NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS AUG 12 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: DAVID WILLIAM No. 20-60021
BARTENWERFER; KATE MARIE
BARTENWERFER, BAP No. 16-1277
Debtors,
MEMORANDUM*
------------------------------
KIERAN BUCKLEY,
Appellant,
v.
DAVID WILLIAM BARTENWERFER;
KATE MARIE BARTENWERFER,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Brand, Jury, and Faris, Bankruptcy Judges, Presiding
In re: DAVID WILLIAM No. 20-60023
BARTENWERFER; KATE MARIE
BARTENWERFER, BAP No. 19-1016
Debtors,
______________________________
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
KIERAN BUCKLEY,
Appellant,
v.
DAVID WILLIAM BARTENWERFER;
KATE MARIE BARTENWERFER,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Taylor, Faris, and Brand, Bankruptcy Judges, Presiding
In re: DAVID WILLIAM No. 20-60024
BARTENWERFER; KATE MARIE
BARTENWERFER, BAP No. 16-1277
Debtors,
------------------------------
DAVID WILLIAM BARTENWERFER;
KATE MARIE BARTENWERFER,
Appellants,
v.
KIERAN BUCKLEY,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Brand, Jury, and Faris, Bankruptcy Judges, Presiding
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Argued and Submitted July 29, 2021
San Francisco, California
Before: McKEOWN and NGUYEN, Circuit Judges, and HUCK,** District Judge.
As partners, David and Kate Bartenwerfer renovated a house in San Francisco,
California and sold it to Kieran Buckley. Shortly after the sale, Buckley alleged
defects in the house and sued the Bartenwerfers in California state court for (1)
breach of contract, (2) negligence, (3) nondisclosure of material facts, (4) negligent
misrepresentation, and (5) intentional misrepresentation. The jury found in
Buckley’s favor on his breach of contract, negligence, and nondisclosure of material
facts claims and against him on his remaining claims and awarded him damages.
The Bartenwerfers filed for bankruptcy.
In the bankruptcy court, Buckley initiated an adversary proceeding against the
Bartenwerfers, arguing that the state court judgment against the Bartenwerfers could
not be discharged in bankruptcy under 11 U.S.C. § 523(a)(2)(A), which provides
that a debtor cannot discharge debt that was obtained through fraud. The bankruptcy
court agreed and held that the portion of the state court judgment that was traceable
to Buckley’s nondisclosure claim was nondischargable. The bankruptcy court found
that the Bartenwerfers intended to deceive Buckley and held that Mr. Bartenwerfer
**
The Honorable Paul C. Huck, United States District Judge for the U.S.
District Court for Southern Florida, sitting by designation.
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had actual knowledge of the false representations made to Buckley and that Mr.
Bartenwerfer’s fraudulent conduct could be imputed onto Mrs. Bartenwerfer
because of their partnership relationship. Additionally, the bankruptcy court
declined to apply collateral estoppel in favor of the Bartenwerfers based on the jury’s
findings of no intentional fraud. On appeal, the Ninth Circuit Bankruptcy Appellate
Panel (“BAP”) affirmed the bankruptcy court’s collateral estoppel ruling, but,
adopting the Eight Circuit’s “knew or should have known” standard from Walker v.
Citizens State Bank, 726 F.2d 452 (8th Cir. 1984), remanded the imputed liability
finding and instructed the bankruptcy court to determine whether Mrs. Bartenwerfer
“knew or should have known” of Mr. Bartenwerfer’s fraud. On remand, after an
evidentiary hearing, the bankruptcy court held that Mr. Bartenwerfer’s fraud could
not be imputed onto Mrs. Bartenwerfer because she did not know of the fraud. The
BAP affirmed.
Buckley appeals the BAP’s decision affirming the bankruptcy court’s
nondischargeability judgment in favor of Mrs. Bartenwerfer. On cross-appeal, the
Bartenwerfers argue that collateral estoppel should apply to bar Buckley’s
§ 523(a)(2)(A) claim. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm
in part and reverse in part.
We begin with the Bartenwerfers’ cross-appeal. The Bartenwerfers argue that
collateral estoppel applies because the state court jury found in their favor on
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Buckley’s intentional misrepresentation claim. The jury found in favor of Buckley
on his nondisclosure of material facts claim against the Bartenwerfers, but not on his
intentional misrepresentation claim. These two findings are conflicting, or at least
ambiguous, which weigh against applying collateral estoppel. See In re Kelly, 182
B.R. 255, 258 (B.A.P. 9th Cir. 1995) (“Any reasonable doubt as to what was decided
by a prior judgment should be resolved against allowing the collateral estoppel
effect.”), aff’d, 100 F.3d 110 (9th Cir. 1996). We affirm on this issue.
In his appeal, Buckley argues that the bankruptcy court erred by failing to
apply binding Supreme Court and Ninth Circuit precedent to the question of whether
to impute Mr. Bartenwerfer’s fraud onto his partner, Mrs. Bartenwerfer, and by
holding that the fraud was not imputed. Buckley is correct. Applying basic
partnership principles,
if, in the conduct of partnership business, . . . one partner makes false
or fraudulent misrepresentations of fact to the injury of innocent
persons, . . . his partners cannot escape pecuniary responsibility therefor
upon the ground that such misrepresentations were made without their
knowledge. This is especially so when . . . the partners, who were not
themselves guilty of wrong, received and appropriated the fruits of the
fraudulent conduct of their associate in business.
Strang v. Bradner, 114 U.S. 555, 561 (1885); see also In re Cecchini, 780 F.2d 1440,
1444 (9th Cir. 1986) (holding a partner responsible for a tortfeasor/partner’s fraud
when the fraud was performed “on behalf of the partnership and in the ordinary
course of the business of the partnership”), overruled in other part by Kawaauhau
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v. Geiger, 523 U.S. 57 (1998). Mrs. Bartenwerfer’s debt is nondischargeable
regardless of her knowledge of the fraud. By rejecting Strang and Cecchini, in favor
of the “knew or should have known” standard, the bankruptcy court applied the
incorrect legal standard for imputed liability in a partnership relationship. We
reverse the bankruptcy court’s judgment regarding imputed liability against Mrs.
Bartenwerfer under § 523(a)(2)(A), and we remand to the bankruptcy court with
instructions to enter judgment in favor of Buckley and against Mrs. Bartenwerfer.
We need not address the remaining issues raised on Buckley’s direct appeal.
AFFIRMED IN PART; REVERSED IN PART AND REMANDED.
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