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Supreme Court rules for dishonest debtor in bankruptcy case

[JURIST] The US Supreme Court held [opinion, PDF] unanimously Monday in Lamar, Archer & Cofrin, LLP v. Appling [SCOTUSblog materials] that under the US Bankruptcy Code, a statement about an individual's financial assets may be discharged if it is not in writing, even if the statement was false, affirming the decision [opinion, PDF] of the US Court of Appeals for the Eleventh Circuit.

The dispute arose [JURIST report] between an Atlanta law firm and one of its former clients, R Scott Appling. In 2004, Appling retained the firm for an independent legal dispute. One year later, the firm sent Appling a bill for $60,000, which he refused to pay. The firm stated that Appling had led them to believe that he would be receiving a tax return totaling $100,000 and, after receiving the amount, would pay them back. After another year of work by the firm, it learned that Appling had no intention of paying them for their work and they filed suit. Judgment was entered against Appling for a total of $104,000. Three months later, Appling declared bankruptcy and filed suit against the firm claiming that the total he owed them was obtained by fraud.

At issue in the case is 11 USC § 523(a)(2) [text] of the US Bankruptcy Code, which states: "A discharge; does not discharge an individual debtor from any debt; for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by; (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider, financial condition.

The firm argued that a statement respecting a debtor's financial condition must be much further in scope and concern much more than just a single asset. The court held in Lamar's favor, stating that "a statement about a single asset can be a 'statement respecting the debtor's financial condition' under §523(a)(2) of the Bankruptcy Code," and therefore the associated debt may be discharged.

In the opinion, Justice Sonia Sotomayor wrote:

We agree with both Appling and the United States that, given the ordinary meaning of "respecting," Lamar's preferred statutory construction—that a "statement respecting the debtor's financial condition" means only a statement that captures the debtor's overall financial status—must be rejected, for it reads "respecting" out of the statute.

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