Statement Of Carolyn B. Lamm, President, _ Re: Milavetz Ruling By The Supreme Court
WASHINGTON, D.C., March 11, 2010 — The Supreme Court of the United States recognized the importance of lawyers having “full and frank” discussions with their clients, and provided helpful guidance to consumer bankruptcy lawyers, when it ruled Monday in Milavetz, Gallop and Milavetz v. United States. The court held that the “debt relief agency” provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 apply to lawyers providing bankruptcy assistance to consumer debtors. Still, the court read certain aspects of those provisions very narrowly, preserving the ability of lawyers to talk freely with their clients about the incurrence of debt in contemplation of filing for bankruptcy.
We believe the court took seriously the _’s warnings in its amicus brief about the dangers involved in undermining the confidential attorney-client relationship. The court went to great pains to point out several times that the decision allows lawyers to speak candidly with their clients about the incurrence of debt, and that the law only prohibits professionals from improperly instructing or encouraging clients to load up on debt in bad faith prior to filing bankruptcy. Significantly, the court cited ABA Model Rule of Professional Conduct 1.2(d), which bars an attorney from counseling a client to engage in criminal or fraudulent conduct, as instructive with respect to the limits of permitted advice.
Further, the court clarified that the debt relief agency provisions in BAPCPA do not apply to lawyers who represent creditors. This ruling eliminates a concern that had been raised about the advertising mandates in the statute requiring the inclusion of certain statements about being a “debt relief agency.”
By specifically listing many examples of permitted attorney advice, the court has provided helpful guidance for consumer bankruptcy lawyers. It remains to be seen, however, whether the court’s standard — “contemplation of bankruptcy” as the “impelling reason” or principal motivation for advice to incur debt — is sufficiently clear to avoid further problems.
The law considered by the court in Milavetz specifically applies to persons who are ‘providing legal representation’ in connection with a bankruptcy proceeding, whereas the Red Flags Rule stemming from the Fair and Accurate Credit Transactions Act does not mention legal representation. According to the FTC, the Red Flags Rule applies to everyone who bills for his or her services at the end of the month. In seeking to apply the rule to lawyers, the FTC has stretched the concept of ‘creditor’ beyond its natural bounds, and completely ignored the important ethical obligations of attorneys to their clients.
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