Case No. 16-1215 | 11th Cir.
Respondent R. Scott Appling hired the law firm of Lamar, Archer, and Cofrin (“the Firm”) to represent him in a business dispute. He represented to his lawyers that he was getting a large tax return that would be sufficient to cover his legal fees. The Firm continued to represent him based on these statements. In reality, Appling’s tax return did not cover his legal fees and the Firm took action to collect. Appling then filed for bankruptcy.
At issue in this case is a specific portion of the Bankruptcy Code. The 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) (2012). This provision is intended to protect collectors from dishonest debtors. But, notice that the provision includes an exception. In 1960, Congress added the language “other than a statement respecting the debtor’s . . . financial condition” because of the common practice of consumer finance companies convincing loan applicants to submit false financial statements to insulate the companies’ debts from future discharges. Congress added § 523(a)(2)(B), which addresses false or misleading statements made in writing. Here, the question is whether the exception in § 523(a)(2)(A) applies to an oral statement about a single asset or a debtor’s financial condition generally.
The bankruptcy and district courts rejected Appling’s arguments that his statements fell into the exception, but the Eleventh Circuit reversed and unanimously held that discharge would not be prohibited because the addition of the word “respecting” before “financial condition” covers any statement about a debtor’s financial condition, including Appling’s oral statements. The Fourth Circuit also follows this holding. The Fifth, Eighth, and Tenth Circuits have held that only statements about a debtor’s financial condition as a whole apply. Under this standard, Appling’s debts would not have been discharged and he would remain individually liable for his misleading or false statements.
The Firm argues that the Eleventh Circuit’s reading of the statute undermines Congress’s desire to protect honest debtors who are misled by creditors to submit false financial statements for the creditors’ own protection. Appling argues that the Firm’s interpretation does not give the word “respecting” the weight it deserves, and that the Eleventh and Fourth Circuit’s interpretation fulfills Congress’s desire to provide efficient and effective dispute resolution through the use of written statements rather than oral statements. The Solicitor General filed a brief supporting the Eleventh Circuit’s decision, using the canon against superfluity to argue that “respecting” must have a purpose in the statute.
By answering the question raised in this case, the Supreme Court will resolve a circuit split that has great import to debtors and creditors alike. The Firm, as well as the Solicitor General, note that uniformity is crucial, especially in the context of the complex bankruptcy system.