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Law Firm Loses Fee Dispute at U.S. Supreme Court

June 4, 2018 | Posted in : Fee Dispute

A recent Daily Report story by R. Robin McDonald, “Atlanta Law Firm Loses Seven-Year Fee Fight at U.S. Supreme Court” reports that Atlanta firm Lamar Archer & Cofrin has lost a seven-year fee fight it took all the way to the U.S. Supreme Court.  The nation’s highest court affirmed a 2017 ruling by the U.S. Court of Appeals for the Eleventh Circuit favoring a law firm client’s effort to discharge unpaid legal bills in U.S. Bankruptcy Court.

The law firm claimed client Scott Appling misled them about promised payments if the firm continued to work on his behalf even though he had fallen behind. But Appling eventually reneged on that promise to pay.

The firm sued in 2011 after five years of non-payment, eventually securing a $104,000 judgment. Appling then filed for Chapter 7 bankruptcy and contended his unpaid legal fees were dischargeable.

The case centers on a section of the federal bankruptcy code addressing dishonest debtors. The bankruptcy code allows debts to be discharged even if a debtor’s statements respecting his overall financial condition are untrue, as long as they are not in writing. But the code also bars the discharge of debts involving money, property, services or credit if they are secured by “false pretenses, a false representation, or actual fraud.”

Writing for the majority, Justice Sonia Sotomayor said, “A creditor opposing discharge must explain why it viewed the debtor’s false representation as relevant to the decision to extend money, property, services, or credit. If a given statement did not actually serve as evidence of ability to pay, the creditor’s explanation will not suffice to bar discharge.”

All of the justices concurred, except Justices Clarence Thomas, Samuel Alito and Neil Gorsuch, who concurred in part and dissented in part.

Sotomayor also rejected Lamar, Archer & Cofrin’s contention that allowing their former client to discharge legal fees he had previously promised to pay leaves “fraudsters” free to “swindle innocent victims for money, property or services by lying about their finances, then discharge the resulting debt in bankruptcy, just so long as they do so orally.”

A stringent standard for barring the discharge of debts even when debtors’ statements about their finances prove false “are not a shield for dishonest debtors,” Sotomayor wrote. “Rather, they reflect Congress’ effort to balance the potential misuse of such statements by both debtors and creditors.”