A Little Shameless Self Promotion!
Be Careful Selecting Your Partner! I’m referring to marriage partners and business partners because the United States Supreme Court recently held that a debt incurred by fraud may not be discharged (“wiped out” in the vernacular) in bankruptcy even when the debtor (person filing bankruptcy) is an innocent partner who did not commit the fraud himself. Key to the ruling is the legal principle that partners are liable for each other’s partnership debts (which is why most law firms are limited liability companies or professional corporations as opposed to partnerships).
The Court held in Bartenwerfer v. Buckley, 2023 WL 2144417 that, Kate Bartenwerfer who had filed for personal bankruptcy, still owed the debt even if she did not know about her husband David’s misrepresentations regarding the condition of a house when they sold it to a San Francisco real estate developer.
The 9-0 decision written by Justice Amy Coney Barrett resolved a difference of opinion between several federal circuit appeals courts on the question of whether an innocent party can shield him or herself from a partner’s person’s fraud after filing for bankruptcy.
Justice Coney Barrett twice cited a case where I represented the Petitioner, argued it before the Court and lost (9-0) in Kawaauhau v. Geiger 118 S. Ct. 974 (1998).
Kawaauhau dealt with what constituted a willful and malicious injury which could NOT be wiped out in bankruptcy. That opinion came to mind recently when I heard about the terrible situation where the young black man who went to the wrong house and was shot by the old white guy. The man’s lawyer has pressed for the shooter to be prosecuted but my experience says he should think twice about that wish. If it was a crime- a civil lawsuit probably would be fruitless because the shooter is married and presumably all his assets are in joint names with his wife. If on the other hand, its alleged that it was all a big mistake and the shooter was negligent his home owner’s insurance might well pay out the policy limit which is probably about $1M
Going back to the Bartenwerfer case, this marked the ninth time that the Kawaauhau case had been cited by the Supreme Court itself and the 2,948th it has been cited by other federal courts including 108 times by the Courts of Appeal in the past twenty five years. I have left my mark on bankruptcy law by convincing the Court to take a case and then losing it!
The only justice still on the Court from when I argued is Clarence Thomas (who was the only one not to ask a question of me) and who has had many paid vacations since then.
The moral of Bartenwerfer is that while you may not be a crook, your partner may be, and you will be liable for his or her fraud!