06 Mar Supreme Court Rules On Non-Dischargeability Issue
The Supreme Court of the United States issued a landmark decision in Bartenwerfer v. Buckley, 21-908 (Sup. Ct. Feb. 22, 2023). In Bartenwerfer, the Court addressed whether a non culpable, passive partner of a legal partnership could discharge debt that arose from an active partner’s fraud. In an opinion filed by Justice Barrett, the Court unanimously held that passive partners cannot discharge debt arising from an active partner’s fraud. Justice Sotomayor filed a concurrence, joined by Justice Jackson, in which she sought to narrow the scope of the Court’s unanimous opinion. Specifically, Justice Sotomayor stated she joined the unanimous opinion with the express understanding the ruling would extend only to cases in which debt arose from fraud committed within the scope of an agency or partnership relationship after the non culpable partner entered such relationship. It remains to be seen how the Court’s opinion in Bartenwerfer will be interpreted by lower courts, and whether such courts will adopt Justice Sotomayor’s approach. One thing remains certain, though: corporate structure and governance is now more important than ever.