Grogan et al. v. Garner
498 U.S. 279 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The standard of proof for the dischargeability exceptions under 11 U.S.C. § 523(a), including the exception for debts obtained by 'actual fraud,' is the ordinary preponderance-of-the-evidence standard.
Facts:
- Respondent Garner sold certain corporate securities to Petitioners, the Grogans.
- The Grogans believed Garner's actions and representations during the sale constituted fraud.
- A court subsequently awarded a money judgment to the Grogans based on Garner's fraud.
- While an appeal of that judgment was pending, Garner filed a petition for relief under Chapter 11 of the Bankruptcy Code.
- In his bankruptcy filing, Garner listed the fraud judgment debt owed to the Grogans as a liability he sought to have discharged.
Procedural Posture:
- Petitioners (the Grogans) sued Respondent (Garner) for fraud in a trial court.
- A jury, instructed on the preponderance of the evidence standard, returned a verdict for the Grogans.
- While Garner's appeal was pending, he filed for Chapter 11 bankruptcy.
- The Grogans filed a complaint in the Bankruptcy Court, arguing their fraud judgment was non-dischargeable under § 523(a).
- The Bankruptcy Court, applying collateral estoppel, held the debt was not dischargeable, and the District Court affirmed this decision.
- Garner, as appellant, appealed to the U.S. Court of Appeals for the Eighth Circuit.
- The Eighth Circuit reversed, holding that the 'clear and convincing evidence' standard was required to prove fraud for dischargeability purposes.
- The Grogans, as petitioners, were granted a writ of certiorari by the U.S. Supreme Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does § 523(a) of the Bankruptcy Code require a creditor to prove that a debt is non-dischargeable due to 'actual fraud' by a clear and convincing evidence standard, or is a preponderance of the evidence standard sufficient?
Opinions:
Majority - Justice Stevens
No. The preponderance of the evidence standard is sufficient to establish that a debt is non-dischargeable due to fraud under § 523(a) of the Bankruptcy Code. The language and legislative history of § 523 are silent as to the standard of proof, and the default preponderance standard is presumed in civil actions unless particularly important individual interests are at stake. A debtor's interest in a 'fresh start' is a statutory benefit, not a fundamental right requiring a heightened standard. Congress intended the Bankruptcy Code's protections for the 'honest but unfortunate debtor,' not to shield perpetrators of fraud. Furthermore, § 523(a) groups the fraud exception with several other exceptions (e.g., alimony, taxes) without specifying different standards, implying a uniform, ordinary standard for all. Adopting the preponderance standard aligns with the standard Congress uses for federal fraud claims and promotes judicial efficiency by allowing prior fraud judgments to be given collateral estoppel effect in bankruptcy proceedings.
Analysis:
This decision resolved a circuit split by establishing a uniform, lower burden of proof for all dischargeability exceptions under § 523(a). By rejecting the higher 'clear and convincing' standard, the Court makes it easier for creditors to prevent debts arising from fraud and other specified wrongful conduct from being erased in bankruptcy. This holding reinforces the principle that the 'fresh start' policy of bankruptcy is intended for honest debtors, not as a shield for fraudulent ones. The ruling also enhances judicial economy by broadening the applicability of collateral estoppel, preventing debtors from relitigating fraud claims they have already lost in other courts that used the preponderance standard.
Unlock the full brief for Grogan et al. v. Garner