February 22, 2023
On February 22, 2023, Weil secured a 9-0 victory in the Supreme Court on behalf of its client, Kieran Buckley, who has been fighting to recover his losses since he was defrauded nearly 15 years ago.
The question presented in the Supreme Court was whether 11 U.S.C. § 523(a)(2)(A), which bars an individual debtor from discharging a “debt … for money … obtained by … actual fraud,” covers a debtor’s liability for money obtained by the actual fraud of their agent, even if the debtor did not personally perpetrate the fraud but is vicariously liable for it and shared in the proceeds. The Supreme Court unanimously affirmed the Ninth Circuit decision below that such a debt is non-dischargeable, signaling that the Bankruptcy Code cannot be used as a shield for those who profit from fraud. This is a complete victory for Weil’s client.
Petitioner, Kate Bartenwerfer, and her business partner, David Bartenwerfer, jointly sold Weil’s client a home in March 2008 at an elevated price by concealing a number of known defects. After our client secured a state court judgment against the Bartenwerfers, they jointly filed for bankruptcy to have their debt to Kieran Buckley discharged. The bankruptcy court found that David was directly liable for the fraud. The bankruptcy court then imputed liability for the fraud to Kate because she was in a business partnership with David to sell the home and the fraud was committed to enrich that partnership. Therefore, the bankruptcy court held that Kate’s vicarious liability was a “debt … obtained by … actual fraud” under 11 U.S.C. § 523(a)(2)(A). Through a winding series of lower court appeals, the Ninth Circuit eventually affirmed, holding that Kate Bartenwerfer’s debt for actual fraud was non-dischargeable, regardless of her personal involvement in or intent to commit the fraud.
The Supreme Court affirmed, resolving a circuit split over the dischargeability of such debts in bankruptcy. In an opinion written by Justice Barrett, the Court found that, “[b]y its terms,” the Code’s text precludes discharge of such debts. The Court thus adopted a nationwide rule in favor of fraud victims, preventing those who are liable for obtaining money via fraud from discharging that debt in bankruptcy, and thus facilitating victims’ efforts to obtain compensation for their losses.