June 04, 2018

Supreme Court Decides Lamar, Archer & Cofrin, LLP v. Appling

On June 4, 2018, the Supreme Court of the United States decided Lamar, Archer & Cofrin, LLP v. Appling, No. 16-1215, holding that a statement about a single asset can be a “statement respecting the debtor’s financial condition” under section 523(a)(2) of the Bankruptcy Code.

R. Scott Appling fell behind on legal fees that he owed to Lamar, Archer & Cofrin, LLP (Lamar), the law firm Appling hired to represent him in business litigation. Lamar threatened to withdraw its representation and place a lien on its work product if Appling did not pay. Appling told Lamar that Appling could cover the outstanding bills with a tax refund that he expected to receive, and Lamar agreed to continue the representation. Appling, however, used the tax refund on business expenses, and never paid Lamar.

Lamar sued Appling and obtained a judgment. Appling and his wife then filed for Chapter 7 bankruptcy. Lamar instituted an adversary proceeding against Appling in bankruptcy court, arguing that his debt to Lamar was non-dischargeable under 11 U.S.C. § 523(a)(2)(A), which bars discharge of debts arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” Appling moved to dismiss on the ground that his alleged misrepresentations were “statement[s] respecting the debtor’s . . . financial condition,” which the statute requires to be “in writing.” The bankruptcy court denied the motion and concluded that the debt was non-dischargeable. The district court affirmed. The Eleventh Circuit reversed, holding that a “statement respecting the debtor’s financial condition” may include a statement about a single asset—here, the tax refund. Because Appling’s statements to Lamar were statements “respecting . . . the debtor’s financial condition” but were not in writing, they were not barred from discharge by 11 U.S.C. § 523(a)(2)(B).

The Supreme Court affirmed. Giving the word “respecting” its ordinary meaning, the Court reasoned that a statement is “respecting” a debtor’s financial condition if it has a direct relation to or impact on the debtor’s overall financial status. A single asset has a direct relation to and impact on a debtor’s overall financial condition, and therefore, a statement about a single asset can be a “statement . . . respecting the debtor’s financial condition.” The Court also noted that prior to the enactment of the Bankruptcy Code in 1978, Courts of Appeals consistently construed the phrase to include statements about just one or some of a debtor’s assets or liabilities. Congress was presumptively aware of this longstanding judicial interpretation when it enacted the Bankruptcy Code, and by using the same language, intended for the phrase to retain its established meaning.

Justice Sotomayor delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, and Kagan joined, and in which Justice Thomas, Alito, and Gorsuch joined as to all but Part III-B.

Download Opinion of the Court

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