by Thomas F. Lovecchio
The Supreme Court heard arguments on April 17th, 2018 in Lamar, Archer & Cofrin, LLP v. Appling. This case involves a circuit split regarding the Bankruptcy Code. Mr. Appling hired Lamar, Archer & Cofrin “Lamar” to represent him against the former owners of his business. Lamar, Archer & Cofrin, LLP v. Appling, Oyez, https://www.oyez.org/cases/2017/16-1215 (last visited Apr 18, 2018). Mr. Appling had some substantial legal fees and he told Lamar that once he received his tax return, which he was expecting to be a decent amount, he would be able to pay Lamar. Id. Based on this Lamar continued representing Mr. Appling. Id. Mr. Appling’s tax refund was less than what he was expecting and told Lamar this but did not pay Lamar and instead put the money into his business. Id. “Lamar obtained a judgment against Appling and Appling subsequently filed for bankruptcy.” Id. When “Lamar initiated an adversary proceeding to collect the debt, and the bankruptcy court ruled that the amount was not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) because Lamar had justifiably relied upon Appling’s fraudulent statements. The district court affirmed.” Id.
On appeal the 11th Circuit reversed and remanded. Id. The 11th Circuit cited a split in the Circuit Court of appeals with how it construes 11 U.S.C. § 523(a)(2)(A). Id. The issue for the Supreme Court 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) of the Bankruptcy Code. Lamar, Archer & Cofrin, LLP v. Appling, SCOTUS blog, https://www.oyez.org/cases/2017/16-1215 (last visited Apr 18, 2018).
Lamar argues that a statement concerning a specific asset are not be a “statement respecting the debtor’s … financial condition within Section 523(a)(2) of the Bankruptcy Code. Lamar’s argument follows along with the 5th, 8th, and 10th Circuits. Danielle D’Onfro, Argument preview: Court to decide whether Bankruptcy Code protects dishonest debtors (April 10, 2018 2:01 PM), http://www.scotusblog.com/2018/04/argument-preview-court-to-decide-whether-bankruptcy-code-protects-dishonest-debtors/. Based off of this argument, Appling’s statements would be the exception to the exception and not be discharged under the Bankruptcy code. Id. Appling argues that his statements were based off of his overall financial condition, thus it would meet the exception in the Bankruptcy Code. Id.
Two key points of this case are how the Court is going to construe statement and financial condition. Statement could be narrowly construed to mean financial statements and financial documents or it could be expanded to include any statement, such as something a person says.
Next is financial condition. The statements made by Appling were about his financial condition but were ultimately about his tax return and as Lamar argues, a specific asset. I would find in favor of Lamar because Appling’s a statement about a specific asset is not about the debtor’s financial decision. First, a statement about a specific asset would only pertain to that asset. Even if it could be reasoned that one asset is indicative about a debtor’s financial condition that would require a search into the debtor’s assets as to how many assets he has. Second, while cash is often the first asset listed on a balance sheet, at the time of the statement the debtor did not have the cash he was speaking about. Since the debtor would be unable to list the tax refund as cash at the time he made the statement it should not be considered a statement about a specific asset.