SCOTUS Put Particular Focus On The Word “Respecting.”
In Lamar, Archer & Cofrin, LLP v. Appling, No. 16-1215 (U.S. Supreme Ct. June 4, 2018), SCOTUS faced a situation where a client told his law firm that he could cover future legal expenses, after falling behind, based on an expected tax refund, with the law firm agreeing to continue representation. However, client used the tax refund for business expenses and then told the firm that he was still waiting on the refund, which again prompted the firm to continue representation. Client never paid the final invoice, so firm sued and obtained a judgment. Shortly thereafter, client and his wife filed a Chapter 7 bankruptcy. Firm filed an adversary proceeding against client (now Chapter 7 debtor) pursuant to 11 U.S.C. §523(a)(2)(A), arguing that client’s debt was nondischargeable. Section 523(a)(2)(A) 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.” Client/debtor argued that his verbal statements fell within the “other than” exception establishing nondischargeability.
Although the bankruptcy and district court disagreed with client’s nondischargeability argument, the Eleventh Circuit and SCOTUS accepted debtor’s position. Placing special emphasis on the word “respecting,” the SCOTUS determined—in an opinion authored by Justice Sotomayor–that a statement about a single asset indeed can be a “statement respecting the debtor’s financial condition” and that firm’s interpretation would read out this important word from section 523(a)(2)(A) given that Congress attempted to balance the interests of debtors and creditors in this particular scenario.