently likely to deceive or where the record indicates that a particular form or method of advertising has in fact been deceptive.” He agreed that where there is a facial challenge to a disclosure requirement, as in the case before the Court, it should be upheld if “there is any conceivable manner in which it can be enforced consistent with the First Amendment.”