Bartenwerfer v. Buckley

Background

Kate and David Bartenwerfer were a couple who bought and remodeled a San Francisco house to sell for profit. David handled the renovation and sale; Kate was mostly uninvolved. The buyer, Kieran Buckley, later found undisclosed defects and won over $200,000 in state-court damages. The Bartenwerfers filed Chapter 7 bankruptcy, and Buckley sued in the bankruptcy case under the federal fraud exception to discharge, §523(a)(2)(A).

Reasoning

The Court addressed whether debts “obtained by … fraud” are nondischargeable when the debtor did not personally commit the fraud but is liable because of a partnership or agency relationship. The majority read the statute’s passive wording to focus on how the money was obtained, not who acted. It relied on older precedent holding partners’ frauds imputed to co-partners and noted Congress’s later statutory changes, concluding the text bars discharge regardless of the innocent partner’s personal intent.

Real world impact

The ruling means people who are legally liable for a partner’s or agent’s fraud cannot erase that debt in bankruptcy even if they lacked knowledge or intent. Creditors who were defrauded can pursue recovery against co-owners and partners despite a bankruptcy filing. The Court emphasized that state law defines who is liable and that ordinary defenses and entity choices (like limited liability) may limit exposure.

Dissents or concurrances

Justice Sotomayor, joined by Justice Jackson, concurred. She agreed the statute incorporates common-law agency and partnership principles and noted this case involves an agency/partnership relationship, so the debt is nondischargeable.