Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: Kesha Tanabe, Tanabe Law
Supreme_Court____Lamar__Archer___Cofrin__LLP_v__Appling.pdf
In Lamar, Archer & Coffrin, LLP v. Appling, the Supreme Court held that a debtor’s statement about a single asset can be a “statement respecting the debtor’s financial condition” under § 523(a)(2). When the “fraud” at issue is effectuated by such a statement, however, the Appling court noted that the statute “plainly heightens the bar to discharge” because the creditor must also satisfy the requirements of § 523(a)(2)(B), notably requires that such statement be made in writing. In the Appling case, the court held that the debtor had made a statement respecting his financial condition, but in the absence of a writing, the court declined to except the debt from discharge.
The debtor in Appling was a law firm client. Debtor and the law firm met in person to discuss his outstanding legal fees and whether they would continue to represent him in a civil lawsuit. In that context, debtor told his lawyer that he would soon receive a tax refund for $100,000 and the refund would be sufficient to pay his outstanding legal fees as well as all future legal fees. At the time debtor made the statement, however, he had already received the tax refund for a lesser amount and spent the entire amount on other business expenses. The law firm eventually sued and obtained a judgment against the debtor.
Debtor filed a chapter 7 bankruptcy case and shortly after, the law firm commenced an adversary proceeding, objecting to discharge. After trial, the bankruptcy court excepted the debt from discharge and found that debtor had knowingly made two false representations upon which the law firm reasonably relied, causing the law firm to be damaged in the amount of its unpaid fees. The district court affirmed, but the 11th Circuit reversed. The Appling Court affirmed the 11th circuit, holding that the debtor’s statement about his tax refund was a “statement respecting his financial condition,” notwithstanding the fact that it was only one asset, and therefore, under § 532(a)(2)(B), the statement had to be made in writing for his debt to the law firm to be excepted from discharge.