How much precedential value does an 1885 opinion of the U.S. Supreme Court deserve on a bankruptcy discharge issue?
That’s a central question in the Petition for a Writ of Certiorari before the U.S. Supreme Court in Bartenwerfer v. Buckly, Case No. 21-908 (“Distributed for Conference of 4/29/2022”).
Facts of the Case [Fn. 1]
Husband and wife buy a home. Later, Wife moves out, and Husband handles the sale of the home. He does so with Wife’s consent but without her involvement.
Unbeknownst to Wife, Husband makes false representations to Buyer.
Then, Buyer discovers defects in the home and obtains a judgment against Husband for nondisclosure of material facts. Wife becomes liable on the same judgment by imputation.
Then, Husband and Wife file a joint Chapter 7 Bankruptcy, in which Buyer sues them both to except Buyer’s claim from their discharges under § 523(a)(2)(A).
Bankruptcy Court enters a nondischargeable judgment against Husband for $539.157.70. But it allows Wife to discharge Buyer’s claim because she reasonably had no knowledge of Husband’s fraud.
On appeal, the Ninth Circuit BAP affirms.
On further appeal, the Ninth Circuit Court of Appeals reverses, declaring:
- Buyer’s claim against Wife is “nondischargeable regardless of her knowledge of the fraud”; and
- A “knew or should have known” discharge standard applied by other circuit courts is “the incorrect legal standard for imputed liability in a partnership relationship.”
1885 Supreme Court Precedent
Ultimate authority cited by the Ninth Circuit for its reversal is an ancient opinion from the U.S. Supreme Court (Strang v. Bradner, 114 U.S. 555 (1885)) in which a partnership debt is declared nondischargeable for innocent partners (under the Bankruptcy Act of 1867) who had no knowledge of their partner’s fraud.
Old Bankruptcy Precedents—A Problem
Citing old bankruptcy precedents (particularly on discharge issues) is a problem.
Old bankruptcy opinions should have limited-to-no precedential value today in the discharge context.
Here are three reasons why.
- Until the 1830s, non-payment of debts in these United States is a crime punishable by imprisonment for an indefinite term. An old opinion from the U.S. Supreme Court declares, for example: “The committing an act of bankruptcy is, in law, considered as criminal. The bankrupt law is, therefore, in this respect, to be construed strictly.” [Fn. 2]
- The U.S. Supreme Court’s 1885 Strang v. Bradner opinion is decided under dischargeability provisions of The Bankruptcy Act of 1867, which Act is repealed in 1878 because “only about one-third of debtors” are granted a discharge under that Act due to its “many exceptions to discharge.” [Fn. 3]
- In 1989, a U.S. Supreme Court majority laments that enactment of the current Bankruptcy Code (the Bankruptcy Reform Act of 1978) instituted “sweeping changes” and “radical reforms.” [Fn. 4]
Accordingly, the thinking behind an 1885 opinion of the U.S. Supreme Court on a bankruptcy discharge issue is radically different from bankruptcy considerations applicable in today’s world.
No deference should be given to a U.S. Supreme Court opinion, on discharge issues, that’s decided over a century ago under the Bankruptcy Act of 1867.
Footnote 1: These facts are from the Petition for a Writ of Certiorari in Bartenwerfer v. Buckly.
Footnote 2: This quote is from Wood v. Owings, 5 U.S. (1 Cranch) 239 (1803).
Footnote 3: These quotes are from “A Relatively Short History of the Bankarputcy Laws in the United States,” published by NCBJ Blog (February 27, 2019).
Footnote 4: These descriptions are from Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, fn. 16 (1989).
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