Legal Updates

U.S. Supreme Court: False Statements about a Single Asset Must Be in Writing for Nondischargeability

In a 9-0 decision, the U.S. Supreme Court settled a circuit court split over whether a false statement about a single asset qualifies as a “statement respecting the debtor’s financial condition” under 11 U.S.C. § 523(a)(2)(B). In Lamar, Archer, & Cofrin, LLP v. Appling, 16-1215 (Sup. Ct. June 4, 2018), the Court held that a statement about one asset can be considered a “statement respecting the debtor’s financial condition.” Therefore, if the statement is not in writing, the associated debt may be discharged, even if the statement is false. 

The debtor, Scott Appling, fell behind on bills owed to his law firm, Lamar, Archer, & Cofrin, LLP (“Lamar”). He told the firm that he could pay his bills with an expected tax refund. Based on this representation, Lamar continued to provide legal services to Mr. Appling. However, Mr. Appling spent the refund on business expenses instead of paying his lawyers. He falsely stated that he had not received the refund. Lamar sued and obtained a judgment. Shortly thereafter, the Applings filed for Chapter 7 bankruptcy.

Lamar initiated an adversary proceeding, arguing that the debt to the law firm was nondischargeable under 11 U.S.C. § 523(a)(2)(A), which bars discharge of specified debts arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” Under this section, the representations may be oral or written to establish grounds for nondischargeabilty.

Mr. Appling argued that a statement about a single asset qualifies as a statement “respecting” the debtor’s “financial condition” under 11 U.S.C. § 523(a)(2)(B), and therefore must be in writing to establish grounds for nondischargeability. Lamar contended that only statements about a debtor’s overall financial condition fall within § 523(a)(2)(B), not statements about a single asset.

Justice Sotomayor, delivering the opinion of the Court, stated that “respecting” “generally has a broadening effect” ensuring that a provision’s scope covers not only its subject, but also matters relating to that subject. She went on to explain that a statement is “respecting” the debtor’s financial condition “if it has a direct relation to or impact on the debtor’s overall financial condition.” A single asset has a direct relation to a debtor’s aggregate financial condition and can help indicate whether a debtor is solvent or insolvent. Thus, a statement regarding a single asset is a statement “respecting” the debtor’s “financial condition” and must be in writing to establish grounds for nondischargeability.