Supreme Court rules spouses liable for fraud committed by partners

Feb. 22 (UPI) -- In a unanimous ruling Wednesday, the U.S. Supreme Court found a woman in California cannot use bankruptcy proceedings to shield herself from debt fraudulently accrued by her husband.

The high court upheld a lower court ruling that found Kate Bartenwerfer could not escape having to pay the debt, despite not knowing her husband David committed the fraudulent acts without her knowledge, according to court documents.

"The Bankruptcy Court found that David had committed fraud and imputed his fraudulent intent to Kate because the two had formed a legal partnership to renovate and sell the property," associate justice Amy Coney Barrett wrote in the court opinion.

The court heard oral arguments in the case in December.

"The Bankruptcy Court found that the petitioner and her husband had an agency relationship and obtained the debt at issue after they formed a partnership. Because petitioner does not dispute that she and her husband acted as partners, the debt is not dischargeable under the statute," associate justice Sonia Sotomayor concurred.

In the case in question, the Bartenwerfer couple partnered to buy a house in San Francisco in 2005, which they renovated and sold for a profit. David Bartenwerfer was ostensibly in charge of the operation and Kate had little knowledge of the day-to-day operations.

After selling the property, the couple was sued by the new owner, who found several deficiencies that were not disclosed prior or leading up to the sale.

Both Bartenwerfers at the time of sale "attested that they had disclosed all material facts relating to the property," Coney Barrett wrote, reaffirming the decision of the Ninth Circuit Court of Appeal.

The Supreme Court drew on a previous high court decision from 1885, relating to a New York wool company. In that case two business partners were found guilty for the crimes of a third partner, despite not being aware of them.

"The partners, who were not themselves guilty of wrong, received and appropriated the fruits of the fraudulent conduct of their associate in business," Coney Barrett wrote Wednesday, in reference to the case.