Grogan v. Garner

498 U.S. 279, 111 S. Ct. 654 (1991)



A central purpose of the Bankruptcy Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. However, the Code limits the opportunity for a completely unencumbered new beginning to the honest but unfortunate debtor.


A debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code (11 USCS 1101-1174) in the United States Bankruptcy Court for the Western District of Missouri, listing as a dischargeable debt a judgment previously entered against him for fraud in connection with the sale of corporate securities. The judgment creditors filed a complaint in the bankruptcy proceeding requesting a determination that their claim against the debtor based on the fraud judgment was exempt from discharge in bankruptcy pursuant to 11 USCS 523(a), which provides that certain types of debt are excepted from discharge in bankruptcy and which specifies, in 11 USCS 523(a)(2)(A), that a discharge in bankruptcy does not discharge an individual from any debt to the extent that such debt is obtained by "actual fraud." After the judgment creditors introduced portions of the record in the fraud case, the Bankruptcy Court found that all the elements required to establish actual fraud under 523 had been proved and that the doctrine of collateral estoppel required a holding that the debt was therefore not dischargeable, notwithstanding the debtor's contention that collateral estoppel did not apply inasmuch as the jury instructions in the fraud trial merely required that fraud be proved by a preponderance of the evidence, whereas 523 requires proof by clear and convincing evidence (73 BR 26). The United States District Court for the Western District of Missouri affirmed. On appeal, the United States Court of Appeals for the Eighth Circuit reversed, holding that 523 requires proof by clear and convincing evidence, at least in fraud cases (881 F2d 579).


Is the standard of proof for dischargeability exceptions in 11 U.S.C.S. § 523(a) the ordinary "preponderance of the evidence" standard?




On certiorari, the United States Supreme Court reversed. It was held that the standard of proof for the dischargeability exceptions in 523(a) is the ordinary preponderance-of-the-evidence standard, because (1) neither the language of 523 nor the legislative history of 523 or its statutory predecessor prescribes the standard of proof for the discharge exceptions, and this silence is inconsistent with the view that Congress intended to require a special, heightened standard of proof; (2) in the context of the discharge exemptions, a debtor in bankruptcy does not have an interest in discharge sufficient to require a heightened standard of proof; (3) 523(a) groups together in the same subsection a variety of exceptions to discharge without any indication that any particular exception is subject to a special standard of proof, which suggests that the legislators intended the same standard of proof--the ordinary preponderance standard--to govern the applicability of all the discharge exceptions; (4) even if most states, at the time the current Bankruptcy Code was enacted, required proof of fraud by clear and convincing evidence, this does not support the conclusion that Congress intended to adopt the clear-and-convincing-evidence standard for the fraud discharge exception; (5) in view of the split of judicial authority as to the proper standard of proof which existed at the time 523 was enacted, it is not reasonable to conclude that in enacting 523 Congress silently endorsed a background rule that clear and convincing evidence is required to establish exemption from discharge; and (6) the application of the preponderance standard will permit exception from discharge of all fraud claims which creditors have successfully reduced to judgment, which result accords with the historical development of the discharge exceptions.


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