Source: https://mediatbankry.com/2018/01/18/u-s-supreme-court-and-statute-of-frauds-for-nondischargeability-%C2%A7-523a2-in-re-appling/
Timestamp: 2019-04-19 00:37:59+00:00

Document:
On Friday, January 12, 2018, the U.S. Supreme Court granted certiorari in Lamar, Archer & Cofrin, LLP v. Appling (In re Appling), Case No. 16-1215, to resolve an indistinct legal standard. The case is about a statute of frauds for nondischargeability.
Generally, a statute of frauds requires that certain promises be in writing to be enforceable, such as a promise to sell real estate. The word “frauds” gets into the name because a writing minimizes opportunities for fraud.
—a false statement “respecting the debtor’s financial condition” must be in writing to be nondischargeable.
— “Narrow view” says the “respecting” statement must be about the overall financial condition—like a balance sheet. The practical effect is that oral-and-fraudulent statements about individual assets will create nondischargeability.
Here’s a follow-up question: might there be a different/third view for evaluating the same “respecting . . . financial condition” standard under a variety of considerations, instead of the overall-condition v. any-asset distinction? Such a view would, presumably, replace the thin, fine and bright line approach, represented by each of the two views noted above, with a fatter, broader and less distinct approach that evaluates each situation under a variety of factors.
Different view + oral fraudulent statement = ???
Circumstances in which the § 523(a)(2) statute of frauds is applied are often blurry and indistinct. Here’s how the two statute of frauds views play out in actual cases that create a split of authority among the circuit courts of appeals.
In re Appling, 848 F.3d 953 (11th Cir. 2017). Appling hired a law firm to defend him in a lawsuit. When unpaid fees piled up, Appling said he expected a $100,000 tax refund and would use it to pay fees. So the firm kept working. Instead, Appling used the refund for operating expenses. Appling then filed bankruptcy, and the firm sued for nondischargeability based on fraud, under § 523(a)(2). The Eleventh Circuit applied the broad view, holding that the oral tax refund statements are “respecting the debtor’s financial condition” and, therefore, must be in writing to be nondischargeable.
Engler v. Van Steinburg, 744 F.2d 1060 (4th Cir. 1984). Engler loaned Van Steinburg $5,000 based on Van Steinburg’s false oral assurances that Engler would have a first lien to secure the loan. The Fourth Circuit held that such assurances are not merely statements “respecting his financial condition” but “may be the most significant information about his financial condition.” Accordingly, such assurances “must be in writing to bar” discharge under § 523(a)(2).
In re Joelson,427 F.3d 700 (10th Cir. 2005). A waitress befriended a single, retired restaurant patron and got a $50,000 loan from him. She told him that she owned various parcels of real estate—and even showed those properties to him. She, of course, did not own them. She then filed bankruptcy, and he brought a nondischargeability claim under § 523(a)(2). The Bankruptcy Court ruled in his favor. On appeal she claimed her representations were oral-only, were “respecting” her “financial condition,” and should be discharged. The Tenth Circuit adopted the narrow view as “most consistent with the text and structure of the Bankruptcy Code” and its legislative history and case law. So, it declared the patron’s claim nondischargeable.
Reasons articulated for each of the broad and narrow views, on statute of frauds for nondischargeability under § 523(a)(2), include the following.
Statutory construction: While “financial condition” might mean “the sum of all assets and liabilities,” the word “respecting” includes a statement about a single asset.
Statutory construction: The term “financial condition” refers, in various Bankruptcy Code definitions, to an entity’s overall property and debts.
–It doesn’t make sense to “protect creditors who were not quite reasonable in relying on a fraudulent representation” and to “apply a different rule when fraud is carried to the point of a written financial statement”?
It’s hard to believe that the line between dischargeability and nondischargeability of a fraud claim, based on a statement about one asset, would be thin, fine and bright. Such a line would provide a simple answer to varied and often-complex circumstances.
Perhaps the Supreme Court will come up with a different formulation of a fatter, broader and less distinct line that incorporates a variety of considerations in evaluating the “respecting” standard for nondischargeability.
It will be interesting to see which way the Supreme Court goes on this. Will it stick with its discussion, in Field v. Mans, that reflects a narrow view? Or will it distinguish or clarify those words and adopt the broad view? Or perhaps it will do something entirely different and unexpected–like developing a middle ground? Time will tell.

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