First Two Bankruptcy Opinions From The U.S. Supreme Court (Reily v. Lamar & U.S. v. Fisher)?

By: Donald L Swanson

The U.S. Supreme Court issues its first-ever opinion—of any type—on August 3, 1791. [Fn. 1]  But it does not address a bankruptcy question for quite some time thereafter.  In fact, the first U.S. law on the subject of bankruptcy did not exist until the Bankruptcy Act of 1800. 

First Bankruptcy Opinion

The U.S. Supreme Court’s opinion in the case of  Reily v. Lamar, 6 U.S. 344 (1805) (decided February 19, 1805), is one of the first—if not the very first—opinion of the U.S. Supreme Court on the subject of bankruptcy law. [Fn. 2]   But the Reily opinion had nothing to do with federal law.

In Reily, the Debtor claims a defense to Lamar’s debt collection efforts, based on a discharge of debts he received under Maryland’s insolvency law. 

The U.S. Supreme Court rejects Reily’s discharge defense. 

In doing so, the Court does not even mention the proposition that only Congress has authority to enact a bankruptcy discharge law, as specified in the Bankruptcy Clause of the U.S. Constitution (Article 1, Section 8, Clause 4). 

Instead, the Court rejects Reily’s discharge defense for the reason that Reily was not a citizen of the State of Maryland on the effective date of his discharge under Maryland’s state insolvency law.  Here are the details:

• At all material times, Reily lived in an area of the State of Maryland that would become the District of Columbia;
• By February 27, 1801, the State of Maryland had ceded away the area where Reily lived to the District of Columbia;
• Upon separation of the District of Columbia from the State of Maryland, Reily ceased to be a citizen of that state—he resided in the District of Columbia from that time forward;
• Effective March 23, 1801, (less than a month later) Reily claimed entitlement to a discharge of his debts—that’s when he executed his “deed of assignment” of all his assets to a trustee under Maryland law; and 
• Since Reily was not a citizen of the State of Maryland on March 23, 1801, executing a deed of assignment on that date could not result in a discharge of his debts under Maryland law. 

Second Bankruptcy Opinion

Two days later, the U.S. Supreme Court issues another bankruptcy opinion: United States v. Fisher, 6 U.S. 358 (1805) (decided February 21, 1805). 

In this case, the Supreme Court declares that the claims of the United States against assets of a bankruptcy debtor are entitled to priority over claims of other creditors—based on provisions of the Bankruptcy Act of 1800 and a related federal law. 

As in the opinion from two days prior, the Fisher opinion makes no mention of the Bankruptcy Clause of the U.S. Constitution.

Conclusion

Two of the earliest opinions of the U.S. Supreme Court on the subject of bankruptcy fail to even mention the Bankruptcy Clause in the U.S. Constitution.  Such a failure of recognition is a deficiency that has continued on, in many bankruptcy opinions of the U.S. Supreme Court, to the present day.

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Footnote 1:  This information is from “The Court as an Institution,” published on the website of the Supreme Court of the United States.

Footnote 2:  This first-ever designation is my own speculation, based on research to date.

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