US Supreme Court to weigh whether wife is liable in bankruptcy for husband’s fraud

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A arrives at the U.S. District Bankruptcy Court for the Southern District of New York in Manhattan, New York, U.S., January 9, 2020. REUTERS/Brendan McDermid

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  • The husband’s fraud in the sale of the house could affect the wife in bankruptcy
  • Home buyer says wife can’t avoid damages even if she didn’t know about fraud

(Reuters) – The U.S. Supreme Court agreed on Monday to hear a case to determine whether a bankrupt is responsible for the fraud of his business partner and her husband, even if he was unaware of his partner’s actions.

California resident Kate Bartenwerfer has asked the high court to reverse an August decision by the U.S. Court of Appeals for the 9th Circuit that holds she cannot use bankruptcy to escape a lawsuit stemming from fraudulent omissions by her husband. when selling your house. The couple was a business partner in addition to being married, as they initially bought the house with the intention of trading it, according to court documents.

Bartenwerfer’s lawyers argued in his December writ petition that the issue “potentially affects every joint transaction or endeavor that could be construed as a partnership, including transactions involving married persons and couples, even the sale of a family home.”

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The dispute arose after a San Francisco home buyer, Kieran Buckley, sued the Bartenwerfers, alleging they withheld information about major defects and led him to believe the home had a “clean bill of health,” attorneys for the Bartenwerfers said. Buckley in court papers.

An attorney for Buckley declined to comment.

The couple said Bartenwerfer had no way of knowing about the home’s structural flaws, in part because the couple didn’t live in the house in the months leading up to the sale.

After a California jury returned a verdict in Buckley’s favor in 2012, awarding him more than $600,000 in damages and attorney fees, the couple filed for joint bankruptcy.

While bankruptcy is generally used to settle debts, those resulting from fraudulent activities cannot be discharged through bankruptcy proceedings.

The 9th Circuit held in August that Bartenwerfer could not discharge damages “regardless of his knowledge of the fraud.” The court relied on the 1885 Supreme Court decision in Strang v. Bradner who held that a person cannot escape a monetary judgment based on the fact that he was incurred in the actions of his business associate without his knowledge.

Bartenwerfer appealed to the Supreme Court, arguing that the court should take the case to resolve a circuit split. While the 9th Circuit ruling concurred with the 5th and 11th Circuit decisions, the 7th and 8th Circuits determined that a debtor must have some knowledge of the fraudulent activity of his partner to be held responsible.

The case is Bartenwerfer v. Buckley, US Supreme Court, No. 21-908.

For Bartenwerfer: Iain Macdonald and Reno Fernandez de Macdonald Fernandez

For Buckley: Zachary Tripp of Weil Gotshal & Manges; and Janet Marie Brayer of the Law Offices of Janet Brayer

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Mary Chutchian

Thomson Reuters

Maria Chutchian reports on corporate bankruptcy and restructuring. She can be reached at [email protected]

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