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Litton Loan Servicing, L.P. v. Dennis Schubert

Summarizing by Amir Shachmurove

Appling v. Lamar, Archer & Cofrin, LLP (In re Appling)

Eleventh Circuit takes sides with the majority in circuit split over Section 523(a)(2).

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Case Type:
Case Status:
Reversed and Remanded
16-11911 (11th Circuit, Feb 15,2017) Published
Debtor's false oral statement to his attorneys about an anticipated tax refund was, despite being a statement about a single asset, a statement respecting the debtor's "financial condition." The 11th Circuit rejected the argument that § 523(a)(2)(B) applies only to statements about a debtor's "overall" financial condition. Thus, on the issue of whether the debtor's attorneys' fees debt was dischargeable, the false statement fell under 11 U.S.C. § 523(a)(2)(B), not § 523(a)(2)(A). And because the statement wasn't in writing, §523(a)(2)(B) didn't preclude discharge of the attorneys' fees debt.
Procedural context:
Debtor filed his bankruptcy case in the Middle District of Georgia. His former business attorneys filed a dischargeability adversary proceeding against him, claiming that their pre-petition attorneys' fees judgment against him was nondischargeable. The Bankruptcy Court determined that the claim was, under § 523(a)(2)(A), nondischargeable because the debtor had made a false statement to his attorneys on which they justifiably relied. The District Court affirmed.
The debtor hired the Lamar law firm to represent him in litigation against the former owners of his new business. When the debtor stopped paying his legal bills and the bills grew to around $61K, his attorneys threatened to quit. In response, the debtor told his attorneys, orally, that he anticipated receiving a federal tax refund in the amount of $100K and that he would use that refund to catch-up and pay going forward. The debtor's attorneys relied on his statement and kept working. As it turns out, the refund was only $60K or so. Worse, the debtor consumed the refund in his business rather than using it to pay his attorneys. Eventually, the debtor's attorneys obtained a $104K judgment against him for the unpaid attorneys' fees. Three months later, the debtor filed his bankruptcy case.
Pryor and Rosenbaum, Circuit Juges, and Martinez, District Judge (sitting by designation)

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