Lamar, Archer & Cofrin, LLP v. Appling is the last of three bankruptcy cases to be heard and decided on the U.S. Supreme Court’s 2017 merits docket, but the ruling has the potential to be the most far-reaching bankruptcy decision of the term. While the case arose in the course of a business relationship between a law firm and its client, its disposition by the Supreme Court may transform previously unremarkable loan and account transactions and collection communications into discussions fraught with dischargeability risks for unwary consumers and the lenders that loan to them.
Section 523(a)(2)(A) of the Code excepts from an individual’s discharge debts 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.” The exception of financial statements from § 523(a)(2)(A) exists to prohibit a debtor’s verbal statements about financial condition from rising to the same level of nondischargeable fraud as written financial statements excepted from discharge under § 523(a)(2)(B).
Beyond agreement on this basic premise, case law in the bankruptcy courts reflects the circuit split on when a statement “respecting” a debtor’s financial condition makes a debt nondischargeable. Rulings by the Tenth, Eighth and Fifth Circuits entrenched the split by diverging from the Fourth Circuit’s long-standing opinion in Engler v. Van Steinburg that held a debt to be nondischargeable based only on oral statements about a debtor’s financial condition. The split remained unresolved for years, but the Eleventh Circuit’s ruling in Appling and the resulting grant of certiorari provide the Supreme Court with an opportunity to ensure even interpretation of Code provisions relating to nondischargeable fraud.
In Appling, R. Scott Appling (Appling) retained Walter Gordon (Gordon), counsel from Lamar, Archer & Cofrin, LLP (Lamar), for representation — ironically, in retrospect — in fraud litigation related to Appling’s purchase of a business. The parties agreed that Lamar would bill Appling on an hourly fee basis for services rendered and that Appling would pay the accrued fees and expenses monthly.
In early 2005, Gordon contacted Appling to discuss the substantial fees and expenses outstanding for the litigation and whether Lamar would continue as counsel in that matter. Appling met with Gordon and other Lamar attorneys in person to discuss the fees and, in the course of the conference, disclosed that he anticipated a $100,000 tax refund and voluntarily offered to use those funds to pay Lamar. Relying upon Appling’s statement about the tax refund, Lamar continued to represent Appling.
Appling executed and filed documents to obtain the tax refund in June 2005. However, Appling failed to inform Gordon or Lamar that the actual refund only approximated $60,000, that Appling received the refund in October 2005, and that Appling spent the tax refund before meeting with the Lamar team in November 2005.
The parties diverged about whether Appling advised Lamar in November 2005 that he had received and spent the tax refund. Appling averred that he told Lamar that he chose to keep his business afloat with the funds and alleged Lamar knew enough about his finances to recognize that must have occurred even without any disclosure, because of information provided to Lamar as counsel in the litigation. Lamar denied Appling’s version of events, claiming not only that Appling represented he had not received the tax refund yet, but also that Lamar and Gordon represented Appling to settlement in early 2006 because they believed Appling would pay over his tax refund.
Lamar sued Appling in Georgia state court in 2012 to recover over $100,000 in accrued fees. Appling and his wife subsequently filed a chapter 7 case in January 2013; Lamar initiated an adversary proceeding under § 523(a)(2)(A) to except the debt due it from discharge on the basis that Appling had made material misrepresentations about the tax refund on which Lamar justifiably had relied to its detriment.
The bankruptcy court for the Middle District of Georgia agreed with Lamar that the elements of fraud stood fulfilled under 11 U.S.C. § 523(a)(2)(A). The bankruptcy court interpreted the statute narrowly and found Appling’s verbal statements about the tax refund to be representations about Appling’s overall ability to pay or financial condition. The district court for the Middle District of Georgia affirmed, rejecting the broader statutory interpretation sought by Appling.
On further appeal, the Eleventh Circuit reversed the lower courts, finding that the statutory term “financial condition” references a debtor’s overall assets and liabilities, but the term “respecting” emplaces a broad standard as to what “financial condition” can encompass. The Eleventh Circuit determined that, by defining “respecting” to include “regarding” or “concerning,” the statute created an expansive universe of statements that must be in writing to be nondischargeable. As a result, the Eleventh Circuit held Appling’s debt to Lamar dischargeable and remanded for further proceedings.
Lamar’s appeal from the Eleventh Circuit’s decision to the Supreme Court promises to resolve the extant circuit split. The Supreme Court may choose to accord with the Eleventh Circuit’s broad determination that “respecting” can mean “relating to”; however, a broad ruling following this reasoning would force creditors to condition loans or even extensions of time upon receipt of information in writing to maximize potential dischargeability objections. Alternatively, the Supreme Court may rule in line with the narrower view of the Fifth, Eighth and Tenth Circuits and allow verbal statements about solitary assets to constitute sufficient fraudulent conduct under a dischargeability review. The narrower interpretation would allow a verbal promise for future payment that a debtor fails to keep to constitute fraud, tripping up many debtors who genuinely intend to pay creditors with their next paycheck or when a tax refund arrives, but circumstances intervene.
If a statement about a solitary asset does not need to be in writing to constitute fraud, the next issue will be the meaning of “obtained” in § 523(a)(2)(A). Appling made several verbal assurances about the source and timing of payment, but he does not represent the ordinary consumer in terms of what he obtained by his statements. Appling had sophisticated financial knowledge after working in loan origination and chose to make repeated misrepresentations about a particular asset to Lamar. Moreover, unlike an ordinary consumer seeking and receiving nothing more than additional time to pay a bill, Appling received and benefitted from thousands of dollars of legal work by Lamar in return for his promise to pay over his tax return upon receipt. Clear distinctions exist between Appling and a typical consumer, but post-Appling litigation may not take those differences fully into account.
We will know the Supreme Court’s measure of the scope of the fraud exception to dischargeability shortly; the Justices will hear oral argument on Appling on April 17, 2018, and should rule by the end of June 2018. Regardless of the ruling, expect more adversary proceedings about what a debtor “obtained” from a creditor and the amount of information the creditor has about the debtor’s financial condition, as well as additional nonbankruptcy litigation about creditors’ increased demands for signed financials and written extensions agreements. Appling implicates all of these issues and may well create as many more questions as it provides answers.
 The views expressed in this article do not reflect the views of Summers Compton Wells LLC or any of its clients.
 Appling v. Lamar, Archer & Cofrin LLP (In re Appling), 848 F.3d 953 (11th Cir. 2017), cert. granted, 138 S. Ct. 734 (U.S. Jan. 12, 2018) (No. 16-1215).
 See also U.S. Bank Nat’l Ass’n v. Village at Lakeridge LLC, 138 S. Ct. 960 (2018); Merit Mgmt. Grp. L.P. v. FTI Consulting Inc.,138 S. Ct. 883 (2018).
 See 848 F.3d at 955.
 11 U.S.C. § 523(a)(2)(A).
 See 11 U.S.C. § 523(a)(2)(B); In re Belice, 461 B.R. 564, 576-77 (B.A.P. 9th Cir. 2011).
 See, e.g., Field v. Mans, 516 U.S. 59, 75-77 (1995) (stating that 11 U.S.C. § 523(a)(2)(B) was designed to protect borrowers from being forced to submit false documentation).
 Compare In re Feldman, 500 B.R. 431, 437 (Bankr. E.D. Pa. 2013) (adopting narrow interpretation in line with Fifth, Eighth and Tenth Circuits); In re Alicea, 230 B.R. 492, 503-505 (Bankr. S.D.N.Y. 1999) (same); In re Oliver, 145 B.R. 303, 305-06 (Bankr. E.D. Mo. 1992) (same); In re Sansoucy, 136 B.R. 20, 23 (Bankr. D.N.H. 1992) (same); with In re Aman, 492 B.R. 550, 565 (Bankr. M.D. Fla. 2010) (adopting broad interpretation in line with the Fourth and Eleventh Circuits); In re Priestley, 201 B.R. 875, 882 (Bankr. D. Del. 1996) (same).
 In re Joelson, 427 F.3d 700, 714 (10th Cir. 2005), cert. denied, 126 S. Ct. 2321 (2006).
 In re Lauer, 371 F.3d 406, 413-14 (8th Cir. 2004).
 In re Bandi, 683 F.3d 671 (5th Cir. 2012), cert. denied, 133 S. Ct. 845 (2013).
 See Engler v. Van Steinburg, 744 F.2d 1060, 1060 (4th Cir. 1984) (finding that verbal statements about solitary asset being free and clear of liens comprised a statement respecting financial condition).
 Id. at 1061.
 Appling, 848 F.3d at 955.
 Appling v. Lamar, Archer & Cofrin LLP, No 3:15-CV-031, 2016 WL 1183128 *1, *2-*5, 2016 U.S. Dist. LEXIS 39958, *1, *2-*5 (M.D. Ga. Mar. 28, 2016).
 Id. at *4.
 Id. at *4-*5.
 Id. at *4-*5.
 Lamar, Archer & Cofrin LLP v. Appling (In re Appling), 527 B.R. 545, 548-49 (Bankr. M.D. Ga. 2015).
 Id. at 549.
 Id at 548-59.
 Appling, supra note 18 at *1.
 Appling, supra note 2 at 958-59.
 Id. at 961.
 Appling, supra note 2 at 955.
 Appling, supra note 26 at 547.
 Appling, supra note 2 at 955-56.
This article was originally published in the May 2018 edition of the Consumer Bankruptcy Committee Newsletter. Participation in ABI's committees is one of the many benefits of becoming a member. Committees provide networking and leadership opportunities. For additional information on how you could become involved in ABI and our Committees please visit membership.abi.org.