Cadwell v. Kaufman, Englett & Lynd, PLLC

Milavetz invalid-purpose test isn’t applicable to incurring debt to pay a retainer.

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Case Type:
Case Status:
Reversed and Remanded
17-10810 (11th Circuit, Mar 30,2018) Published
An attorney violates 11 U.S.C. 526(a)(4) if the attorney instructs a client to pay bankruptcy-related legal fees using a credit card. After going through several ways that 11 U.S.C. 526(a)(4) may be read, the 11th Circuit found that the correct reading was the one that was proposed by Plaintiff and does not entail a no invalid-purpose requirement. The Court therefore found that the district court erred in concluding that Plaintiff was required to allege that the Firm's advise was given for some additional, invalid purpose.
Procedural context:
The district court granted the Firm's motion to dismiss after finding that Plaintiff failed to state a viable claim under 11 U.S.C. 526(a)(4) because Plaintiff had "alleged no facts that would" support an inference that the Firm acted with an improper purpose or with an intent to manipulate the bankruptcy system. Plaintiff appealed.
Plaintiff engaged Defendant law firm (the "Firm") to represent him in a Chapter 7 bankruptcy case. According to Plaintiff's complaint, the Firm instructed Plaintiff to pay the retainer and all subsequent attorney's fees by credit card. Plaintiff proceeded to pay his attorney's fees using two different credit cards. Plaintiff later terminated his relationship with the Firm and filed this action under 11 U.S.C. 526(a)(4).
Carnes, Newsom, and Siler

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