In re: R. SCOTT APPLING, Debtor.
LAMAR, ARCHER & COFRIN, LLP, Defendant-Appellee. R. SCOTT APPLING, Plaintiff-Appellant,
from the United States District Court Nos. 3:15-cv-00031-CAR;
3:13-bkc-03042-JPS for the Middle District of Georgia
WILLIAM PRYOR and ROSENBAUM, Circuit Judges, and MARTINEZ,
WILLIAM PRYOR, Circuit Judge.
appeal presents a question that has divided the federal
courts: Can a statement about a single asset be a
"statement respecting the debtor's . . . financial
condition"? 11 U.S.C. § 523(a)(2). Ordinarily, a
debtor cannot discharge any debt incurred by fraud,
id. § 523(a)(2)(A), but a debtor can discharge
a debt incurred by a false statement respecting his financial
condition unless that statement is in writing, id.
§ 523(a)(2)(B). R. Scott Appling made false oral
statements to his lawyers, Lamar, Archer & Cofrin, LLP,
that he expected a large tax refund that he would use to pay
his debt to the firm. After Lamar obtained a judgment against
Appling for the debt, Appling filed for bankruptcy and Lamar
initiated an adversary proceeding to have the debt ruled
nondischargeable. The bankruptcy court and the district court
ruled that Appling's debt could not be discharged under
section 523(a)(2)(A) because it was incurred by fraud. But we
disagree. Because Appling's statements about his tax
refund "respect [his] . . . financial condition,
" id. § 523(a)(2)(B)(ii), and were not in
writing, id. § 523(a)(2)(B), his debt to Lamar
can be discharged in bankruptcy. We reverse and remand.
Scott Appling hired the law firm Lamar, Archer & Cofrin,
LLP, to represent him in litigation against the former owners
of his new business. Appling agreed to pay Lamar on an hourly
basis with invoices for fees and costs due monthly. Appling
became unable to keep current on the mounting legal bill and
as of March 2005, owed Lamar $60, 819.97. Lamar threatened to
terminate the firm's representation and place an
attorney's lien on all work product unless Appling paid
the outstanding fees.
and his attorneys held a meeting in March 2005. The
bankruptcy court found that during this meeting Appling
stated he was expecting a tax refund of "approximately
$100, 000, " which would be enough to pay current and
future fees. Lamar contends that in reliance on this
statement, it continued its representation and did not begin
collection of its overdue fees.
Appling and his wife submitted their tax return, they
requested a refund of only $60, 718 and received a refund of
$59, 851 in October. The Applings spent this money on their
business. They did not pay Lamar.
and his attorneys met again in November 2005. The bankruptcy
court found that Appling stated he had not yet received the
refund. Lamar contends that in reliance on this statement, it
agreed to complete the pending litigation and forego
immediate collection of its fees but refused to undertake any
additional representation. In March 2006, Lamar sent Appling
his final invoice for a principal amount due of $55, 303.66
and $6, 185.32 in interest.
years later, Lamar filed suit against Appling in a superior
court in Georgia. In October 2012, Lamar obtained a judgment
for $104, 179.60. Three months later, the Applings filed for
initiated an adversary proceeding against Appling in
bankruptcy court. The bankruptcy court ruled that because
Appling made fraudulent statements on which Lamar justifiably
relied, Appling's debt to Lamar was nondischargeable, 11
U.S.C. § 523(a)(2)(A). The district court affirmed. The
district court rejected Appling's argument that his oral
statements "respect[ed] . . . [his] financial condition,
" 11 U.S.C. § 523(a)(2)(B), and should have been
dischargeable. The district court ruled that "statements
respecting the debtor's financial condition involve the
debtor's net worth, overall financial health, or equation
of assets and liabilities. A statement pertaining to a single
asset is not a statement of financial condition." The
district court agreed with the bankruptcy court that Appling
made material false statements with the intent to deceive on
which Lamar justifiably relied.
STANDARD OF REVIEW
sit as the second appellate court to review a bankruptcy
case, In re Glados, Inc., 83 F.3d 1360, 1362 (11th
Cir. 1996), we "assess the bankruptcy court's
judgment anew, employing the same standard of review the
district court itself used, " In re Globe Mfg.
Corp., 567 F.3d 1291, 1296 (11th Cir. 2009). "Thus,
we review the bankruptcy court's factual findings for
clear error, and its legal conclusions de
Bankruptcy Code gives a debtor a fresh start by permitting
him to discharge his pre-existing debts. But there are many
exceptions to discharge. And some of those exceptions protect
victims of fraud.
523(a)(2) creates two mutually exclusive exceptions to
(a) A discharge under section 727, 1141,
1228(a), 1228(b), or 1328(b) of this title does not discharge
an individual debtor from any debt- . . .
(2) for money, property, services, or an
extension, renewal, or refinancing of credit, to the extent
(A)false pretenses, a false representation,
or actual fraud, other than a statement respecting the
debtor's or an ...