In a constitutional challenge involving a Minnesota law firm, the U.S. Supreme Court on Tuesday seemed troubled by a federal restriction on legal advice to potential bankruptcy clients, but less concerned about the requirement that lawyers advertise as a "debt relief agency" if they give bankruptcy advice.
The justices heard arguments in Milavetz, Gallop & Milavetz v. U.S., one of three bankruptcy cases on the Court's docket this term.
Milavetz, a general-practice law firm in Edina, Minn., is challenging several provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The firm contends that, if those provisions are applied to lawyers, they would violate the First Amendment, put lawyers in conflict with state ethics regulations and compel lawyers to make misleading disclosures in their advertising.
Milavetz's high court counsel, G. Eric Brunstad of Dechert's Hartford, Conn., office, told the justices that a provision barring debt relief agencies from advising certain persons to "incur more debt in contemplation" of filing for bankruptcy "whipsaws" lawyers trying to apply it.
"This provision requires truncated advice," he said, adding that the practical effect is to make it impossible for lawyers to comply with their ethical obligation to truthfully advise a client.
The provision also has a chilling effect on lawyers, Brunstad said, noting that penalties for violating the provision are serious and have driven "conscientious bankruptcy lawyers" from this practice area.
Assistant to the Solicitor General William Jay countered that the restriction on advice is limited to advice intended to abuse the bankruptcy system. But he quickly ran into a fast series of questions and hypotheticals from a skeptical Chief Justice John Roberts Jr.
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