In unanimous ruling, Supreme Court says bankruptcy cannot discharge fraud by partners

The Supreme Court on Thursday ruled that business participants must pay debts even when they arise from fraud committed by business partners without their knowledge. 

The Court said in its unanimous 9-0 ruling that California resident Kate Bartenwerfer was required to pay a six-figure bill imposed by a lower court after she and her husband David sold a house that ended up containing a host of defects.

The buyer of the house sued both in court and won $200,000 in damages; Bartenwerfer argued that David has concealed the defects in the home and that she was not liable for the damages, but a lower court ordered that "a debtor who is liable for her partner’s fraud cannot discharge that debt in bankruptcy, regardless of her own culpability."

The Supreme Court on Thursday agreed."Because [Bartenwerfer] does not dispute that she and her husband acted as partners, the debt is not dischargeable under" the statute at issue in the case, Justice Sotomayor said in a concurring opinion. 

The Bartenwerfers originally purchased the San Francisco house in 2005.