BARTENWERFER v. BUCKLEY
No. 21–908
SUPREME COURT OF THE UNITED STATES
February 22, 2023
598 U. S. 69
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Kаte and David Bartenwerfer decided to remodel the house they jointly owned in San Francisco and to sell it for a profit. David took charge of the project, while Kate remained largely uninvolved. They eventually sold the house to respondent Kieran Buckley. In conjunction with the sale, Kate and David attested that they had disclosed all material facts related to the property. After the purchase, Buckley discovered several defects that the Bartenwerfers had failed to disclose. Buсkley sued in California state court and won, leaving the Bartenwerfers jointly responsible for more than $200,000 in damages. Unable to pay that judgment or their other creditors, the Bartenwerfers filed for Chapter 7 bankruptcy. Buckley then filed an adversary complaint in the bankruptcy proceeding, alleging that the debt owed him on the state-court judgment was nondischargeable under the Bankruptcy Code‘s exception to discharge of “any debt . . . for money . . . to the extent obtained by . . . false pretenses, a false reрresentation, or actual fraud.”
Held:
(a) Kate (hereinafter, Bartenwerfer) disputes a straightforward reading of
Bartenwerfer points out that “‘exceptions to discharge should be confined to those plainly expressed.‘” Bullock v. BankChampaign, N. A., 569 U. S. 267, 275. The Court, however, has never used this principle to artificially narrow ordinary meaning, invoking it instead to stress that exceptions should not extend beyond their stated terms. See, e. g., Gleason v. Thaw, 236 U. S. 558, 559–562.
Bartenwerfer also seeks support from
(b) Any remaining doubt about the textual analysis is eliminated by this Court‘s precedent and Congress‘s response to it. In Strang v. Bradner, 114 U. S. 555, the Court held that the fraud of one partner should be imputed to the other partners, who “received and appropriated the fruits of the fraudulent conduct.” Id., at 561. The Court so hеld despite the fact that the relevant 19th-century discharge exception for fraud disallowed the discharge of debts “created by the fraud or embezzlement of the bankrupt.” 14 Stat. 533 (emphasis added).
(c) Finally, Bartenwerfer insists that the preclusion of faultless debtors from discharging liabilities run up by their associates is inconsistent with bankruptcy law‘s “fresh start” policy. But the Bankruptcy Cоde is not focused on the unadulterated pursuit of the debtor‘s interest, and instead seeks to balance multiple, often competing interests. Bartenwerfer‘s fairness-based critiques also miss the fact that
860 Fed. Appx. 544, affirmed.
BARRETT, J., filed an opinion for a unanimous Court. SOTOMAYOR, J., filed a concurring opinion, in which JACKSON, J., joined, post, p. 83.
Sarah M. Harris argued the cause for petitioner. With her on the briefs were Lisa S. Blatt, Iain Angus MacDonald, Reno Fernandez, and Anna-Rose Mathieson.
Zachary D. Tripp argued the cause for respondent. With him on the brief were Robert B. Niles-Weed and Janet Marie Brayer.
Erica L. Ross argued the cause for the United States. With her on the brief were Solicitor General Prelogar, Principal Deputy Assistant Attorney General Boynton, Deputy Solicitor General Gannon, Michael S. Raab, and Sushma Soni.*
*Briefs of amici curiae urging reversal were filed for Law Professors by Peter V. Marchetti; for the National Consumer Bankruptcy Rights Center et al. by Tara Twomey and Jacob T. Spencer; for Hon. Judith Fitzgerald et al. by David R. Kuney; and for Robert E. Zuckerman by Kathryn M. Davis.
A brief of amici curiae was filed for Lawrence Ponoroff et al. by Elaine J. Goldenberg and J. Kain Day.
JUSTICE BARRETT delivered the opinion of the Court.
The Bankruptcy Code strikes a balance between the interests of insolvent debtors and their creditors. It generally allows debtors to discharge all prebankruptcy liabilities, but it makеs exceptions when, in Congress‘s judgment, the creditor‘s interest in recovering a particular debt outweighs the debtor‘s interest in a fresh start. One such exception bars debtors from discharging any debt for money “obtained by . . . fraud.”
I
In 2005, Kate Bartenwerfer and her then-boyfriend, David Bartenwerfer, jointly purchased a house in San Francisco. Acting as business partners, the pair decided to remodel the house and sell it at a profit. David took charge of the project. He hired an architect, structural engineer, designer, and general contractor; he monitored their work, reviewed invoices, and signed checks. Kate, on the other hand, was largely uninvolved.
Likе many home renovations, the Bartenwerfers’ project was bumpier than anticipated. Still, they managed to get the house on the market, and Kieran Buckley bought it. In conjunction with the sale, the Bartenwerfers attested that they had disclosed all material facts relating to the property. Yet after the house was his, Buckley discovered several defects that the Bartenwerfers had not divulged: a leaky roof, defective windows, a missing fire escape, and permit problems. Alleging that he had overpaid in reliance on the Bartenwerfers’ misrepresentations, Buckley sued them in Cali-
The Bartenwerfers were unable to pay Buckley, not to mention their other creditors. Seeking relief, they filed for Chapter 7 bankruptcy, which allows debtors to get a “fresh start” by discharging their debts. Marrama v. Citizens Bank of Mass., 549 U. S. 365, 367 (2007) (internal quotation marks omitted). While that sounds like complete relief, there is a catch—not all debts are dischargeable. The Code makes several exceptions to the general rule, including the one at issue in this case:
Buckley filed an adversary complaint alleging that the money owed on the state-court judgment fell within this exception. After a 2-day bench trial, the Bankruptcy Court decided that neither David nor Kate Bartenwerfer could discharge their debt to Buckley. Based on testimony from the parties, real-estate agents, and contractors, the court found that David had knowingly concealed the house‘s defects from Buckley. And the court imputed David‘s fraudulent intent to Kate because the two had formed a legal partnership to execute the renovation and resale project.
The Ninth Circuit‘s Bankruptcy Appellate Panel agreed as to David‘s fraudulent intent but disagreed as to Katе‘s. As the panel saw it,
II
A
“[W]e start where we always do: with the text of the statute.” Van Buren v. United States, 593 U. S. ___, ___ (2021).
“A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . .
“(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
“(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor‘s or an insider‘s financial condition.”
By its terms, this text precludes Kate Bartenwerfer from discharging her liability for the state-court judgment. (From now on, we will refer to Kate as “Bartenwerfer.“) First, she is an “individual debtor.” Second, the judgment
Bartenwerfer disputes the third premise. She admits that, as a grammatical matter, the passive-voice statute does not specify a fraudulent actor. But in her view, the statute is most naturally read to bar the discharge of debts for money obtained by the debtor‘s fraud.2 To illustrate, she offers the sentence “Jane‘s clerkship was obtained through hard work.” According to Bartenwerfer, an ordinary English speaker would understand this sentence to mean that Jane‘s hard work led to her clerkship. Brief for Petitioner 20.
We disagree: Passive voice pulls the actor off the stage. At least on its face, Bartenwerfer‘s sentence conveys only that someone‘s hard work led to Jane‘s clerkship—whether that be Jane herself, the professor who wrote a last-minute letter of recommendation, or the counselor who collated the application materials.
It is true, of course, that context can confine a passive-voice sentence to a likely set of actors. E. I. du Pont de Nemours & Co. v. Train, 430 U. S. 112, 128–129 (1977). If the dean of the law school delivers Bartenwerfer‘s hypothetical statement to Jane‘s parents, the most natural implication is thаt Jane‘s hard work led to the clerkship. But in the fraud-discharge exception, context does not single out the wrongdoer as the relevant actor. Quite the opposite: The relevant legal context—the common law of fraud—has long maintained that fraud liability is not limited to the wrongdoer. Field v. Mans, 516 U. S. 59, 70–75 (1995) (interpreting
Bartenwerfer also seeks support from
This argument flips the rule that “‘[w]hen Congress includes particular language in one section of a statute but omits it in another section of the same Act,’ we generally take the choice to be deliberate.” Badgerow v. Walters, 596 U. S. ___, ___ (2022) (quoting Collins v. Yellen, 594 U. S. ___, ___ (2021)). As the word “generally” indicates, this rule is not absolute. Context counts, and it is sometimes difficult to read much into the absence of a word that is present elsewhere in a statute. See, e. g., Field, 516 U. S., at 67–69. But if there is an inference to be drawn here, it is not the one that Bartenwerfer suggests. The more likely inference is that (A) excludes debtor culpability from consideration given that (B) and (C) expressly hinge on it.
Bartenwerfer retorts that it would have made no sense for Congress to set up such a dichotomy, particularly between (A) and (B). These two provisions are linked: (A) carves out fraudulent “statement[s] respecting the debtor‘s or an insider‘s financial condition,” while (B) governs such statements that are reduced to writing. In Bartenwerfer‘s viеw, it “defies credulity” to think that Congress would bar debtors from discharging liability for mine-run fraud they did not personally commit while simultaneously allowing debtors to discharge liability for (potentially more serious) fraudulent statements they did not personally make. Brief for Petitioner 23.
B
Our precedеnt, along with Congress‘s response to it, eliminates any possible doubt about our textual analysis. In the late 19th century, the discharge exception for fraud read as follows: “[N]o debt created by the fraud or embezzlement of the bankrupt . . . shall be discharged under this act.” Act of Mar. 2, 1867, § 33, 14 Stat. 533 (emphasis added). This language seemed to limit the exception to fraud committed by the debtor herself—the position that Bartenwerfer advocates here.
But we held otherwise in Strang v. Bradner. In that case, the business partner of John and Joseph Holland lied to fellow merchants in оrder to secure promissory notes for the benefit of their partnership. 114 U. S., at 557–558. After a state court held all three partners liable for fraud, the Hollands tried to discharge their debts in bankruptcy on the ground that their partner‘s misrepresentations “were not made by their direction nor with their knowledge.” Id., at 557, 561. Even though the statute required the debt to be created by the fraud “of the bankrupt,” we held that the
The next development—Congress‘s post-Strang legislation—is the linchpin.3 “This Court generally assumes that, when Congress enacts statutes, it is aware of this Court‘s relevant precedents.” Ysleta del Sur Pueblo v. Texas, 596 U. S. ___, ___ (2022).
But Congress went even further than mere reenactment. Thirteen years after Strang, when Congress next overhauled bankruptcy law, it deleted “of the bankrupt” from the discharge exception for fraud, which is the predecessor to the modern
C
In a last-ditch effort to persuade us, Bartenwerfer invokes the “fresh start” policy of modern bankruptcy law. Precluding faultless debtors from discharging liabilities run up by their associates, she says, is inconsistent with that policy, so
This argument earns credit for color but not much else. To begin, it charaсterizes the Bankruptcy Code as focused on the unadulterated pursuit of the debtor‘s interest. But the Code, like all statutes, balances multiple, often competing interests.
It also bears emphasis—because the thread is easily lost in Bartenwerfer‘s argument—that
And while Bartenwerfer paints a picture of liability imposed willy-nilly on hapless bystanders, the law of fraud does not work that way. Ordinarily, a faultless individual is responsible for another‘s debt only when the two have a special relationship, and even then, defenses to liability are available. For instance, though an employer is generally accountable for the wrongdoing of an employee, he usually can escape liability if he proves that the employee‘s action was committed outside the scope of employment. Restatement (Third) of Agency § 7.07 (2006); D. Dobbs, P. Hayden, & E. Bublick, Law of Torts § 425 (2022). Similarly, if one partner takes a wrongful act without authority or outside the ordinary course of business, then the partnership—and by extension, the innocent partners—are generally not on the hook. Uniform Partnership Act § 305 (2013). Partnerships and other businesses can also organize as limited-liability entities, which insulate individuals from personal exposure to the business‘s debts. See, e. g., § 306(c) (limited-liability partnerships); Uniform Limited Partnership Act § 303(a) (2013) (limited pаrtnerships); Uniform Limited Liability Company Act § 304(a) (2013) (limited-liability companies).
Individuals who themselves are victims of fraud are also likely to have defenses to liability. If a surety or guarantor is duped into assuming secondary liability, then his obligation is typically voidable. Law of Suretyship and Guaranty § 6:8 (2022); Restatement (Third) of Suretyship & Guaranty § 12 (1996). Likewise, if a purchaser unwittingly contracts for fraudulently obtained property, he may be able to rescind the agreement. 27 R. Lord, Williston on Contracts § 69:47
All of this said, innocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy,
III
We affirm the Ninth Circuit‘s judgment that Kate Bartenwerfer‘s debt is not dischargeable in bankruptcy.
It is so ordered.
BARTENWERFER v. BUCKLEY
No. 21–908
SUPREME COURT OF THE UNITED STATES
February 22, 2023
The Court correctly holds that
The Bankruptcy Court found that petitioner and her husband had an agency relationship and obtained the debt at
The Court here does not confront a situation involving fraud by a person bearing no agency or partnership relationship to the debtor. Instead, “[t]he relevant legal context” concerns fraud only by “agents” and “partners within the scope of the partnership.” Ante, at 76. With that understanding, I join the Court‘s opinion.