(The Return of) Ignatz, by Sam Heldman

Tuesday, January 07, 2003

Supreme Court

Ok, back to the Supreme Court explanation and prediction-game (and just in time, too, because I don't have anything else I could think of to say today except for class warfare stuff, and that's BAD, you know.).

The first case on Monday is a bankruptcy case, Archer v. Warner. The deal with bankruptcy is that, if you "go bankrupt" (a phrase that corporate bankruptcy lawyers tend hate because it's so imprecise and colloquial – if you want to drive a corporate bankruptcy lawyer crazy, use that phrase incessantly) – if you go bankrupt, the debts that you owed when you filed your bankruptcy petition are "discharged". They go away. You don't owe them anymore. That's what bankruptcy is. (It's not a lovely process from the debtor's point of view; it's not just a matter of saying "ha ha! gotcha, creditors!" Do not fool yourself into thinking that individuals who file bankruptcy proceedings are generally really lucky duckies.).

But under the Bankruptcy Code, some debts are "nondischargeable" because, for various policy reasons, we (more precisely, those who write and enact the Code) have decided that you shouldn't be able to eliminate them by going through bankruptcy. Among the non-dischargeable debts – i.e., the things that you have to pay back even after you go through bankruptcy – is money that was obtained by fraud. If you cheat (defraud) somebody, you can't then avoid the legal obligation to pay them back by seeking bankruptcy protection. Got that?

Ok. Now the next step. The parties here had a lawsuit in which Archer sued Warner, claiming that Warner had taken Archer's money by fraud and had done various other related things. So you're thinking, based on that last paragraph, "well, Warner can't evade the obligation to pay that money by declaring bankruptcy, because money obtained by fraud is a non-dischargeable debt." Good for you – you're right, if you assume that Warner actually had done the bad things that were alleged. But Warner hadn't gone into bankruptcy yet. First, Warner settled the lawsuit, agreeing to pay Archer some money to resolve the case, with neither side admitting that the other was right (which is, of course, the usual routine in settlements – nobody admits anything except that they want the lawsuit to be done with). And then Warner filed a bankruptcy petition. And the U.S. Court of Appeals for the Fourth Circuit said that now the debt was dischargeable, because the debt was now just a matter of a contract – the settlement agreement – rather than being about money obtained by fraud, and contractual debts (unlike money-obtained-by-fraud debts) are dischargeable. The question is whether the Fourth Circuit was right; other Circuits have disagreed, saying that if there was fraud, then the debt ought not be dischargeable whether the underlying case was settled or not.

Here is my advice to you: if you don't find this at least mildly interesting, you should not go to law school. My best judgment is that the Supreme Court will REVERSE; the simplest way to explain why is to say that the dissent below seems pretty convincing to me.

posted by sam 7:13 AM 0 comments


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