Bartenwerfer v. BuckleyBartenwerfer v. Buckley
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
Kate 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 remаined 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. Buckley 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 representation, or actual fraud.”
(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
(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 Code 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 thаt
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.
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 makes 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, Dаvid 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
Like many home renovations, the Bartenwerfers’ project was bumpier than anticipated. Still, they managed to get the house оn 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 California state court. The jury found in Buckley‘s favor on his claims for breach of contract, negligence, and nondisclosure of material facts, leaving the Bartenwerfers jointly responsible for more than $200,000 in damages.
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 gеneral 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
The Ninth Circuit‘s Bankruptcy Appellate Panel agreed as to David‘s fraudulent intent but disagreed as to Kate‘s. As the panel saw it,
The Ninth Circuit reversed in relevant part. In re Bartenwerfer, 860 Fed. Appx. 544 (2021). Invoking our decision in Strang v. Bradner, 114 U. S. 555 (1885), it held that a debtor who is liable for her partner‘s fraud cannot discharge that debt in bankruptcy, regardless of her own culpability. 860 Fed. Appx., at 546. Kate thus remained on the hook for her debt to Buckley. Id., at 546–547. We granted certiorari to resolve confusion in the lower courts on the meaning of
II
A
“[W]e start where we always do: with the text of the statute.” Van Buren v. United States, 593 U. S. ___, ___ (2021) (slip op., at 5).
“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 is a “debt.” And third, because the debt arises from the sale рroceeds obtained by David‘s fraudulent misrepresentations, it is a debt “for money . . . obtained by . . . false pretenses, a false representation, or actual fraud.”
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 Bartenwerfеr, an ordinary English speaker would understand this sentence to mean that Jane‘s hard work led to her clerkship. Brief for Petitioner
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 pаssive-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 that 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
Searching for a way to defeat the natural breadth of the passive voice, Bartenwerfer points to our observation that “‘exceptions to discharge “should be confined to those plainly expressed.“‘” Bullock v. BankChampaign, N. A., 569 U. S. 267, 275 (2013) (quoting Kawaauhau v. Geiger, 523 U. S. 57, 62 (1998)). This does not get her far. We have never used this principle to artificially narrow ordinary meaning, which is what Bartenwerfer asks us to do. Instead, we have invoked it to stress that exceptions should not extend beyond their stated terms. In Gleason v. Thaw, we held that “liabilities for obtaining property” did not include an attorney‘s services because services are not property. 236 U. S. 558, 559–562 (1915). In Kawaauhau, we concluded that medical malpractice attributable to negligence or recklessness did not amount to a “willful and malicious injury.” 523 U. S., at 59. And in Bullock, interpreting the discharge exception “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny,” we applied the familiar noscitur a sociis canon to hold that the term “defalcation” possessed a mens rea requirement akin to those of “fraud,” “embezzlement,” and “larceny.” 569 U. S., at 269, 274–275. In each case, we reached a result that was “plainly expressed” by the text and ordinary tools of interpretation. Our interpretation in this case,
Bartenwerfer also seeks support from
This argument flips the rule that “‘[w]hen Congress includеs 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) (slip op., at 8) (quoting Collins v. Yellen, 594 U. S. ___, ___ (2021) (slip op., at 23)). 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
But in Field, we offered a possible answer for why (B) contains a more debtor-friendly discharge rule than (A): Congress may have “wanted to moderate the burden on individuals who submitted false financial statements, not because lies about financial condition are less blameworthy than others, but because the relative equities might be affected by practices of consumer finance companies, which sometimes have encouraged such falsity by their borrowers for the very purpose of insulating their own claims frоm discharge.” 516 U. S., at 76–77. This concern may also have informed Congress‘s decision to limit (B)‘s prohibition on discharge to fraudulent conduct by the debtor herself. Whatever the rationale, it does not “def[y] credulity” to think that Congress established differing rules for (A) and (B). Brief for Petitioner 23.
B
Our precedent, 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 Mаr. 2, 1867, §33, 14 Stat. 533 (emphasis added). This language seemed to limit the exception to fraud committed by
But we held otherwise in Strang v. Bradner. In that case, the business partner of John and Joseph Holland lied to fellow merchants in order 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 direсtion 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 Hollands could not discharge their debts to the deceived merchants. Id., at 561. The fraud of one partner, we explained, is the fraud of all because “[e]ach partner was the agent and representative of the firm with reference to all business within the scope of the partnership.” Ibid. And the reason for this rule was particularly easy to see because “the partners, who were not themselves guilty of wrоng, received and appropriated the fruits of the fraudulent conduct of their associate in business.” Ibid.
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) (slip op., at 13).
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.
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
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 rеscind the agreement. 27 R. Lord, Williston on Contracts §69:47 (4th ed. 2022). Thus, victims have a variety of antecedent defenses at their disposal that, if successful, protect them from acquiring any debt to discharge in a later bankruptcy proceeding.
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.
The Court correctly holds that
The Bankruptcy Court found that petitioner and her husband had an agency relationship and obtained the debt at issue after they formed a partnership. Because petitioner does not dispute that she and her husband acted as partners, the debt is not dischargeable under the statute.
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 sсope of the partnership.” Ante, at 5–6. With that understanding, I join the Court‘s opinion.