Do compelled advertising disclosures in new bankruptcy law violate the First Amendment?

A few years ago, Congress passed a comprehensive new law to make it more difficult for people to file Chapter 7 (personal bankruptcy) called the Bankruptcy Reform Act of 2005. Some provisions in the law directly regulate or mandate speech by attorneys. One provision requires bankruptcy attorneys to state in their advertisements: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” The statement was designed to prevent "deceitful or unclear" advertising, the law said.

Some attorneys contend that this forced advertising disclaimer or disclosure amounts to compelled speech in violation of the First Amendment. Under First Amendment jurisprudence, the government cannot force individuals to engage in expression, just as it cannot punish persons for their expression. In other words, under the compelled-speech doctrine, the First Amendment protects the right not to speak.

However, government officials argue that disclaimers or disclosures such as this restrict far less speech than do complete bans on speech. They contend that it is much less onerous to require a speaker to provide more information to the public than it is to prohibit speech. In Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio (1985), the U.S. Supreme Court wrote that “an advertiser’s rights are adequately protected as long as disclosure requirements are reasonably related to the State’s interest in preventing deception of consumers.” The Court added that disclaimers might be required “in order to dissipate the possibility of consumer confusion or deception.”

Lower courts are divided on the constitutionality of the advertising provision in the Bankruptcy Reform Act. In Milavetz v. United States, the 8th U.S. Circuit Court of Appeals ruled that the provision did not violate the First Amendment. The appeals court reasoned that “the disclosure requirements are reasonably and rationally related to the government’s interest in preventing the deception of consumer debtors.”

However, a federal district court in Connecticut reached the opposite conclusion in Connecticut Bar Association v. United States (D. Ct. 2008). That court found that the disclosure requirement would apply to many attorneys who are not helping a client file for bankruptcy. The court concluded that the forced disclaimer “is only a truly accurate factual disclosure in a limited number of situations … and in many other situations, it is in fact a false statement.”

The split in the lower courts over this provision indicates their confusion over the constitutionality of compelled disclaimers in the commercial-speech context. Several years ago Justice Clarence Thomas urged the Court to resolve the question in a case involving a disclaimer in a dental-advertising case, Borgner v. Florida Board of Dentistry (2002). Thomas wrote that “the lower courts need guidance on the permissibility and scope of state-mandated disclaimers.”

The recent split over the bankruptcy-law provision shows that Thomas’ statement still rings true.

Posted November 2008