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Lamar, Archer & Cofrin, LLP v. Appling

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Supreme Court of the United States
Lamar, Archer & Cofrin, LLP v. Appling
Term: 2017
Important Dates
Argument: April 17, 2018
Decided: June 4, 2018
Outcome
Eleventh Circuit affirmed
Vote
9 - 0 to affirm
Majority
Chief Justice John G. Roberts • Anthony Kennedy • Clarence Thomas • Ruth Bader Ginsburg • Stephen Breyer • Samuel Alito • Sonia Sotomayor • Elena Kagan • Neil Gorsuch


Lamar, Archer & Cofrin, LLP v. Appling is a case argued during the October 2017 term of the U.S. Supreme Court. Argument in the case was held on April 17, 2018. The case came on a writ of certiorari to the United States Court of Appeals for the 11th Circuit.

HIGHLIGHTS
  • The case: A debtor filed for bankruptcy and sought to discharge his debt to a law firm. The law firm argued that the debt was nondischargeable because the debtor had obtained the debt through a false statement about one of his assets. The debtor argued that his statement fell within an exception that allowed for discharge of a fraudulently obtained debt if the fraudulent statement at issue was a statement respecting the debtor's financial condition. The United States Court of Appeals for the 11th Circuit ruled in the debtor's favor.
  • The issue: "Whether a statement concerning a specific asset can be a 'statement respecting the debtor's ... financial condition' within Section 523(a)(2)."[1][2]
  • The outcome: The Supreme Court affirmed the ruling of the Eleventh Circuit.[3]


    • You can review the lower court's opinion here.[4]

    Background

    Legal question

    This was a case about provisions of the Bankruptcy Code that govern whether a debt is dischargeable in bankruptcy. A debt is dischargeable if it can be wiped away through bankruptcy. A debt is nondischargeable if it cannot be wiped away through bankruptcy--in other words, if you will still owe the debt despite filing for bankruptcy. The Bankruptcy Code is the set of laws governing bankruptcy in the United States.

    Section 523(a)(2) of the Bankruptcy Code provides that debts are nondischargeable if they are incurred through "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition." In other words, debts obtained by the debtor through false statements are generally nondischargeable, but if the false statement at issue was a "statement respecting the debtor's financial condition," then the debt is dischargeable.[4]

    Separately, the section also provides that debts are nondischargeable if they are incurred through a false written statement respecting the debtor's financial condition. False verbal statements respecting the debtor's financial condition result in dischargeable debts; false written statements respecting the debtor's financial condition result in nondischargeable debts.[4]

    The issue in this case was the meaning of a "statement respecting the debtor's financial condition." The question was whether a statement about a single asset, rather than the debtor's broader financial condition, qualifies under the statute to render a debt dischargeable.[4]

    Case background

    R. Scott Appling retained Lamar, Archer & Cofrin, LLP (Lamar) to represent him in a lawsuit. He did not pay Lamar's fees on time, leaving an outstanding bill of more than $60,000. When Lamar asked for payment, Appling said that he was anticipating a tax refund of $100,000 that he would use to cover the outstanding fees and any new fees. Lamar agreed not to seek immediate payment and to wait for the tax refund. However, unbeknownst to Lamar, Appling and his wife requested a refund of approximately $60,000 and received a refund of approximately $59,000. Appling did not use any of the tax refund to pay Lamar.[4]

    Lamar eventually filed a lawsuit against Appling, seeking payment of Appling's outstanding fees. Appling then filed for bankruptcy. Lamar filed an adversary proceeding in the bankruptcy court, seeking payment of the outstanding fees. Lamar argued that the firm had relied on Appling's false statement about his tax refund and that therefore the debt should not be dischargeable under section 523(a)(2). Appling argued that his tax refund claim was a statement respecting his financial condition and that therefore his debt to Lamar should be discharged.[4]

    The bankruptcy court and district court both agreed with Lamar, ruling that Appling's debt to Lamar could not be discharged. They concluded that Appling's statement about his tax refund did not qualify as a statement respecting his financial condition. Appling appealed to the United States Court of Appeals for the 11th Circuit.[4]

    Panel opinion

    On appeal, the United States Court of Appeals for the 11th Circuit reversed the lower courts, holding that Appling's debt to Lamar was dischargeable. The court ruled that Appling's statement to Lamar about his tax refund constituted a statement respecting his financial condition under the statute. The court first clarified the framework of the case:

    “ We must determine whether Appling’s statements about a single asset are 'statement[s] respecting [his] . . . financial condition.' The bankruptcy court found that Appling made false oral statements about his anticipated tax refund to receive an extension of credit from Lamar. If these statements do not respect his financial condition, Appling can discharge his debt to Lamar in bankruptcy only if he disproves an element of fraud. But if the statements do respect his financial condition, Appling can discharge his debt to Lamar because the statements were not in writing.[4][5] ”


    The court turned to whether Appling's statement about a single asset constituted a statement respecting his financial condition. The court first concluded that "'financial condition' likely refers to the sum of all assets and liabilities." However, the court continued:

    “ But even if 'financial condition' means the sum of all assets and liabilities, it does not follow that the phrase 'statement respecting the debtor’s . . . financial condition' covers only statements that encompass the entirety of a debtor’s financial condition at once. Read in context, the phrase 'statement respecting the debtor’s . . . financial condition' includes a statement about a single asset. We must not read the word 'respecting' out of the statute... [D]ocuments can 'relate to' or 'concern' someone’s health without describing their entire medical history. Articles can 'reference' the Constitution without quoting its entire text. Likewise, a statement can 'respect' a debtor’s 'financial condition' without describing the overall financial situation of the debtor.[4][5] ”


    The court ruled, "Because the text is not ambiguous, we hold that 'statement[s] respecting the debtor’s . . . financial condition' may include a statement about a single asset." Therefore, "Because Appling’s statements about his tax refund 'respect[] [his] . . . financial condition' and were not in writing, his debt to Lamar can be discharged in bankruptcy.[4]

    Judge Robin Rosenbaum concurred in the court's judgment and wrote separately. She wrote that although the court's ruling might appear "to frustrate a 'primary purpose' of the Bankruptcy Act to provide relief to only the 'honest debtor,'" she believed the court's ruling better promoted Congress' intent. Rosenbaum noted another place in the statute that used the same language ("statement respecting his financial condition") and wrote that the court's interpretation of the phrase gave both clauses the best effect. Rosenbaum would have ruled that the language of the statutory was ambiguous but that congressional intent weighed in favor of the broader reading the court adopted.[4]

    Petitioner's challenge

    The petitioner challenged the holding of the United States Court of Appeals for the 11th Circuit.

    Certiorari granted

    On October 6, 2017, the petitioner initiated proceedings in the Supreme Court of the United States in filing a petition for a writ of certiorari to the United States Court of Appeals for the 11th Circuit. The U.S. Supreme Court granted the petitioner's request for certiorari on January 12, 2017. Argument in the case was held on April 17, 2018.[1]

    Question presented

    Question presented:

    "The Bankruptcy Code prohibits the discharge of 'any debt ... for money, property, [or] services ... to the extent obtained by ... false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's ... financial condition.' 11 U.S.C. § 523(a)(2). Three Circuits have held that a statement concerning a specific asset of the debtor cannot be a 'statement respecting the debtor's ... financial condition.' Two Circuits, including the Eleventh Circuit below, have held that it can be. Based on that interpretation, the Eleventh Circuit here reversed the bankruptcy court's conclusion that the debt at issue 'is nondischargeable,' even though it is based on a fraudulent statement.

    The question presented is whether (and, if so, when) a statement concerning a specific asset can be a "statement respecting the debtor's ... financial condition” within Section 523(a)(2)."[1]

    Audio

    • Audio of oral argument:[6]



    Transcript

    • Transcript of oral argument:[7]

    Outcome

    Decision

    In a unanimous decision, the Supreme Court affirmed the Eleventh Circuit's ruling that a statement about a single asset can be a statement respecting the debtor's financial condition.[3]

    Opinion of the court

    Justice Sonia Sotomayor wrote the opinion of the court, which was joined in full by Chief Justice John Roberts, Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, and Elena Kagan, and joined as to all but one part by Justices Clarence Thomas, Samuel Alito, and Neil Gorsuch,[3]

    Sotomayor ruled, "The statutory language makes plain that a statement about a single asset can be a 'statement respecting the debtor’s financial condition.' If that statement is not in writing, then, the associated debt may be discharged, even if the statement was false." Sotomayor discussed the ordinary meaning of the term "respecting" and noted that the court had previously read similar language expansively, not narrowly. She continued, "Use of the word 'respecting' in a legal context generally has a broadening effect, ensuring that the scope of a provision covers not only its subject but also matters relating to that subject." Moreover, she wrote, if Congress had intended the statute "to encompass only statements expressing the balance of a debtor's assets and liabilities," it could have used specific language. But, she concluded, "Congress did not use such narrow language." Based on that reasoning, she ruled, 'a statement about a single asset can be a 'statement respecting the debtor’s financial condition' under §523(a)(2) of the Bankruptcy Code."[3]

    In the section not joined by Thomas, Alito, and Gorsuch, Sotomayor addressed one of Lamar's arguments by reviewing the legislative history of the statute. She concluded that the legislative history did not support Lamar's position.[3]

    Text of the opinion

    See also

    Footnotes

    1. ↑ 1.0 1.1 1.2 Supreme Court of the United States, Lamar, Archer & Cofrin, LLP v. Appling Question Presented, January 12, 2018
    2. ↑ Parenthetical omitted.
    3. ↑ 3.0 3.1 3.2 3.3 3.4 United States Supreme Court, "Lamar, Archer & Cofrin, LLP v. Appling opinion," June 4, 2018
    4. ↑ 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 United States Court of Appeals for the 11th Circuit, Lamar, Archer & Cofrin, LLP v. Appling Opinion, February 15, 2017
    5. ↑ 5.0 5.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    6. ↑ Supreme Court of the United States, Lamar, Archer & Cofrin, LLP v. Appling, argued April 17, 2018
    7. ↑ Supreme Court of the United States, Lamar, Archer & Cofrin, LLP v. Appling, argued April 17, 2018
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