Legal Document

498 U.S. 279 111 S.Ct. 654 112 L.Ed.2d 755 Coy R. GROGAN, et al., Petitionersv.Frank J. GARNER, Jr. No. 89-1149. Argued Oct. 29, 1990. Decided Jan. 15, 1991. Syllabus Respondent Garner filed a petition for relief under Chapter 11 of the Bankruptcy Code, listing fraud judgment in petitioners' favor as dischargeable debt. Petitioners then complaint proceeding requesting determination that their claim should be exempted from discharge pursuant to § 523(a), which provides debtor may not discharged from, inter alia, obligations money obtained by "actual fraud." Presented with portions case record, Court found elements actual 523 were proved and doctrine collateral estoppel required holding debt was dischargeable. It District rejected Garner's argument does apply because trial's jury instructions preponderance evidence, whereas requires proof clear convincing evidence. The Appeals reversed, concluding clear-and-convincing evidence standard applies cases, since Congress would have silently changed pre-§ 523(a) law, generally applied higher common-law litigation resolving dischargeability issues, Code's general "fresh start" policy militated broad construction favorable debtor. Held: Preponderance is 523(a)'s exceptions. Neither its legislative history nor 523's predecessor prescribes proof, silence inconsistent view intended require standard. presumed applicable civil actions between private parties unless particularly important individual interests or rights are at stake, and, context exemption provisions, debtor's interest insufficient heightened Such effectuate policy. Since Code limits opportunity completely unencumbered new beginning honest but unfortunate exempting certain debts discharge, it unlikely fashioned favored an giving perpetrators fresh start over protecting victims fraud. also fair infer structure all That they grouped together same subsection no suggestion any particular exception subject special implies govern them, seems sufficient establish nondischargeability some claims. fact many States time current enacted mean endorsed such rule exception. Unlike States, has chosen when created substantive causes action In addition, amended Act 1970 make question federal law independent issue underlying claim's validity, determined state law. Moreover, both before after 1970, courts split appropriate Application will permit claims creditors reduced judgment, result accords historical development exceptions, been altered broaden coverage Pp. 283-291. 881 F.2d 579 (CA8 1989), reversed. STEVENS, J., delivered opinion unanimous Court. Michael Gallagher, Kansas City, Mo., petitioners. John G. Roberts, Jr., U.S., amici curiae support petitioners leave Timothy K. McNamara, respondent. Justice STEVENS 1 Section bankruptcy shall kinds obligations, including those fraud."1 this whether statute defrauded creditor prove his order preserve discharge. 2 brought against respondent alleging he had them connection sale corporate securities. App. 16-25. Following trial court's authorized recovery based on returned verdict awarded punitive damages. Id., 28-29. appealed verdict, while appeal pending, 3 Eighth Circuit damages award affirmed modified. Grogan v. Garner, 806 829 (1986). 523. 3-4. complaint, introduced record case. therefore re 73 B.R. 26 (WD Mo.1987). 4 challenge conclusion first "fraud" within meaning 523.2 Instead, consistently argued merely Both Court3 Court4 argument. 5 Appeals, however, 1989). recognized "Bankruptcy silent burden necessary section fraud," id., 581, concluded two factors supported imposition "clear convincing" standard, least cases. First, court stated issues enacted, reasoned change settled law.5 Second, opined undergirds debtor.6 6 consistent rulings most other Circuits,7 conflicts recent decisions Third Fourth Circuits.8 conflict, importance issue, prompted us grant certiorari, 495 918, 110 1945, 109 308. We now reverse. 7 * At outset, we distinguish must satisfy valid bankrupt estate who established still avoid dischargeability. validity creditor's rules See Vanston Bondholders Protective Comm. Green, 329 156, 161, 67 237, 239, 91 L.Ed. 162 (1946).9 matter governed terms Code. Brown Felsen, 442 127, 129-130, 136, 99 2205, 2208-2209, 2211, 60 767 (1979).10 8 This distinction wellspring cases kind flow. case, final jurisdiction seeks minimize additional invoking estoppel. If governs nondischargeability, could properly give effect identical actually litigated prior action. Restatement (Second) Judgments 27 (1982).11 If, given effect. 28(4). A successfully would, indifferent regarding invoke event.12 9 sum, if only secured judgments, exception, exempt principles. judgments assured qualifying II 10 With these considerations mind, begin our inquiry into examining language history. prescribe predecessor, U.S.C. 35 (1976 ed.), silent. special, proof. Because preponderance-of-the-evidence results roughly equal allocation risk error litigants, presume litigants "particularly stake." Herman & MacLean Huddleston, 459 375, 389-390, 103 683, 691, 74 548 (1983); see Addington Texas, 441 418, 423, 1804, 1808, 323 (1979). previously held constitutional "fundamental" right bankruptcy. United Kras, 409 434, 445-446, 93 631, 637-638, 34 626 (1973). do believe that, provisions designed 12 unpersuaded certainly acknowledged central purpose provide procedure insolvent debtors can reorder affairs, peace creditors, enjoy "a life field future effort, unhampered pressure discouragement preexisting debt." Local Loan Co. Hunt, 292 234, 244, 54 695, 699, 78 1230 (1934). But breath invoked policy, careful explain "honest debtor." Ibid. 13 statutory governing reflect congressional decision exclude categories debts—such child support, alimony, unpaid educational loans taxes, well liabilities evidently creditors' recovering full payment outweighed debtors' complete start. think Congress, fashioning applicability Requiring reflects balance conflicting interests. III 14 Our conviction exceptions reinforced 523(a),13 groups variety without indication omission different exemptions burdens legislators 523(a)(2) example, 523(a)(5) alimony. types covered 523(a),14 ordinary 15 inclined accept respondent's contention application inappropriate because, majority states evidence.15 Even believed contemplated adopt 16 large number, perhaps majority, See, e.g., 31 3731(c) (False Claims Act); U.S.C.A. 1833a(e) (civil penalties involving financial institutions); 42 CFR 1003.114(a) (1989) (Medicare Medicaid 1320a-7a); 388-390, S.Ct., 690-692 enforcement antifraud securities laws); Steadman SEC, 450 91, 96, 101 999, 1005, 69 (1981) (administrative proceedings concerning violation SEC C.M. Joiner Leasing Corp., 320 344, 355, 64 120, 125, 88 (1943) (§ 17(a) Securities 1933); First National Monetary Corp. Weinberger, 819 1334, 1341-1342 (CA6 1987) Commodity Exchange Act). Cf. Sedima, S.P.R.L. Imrex Co., 473 479, 491, 105 3275, 3282, 87 346 (1985) (suggesting Racketeer Influenced Corrupt Organizations Most notably, chose determinations 727(a)(4), denies altogether committed court. H.R.Rep. 95-595, p. 384 (1977), U.S.Code Cong. Admin.News 1978, pp. 5787, 6340 ("The fourth ground denial commission crime, though evidence"); S.Rep. 95-989, 98 (1978), 5884 (same).16 17 explained Part I, supra, claim. imposed Sweet Ritter Finance 263 F.Supp. 540, 543 Va.1967); Nickel Plate Cloverleaf Federal Credit Union White, 120 Ill.App.2d 93-94, 256 N.E.2d 119, 120-121 (1970); Gonzales Aetna 86 Nev. 271, 275, 468 P.2d 18 Beneficial Manchester Machie, Conn.Cir. 37, 41, A.2d 707, 710 (1969); Budget Plan Haner, 92 Idaho 56, 59, 436 722, 725 (1968); Atlas Miller, 216 So.2d 100, (La.Ct.App.1968); Household Altenberg, Ohio St.2d 190, 193, 214 667, 669 (1966); MAC Nashua, Inc. Stone, 106 N.H. 517, 521-522, 878, 882 (1965). And, following amendments, enactment continued nearly evenly Compare, Fierman Lazarus, 361 477, 480 (ED Pa.1973); Scott, BCD 583 (Bkrtcy.Ct. WD Mich.1975) Buchanan, 419 199, 203 Va.1975); Arden, 75 (Bkrtcy.Ct.R.I.1975). Thus, reasonable conclude enacting background IV consideration supporting proper one judgment. As 1898 provided "judgments" sounding 30 Stat. 550. 1903 revisions, substituted term "liabilities" "judgments." 32 798. alteration 138, 2212. Absent earlier expression intent construe allow facing discharged. 19 For reasons, hold 20 21 so ordered. Title provides, pertinent part: "Exceptions "(a) 727, 1141, 1228(a), 1228(b), 1328(b) title debt— . "(2) money, property, services, extension, renewal, refinancing credit, extent by— "(A) false pretenses, representation, fraud, than statement respecting insider's condition;. ." consider 523(a)(2)(A) excepts part excess value property received virtue Rubin, 875 755, 758, n. (CA9 Arguably, defendant did obtain services plaintiffs include awards more appropriately 523(a)(6). 523(a)(6) (excepting "for willful malicious injury another entity entity"); F.2d, 1. "there real 'preponderance evidence' 'clear convincing' regards litigation." 26, 29 explained: "A re-litigation party loses second day opponent fully heard previously. permitted, like duplicitous resulting unreasonable court." Pet. Cert. 28a. "While scant feel aware prevailing adoption common purposes, evidence." 582. "This stricter should, thereby, favoring broadly. Matter Van Horne, 823 [1285, 1287 1987).]" Phillips, 804 930, 932 1986); Kimzey, 761 421, 423-424 (CA7 1985); Black, 787 503, 505 (CA10 Chrysler Rebhan, 842 1257, 1262 (CA11 1988); Hunter, 780 1577, 1579 Dougherty, 84 653 BAP 1988). Braen, 900 621 (CA3 1990); Combs Richardson, 838 (CA4 use "state law" expansively herein refer nonbankruptcy creates thus source laws. point out, laws rise nondischargeable recover Brief al. Amici Curiae 1-3, 2. Before concurrent decide excepted practice, refrained deciding instead allowed questions courts. 129, 2208; 1A Collier ¶ 17.28, 1726-1727 (14th ed. 1978). often applying amendments took away vested exclusively 135-136, 2211-2212; 91-1173, 2-3 91-1502, (1970), 4156. suggested, formally held, principles Kelly Robinson, 479 36, 48, 8, 107 353, 360, (1986); 139, 10, 2213, 10. Heiser Woodruff, 327 726, 736, 66 853, 857, 90 970 (1946) (applying version laws). Virtually every appeals proceedings. 621, 630 112, 115 Klingman Levinson, 831 1292, 1295 1987); Shuler, 722 1253, 1256 (CA5), cert. denied sub nom. Harold V. Simpson 469 817, 85, 83 (1984); Goss Goss, 599, 604 1983); Lovell Mixon, 719 1373, 1376 Spilman Harley, 656 224, 228 1981). Rahm, 641 757 (CA9) (prior establishes prima facie nondischargeability), Gregg 454 860, 102 313, 70 157 (1981). clarify indeed 523(a). indifference shared, either try, tried unsuccessfully, requiring nonetheless proving, breach contract transaction. 503 Crandon 494 152, 158, 997, 1001, 108 132 (1990) ("In determining statute, look design whole object policy"); K Mart Cartier, Inc., 486 281, 291, 1811, 1817, 100 313 (1988) ascertaining plain whole"). fines penalties, loans, tax obligations. 523(a)(1); 523(a)(5); 523(a)(7); 523(a)(8). vast 8-14. acknowledge jurisdictions contend overstates number 17-20, 1; 21-25. Resolution dispute decision. Prior 1978 situation. 506 1184, 1187 (CA2 1974); Bank Blum, 460 197, 200-201 1972).

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