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Applying the "doctrine of constitutional avoidance," the Fifth Circuit "construes the statute to prevent only a debt relief agency's advice to a debtor to incur debt in contemplation of bankruptcy when doing so would be an abuse of the bankruptcy system[,]" basing its conclusion on numerous portions of BAPCPA that discourage bankruptcy abuse, including expanded case dismissal and means testing provisions; "placement of section 526(a)(4) among three provisions meant to curb abuse of the bankruptcy system by debt relief agencies likewise suggests that the statute was only intended to curb abuse." By reversing the district court's holding that § 526(a)(4) was facially unconstitutional, the panel also dissolved the injunction against enforcement. Finally, § 526(b) does not violate the bankruptcy attorney's "First Amendment rights because it does not unduly burden her or her clients, and is narrowly tailored to promote the government's compelling interest in ensuring that consumer debtors are aware of basic bankruptcy information." Hersh v. United States, 553 F.3d 743 (5th Cir. 2008).
Supreme Court grants certiorari on §526(a)(4) prohibition against advising new debt. Certiorari has been granted on the issue whether §526(a)(4) is unconstitutional, as held by the Eighth Circuit, in its prohibition against debtors' attorneys advising their clients to incur new debt. Milavetz, Gallop & Milavetz, P.A. v. United States, 2009 WL 602029 (U.S. June 8, 2009).
Stay violation attorney fee damages limited under American Rule. In a Chapter 11 case, the Ninth Circuit held that § 362(k)(1) was intended by Congress "to permit recovery of damages of fees incurred to prevent violation of the automatic stay. In permitting recovery of these fees as damages, § 362(k)(1) is consistent with the American RuleŠ.What is less clear is whether Congress intended to deviate from the American Rule by allowing recovery as damages of the fees incurred in the bankruptcy court action for damages resulting from violation of the automatic stay." Looking to § 362(k)(1)'s term "actual damages," the court then held that the statute limited recovery for the "injury resulting from the stay violation itself. Once the violation has ended, any fees the debtor incurs after that point in pursuit of a damages award would not be to compensate for the 'actual damages' under § 362(k)(1). Under the American Rule, a plaintiff cannot ordinarily recover attorney fees spent to correct a legal injury as part of his damages, even though it could be said he is not made whole as a result." The court pointed out that there may be circuit conflict between its holding and a prior Fifth Circuit opinion, Young v. Repine (In re Repine), 536 F.3d 512, 522 (5th Cir. 2008) (upholding in summary fashion an award of attorney fees incurred in prosecution of the § 362(k) claim). Sternberg v. Johnston, 582 F.3d 1114 (9th Cir. 2009). See also Anderson v. California Franchise Tax Board, 2009 WL 4250700 (Bankr. N.D. Cal. Nov. 23, 2009). In Bertuccio v. California State Contractors License Board, 2009 WL 3380605 (Bankr. N.D. Cal. Oct. 15, 2009) (slip opinion), the court applied Sternberg in a Chapter 13 case involving prior § 362(h), finding the "actual damages"
©2010 Keith M. Lundin
