Document: 538 U.S. 314 ARCHER ET UX.v.WARNER. No. 01-1418. Supreme Court of United States. Argued January 13, 2003. Decided March 31, A debt is not dischargeable in bankruptcy "to the extent" it "for money ... obtained by fraud." 11 U. S. C. § 523(a)(2)(A). Petitioners, Archers, sued respondent Warner and her former husband state court for (among other things) fraud connected with sale Warners' company to Archers. In settling lawsuit, Archers executed releases discharging Warners from all present future claims, except obligations under a $100,000 promissory note related instruments. The then voluntarily dismissed lawsuit prejudice. After failed make first payment on note, court. filed bankruptcy, Bankruptcy ordered liquidation Chapter 7. brought claim, asking find nondischargeable, order pay sum. Respondent contested nondischargeability. denied Archers' claim. District Fourth Circuit affirmed. latter held that settlement agreement, releases, worked kind "novation" replaced (1) an original potential (2) new promised contract was bankruptcy. Held: agreement accompanied release underlying tort claims can amount fraud, within nondischargeability statute's terms. Pp. 318-323. (a) outcome here governed Brown v. Felsen, 442 127, which state-court suit seeking he said Felsen had through fraud; entered consent decree based stipulation providing would certain amount; (3) neither nor indicated (4) did pay; (5) bankruptcy; (6) asked look behind hold nondischargeable because fraud. Id., at 128-129. This found that, although claim preclusion bar making any "`based same cause action'" court, id., 131, prevent looking beyond record documents terminating proceeding decide whether 138-139. As matter logic, Brown's holding means Circuit's novation theory cannot be right. If reducing definitively changed nature dischargeability purposes, have similarly, thereby rendering dischargeable. Court's instruction could "weigh evidence," 138, been pointless, as there nothing examine. Moreover, statement "the mere fact conscientious creditor has previously reduced his judgment should further inquiry into true debt," ibid., strongly favors position. Finally, basic reasoning applies here. noted change Code's provision "Congress intended fullest possible inquiry" ensure "all debts arising out of" are "excepted discharge," no their form. Ibid. Congress also allow determination arises take place force occur earlier when concerns "are directly issue party full incentive litigate them." 134. only difference between this case — relevant embodied settlement, determinative, since "aris[e] 138. 318-322. (b) remains free, remand, determine Warner's additional arguments were properly raised or preserved, and, if so, them. 322-323. 283 F. 3d 230, reversed remanded. BREYER, J., delivered opinion Court, REHNQUIST, O'CONNOR, SCALIA, KENNEDY, SOUTER, GINSBURG, JJ., joined. THOMAS, dissenting opinion, STEVENS, joined, post, p. 323. 1 CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR FOURTH CIRCUIT 2 Craig Goldblatt argued petitioners. With him briefs Seth P. Waxman. 3 Lisa Schiavo Blatt States amicus curiae urging reversal. brief Solicitor General Olson, Assistant Attorney McCallum, Deputy Clement, William Kanter, Robert Kamenshine. 4 Donald B. Ayer respondent. Jack W. Campbell IV Rayford K. Adams III.* 5 JUSTICE BREYER Court. 6 Code provides shall false pretenses, representation, actual U.S.C. Can language cover settled creditor's fraud"? our view, statute such debt, we reverse lower contrary. 7 * circumstances outline follows: sues B (A says) parties settle claims; does resolve but will fixed sum; enters B's obligation sum because, like "money 8 summarizes following circumstances: late 1991, Leonard Arlene bought Manufacturing Company $250,000. About six months later they sold Elliott Carol Archer $610,000. few after North Carolina sale. 9 May 1995, lawsuit. specified "$300,000.00 less legal accounting expenses" "as compensation emotional distress/personal injury type damages." App. 61. It added "execute litigation, amounts set forth [the] Settlement Agreement." 63. paid $200,000 remaining $100,000. "discharg[ing]" "from every right, demand" "now might otherwise hereafter against" them, "excepting under" 67; see 70. signed parties, "admi[t] liability wrongdoing," compromise disputed [was] construed admission liability." 67-68, 71. days 10 November note. Code. And agreed nondischargeable. finding dischargeable, affirmed Appeals Circuit, dividing two one, 230 (2002). majority reasoned "novation." debt. contract. consequently 12 We granted petition certiorari, 536 938 (2002), different Circuits come conclusions about matter, compare re West, 22 775, 778 (CA7 1994) (supporting theory), Spicer, 57 1152, 1155 (CADC 1995) ("The weight recent authority rejects" cert. denied, 516 1043 (1996). II 13 agree dissent, 324-325 (opinion Thomas, J.), "[t]he here, coupled broad release, completely addressed released each law claim." 3d, 237. That left one debt: itself. To recognize fact, however, end inquiry. must terms statute. Given precedent, believe can. 14 127 (1979), governs following: (Brown said) embodying 15 courts against Brown. They pointed owed pursuant judgment; judgment-related refer doctrine res judicata prevented those uncover led creation; concluded characterized 130-131. 16 unanimously rejected court's reasoning. conceded 131 (quoting Montana States, 440 147, 153 (1979)). Indeed, aspect litigating grounds recovery" available Brown, "asserted" prior "proceeding." S., 131. But this, held, beside point. Claim terminated (the judgment) (namely, stipulation) 17 reduction (embodied decree) (Despite dissent's suggestions contrary, 327, so seem "sever[ed] causal relationship," liquidated more than here.) Yet, reflected valid view correct purposes pointless. There 18 position debt." Ibid.; accord, Grogan Garner, 498 279, 290 (1991) (assuming seeks "permit exception discharge creditors successfully judgment"). substitute word "settlement" "judgment," describes case. 19 originally covered "only `judgments' sounding "`liabilities.'" what 523(a) (current "any debt" language). (whether fraud) time 20 consists judgment. do how prove determinative. 138; Cohen de la Cruz, 523 213, 215 (1998). "arises" "out decree. Policies favor disputes, "repose," See 133-135. itself ensured "a blanket release" just contractual 324. supra, 318-319. Despite protests 323-327, established meant or, narrowly, word, significant now before us. 21 argues affirm Appeals' decision alternative grounds. She says converting liabilities included promise adds event, action prejudice, treats having litigated determined favor, barring collateral estoppel. cf. Arizona California, 530 392, 414 (2000) ("[S]ettlements ordinarily occasion unless clear intend effect"). Without suggesting these meritorious, merits either argument, both are, outside scope question presented insufficiently below. Roberts Galen Va., Inc., 525 249, 253-254 (1999) (per curiam). choose leave initial evaluation federal judges who deal regularly questions respective districts circuits," better we," Butner 48, 58 determine, example, dismissal issue-preclusive, well claim-preclusive, effect, extent enforcement specifically excepted 317; 325. 23 conclude may novation, showing arose "false fraud," remand proceedings consistent opinion. 24 ordered. Notes: Briefs ofamici reversal State Ohio et al. Betty D. Montgomery, Ohio, David M. Gormley, Solicitor, Marcus J. Glasgow John McManus, Attorneys General, jurisdictions Bruce Botelho Alaska, Janet Napolitano Arizona, Bill Lockyer Jane Brady Delaware, A. Butterworth Florida, Thurbert E. Baker Georgia, Alan G. Lance Idaho, James Ryan Illinois, Steve Carter Indiana, Thomas Miller Iowa, Reilly Massachusetts, Mike Hatch Minnesota, Moore Mississippi, Jeremiah (Jay) Nixon Missouri, Frankie Sue Del Papa Nevada, Samson New Jersey, Eliot Spitzer York, Roy Cooper Carolina, Wayne Stenehjem Dakota, Tenorio Torres Northern Mariana Islands, Drew Edmondson Oklahoma, Hardy Myers Oregon, Michael Fisher Pennsylvania, Anabelle Rodríguez Puerto Rico, Paul Summers Tennessee, Cornyn Texas, Mark L. Shurtleff Utah, Christine O. Gregoire Washington, Hoke MacMillan Wyoming; AARP Walter Dellinger, Jonathan Hacker, Stacy Canan, Deborah Zuckerman, R. Schuster; Eric Brunstad, Jr., Mr. pro se, Rheba Rutkowski. 25 whom STEVENS joins, dissenting. 26 Section 523(a)(2) excepts money, property, [or] services, 523(a)(2)(A) (emphasis added). holds "obtained by" even though resulted arrangement agreed, using broadest possible, another demand petitioners 67. Because conclusion supported text agreements I respectfully dissent. 27 begins its description observation sum." Ante, 317 Based erroneous premise, goes "no [v. (1979),] [this case]." 322. distinction, explains, judgment" (1979). 321. 28 Remarkably, fails address critical Brown: rather And, my "if shown [a] given received waiver old, fully discharges affect note." 1994). us, accordingly, control disposition matter. 29 alleging fraudulently induced act guarantor bank loan. 128. stipulation, incorporated judgment, "[n]either resulting respondent's petitioner based." principles upset policy "state [questions nondischargeability] stage not, may, without participation debtor relating to" action. 30 sweeping general inaccurate say "resolve 317. sure, legally controlling document stating (or not) commit But, unlike where being resolved clearly demonstrates conclusively "right[s], claim[s], demand[s]" Note deeds trust."1 McNair Goodwin, 262 N. 1, 7, 136 2d 218, 223 (1964) ("`[A] conclusive matters compromised'" Penn Dixie Lines Grannick, 238 552, 556, 78 410, (1953))). 31 intended, replace "old" "new" important distinction prohibits interpreting provision, recognized establish demonstrate nexus 218 (1998) (describing "`resulting from'" "`traceable to'" Field Mans, 59, 61, 64 (1995))). oral argument requires debtor's proximate Tr. Oral Arg. 10, 12; Am. Jur. 2d, Actions 57, 760 (1994) ("What essential wrongful charged damage; loss direct result of, proximately traceable to, breach owing plaintiff" added)). 32 respect requirements establishing cause. past, applied term "`proximate cause' label generically judicial tools used limit person's responsibility consequences own acts." Holmes Securities Investor Protection Corporation, 503 258, 268 (1992). explained "[a]t bottom, notion reflects `ideas justice demands, administratively convenient.'" Keeton, Dobbs, & Owen, Prosser Keeton Law Torts 41, 264 (5th ed. 1984) (hereinafter Keeton)); Palsgraf Long Island Co., 248 Y. 339, 352, 162 99, 103 (1928) (Andrews, dissenting) mean `proximate' is, convenience, public policy, rough sense justice, arbitrarily declines trace series events point"). While concept somewhat amorphous, common intervening called "superseding causes" sufficient sever cut off liability. Exxon Sofec, 517 830, 837 (1996) ("`The superseding defendant's negligence substantially contributed plaintiff's injury, actually independent origin foreseeable'" T. Schoenbaum, Admiralty Maritime 5-3, pp. 165-166 (2d 1994))); 57A Negligence 790, 701 (1989) intervention, defendant occurrence plaintiff, new, independent, efficient cause, renders remote liable, notwithstanding existence some connection injury"). 33 case, faced novel situation have, attempted relationship fraudulent conduct debt.2 "intervening" create equivalent negligent acts third made intent old "fraud" "contract" Accordingly, intact voluntary 34 Petitioners' actions course litigation support conclusion. Throughout below continuing sought recover total damages allegedly suffered alleged Brief Petitioners ("[T]he solely enforce [the agreement]"). crucial seek contract, 35 concludes otherwise. explain why permits character Neither precedents selective implementation parties. 36 37 today ignores plain evidenced Code, allegations execute argue thatany prepetition protections deemed unenforceable inconsistent impairs rights third-party creditors. 24. points out, forfeits right contest affirmatively request hearing 60 date meeting 523(c)(1); Fed. Rule Bkrtcy. Proc. 4007(c). Thus, presumably, choose, reason all, forgo assertion 523(a)(2). point bars entering dischargeability.

Category: 7