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89-1149.S
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Subject: GROGAN v. GARNER, Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as
is being done in connection with this case, at the time the opinion is
issued. The syllabus constitutes no part of the opinion of the Court but
has been prepared by the Reporter of Decisions for the convenience of the
reader. See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
GROGAN et al. v. GARNER
certiorari to the united states court of appeals for the eighth circuit
No. 89-1149. Argued October 29, 1990 -- Decided January 15, 1991
Respondent Garner filed a petition for relief under Chapter 11 of the
Bankruptcy Code, listing a fraud judgment in petitioners' favor as a
dischargeable debt. Petitioners then filed a complaint in the proceeding
requesting a determination that their claim should be exempted from
discharge pursuant to MDRV 523(a), which provides that a debtor may not be
discharged from, inter alia, obligations for money obtained by "actual
fraud." Presented with portions of the fraud case record, the Bankruptcy
Court found that the elements of actual fraud under MDRV 523 were proved
and that the doctrine of collateral estoppel required a holding that the
debt was not dischargeable. It and the District Court rejected Garner's
argument that collateral estoppel does not apply because the fraud trial's
jury instructions required that fraud be proved by a preponderance of the
evidence, whereas MDRV 523 requires proof by clear and convincing evidence.
The Court of Appeals reversed, concluding that the clear-and-convincing
evidence standard applies in fraud cases, since Congress would not have
silently changed pre-MDRV 523(a) law, which generally applied the higher
standard in common-law fraud litigation and in resolving dischargeability
issues, and since the Code's general "fresh start" policy militated in
favor of a broad construction favorable to the debtor.
Held: Preponderance of the evidence is the standard of proof for MDRV
523(a)'s dischargeability exceptions. Neither MDRV 523 and its legislative
history nor the legislative history of MDRV 523's predecessor prescribes a
standard of proof, a silence that is inconsistent with the view that
Congress intended to require a clear-and-convincing evidence standard. The
preponderance standard is presumed to be applicable in civil actions
between private parties unless particularly important individual interests
or rights are at stake, and, in the context of the discharge exemption
provisions, a debtor's interest in discharge is insufficient to require a
heightened standard. Such a standard is not required to effectuate the
Code's "fresh start" policy. Since the Code limits the opportunity for a
completely unencumbered new beginning to the honest but unfortunate debtor
by exempting certain debts from discharge, it is unlikely that Congress
would have fashioned a proof standard that favored an interest in giving
the perpetrators of fraud a fresh start over an interest in protecting the
victims of fraud. It is also fair to infer from MDRV 523(a)'s structure
that Congress intended the preponderance standard to apply to all of the
discharge exceptions. That they are grouped together in the same
subsection with no suggestion that any particular exception is subject to a
special standard implies that the same standard should govern all of them,
and it seems clear that a preponderance standard is sufficient to establish
nondischargeability of some claims. The fact that many States required
proof of fraud by clear and convincing evidence at the time the current
Code was enacted does not mean that Congress silently endorsed such a rule
for the fraud discharge exception. Unlike many States, Congress has chosen
a preponderance standard when it has created substantive causes of action
for fraud. In addition, it amended the Bankruptcy Act in 1970 to make
nondischargeability a question of federal law independent of the issue of
the underlying claim's validity, which is determined by state law.
Moreover, both before and after 1970, courts were split over the
appropriate proof standard for the fraud discharge exception. Application
of the preponderance standard will also permit exception from discharge of
all fraud claims creditors have reduced to judgment, a result that accords
with the historical development of the discharge exceptions, which have
been altered to broaden the coverage of the fraud exceptions. Pp. 4-11.
881 F. 2d 579, reversed.
Stevens, J., delivered the opinion for a unanimous Court.
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