Opinion analysis: Justices confirm that “respecting” means “relating to” in the Bankruptcy Code

Posted Tue, June 5th, 2018 12:12 pm by Danielle D’Onfro

Monday’s belief in Lamar, Archer & Cofrin, LLP v. Appling brought a predictable close to this dispute about when money owed received by fraud can be discharged in bankruptcy.  At the oral argument, it turned apparent that the justices assumed that the debtor, R. Scott Appling, experienced the improved reading through of the statute.  At 15 internet pages, the mostly unanimous belief by Justice Sonia Sotomayor manufactured apparent that the justices did not obtain the circumstance significantly difficult.

Like most bankruptcy instances, this one began with somebody not having to pay his bills.  Appling experienced employed Lamar, an Atlanta law company, to represent him in a business dispute.  He was unable to fork out for the firm’s solutions, but Lamar ongoing performing for him because he allegedly promised that he was anticipating a tax refund of about $100,000.  Lamar statements that it thought this assurance and so kept performing inspite of not currently being paid out.  The company did not cease symbolizing Appling until finally it uncovered that Appling’s tax refund was considerably more compact than Appling experienced claimed and that Appling experienced by now put in it.  In October 2012, additional than 6 years just after Appling’s primary assure, Lamar sued and won a judgment for $104,179 in Ga condition court.  Appling immediately filed for bankruptcy and sought to discharge Lamar’s assert.

This circumstance began as an an adversary continuing in the Center District of Ga, in which Lamar sought a willpower that Appling’s $104,000 excellent monthly bill was non-dischargeable less than 11 U.S.C. § 523(a)(2)(A), which restrictions the discharge of money owed that have been “obtained by fraud.”  The challenge with this argument, while, is that §523(a)(2)(A)’s exception to dischargeability itself has an exception—it does not apply if the alleged fraud is “a assertion respecting the debtor’s or an insider’s economical condition.”  If the alleged fraud is a assertion respecting the debtor’s economical condition, then a unique provision restricting discharge, §523(B), applies, but that provision renders phony statements nondischargeable only if they are in creating.  Appling never promised Lamar the tax refund in creating, so Lamar’s argument turned on its potential to influence the court that Appling’s assertion about his tax refund was not a assertion “respecting” his “financial condition.”

Due to the fact the events agreed on the that means of the text “statement” and “financial condition,” this circumstance turned on the breadth of the term “respecting.”  Sotomayor’s the greater part belief described that given that the Bankruptcy Code does not outline “respecting,” the term’s plain that means governs.  The court consulted four preferred dictionaries, all of which instructed that “respecting” suggests a little something like “concerning,” “regarding,” “about,” or “relating to.”  The court noted that it experienced regularly read through the phrase “relating to” in other statutes expansively and observed no explanation to interpret “respecting” in different ways.

This conclusion spelled doom for Lamar, which experienced argued that “respecting” was narrower than “about” and “relating to.”  The company essential a narrow reading through of “respecting” to earn:  Only less than a narrow definition of “respecting” could Lamar prevail on the argument that a assertion about a one asset could never be a assertion respecting the debtor’s economical condition.  The company managed that only statements about stability sheets or about the debtor’s general economical health could be statements “respecting” a debtor’s “financial condition.”  But the court took the reverse approach, concentrating on nonbankruptcy precedent that interpreted “respecting,” and its synonym “relating to,” broadly.  It concluded that “Lamar’s preferred statutory construction—that a ‘statement respecting the debtor’s economical condition’ suggests only a assertion that captures the debtor’s general economical status—must be rejected, for it reads ‘respecting’ out of the statute.”

The court then put in a few of paragraphs highlighting the “incoherent results” that Lamar’s reading through would generate.  These arguments are basically the exact kinds to which Lamar’s counsel struggled to provide superior responses at oral argument.  Noting that Lamar’s reading through would make dischargeability transform on “the superficial packaging of a assertion alternatively than its substantive written content,” the court observed that Lamar experienced unsuccessful to “explain why Congress would draw these kinds of seemingly arbitrary distinctions.” Piling on, the court described that less than Lamar’s reading through a “a really basic assertion like, ‘I am over drinking water,’ would have to have to be in creating to foreclose discharge, whereas a really precise assertion like, ‘I have $200,000 of fairness in my household,’ would not.”   Such a reading through would be “inexplicably strange,” Sotomayor argued.

The belief was unanimous in all but the final part, which coated the statutory history of the phrase “respecting the debtor’s economical condition.” Justices Clarence Thomas, Samuel Alito and Neil Gorsuch declined to be a part of that component of the belief (while none of them bothered to generate independently).  For Thomas, this was not astonishing that part involved a dialogue of legislative history, and he, like the late Justice Antonin Scalia, generally refuses to be a part of thoughts dealing with legislative history. It is also shortly to say for specific irrespective of whether Gorsuch will consider the exact approach, but that would not be astonishing supplied his affinity for Scalia’s jurisprudence.  Alito is generally considerably less dogmatic about the use of legislative history, but he may possibly have simply discovered the dialogue needless supplied that the plain text of the Bankruptcy Code itself furnished a clear-cut respond to in this case—as the total court appeared to concur.

Indeed, the most astonishing point about Lamar is that the court even experienced to resolve the dispute. In retrospect, the text of the Bankruptcy Code, and its underlying logic and applications, appear to be to strongly guidance Appling’s reading through. Just one may speculate why a circuit break up on this question even arose. Nonetheless, maybe because of a absence of familiarity with specialized and complex bankruptcy concepts or an abundance of unsavory litigants, it is not strange for circuit courts to interpret the Bankruptcy Code in ways that appear to be to make minimal sense. For that explanation, Lamar is not the initial, and possible will not be the very last, circumstance in which the court demands to resolve a circuit break up on the that means of a seemingly clear-cut provision in the Bankruptcy Code.

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Posted in Lamar, Archer & Cofrin, LLP v. Appling, Featured, Merits Conditions

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Danielle D’Onfro,
Opinion assessment: Justices verify that “respecting” suggests “relating to” in the Bankruptcy Code,
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