In April 2002, Robert Clauss, Esq., agreed to represent Randall Church in connection with a divorce decree. Clauss ultimately withdrew as Church’s attorney, turning over all of his files to Church and releasing his attorney’s lien. In September 2003, Church filed for bankruptcy relief, scheduling an outstanding debt to Clauss of approximately $32,000. Clauss asserted that this debt was nondischargeable under Bankruptcy Code section 523(a)(2)(A), contending that Church had obtained the benefit of his legal services by falsely representing that�regardless of whether he filed a bankruptcy case�he would not discharge the debt to Clauss but would pay it in full.
The Bankruptcy Appellate Panel for the Eighth Circuit Court of Appeals, in applying Thul v. Ophaug (In re Ophaug), 827 F.2d 340 (9th Cir. 1987), and Caspers v. Van Horne, 823 F.2d 1285 (8th Cir. 1987) (setting forth the elements for misrepresentation, as articulated by the Eighth Circuit), distinguished between a promise to pay and a misrepresentation, stating that “a promise to pay a debt in the future is not a misrepresentation merely because the debtor fails to do so.” The BAP held that Clauss was obligated to prove both that Church had made an intentional misrepresentation and, consistent with Field v. Mans, 516 U.S. 59, 74 (1995), that Clauss had justifiably relied on that misrepresentation to his detriment. Not only did Clauss fail to establish the elements of an intentional misrepresentation, but he failed to prove that under the circumstances someone with his knowledge and expertise could justifiably rely on the debtor’s promises of repayment. Accordingly, the obligation was held to be dischargeable. See Clauss v. Church (In re Church), 328 B.R. 544 (8th Cir. BAP 2005).
Written by: Mette Kurth