Bankruptcy Law - Fifth Circuit Applies Doctrine of Constitutional Avoidance to Uphold Attorney Speech Restrictions in Bankruptcy Code

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BANKRUPTCY LAW--FIFTH CIRCUIT APPLIES DOCTRINE OF CONSTITUTIONAL AVOIDANCE TO UPHOLD ATTORNEY SPEECH RESTRICTIONS IN BANKRUPTCY CODE.--Hersh v. United States ex rel. Mukasey, 553 F.3d 743 (5th Cir. 2008).

Judges construe laws in order to discern the intent of the lawmakers, or so the saying goes. (1) It is from this notion that the doctrine of constitutional avoidance first emerged. (2) Premised on the assumption that lawmakers intend to steer their laws clear of constitutional defects, avoidance aided judges in choosing between two plausible interpretations of an ambiguous statute. But as scholars and courts grew less concerned with legislative intent and more concerned with the vindication of exogenous values, the doctrine was transformed. Where it once applied only in cases of ambiguity, it is now occasionally misapplied in cases where there is no serious doubt as to the statute's meaning. (3) In these latter cases, judges simply rewrite unconstitutional legislation to make it constitutional. Enter Section 526(a)(4) of the Bankruptcy Code. (4)

In its 2005 amendments to the Bankruptcy Code (BAPCPA (5)), Congress enacted Section 526(a)(4), which prohibits a debt relief agency from advising a debtor "to incur more debt in contemplation of" bankruptcy. (6) Since its enactment, five federal district courts and one federal appellate court have held the provision unconstitutional. (7) Recently, in Hersh v. United States ex rel. Mukasey, (8) the Fifth Circuit split from this trend by holding that the doctrine of constitutional avoidance should be applied to Section 526(a)(4). (9) In its decision, the court overlooked key statutory precedents and, as a result, failed to recognize that the statutory text is unambiguous. By applying avoidance to an unambiguous text, the court misapplied the doctrine and engaged in judicial legislation.

Soon after BAPCPA became effective, Susan Hersh, a Texas bankruptcy attorney, filed suit against the United States, the U.S. Attorney General, the State of Texas, and the Texas Attorney General. (10) Hersh requested a declaratory judgment that Section 526(a)(4) is unconsti-tutional and further sought an injunction against enforcement of the provision. (11)

The United States District Court for the Northern District of Texas found in Hersh's favor with respect to Section 526(a)(4). (12) The court held that the provision "imposes limitations on speech beyond what is 'narrow and necessary.'" (13) Specifically, the provision prohibits attorneys from advising debtors to incur more debt even when doing so would be prudent and lawful. (14) The court gave several illustrations. (15) For instance, a debtor might refinance a mortgage at a lower rate (incurring more debt overall in exchange for lower monthly payments) to forestall an impending bankruptcy. Alternatively, a debtor might buy a car ahead of bankruptcy to ensure reliable transportation to work, so that he will retain his job and be able to make payments in bankruptcy. In these and similar cases, a debtor might incur additional secured debt that will not be discharged in bankruptcy. Such incursions of debt are not abusive, (16) yet Section 526(a)(4) still prohibits attorney advice in favor of them. The court thus issued a declaratory judgment that Section 526(a)(4) violates the First Amendment and permanently enjoined the "United States, its agents, and all people acting in active concert with it" from enforcing the provision. (17)

The Fifth Circuit reversed in relevant part. (18) Writing for the panel, Judge Garwood (19) identified the phrase "in contemplation of" as the key phrase defining the scope of speech prohibited by the statute. (20) He conceded that, "if interpreted literally," the provision would create "a blanket restriction on attorneys" and "prohibit some attorney advice that would not be abusive to the bankruptcy system"; thus the provision "would raise serious constitutional problems because . …