Commercial Fraud Committee Newsletter

vol 14, num 2 | August 2018

Commercial Fraud

AN ABI COMMITTEE NEWSLETTER

Visit the Commercial Fraud Committee page

► IN this issue:

Lamar v. Appling: Supreme Court Confirms that "Respecting" Means "Relating to" under § 523(a)(2)(A)
Substance over Form: Ninth Circuit Clarifies When an Objection
to Exemptions Is Really an Objection
Distinction Without Difference: Substantial Certainty Under § 523(a)(6)

Lamar v. Appling: Supreme Court Confirms that "Respecting" Means "Relating to" under § 523(a)(2)(A)

Anne Rasho Vanderkamp
Baker Tilly Virchow Krause, LLP
Chicago

At what point does the policy of bankruptcy, a discharge that strongly favors the honest-but-unfortunate individual debtor, yield to creditor protections from fraudulent debtor behavior? This is a question the Supreme Court recently considered in its decision in Lamar, Archer & Cofrin LLP v. Appling.

Case Background

R. Scott Appling retained Lamar, Archer & Cofrin, LLP to represent Appling in a business litigation. By March 2005, Lamar threatened to withdraw from the case if Appling did not pay Lamar’s outstanding bills. Appling told Lamar that he was expecting a significant tax refund in excess of the amount owed to Lamar and that he would use that refund to pay Lamar. Lamar agreed to continue working on the case. In October 2005, Appling received the tax refund, but the amount of the refund was lower than Appling had expected. Rather than paying Lamar, Appling spent the tax refund on his business. In November 2005, Appling told Lamar he had not yet received the tax refund. In March 2006, Lamar sent Appling a final invoice for legal services, which remained unpaid. Five years later, Lamar filed suit in Georgia State Court and obtained a judgment against Appling. Appling then filed for chapter 7.

Substance over Form: Ninth Circuit Clarifies When an Objection to Exemptions Is Really an Objection

Kimberly A. Pierro
SunTrust Bank
Richmond, VA

A struggling real estate developer decided to do some asset-planning and transferred his partial interest in two properties to his wife as tenancy-by-the-entirety. Three years later, he filed for chapter 7 bankruptcy and claimed the two properties as exempt under 11 U.S.C. § 522(b)(3) and Hawaii state law. At the 11 U.S.C. § 341 meeting of the creditors on Dec.19, 2013, the trustee suggested the possibility of bringing a fraudulent-transfer case seeking to undo the transfers to the debtor’s wife. On Jan. 14, 2014, 26 days after the conclusion of the meeting of creditors, the trustee filed an adversary proceeding to set aside the debtor’s transfer of the properties to his wife.There was no mention of an objection to exemptions, no citation to 11 U.S.C. § 522(b)(3), and no request for relief from the bankruptcy court to deny the claimed tenancy-by-the-entirety exemption.

Distinction Without Difference: Substantial Certainty Under § 523(a)(6)

Christian A. Pereyda
Engel, Hairston & Johanson, P.C.
Birmingham, Ala.

Section 523(a)(6) of the Bankruptcy Code prohibits the discharge of debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.” Two decades ago, the Supreme Court clarified that “[t]he word ‘willful’ modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” In the wake of Geiger, circuits have agreed that a debtor’s “substantial certainty” of resulting injury satisfies the willfulness prong of § 523(a)(6), but have disagreed about “whether that substantial certainty must be judged subjectively or objectively.” But if circuits agree that a debtor is “charged with the knowledge of the natural consequences of his actions” and that willfulness may be proven by circumstantial evidence, then how would a subjective test of substantial certainty differ from an objective test?