Larpar, Archer & Cofrin, LLP v. Appling (In re Appling), 527 B.R. 545

Background

Debtor R. Scott Appling retained Lamar, Archer & Cofrin (Plaintiff) in July 2004 to litigate rescission of a business purchase; fees billed monthly and went unpaid, reaching roughly $60,800 by March 2005.
At a March 18, 2005 meeting, Debtor allegedly told counsel his accountant had prepared an amended return and he expected a ~$100,000 refund which would be used to pay fees; the Court found the part about the refund amount was knowingly false.
Debtor signed a 2002 amended return on June 15, 2005 that sought only $60,718 (reduced by the IRS to $59,851), and Debtor received that refund before November 2005 but did not pay the firms.
At a November 2, 2005 meeting, Debtor told Plaintiff he had not yet received the refund (and generally failed to disclose the true, much smaller amount); the Court found this to be an intentional false representation and false pretense.
Plaintiff continued representation and forbeared collection in reliance on Debtor’s statements; Plaintiff later obtained a state court judgment for $104,179.60 and Debtor filed Chapter 7 in January 2013.
The bankruptcy court held Plaintiff proved the elements of nondischargeability under 11 U.S.C. § 523(a)(2)(A) based on the fraudulent procurement of forbearance/extension of credit.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Debtor made false representations with intent to deceive	Debtor knowingly misrepresented that an amended return existed and that a ~$100,000 refund was forthcoming to induce continued representation	Debtor says he honestly believed a ~$100,000 refund was possible and did not knowingly lie	Court: No false statement about return being prepared at March meeting, but Debtor knowingly misrepresented refund amount at March meeting; knowingly lied at November meeting about not having received refund and concealed the true amount
Whether Plaintiff justifiably relied on Debtor’s statements	Plaintiff relied and thus forebore collection and continued representation based on Debtor’s assurances	Debtor argues Plaintiff knew his precarious finances and thus reliance was not justified	Court: Reliance was justifiable; Plaintiff had no facts that would have alerted it to falsity and would have withdrawn/collected if told the truth
Whether the forbearance/continuation of services makes the debt nondischargeable under § 523(a)(2)(A)	Fraudulent procurement of forbearance constitutes an extension of credit making the entire debt nondischargeable	Debtor argues damages should be limited to post-misrepresentation amounts and that Plaintiff could not have collected anyway	Court: Extension/forbearance renders entire debt nondischargeable; creditor need not show it could have collected earlier
Scope of nondischargeability damages	Plaintiff seeks entire judgment ($104,179.60) as nondischargeable because the debt was extended by fraud	Debtor contends only the portion attributable to post-misrepresentation conduct should be nondischargeable	Court: Entire outstanding debt made nondischargeable by fraudulent extension/forbearance

Key Cases Cited

Grogan v. Garner, 498 U.S. 279 (creditor bears preponderance burden to prove nondischargeability)
Field v. Mans, 516 U.S. 59 (1995) (§ 523(a)(2)(A) requires justifiable reliance under common law)
Johannessen v. Johannessen, 76 F.3d 347 (11th Cir.) (elements of § 523(a)(2)(A))
Equitable Bank v. Miller (In re Miller), 39 F.3d 301 (11th Cir.) (narrow construction of exceptions to discharge)
Wolf v. Campbell (In re Campbell), 159 F.3d 963 (6th Cir.) (fraudulently obtained forbearance/extension can render entire debt nondischargeable)
Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126 (4th Cir.) (extension/refinancing by fraud reaches entire debt)
Ojeda v. Goldberg, 599 F.3d 712 (10th Cir.) (forbearance as an extension of credit under § 523(a)(2)(A))