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Case Summaries
Solicitor General recommends US Supreme Court review in dischargeability case
November 27, 2017
On November 9, responding to a request from the U.S. Supreme Court, the Solicitor General filed a brief at the Court recommending that the petition for writ of certiorari in Lamar, Archer & Cofrin, LLP v. Appling, No. 16-11911, be granted. The petition, seeking review of a unanimous panel decision of the Eleventh Circuit, presents the question of “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.” There is a circuit split on this question, though the parties dispute its extent and its ripeness.
The Issue
Section 523(a)(2) renders certain debts “for money, property, services, or an extension, renewal, or refinancing of credit” non-dischargeable under certain sections of the Bankruptcy Code providing for discharge of debts. Section 523(a)(2)(A) includes in this category debts “obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” Section 523(a)(B) addresses debts obtained by “a statement respecting the debtor’s or an insider’s financial condition,” including them when such statements are “written,” “materially false,” reasonably relied upon by the creditor, and published by the debtor with intent to deceive.
The upshot of section 523(a)(2) is that the dischargeability of a debt obtained through fraud can depend on whether the fraudulent statement was “respecting a debtor’s . . . financial condition.” If it is, then the somewhat higher standard in (B) applies, excluding from non-dischargeability, for example, debts obtained by an oral misrepresentation. Courts have divided on how to interpret this language when a borrower’s fraudulent statements refer only to a particular asset rather than to the borrower’s overall balance of assets and liabilities. Lamar presents precisely this scenario.
Petitioner Lamar, Archer & Cofrin is a law firm seeking to recover debts owed to it by respondent, R. Scott Appling, on account of its representation of Appling in a business dispute. Lamar alleged, and the bankruptcy and district courts found, that Appling made fraudulent oral statements about the likely size of his tax refund that led Lamar to continue its representation and withhold on seeking recovery against Appling when Appling’s payments were initially deficient. The bankruptcy and district courts also rejected Appling’s argument that his statement was a “statement respecting the debtor’s . . . financial condition,” which would have excluded it from the scope of section 523(a)(2) because it was an oral statement. Appling appealed to the Eleventh Circuit, which reversed on this ground. In re Appling, 848 F.3d 953 (11th Cir. 2017). The Eleventh Circuit held that while “the debtor’s . . . financial condition” likely referred to the debtor’s overall financial condition, the use of “respecting” expands the statute’s scope to cover any statement that has an impact on the debtor’s financial condition, including statements like Appling’s about a particular asset. Id. at 958-59.
The Eleventh Circuit joined the Fourth Circuit in holding that a statement about a single asset can be a “statement respecting the debtor’s . . . financial condition.” See Engler v. Van Steinburg, 744 F.2d 1060, 1061 (4th Cir. 1984). On the other side of the circuit split are the Fifth and Tenth Circuits, which have held that only statements encompassing the debtor’s financial condition as a whole are covered by the provision. See In re Bandi, 683 F.3d 671, 676 (5th Cir. 2012); In re Joelson, 427 F.3d 700, 706 (10th Cir. 2005). The parties dispute whether the Eighth Circuit has also adopted a position aligned with the Fifth and Tenth Circuits. Compare Pet. for Writ of Cert. 11-12 with Br. in Opp’n 10-11; see also In re Lauer, 371 F.3d 406, 413 (8th Cir. 2004).
The Parties’ Briefs
Lamar’s petition for certiorari relies heavily on this circuit split, arguing that the recent addition of the Eleventh Circuit to the Fourth Circuit’s side of the circuit split makes it unlikely that the split will be resolved without Supreme Court intervention. It also argues that the Eleventh Circuit misread the statute, overreading “respecting” to override the narrowness of “debtor’s . . . financial condition,” and undermining Congress’s purpose to protect only honest debtors.
Appling’s brief in opposition responds that the Eleventh Circuit is the first circuit to consider the significance of “respecting” in the statutory language, and that the Court should wait until other circuits have considered this specific question before intervening. It also defends the Eleventh Circuit decision on the merits, arguing that Lamar’s position reads “respecting” out of the statute and that the Eleventh Circuit’s broad interpretation serves the effective resolution of bankruptcy disputes by promoting the use of written statements.
The Solicitor General’s Brief
The Solicitor General’s brief argues both that certiorari should be granted and that the Supreme Court should affirm the Eleventh Circuit.
The Solicitor General emphasizes that the issue “has been the subject of substantial disagreement among the lower federal courts.” Br. for United States at 8. To Appling’s argument that the Court should wait until more circuits have considered the Eleventh Circuit’s argument about “respecting,” the brief responds that the other circuits’ failure to “place significant weight on the word ‘respecting’ reflects only that those courts deemed other considerations more persuasive in interpreting the statutory text.” Id. at 12.
The brief mounts an extended defense of the Eleventh Circuit’s merits ruling. It invokes the canon against superfluity to support the weight placed on the word “respecting,” and points in addition to the statutory lineage of the phrase, arguing that “substantively similar” language had been construed by courts to include reference to a single asset before the enactment of the Bankruptcy Code in 1978. Id. at 14-17. The brief also argues that this reading is consistent with Congress’s policy goals because it incentivizes the use of a writing. Id. at 17-18.
The Solicitor General’s recommendation of a grant may increase the likelihood that the Supreme Court will decide to review the case when it next considers it at conference.
