Lamar, Archer & Cofrin, LLP v. Appling


Is a verbal statement regarding a single asset a false statement “respecting the debtors . . . financial condition” that precludes discharge of the debt in bankruptcy under 11 U.S.C. § 523(a)(2)?

Oral argument: 
April 17, 2018

In this case, the Supreme Court will determine whether R. Scott Appling’s debt to Lamar, Archer & Cofrin, LLP is dischargeable in Appling’s bankruptcy proceedings. Between 2004 and 2005, Appling accumulated a debt of $60,000 to the law firm for legal services, evading collection attempts by saying that he soon expected a tax return of over $100,000. But Appling’s tax return was only $60,000, and he did not use it to pay down any of his debt to the law firm. Appling later filed for bankruptcy. Appling now asks the court to discharge his debt to the law firm, but discharge is not allowed if Appling’s verbal statements about his tax return were “respecting the debtor’s . . . financial condition.” The case will turn on interpretation of the relevant bankruptcy statutes. The outcome could affect the ways that lenders, especially small businesses, administer loans.

Questions as Framed for the Court by the Parties 

Whether 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.


In July 2004, R. Scott Appling retained Lamar, Archer & Cofrin, LLP to help him rescind the purchase of a manufacturing business. Matter of Appling, at 547–48. After a year of litigation, Appling owed Lamar over $60,000 in fees and costs for their legal services. Id. at 548. Appling and Lamar met on March 18, 2005 to discuss the outstanding amount. Id. at 548. Appling assuaged the law firm’s concerns by saying that he expected a $100,000 tax return that would cover the fees he owed Lamar. Id. at 548.

In June 2018, Appling applied for a refund of only $60,000. Id. at 548. In October, he received the $60,000 refund but did not pay any of his debt to Lamar. Id. at 548. When Appling and Lamar met again on November 2, 2005 to discuss the outstanding debt, Appling claimed that he had not received the refund yet, and Lamar continued its representation of Appling in reliance on those statements. Id. at 548–49. Lamar concluded its representation of Appling in March 2006 and delivered a final invoice for $61,000. In re Appling, at 955.

The following year, in June 2006, Lamar learned that Appling had received the refund without paying Lamar and filed a lawsuit against Appling for the unpaid fees and costs. Matter of Appling, at 549. In October 2012, the Superior Court of Hart County, Georgia found in favor of Lamar and ordered payment of $104,000. Id. Three months later, Appling filed for Chapter 7 bankruptcy. Id.

Appling sought to discharge his debt to Lamar, but Lamar sued in Bankruptcy Court, arguing that the judgment from Hart County was nondischargeable under 11 U.S.C. § 523(a)(2)(A). Id. Section 523 lists the exceptions to the general discharge of debts in bankruptcy. 11 U.S.C. § 523. The statute states, in relevant part, that a debt is not dischargeable “to the extent [it was] obtained by false pretenses, a false representation, or actual fraud,” unless the statement was “respecting the debtor’s . . . financial condition.” Id.

The Bankruptcy Court determined that the debt was not dischargeable because Lamar had justifiably relied on fraudulent statements made by Appling when it decided to continue representing Appling and give him an extension on the debt. Id. at 554–55. Appling appealed to the District Court, arguing that the debt was dischargeable because his statements to Lamar had been “respecting [his] . . . financial condition.” In re Appling, at 956. The District Court agreed with the Bankruptcy Court that a “statement pertaining to a single asset,” here, the tax refund, “is not a statement of financial condition,” and denied discharge of the debt. Id. at 956.

Appling again appealed the decision, this time to the Eleventh Circuit. Id. at 955. The Eleventh Circuit noted a circuit split in which the Fourth Circuit held that a “debtor's assertion that he owns certain property free and clear of other liens is a statement respecting his financial condition,” while three other circuits have held that “a statement about a single asset does not respect a debtor’s financial condition.” Id. at 957. The Eleventh Circuit ultimately concluded that while “financial condition” meant “one’s overall financial status,” a statement about a single asset was “respecting” one’s financial status because “knowledge of one asset or liability is a partial step toward” knowledge of financial condition. Id. at 958. As a result, the Eleventh Circuit reversed the lower courts and discharged Appling’s debt to Lamar. Id. at 963.

The United States Supreme Court granted certiorari on January 12, 2018.



Lamar posits that, in order to give meaning to Congress’s choice of the words “respecting” and “financial condition,” the Court must limit the applicability of the statute to statements regarding a debtor’s overall financial health. Brief of Petitioner, Lamar, Archer & Cofrin, LLP at 27. Lamar argues that Appling’s interpretation of the statute defeats Congress’s decision to employ the limiting term “financial condition.” Id. at 26. Lamar maintains that exempting statements which impact the debtor’s finances impermissibly broadens the statute’s scope beyond Congress’s narrow exception for “financial condition” statements. Id. at 26.

Lamar’s analysis draws on the history of the statute. Id. at 29. He points to Congress’s use of the phrase “affecting or relating to” in the same Act as the statute in question. Id. Lamar suggests that Congress intended to give the “respecting . . . financial condition” language a different effect because of Congress’s purposeful decision to omit the phrase in other sections of the Act. Id. at 30. Lamar also employs historical interpretation of the statute to support a narrow reading of the exception, pointing out that most prior cases interpreting this provision involved statements describing the debtor’s overall financial status. Id. at 43. Furthermore, Lamar shows that where courts interpreted the statute to include statements related to financial conditions, courts used the statement to deny discharge. Id. at 45. Thus, Lamar argues that the older cases which acknowledge a broad interpretation furthered a policy opposing the one sought by Appling. Id.

Lamar points out that a broad interpretation of the “respecting . . . financial condition” language vitiates the primary meaning of the statute. Id. at 31, 33. Lamar stresses that the general rule of Section 523(a)(2)(A) prohibits discharge of debts incurred by fraud, while debts incurred by “statement[s] respecting . . . financial condition” are exceptions. Id. at 31. Lamar anticipates that permitting debtors to discharge debts obtained by any statement “relating to” finances will expand the exceptions drastically, incentivizing fraudulent representations. Id. at 31, 33.

Appling responds that Lamar’s interpretation fails to give weight to the word “respecting.” Brief of Respondent, R. Scott Appling at 28. Appling points out that statutes which employ the same “respecting” language construe the language to add breadth to the subject of the statute. Id. at 18. For example, Appling cites Morales v. Trans World Airlines, where the Court held a clause in the Airline Deregulation Act that preempted state laws respecting “rates, routes, or services” of air carriers to include state laws that significantly impacted “rates, routes, or services.” Id. at 21. Appling characterizes Lamar’s articulation of the statute as effectively nullifying the “respecting” qualifier by restricting the statute to only those statements mentioning the debtor’s financial health. Id. at 28.

Appling argues that Appling’s construction places viable limits on the applicability of the statute by requiring the statement to impact the debtor’s financial condition. Id. at 27. Appling illustrates the workability of Appling’s construction through several Fourth Circuit cases in which the court, while implementing Appling’s construction, utilized Section 523(a)(2)(A) to prohibit discharge of fraudulently-obtained debts.  Id. at 34–35. Thus, Appling argues that a broad reading of the exception does not impair the function of Section 523(a)(2)(A) as a deterrent against fraud. Id. at 35.

Appling also points to uniform court rulings on the meaning of “statements respecting . . . financial condition” construing the phrase to encompass statements about individual assets to show that Congress intended to apply this established meaning when it adopted the same language in Section 523(a)(2)(A). Id. at 47. For instance, Appling cites Mau v. Sampsell, where the court held that the debtor’s false representation of the existence of an escrow account constituted fraud about the debtor’s financial status. Id. at 42–43. Similarly, Appling describes Tenn v. Hawaiian Bank, a more recent case, in which the court held that a statement valuing a company’s assets was a statement about the company’s financial condition. Id. at 44.


Lamar contends that Appling’s construction of the statute will require the Court to engage in the complex task of determining what qualifies as “relating to” financial condition. Brief of Petitioner at 32. As an example, Lamar highlights the Court’s ongoing difficulties in interpreting the limits of the same “respecting” language in ERISA. Id. at 32–33. Comparatively, Lamar argues that concluding that the “financial condition” exception excludes statements about single assets does not create line-drawing problems. Id. at 46.

Appling retorts that its statutory interpretation is properly limited, by the “financial condition” phrase, to those statements directly impacting the debtor’s overall financial status. Brief of Respondent at 27. Appling also contends that Lamar’s rule is either subjective or unjustifiably rigid. Id. at 31. Appling raises the example of a debtor who, when asked about his solvency, fraudulently responds that he has 100 gold bars. Id. Appling argues that courts will have to analyze the parties’ understanding of the statement or risk denying clear mutual understanding. Id.


Lamar suggests that Congress added the “financial condition” exception to Section 523(a)(2)(A) as a response to a prominent, abusive creditor practice inducing debtors to engage in fraud. Brief of Petitioner at 37. Lamar describes how creditors were requiring prospective borrowers to submit written financial statements, anticipating that borrowers would make mistakes on the forms, to use the unintentional fraud to shield the companies’ claims from discharge. Id. at 38. This “financial condition” exception, Lamar argues, should be construed in accordance with Congress’s intention of exempting less culpable debtors; statements about single assets would not fall under the exemption as they were not subject to creditor abuse. Id. In contrast, Lamar notes the absence of evidence that suggests Congress intended the amendment to create more reliable evidence by imposing a written requirement. Id. at 39. Lamar recognizes that although some statutes, including the Statute of Frauds and Uniform Commercial Code, require written proof of fraud, those statutes were created to restrict the enforceability of contracts and do not posit a general rule that fraud must be proven through writing. Id. at 40. Additionally, Lamar argues that interpreting the section to require written proof will not increase creditor vigilance, given that Section 523(a)(2)(A) requires creditors seeking protection from discharge to prove that the statement was reliable. Id. at 41.

Appling affirms Lamar’s contention that the “respecting . . . financial condition” language was designed to address the dishonest tactics of creditors, but emphasizes that Lamar’s interpretation of the statute as necessarily pertaining to overall financial status limits the applicability of the debtor protections. Brief of Respondent at 50. Appling adds that the forms the abusive creditors used to trick debtors were not dischargeable as financial statements because they were not comprehensive lists of the debtor’s debts and assets. Id. at 49. Appling posits that Lamar’s construction would similarly allow shrewd creditors to purposefully avoid triggering debtor protections by refraining from asking about single assets. Id. at 50. Appling also contends that Congress designed the statute to increase the reliability and efficiency of bankruptcy proceedings by requiring creditors to provide written proof of debtor’s alleged fraudulent statements. Id. at 48. As further proof of the merits of written instruments, Appling mentions prominent debt-governing and bankruptcy laws which use writing requirements to limit excessive litigation. Id. at 52. Appling relies on the lower courts’ rejection of testimonies from Appling and Lamar about their oral conversations to reveal that, particularly in aged cases, written instruments will produce more accurate legal results. Id. at 55.



The National Federation of Independent Business (“NFIB”) argues that an interpretation of the exception that makes the debt dischargeable would allow for dishonest debtors to take advantage of the “fresh start” offered by bankruptcy. Brief of Amicus Curiae National Federation of Independent Business ("NFIB"), in Support of Petitioner at 7. The NFIB asserts that this defeats the purpose of bankruptcy, which offers a “fresh start” only to the “honest but unfortunate debtor.” Id. at 7. Such an application of the exception would not only treat honest and dishonest debtors as equals, it would also allow the dishonest debtors take greater advantage of their fraudulence by discharging the fraudulent debt, according to the NFIB. Id. at 8. The NFIB also contends that the federal government would be infringing on the Statute of Frauds, which says what contracts must be in writing, and is traditionally determined by each state, by effectively forcing all lenders to require statements from debtors in writing. Id. at 9–11.

Eighteen law professors (“the professors”) support allowing discharge in this situation because the spirit of the Bankruptcy Code favors the discharge of debts whenever possible. Brief of Amici Curiae Law Professors Richard Aaron et al., in support of Respondent at 14. The law professors contend that requiring written statements in credit transactions helps creditors reveal dishonest debtors before any funds are transferred. Id. at 16. The law professors contend that if the court rules that “a false oral statement concerning a single asset is not a statement respecting the debtor’s financial condition . . . then absurd consequences follow.” Id. at 22. For example, the professors explain that a relatively small lie about a debtor’s single asset would preclude discharge, while a larger lie concerning all assets would not. Id. at 23.


The NFIB also claims that allowing discharge would reduce the willingness of lenders to distribute funds, since they could not rely on the safeguard from discharge that the exception provides. Brief of NFIB, at 8. This would harm all debtors and the economy in general, claims the NFIB, by reducing overall access to debt. Id. at 8. The NFIB also argues that forcing creditors to keep written records of all statements that induce credit would significantly burden small businesses. Id. at 12. According to the NFIB, many small businesses are unlikely to learn about this new interpretation, and that even for small businesses that do, it will often be impractical for them to obtain such documentation. Id. at 13–14. The NFIB asserts that verbal statements about financial conditions are commonly relied upon by small businesses where the circumstances are more informal, and that a new paperwork requirement will hinder the valuable agility of these businesses. Id. at 14–15. In addition to the burdensome paperwork, the NFIB argues that making it easier to discharge loans makes loans riskier for creditors. Id. at 16–17. The NFIB claims that since a small business is unlikely to survive even a single customer discharging its debts, increasing the riskiness of loans disfavors them disproportionately. Id. at 17–18. The NFIB also warns of the additional privacy risks associated with forcing creditors businesses to keep more information about their debtors on file, making small businesses targets for cyber attacks and forcing them to purchase expensive cybersecurity. Id. at 15–16.

The law professors disagree with the suggestion that a writing requirement would be too burdensome on small businesses, noting that the law firm in this case could have easily requested a written statement from its client. Brief of Law Professors at 16. The law professors additionally assert that such a rule would have the added benefit of eliminating the expense and uncertainty of litigating who said what in a verbal credit agreement. Id. at 16. The law professors claim that this kind of “he said, she said” testimony is unreliable and easy for courts to get wrong, and thus its occurrence should be minimized where possible. Id. at 17–18. Appling maintains that the same efficiency concerns are also addressed by creating an incentive for creditors to obtain written statements from debtors. Brief for Petitioner, R. Scott Appling, at 52. Appling additionally states that it is better to apply the exception broadly, because it would be too difficult for the Court to create a rule that allowed lower courts to easily distinguish when statements about one or more assets, or multiple statements about different assets, became statements about financial condition. Id. at 30–32. Appling argues that creating such an ill-defined rule would introduce unnecessary uncertainty into the enforcement of the exception. Id. at 30–32.

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