Bartenwerfer v. Buckley
The Supreme Court ruled unanimously that a woman jointly liable for her husband's real-estate fraud cannot erase that debt in bankruptcy, even though she personally never committed or knew about the fraud.
The decision means that when state law holds someone responsible for a partner's or agent's fraud, bankruptcy cannot wipe out that obligation — even for people who had no hand in the wrongdoing.
How it got here: The Bankruptcy Court twice ruled on whether Kate's debt was dischargeable; the Bankruptcy Appellate Panel reversed and affirmed on different trips; the Ninth Circuit ultimately held the debt nondischargeable, and the Supreme Court agreed to resolve a split among the lower federal courts.
The Case in Depth
What happened
Kate and David Bartenwerfer jointly owned and renovated a San Francisco house, then sold it to Kieran Buckley. David concealed several defects — a leaky roof, defective windows, a missing fire escape, and permit problems — from Buckley. A California jury held both Bartenwerfers jointly responsible for more than $200,000 in damages. Unable to pay, they filed for bankruptcy. Kate argued she should be allowed to discharge the debt because she personally was unaware of David's concealment and played no role in the fraud.
The question before the Court
Can a person be blocked from erasing a debt in bankruptcy when the fraud that created the debt was committed by their business partner — not by them personally?
The Court's answer
No — the bankruptcy law's fraud exception blocks Kate from erasing the debt even though she personally committed no fraud. The key provision, 11 U.S.C. § 523(a)(2)(A), is written in the passive voice: it bars discharge of any debt for money "obtained by" fraud, without specifying who committed the fraud. The Court read this to mean Congress was "agnostic" about the identity of the wrongdoer — the statute focuses on how the money was obtained, not on who did the deceiving.
The Court reinforced this reading with two additional supports: the centuries-old common-law rule that partners and principals can be liable for their associates' fraud, and Congress's deliberate deletion in 1898 of a phrase that had limited the exception to fraud committed by the debtor herself — a change Congress made after the Court held in an 1885 case that a partner's fraud binds innocent co-partners who benefited from it.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Business partners, spouses in joint ventures, employers, and others who can be held legally responsible for an associate's fraud now have no bankruptcy escape from those debts, even if they were entirely innocent. The result turns on what the underlying state law says about shared liability — not on the debtor's personal knowledge or intent.
What changes now
Kate Bartenwerfer must repay her debt to Buckley and cannot discharge it in bankruptcy — the Supreme Court's ruling is final on the merits. No issues were sent back to lower courts. Going forward, anyone held legally liable for a business partner's or agent's fraud under state law faces the same consequence: the federal bankruptcy discharge exception will apply to them regardless of their personal innocence.
What this does not decide
The ruling covers fraud liability arising from partnership or agency relationships. The concurrence expressly flags that the Court did not decide whether someone could be blocked from discharging a debt for fraud committed by a person who had no agency or partnership relationship to the debtor at all — that question remains open.
Concurrences and dissents
Concurrence — Justice Sotomayor
Justice Sotomayor agreed with the Court's holding but wrote separately to cabin its reach. She emphasized that the case involves only fraud committed by a debtor's agent or partner — someone in a recognized legal relationship with the debtor — and that the Court's reasoning rests on common-law agency and partnership principles. She flagged that the ruling does not address fraud by a person with no such special relationship to the debtor, leaving that scenario for another day.
How the Court got there
The legal reasoning, step by step
- The Court started with the text of § 523(a)(2)(A), which bars discharge of any debt 'for money obtained by false pretenses, a false representation, or actual fraud.' Crucially, the statute is written in the passive voice — it does not say 'obtained by the debtor's fraud.' The passive voice, in the Court's reading, pulls the actor off the stage and makes the statute focus on the nature of the transaction, not on who carried out the deception.
- Kate argued that the passive voice still implies the debtor's own fraud — the way 'Jane's clerkship was obtained through hard work' implies Jane's own effort. The Court rejected this analogy: context can sometimes identify the implied actor in a passive construction, but the relevant legal context here — the common law of fraud — has long held that fraud liability extends beyond the wrongdoer to partners and principals, so context actually confirms the broader reading rather than narrowing it.
- The Court looked at neighboring subparagraphs (B) and (C) of the same statute, both of which expressly require culpable action by the debtor herself. Under the standard rule that Congress's deliberate inclusion of language in one provision and omission of it in another signals a different intent, the absence of a debtor-culpability requirement in (A) most plausibly means Congress chose not to include one — not that it goes without saying.
- Historical precedent sealed the analysis. In Strang v. Bradner (1885), the Court held that a partner's fraud is imputed to innocent co-partners who benefited from it, even under a version of the statute that used the phrase 'fraud of the bankrupt' — language that seemed to require the debtor's own wrongdoing. The Court extended fraud liability to innocent partners because they 'received and appropriated the fruits of the fraudulent conduct.'
- Congress then affirmatively endorsed that outcome. When it overhauled bankruptcy law in 1898, it deleted the phrase 'of the bankrupt' from the fraud-discharge exception. Because Congress is presumed to know the Court's prior decisions, deleting the very language that most strongly cut against Strang's result was an unmistakable signal that Congress embraced it.
- Kate's appeal to bankruptcy's 'fresh start' policy — the idea that bankruptcy should let honest debtors begin again — did not override the statutory text. The Court noted that § 523 exists precisely to balance debtors' interests against creditors', and that § 523(a)(2)(A) does not itself create liability for another's fraud: it simply takes existing liability as it finds it. If California law had not imposed joint liability on Kate, the bankruptcy exception would have had nothing to operate on.
Doctrinal impact
Cases affected by this decision
Reaffirms Strang v. Bradner (114 U.S. 555)
The Court reaffirmed that a partner's fraud is imputed to innocent co-partners who benefited from it, blocking their bankruptcy discharge.