A Law That Penalized Attorneys Is Unconstitutional, Court Finds

A Law That Penalized Attorneys Is Unconstitutional, Court Finds

Good news for lawyers who faced disciplinary action: A legislative enactment that criminalized paid representation of debtors in actions to negotiate resolutions or reductions of debts has been ruled unconstitutional.

Litigation
Charles Toutant
By Charles Toutant

What You Need to Know
Appellate Division rules that a provision of New Jersey’s Debt Adjustment and Credit Counseling Act that exempts certain attorneys from the act’s provisions is unconstitutional.
A 1986 revision to the statute, which exempts from prosecution any lawyer who is “principally engaged” as a debt adjuster, is found to be too vague.
At least two attorneys are facing disciplinary proceedings for representation of clients that allegedly violated DACCA.
A lawyer who was facing discipline for representing a debtor has been cleared after a court said New Jersey’s Debt Adjustment and Credit Counseling Act, or DACCA, violates separation-of-powers principles.

And that’s good news for other attorneys in the practice area.

Andrew M. Carroll and his firm, Anchor Law Firm of Hammonton, were under investigation by the Office of Attorney Ethics for alleged violations of DACCA, which bars credit adjusters from operating for a profit.

A predecessor to DACCA included an exception for any attorney, but in 1986 the legislature narrowed the exemption to apply to attorneys who are “principally engaged” as debt adjusters.

The statute does not define the term “principally engaged.”

NJ Appellate Division Judge Jack Sabatino. Courtesy photo
Carroll represents debtors in bankruptcy and collection cases and who seeks to have his clients debts reduced or adjusted through negotiation and litigation. He sued the state for a delaratory judgment that DACCA, as enforced against attorneys deemed principally engaged in debt adjustment, is unconstitutional.

Mercer County Superior Court Judge Douglas Hurd granted the state’s motion to dismiss the suit in July 2023.

But at the Appellate Division, Judge Jack Sabatino, joined by Judge Katie Gummer and Judge Adam Jacobs, reversed the court below, saying in a published decision that the limited attorney exemption in DACCA is invalid because it violates principles of separation of powers and is void for vagueness.

Sabatino, writing for the panel, said the statute represents an undue encroachment on the Supreme Court’s exclusive authority to regulate attorneys.

“DACCA’s focus on attorneys who principally engage in debt-adjustment legal services has the untoward capacity to penalize lawyers who have developed expertise and a specialty in the field that has become their main area of practice, while at the same time affording an exemption to lawyers who practice that kind of law only occasionally,” Sabatino wrote. “We must remember that the Judiciary’s regulation of the practice of law is largely aimed at serving the public interest. By singling out and penalizing debt-adjustment lawyers who specialize in the field and devote most of their legal practice to it, DACCA’s limited exemption arguably may disserve the public rather than serve it.”

Brian Molloy of Wilentz, Goldman & Spitzer (Photo: Courtesy Photo)
The court stayed the investigation into Carroll and his firm, pending the appeal.

But the Appellate Division sent the case back to the trial court for consideration of a fee application under the Federal Civil Rights Act, said Brian Molloy of Wilentz, Goldman & Spitzer in Woodbridge, who represented Carroll and his firm.

“I think the appellate division has appropriately drawn a line on the separation of powers, and told the legislature, stay in your lane. You can’t regulate the practice of law,” Molloy said. As for other lawyers who represent debtors, “they can concentrate in the area without threat of criminal prosecution, just like the old days,” he said.

Molloy said he also represents another client who was accused by the Office of Attorney Ethics of violating DACCA by representing debtors. That complaint was dismissed, subject to review by the Disciplinary Review Board.

The New Jersey State Bar Association submitted an amicus curiae brief in the Carroll case, supporting the arguments that the attorney exemption in DACCA impermissibly infringes on the Supreme Court’s exclusive authority to regulate the practice of law and is unconstitutional as applied to New Jersey attorneys.

The Attorney General defended the constitutionality of DACCA, asserting that its provisions governing attorneys is presumptively valid, does not violate the separation of powers, is not overly broad or vague, does not apply the plaintiff’s First Amendment Rights or civil rights.

The Attorney General’s Office declined to comment on the ruling.