COY R. GROGAN, ET AL., PETITIONERS V. FRANK J. GARNER,JR.

   No. 89-1149

   In The Supreme Court Of The United States

   October Term, 1990

   On Writ Of Certiorari To The United States Court Of Appeals For The
Eighth Circuit

   Brief For The United States, The Securities And Exchange
Commission, And The Federal Deposit Insurance Corporation As Amici
Curiae Supporting Petitioners

            TABLE OF CONTENTS
   Question Presented
   Interest of the United States, the Securities and Exchange
     Commission, and the Federal Deposit Insurance Corporation
   Statement
   Summary of argument
   Argument:
      I. The preponderance of the evidence standard applies in actions
         under Section 523(a) of the Bankruptcy Code to except from
         discharge debts incurred by fraud
         A. In a proceeding to except from discharge a debt incurred
            by fraud, the balance of interests of the parties
            requires application of the preponderance of the
            evidence standard
         B. A preponderance standard of proof for proceedings under
            Section 523 is consistent with Section 727 of the
            Bankruptcy Code and important nonbankruptcy fraud
            statutes
     II. Application of the clear and convincing evidence standard to
         the fraud exception to discharge was not a well-established
         pre-Code bankruptcy practice
         A. The standard of proof applicable to fraud exceptions to
            discharge was not well-established prior to 1978
         B. The courts are divided over the standard of proof
            applicable to civil actions for fraud
         C. The reasons for requiring clear and convincing proof in
            certain fraud actions are inapplicable in Section 523
            proceedings
   Conclusion

                          QUESTION PRESENTED

   Whether a claim that a debt arises from "false pretenses, a false
representation, or actual fraud," and so is excepted from discharge
under Section 523(a) of the Bankruptcy Code, must be proved by a
preponderance of the evidence or by clear and convincing evidence.

 INTEREST OF THE UNITED STATES, THE SECURITIES AND EXCHANGE
COMMISSION, AND THE FEDERAL DEPOSIT INSURANCE CORPORATION

   The Court's resolution of the question presented in this case will
affect the civil enforcement of federal antifraud statues by the
United States, the Securities and Exchange Commission (SEC), and the
Federal Deposit Insurance Corporation (FDIC), as well as other federal
agencies.  The United States obtains money judgments under the False
Claims Act, 31 U.S.C. 3729-3731, against persons who defraud the
federal government. The False Claims Act expressly provides that the
government need prove fraud only by a preponderance of the evidence.
31 U.S.C. 3731(c).

   The SEC obtains judgments, under a preponderance of the evidence
standard, for violations of the antifraud provisions of the federal
securities laws.  See Herman & MacLean v. Huddleston, 459 U.S. 375,
389 (1983).  The SEC's interest in this case arises not only because
of the agency's role in obtaining monetary relief in its own
enforcement actions, but also because private actions under the
federal securities laws are a necessary supplement to the SEC's
enforcement actions, see Basic Inc. v. Levinson, 485 U.S. 224, 230-231
(1988), and because the SEC acts as advisor to the courts in
bankruptcy reorganization cases pursuant to Section 1109(a) of the
Bankruptcy Code, 11 U.S.C. 1109(a).

   The FDIC and the Resolution Trust Corporation (RTC) obtain money
judgments against persons who defraud federally insured financial
institutions.  /1/ The FDIC proceeds under a variety of antifraud laws
that require proof only by a preponderance of the evidence, including
the enforcement provisions of the Federal Deposit Insurance Act
(FDIA), 12 U.S.C. 1818(i), the director and officer liability
provisions of the FDIA, 12 U.S.C. 1821(k)-(l), the civil provisions of
the Racketeer Influenced and Corrupt Organizations Act (RICO), 18
U.S.C. 1964, and the antifraud provisions of the securities laws and
the Commodity Exchange Act (CEA), 7 U.S.C. 1 et seq.  Moreover,
Congress expressly provided in 12 U.S.C. 1833a(e) that the
preponderance standard applies to actions brought by the Attorney
General to recover civil penalties for certain fraudulent conduct
involving financial institutions.  /2/

   If the Court were to hold that proof of fraud under Section 523(a)
must be by clear and convicing evidence, fraud judgments obtained
after a full trial on the merits under a preponderance of the evidence
standard would not be recognized in bankruptcy courts.  Victims of
fraud would therefore be required to prove fraud a second time, by
clear and convincing evidence, in the bankruptcy proceedings.  Such
proceedings would be costly to the victims and burdensome to the
bankruptcy courts.  The United States, the SEC, the FDIC, and other
federal agencies have a strong interest in opposing a rule that
imposes such an unwarranted burden on victims of fraud, and in
preventing the bankruptcy courts from becoming a haven for wrongdoers.

                               STATEMENT

   1. Petitioners were employees and minority shareholders of
STI-Missouri, a corporation that repaired and refurbished railroad
rolling stock.  Respondent was the president and majority shareholder
of the corporation.  Petitioners sued respondent in the United States
District Court for the Western District of Missouri, alleging that
respondent had defrauded them in connection with the sale of
securities of STI-Missouri and another corporation.  Petitioners
sought damages for violations of the antifraud provisions of Section
10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), as
well as for common law fraud and breach of fiduciary duty.  The case
was tried before a jury.  The district court did not specifically
instruct the jury as to the applicable standard of proof.  Instead, it
instructed the jury generally that "(i)f the evidence in the case does
not cause you to believe a particular proposition submitted, then you
cannot return a verdict requiring belief of the proposition." Pet.
App. 24a.  The jury returned a verdict for petitioners, awarding
damages on all counts and punitive damages on the common law fraud
count.  The Court of Appeals for the Eighth Circuit reduced the amount
of damages, but otherwise affirmed the judgment for petitioners.
Grogan v. Garner, 806 F.2d 829 (1986).  See Pet. App. 3a-5a, 16a-17a,
30a-31a.

   2. In October 1985, while respondent's appeal of the fraud judgment
was pending in the court of appeals, respondent filed a petition in
the United States Bankruptcy Court for the Western District of
Missouri for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C.
1101 et seq.  The petition listed the fraud judgment as a
dischargeable debt.  In May 1986, petitioners filed a complaint in the
bankruptcy court for a determination that their judgment debt should
be expected from discharge pursuant to Section 523 of the Bankruptcy
Code, 11 U.S.C. 523.  /3/ At the trial on their complaint, petitioners
submitted copies of relevant pleadings and documents from the prior
fraud action, including the complaint, the jury instructions, the
district court's judgment, and the court of appeals' decision.  The
bankruptcy court determined that each of the elements necessary to
establish "actual fraud" under Section 523 had been proved in the
prior action.  Applying principles of collateral estoppel, the court
held that the judgment debt was not dischargeable under Section
523(a)(2)(A).  The bankruptcy court rejected respondent's contention
that collateral estoppel did not apply because the jury in the prior
fraud action had not been instructed that fraud must be proved by
clear and convincing evidence.  The bankruptcy court concluded that
there was no real distinction between the preponderance of the
evidence standard and the clear and convincing evidence standard.
Pet. App. 3a-4a, 18a-20a, 31a, 40a.  The district court agreed with
the reasoning of the bankruptcy court and affirmed its judgment.  Pet.
App. 16a-29a.

   3. The Court of Appeals for the Eighth Circuit reversed.  The court
stated that the standard of proof necessary to establish an exception
from discharge under Section 523(a) is "far from clear," recognizing
that those courts of appeals requiring proof by clear and convincing
evidence often have done so without a satisfactory explanation.  Pet.
App. 9a-12a.  Moreover, the court recognized, neither the language of
Section 523 nor its legislative history addresses the issue.  Pet.
App. 13a.  The court nevertheless held that the statutory exception to
discharge for fraud must be proved by clear and convincing evidence
rather than by a preponderance of the evidence.  The court surmised
that Congress was aware "that the prevailing view at the time of
adoption was that fraud, for both section 523 and state common law
purposes, had to be proved by clear and convincing evidence." Ibid.
The court also stated that a preponderance of the evidence standard of
prood would "effectively read() the 'fresh start' policy out of * * *
the Code." Ibid.  Because the preponderance standard is a lower
standard than the clear and convincing evidence standard, the court of
appeals held that the bankruptcy court had erred in giving collateral
estoppel effect to the prior fraud judgment.  Pet. App. 9a-10a, 12a,
14a.

                          SUMMARY OF ARGUMENT

   1. a. Neither the Bankruptcy Code nor its legislative history
expressly prescribes the standard of proof applicable to a claim that
a debt arises from the debtor's fraudulent conduct and therefore is
excepted from discharge under Section 523(a) of the Code.  In the
absence of any contrary expression, the most natural inference is that
Congress intended such claims to be subject to the preponderance of
the evidence standard generally applicable in civil proceedings.  The
debtor's interest in obtaining a discharge of debts arising from
fraudulent conduct is not a constitutional or fundamental individual
right that warrants application of a heightened standard of proof.  In
any event, Congress has determined that the "fresh start" provided by
a discharge is available only to honest debtors, and has recognized,
in Section 523(a), a countervailing and equally important interest of
the victims of fraud in preserving their right to recover from
dishonest debtors.  Thus, there is no basis for concluding that a
defrauding debtor's interest in a complete discharge takes precedence
over the innocent victim's interest and, consequently, no basis for
favoring the debtor by creating an exception to the general rule of
proof and applying a clear and convincing evidence standard.  The
court below therefore erred when it reasoned that the preponderance of
the evidence standard in this context would "read() the 'fresh start'
policy out of * * * the Code." Pet. App. 13a.  Congress wrote that
policy out of the Code with respect to debts arising from fraud when
it enacted Section 523.

   b. To the extent that the Bankruptcy Code and its legislative
history shed light on the question, they support application of the
typical preponderance standard.  The legislative history of Section
727 of the Bankruptcy Code states that the bankruptcy court, in a
Chapter 7 proceeding, may deny the debtor a discharge as to all debts
if it is shown, by a preponderance of the evidence, that the debtor
has engaged in certain fraudulent conduct in connection with the
bankruptcy proceeding.  There is no reason to suppose that Congress
would apply a higher standard of proof to the less important question
whether a particular debt should be excepted from discharge because of
fraud.  In addition, application of the clear and convincing standard
in this context would depart from the standard of proof in important
federal antifraud statutes that require proof only by a preponderance
of the evidence.  The result would be that some persons determined to
be guilty of fraud under important congressional enactments would
escape liability by declaring bankruptcy, either because plaintiffs
would elect not to devote the resources to trying the case a second
time, or because plaintiffs, who would often be forced to present
stale evidence, could not reprove fraud by clear and convincing
evidence.  There is no evidence that Congress intended such a result.
On the contrary, the basic intent of Section 523(a) is that debtors
not escape liability for fraud.  This Court should not embrace such an
outcome, when the more natural application of the typical
preponderance rule avoids this troubling anomaly.

   2. The court below based its decision on a "presum(ption)" that
Congress was aware when it enacted Section 523 that the "prevailing
view" was that fraud had to be proved by clear and convincing
evidence.  Pet. App. 13a.  In fact, there was no consisten pre-Code
practice of requiring clear and convincing proof either to establish
fraud or to prove that a debt was incurred by fraud.  State courts
were then and are now divided over the appropriate standard of proof
in civil actions for fraud.  At the time Section 523 was enacted, some
courts required that fraud exceptions to discharge be proved by clear
and convincing evidence, while others applied the preponderance
standard.  Thus, even if Congress should be "presumed" to be aware of
existing law in the absence of any evidence that the pertinent body of
law was called to its attention, Congress cannot be assumed to have
understood that fraud had to be proved by clear and convincing
evidence.  Moreover, the original reasons for applying a higher
standard of proof in certain equitable actions for fraud have little
or no application to modern fraud actions for damages.

                               ARGUMENT

   I. THE PREPONDERANCE OF THE EVIDENCE STANDARD APPLIES IN ACTIONS
UNDER SECTION 523(a) OF THE BANKRUPTCY CODE TO EXCEPT FROM DISCHARGE
DEBTS INCURRED BY FRAUD

   Section 523(a)(2) of the Bankruptcy Code, 11 U.S.C. 523(a)(2),
excepts from discharge in bankruptcy any debt of an individual debtor
that arises from that debtor's fraudulent conduct.  /4/ The court of
appeals held that a creditor seeking to except a claim from discharge
under Section 523(a)(2) must prove fraud by clear and convincing
evidence.  Under the court of appeals' decision, principles of
collateral estoppel would not apply where, as here, a prior fraud
judgment was obtained under a preponderance of the evidence standard.
This is an unwarranted result.  A plaintiff who has proved fraud in a
nonbankruptcy court need not, and should not, be required to retry the
case in the bankruptcy court to preserve the prior judgment from
discharge.  /5/

   A. In a Proceeding to Except from Discharge a Debt Incurred by
Fraud, the Balance of Interests of the Parties Requires Application of
the Preponderance of the Evidence Standard

   1. Section 523 does not prescribe the standard of proof applicable
to claims that a debt is excepted from discharge because of the
debtor's fraudulent conduct.  The legislative history of Section 523
and its predecessor, Section 17 of the Bankruptcy Act 11 U.S.C. 35
(1976), also are silent on this issue.  /6/ Where Congress has not
specified a standard of proof, and the Constitution does not require a
particular standard, the courts will fill the gap.  See Herman &
MacLean v. Huddleston, 459 U.S. 375, 389 (1983);  Steadman v. SEC, 450
U.S. 91, 95 (1981).  /7/

   The function of a standard of proof is to "allocate the risk of
error between the litigants and to indicate the relative importance
attached to the ultimate decision." Addington v. Texas, 441 U.S. 418,
423 (1979).  The standard of proof performs this function by
"instruct(ing) the factfinder concerning the degree of confidence our
society thinks he should have in the correctness of factual
conclusions.'" Ibid. (quoting In re Winship, 397 U.S. 358, 370 (1970)
(Harlan, J., concurring)).  The preponderance standard is the only
standard of proof that results in a roughly equal allocation of the
risk of error between the parties;  "(a)ny other standard expresses a
preference for one side's interests." Huddleston, 459 U.S. at 390;
Addington v. Texas, 441 U.S. at 423.  /8/ Consequently, the Court has
recognized that the "preponderance-of-the-evidence standard (is)
generally applicable in civil actions," unless "particularly important
individual interests or rights are at stake." Huddleston, 459 U.S. at
389-390.  See also Santosky v. Kramer, 455 U.S. 745, 756 (1982);
Addington v. Texas, 441 U.S. at 423.  /9/ Where no constitutional or
other very important individual right is implicated, the Court has
applied the preponderance standard, even where severe civil sanctions
may be imposed.  See, e.g., Huddleston, 459 U.S. at 389-390;  Steadman
v. SEC, supra (proceeding to permanently bar individual, on grounds of
fraud, from securities industry);  United States v. Regan, 232 U.S.
37, 48-49 (1914) (civil suit that may expose defendant to criminal
prosecution).  In this case, as in Huddleston, "the balance of
interests * * * warrants use of the preponderance standard." 459 U.S.
at 390.

   2. A discharge in bankruptcy affords the debtor "a new opportunity
in life and a clear field for future effort, unhampered by the
pressure and discouragement of preexisting debt." Local Loan Co. v.
Hunt, 292 U.S. 234, 244 (1934).  But Congress has made this fresh
start available only to "the honest debtor." Ibid.  In enacting
Section 523(a), Congress determined that the fresh start policy should
not override an innocent victim's interest in obtaining redress for
fraud.  As the Court observed in the context of another exception to
discharge, the fresh start policy "cannot override the specific policy
judgments made by Congress in enacting the (exceptions to discharge)."
United States v. Sotelo, 436 U.S. 268, 279 (1978);  see also 1 D.
Cowans, Cowans Bankruptcy Law and Practice Section 6.2, at 691-692
(1989) (the frest start policy "is not so important * * * as to negate
other important policies which the law feels a responsibility to
foster and abet").

   This Court has held that the debtor's interest in obtaining a
discharge is not a constitutional right or a fundamental interest.  In
United States v. Kras, 409 U.S. 434, 446 (1973), the Court held that
"(t)here is no constitutional right to obtain a discharge of one's
debts in bankruptcy." Because the Court saw "no fundamental interest
that is gained or lost depending on the availability of a discharge in
bankruptcy," id. at 445, it held that a debtor who fails to pay
bankruptcy court fees may be denied a discharge of all debts.  The
more limited question whether a particular debt is subject to
discharge can hardly rise above the level of importance of the
complete denial of a discharge in bankruptcy at issue in Kras.

   On the other hand, the innocent victim's interest in obtaining
compensation for fraud is at least as important as the defrauding
debtor's interest in obtaining a fresh start.  The policy against
discharging debts incurred by fraud is deeply embedded in the
bankruptcy law, and has been recognized in every bankruptcy statute
since the Act of March 2, 1867.  /10/ In this case, moreover,
petitioners are "among the very individuals Congress sought to protect
in the securities laws." Huddleston, 459 U.S. at 390.

   In short, Section 523(a)(2) represents a congressional judgment
that certain wrongful conduct by a debtor should not be forgiven in
bankruptcy.  In deciding whether such wrongful conduct has been shown,
there is no indication that Congress intended to tip the scales in
favor of the debtor and against the victim of fraud.  Judicial
implication of a standard of proof favoring the defrauding debtor
would undermine Congress's express policy judgment that the victims of
the debtor's fraud should be protected from discharge of the debt owed
them by the bankrupt.

   B. A Preponderance Standard of Proof for Proceedings Under Section
523 Is Consistent with Section 727 of the Bankruptcy Code and
Important Nonbankruptcy Fraud Statutes

   1. Although the Bankruptcy Code and its legislative history are
silent as to the standard of proof in a Section 523(a) proceeding
based on fraud, the legislative history of Section 727 of the Code, 11
U.S.C. 727, suggests that Congress intended a preponderance standard
to apply under Section 523(a).  Section 727 authorizes the bankruptcy
court to grant a discharge in a Chapter 7 liquidation proceeding
except in certain circumstances.  One exceptional circumstance arises
where the debtor has engaged in conduct that would operate as a fraud
on the bankruptcy court.  11 U.S.C. 727(a)(4).  /11/ Both the House
and the Senate Reports state that "(this) ground for denial of
discharge is the commission of a bankruptcy crime, though the standard
of proof is preponderance of the evidence rather than proof beyond a
reasonable doubt." H.R. Rep. No. 595, 95th Cong., 1st Sess. 384
(1977);  S. Rep. No. 989, 95th Cong., 2d Sess. 99 (1978).  Congress
thus instructed the bankruptcy court to deny a discharge as to all
debts if it determines, by a preponderance of the evidence, that the
debtor has committed certain fraudulent acts.  /12/ Section 523(a)
merely excepts from discharge particular debts based on fraudulent
conduct.  Given that Congress instructed the courts to apply a
preponderance standard for fraud under Section 727 -- when the
consequence is total ineligibility for discharge -- it is unlikely
that Congress would have applied a higher standard of proof under
Section 523 -- when the consequence is simply to except from discharge
a particular debt.  /13/

   2. In the absence of clear congressional direction, this Court has
declined to construe the Bankruptcy Code so as to create "an
extraordinary exemption from nonbankruptcy law." United States v. Ron
Pair Enterprises, Inc., 109 S. Ct. 1026, 1032 (1989) (quoting
Midlantic Nat'l Bank v. New Jersey Dep't of Environmental Protection,
474 U.S. 494, 501 (1986)).  Application of the clear and convincing
evidence standard in Section 523 proceedings based on fraud would in
effect exempt debtors in bankruptcy from important federal
nonbankruptcy laws that require proof of fraud only by a preponderance
of the evidence.  For example, Congress has provided expressly that
the preponderance standard shall apply in fraud actions brought by the
United States under the False Claims Act.  See 31 U.S.C. 3731(c).
Similarly, Congress enacted FIRREA in 1989, Pub. L. No. 101-73, 103
Stat. 183, in part "(t)o strengthen the * * * penalties for defrauding
or otherwise damaging (financial) institutions and their depositors."
Joint Explanatory Statement of the Committee of Conference, 135 Cong.
Rec. H5172, H5174 (daily ed. Aug. 4, 1989);  see 12 U.S.C. 1818(i)
(expanding civil penalties for bank fraud);  12 U.S.C. 1833a(e)
(expressly providing that preponderance standard applies to civil
actions brought by the Attorney General to recover civil penalities
for certain fraudulent conduct involving financial institutions).  The
FDIC obtains judgments for civil fraud against persons who defraud
banks or thrift institutions undera variety of provisions;  including
the money penalty provisions of the FDIA, 12 U.S.C. 1818(i),
1821(k)-(l), the securities laws, the civil provisions of the RICO
statute, and the antifraud provisions of the Commodity Exchange Act
(CEA).  Claims under each of these provisions generally are subject to
proof by a preponderance of the evidence.  /14/ In addition, this
Court has held that the preponderance standard applies in cases, such
as the prior litigation at issue here, brought under Section 10(b) of
the Securities Exchange Act and Commission Rule 10b-5, Herman &
MacLean v. Huddleston, supra.  /15/

   The clear and convincing evidence standard, if adopted by this
Court, would require fraud victims who have successfully litigated
fraud claims under the preponderance standard prescribed for various
important antifraud statutes to litigate their claims anew, under a
higher standard of proof, in the bankruptcy court.  The Court should
decline to adopt a standard of proof in discharge exception
proceedings that is "in clear conflict with * * * federal laws of
great importance." United States v. Ron Pair Enterprises, Inc., 109 S.
Ct. at 1033.  /16/

   II. APPLICATION OF THE CLEAR AND CONVINCING EVIDENCE STANDARD TO
THE FRAUD EXCEPTION TO DISCHARGE WAS NOT A WELL-ESTABLISHED PRE-CODE
BANKRUPTCY PRACTICE

   In construing the Bankruptcy Code, this Court has said that, absent
clear direction from Congress, it will look to well-established
judicial interpretations under prior bankruptcy law.  See Pennsylvania
v. Davenport, 110 S. Ct. 2126, 2133 (1990);  Kelly v. Robinson, 479
U.S. 36, 47 (1986);  Midlantic Nat'l Bank v. New Jersey Dep't of
Environmental Protection, 474 U.S. 494 (1986).  In this case, the
court of appeals presumed that Congress was aware at the time of
enacting Section 523 that the "prevailing view" was that fraud had to
be proved by clear and convincing evidence in both discharge exception
proceedings and common law actions for damages.  Pet App. 13a.  The
fundamental difficulty with the court's analysis is that there was no
established judicial practice of requiring that fraud exceptions to
discharge be proved by clear and convincing evidence.  In fact, the
courts were and are divided over the standard of proof applicable in
civil fraud actions generally, and in bankruptcy exception proceedings
in particular.  What is more, there is no indication that Congress was
made aware of judicial decisions articulating the pertinent standard
of proof, or focused on this issue at all.  /17/

   A. The Standard of Proof Applicable to Fraud Exceptions to
Discharge Was Not Well-Established Prior to 1978

   1. Prior to 1970, the bankruptcy courts shared with the state
courts concurrent jurisdiction to determine whether a debt was
excepted from discharge because it arose from the debtor's fraudulent
conduct.  As a matter of practice, however, the bankruptcy courts
generally did not decide whether particular debts were excepted from
discharge.  See 1A J. Moore, J. Mulder & L. King, Collier on
Bankruptcy Paragraph 17.28, at 1726-1727 (14th ed. 1978).  Instead,
the dischargeability question typically was litigated in the state
courts, in one of two situations.  First, a creditor who had obtained
a fraud judgment prior to the bankruptcy proceeding might seek to
enforce the judgment in state court after the debtor received a
discharge.  The debtor would then invoke the discharge as a defense to
the enforcement action.  See, e.g., First-Citizens Bank & Trust Co. v.
Parker, 232 N.C. 512, 61 S.E.2d 441 (1950);  Morris v. Levin, 302 Ill.
App. 173, 23 N.E.2d 779 (1939).  Second, the creditor might wait until
after the debtor emerged from bankruptcy to sue for fraud.  Again, the
debtor would invoke his discharge as a defense to that action.  See,
e.g., Atlas Credit Corp. v. Miller, 216 So. 2d 100 (La. Ct. App.
1968);  Household Finance Corp. v. Altenberg, 5 Ohio St. 2d 190, 214
N.E.2d 667 (1966).  In both situations, a significant number of courts
-- often simply applying the standard of proof applicable in the
underlying state cause of action to the defense of discharge --
required the creditor to prove fraud only by a preponderance of the
evidence.  See, e.g., Sweet v. Ritter Finance Co., 263 F. Supp. 540,
543 (W.D. Va. 1967);  Nickel Plate Cloverleaf Federal Credit Union v.
White, 120 Ill. App. 2d 91, 92-94, 256 N.E.2d 119, 120-121 (1970);
Gonzales v. Aetna Finance Co., 86 Nev. 271, 468 P.2d 15 (1970);
Beneficial Finance Co. v. Machie, 6 Conn. Cir. Ct. 37, 40-41, 263 A.2d
707, 710 (1969);  Budget Finance Plan v. Haner, 92 Idaho 56, 59, 436
P.2d 722, 725 (1968);  Mac Finance Plan, Inc. v. Stone, 106 N.H. 517
521-522, 214 A.2d 878, 882 (1965);  Atlas Credit Corp. v. Miller,
supra;  Household Finance Corp. v. Altenberg, supra.  /18/ See also
Ames v. Moir, 138 U.S. 306, 312 (1891) (affirming determination that a
debt was excepted from discharge under the 1867 Bankruptcy Act where
jury was instructed that it could find fraud by a preponderance of the
evidence under state law).  /19/ Those courts that applied a clear and
convincing standard of proof often did so because the heightened
standard applied in that state to proof of fraud in the first
instance.  See, e.g., Tek-Ni-Kal Employees Credit Union v. Atkins, 12
Mich. App. 1, 4, 162 N.W.2d 299, 30 (1968);  Household Finance Corp.
v. Williams, 66 Wash. 2d 183, 185, 401 P.2d 876, 877 (1965);  First
Nat'l Bank v. Scieszinski, 25 Wis. 2d 569, 572, 131 N.W.2d 308, 310
(1964).

   2. In 1970, Congress amended the Bankruptcy Act to give the
bankruptcy courts exclusive jurisdiction over the dischargeability of
certain debts, including debts arising from fraud.  Following the 1970
amendments, some federal courts applied the preponderance standard to
such claims, see, e.g., Fierman v. Lazarus, 361 F. Supp. 477, 480
(E.D. Pa. 1973);  In re Scott, 1 Bankr. Ct. Dec. (CRR) 581, 583
(Bankr. W.D. Mich. 1975), while others applied the clear and
convincing evidence standard of proof, see, e.g., Brown v. Buchanan,
419 F. Supp. 199 (E.D. Va. 1975);  In re Arden, 75 Bankr. 707, 710-711
(Bankr. D.R.I. 1975).  Thus, there was no established and consistent
practice among courts regarding the standard of proof applied in
discharge exception proceedings that Congress could be said to have
ratified sub silentio in enacting Section 523 in 1978.

   Here, no evidence exists that Congress was made aware of any
judicial decisions discussing what standard of proof to apply in
discharge exception proceedings, let alone decisions applying a clear
and convincing standard.  And, as set out above, the law as to what
standard applied was far from clear.  Thus, the court of appeals'
"presum(ption)" -- based on congressional silence, Pet. App. 13a --
was wholly unwarranted.

   B. The Courts Are Divided Over the Standard of Proof Applicable to
Civil Actions for Fraud

   Although this Court has referred to the heightened standard of
proof "traditionally" imposed in civil fraud cases, see Cruzan v.
Director, Missouri Dep't of Health, No. 88-1503 (June 25, 1990) slip
op. 18 (quoting Woodby v. INS, 385 U.S. at 285 n.18), close
examination of the cases reveals that, both before and after the
enactment of the Bankruptcy Code in 1978, the courts were deeply
divided over the appropriate standard of proof in civil actions for
fraud.  As early as 1943, this Court applied the preponderance of the
evidence standard in a civil fraud action under the securities laws.
SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 355 (1943) (15 U.S.C.
77q(a)).  In addition, both before and after 1978, a significant
number of state courts have held that the preponderance standard
applies in civil actions for fraud.  /20/ Moreover, several pre-Code
treatises state that the preponderance standard applies to many or
most civil proceedings involving allegations of fraud.  /21/ It is
true that a majority of the States require that fraud be proved by
more than a preponderance of the evidence, but the majority is far
from overwhelming.  /22/ Even in these States, moreover, courts
sometimes apply a preponderance standard.  /23/ In other cases, the
court's formulation of the standard of proof is so confusing that it
is difficult to know what standard it applied.  /24/

   In short, both the state courts and the bankruptcy courts were
divided over the appropriate standard of proof in fraud exception
proceedings, as well as in civil actions for fraud.  Accordingly,
there is no reason to conclude on the basis of Congress's silence that
it was implicitly ratifying a well-established practice or requiring
proof of fraud in discharge exception proceedings by clear and
convincing evidence.  There simply was no such well-established
practice.

   C. The Reasons for Requiring Clear and Convincing Proof in Certain
Fraud Actions are Inapplicable in Section 523 Proceedings

   As this Court has recognized, the practice of requiring a
heightened standard of proof in certain civil proceedings involving
fraud appears to have arisen in actions in which a court of equity was
requested to grant relief on claims that were unenforceable at law for
failure to comply with the Statute of Frauds, the Statute of Wills, or
the parol evidence rule.  See Herman & MacLean v. Huddleston, 459 U.S.
at 388 n.27.  A higher standard of proof subsequently was applied in
actions seeking to set aside or alter the terms of written
instruments.  The heightened proof requirements was employed in such
cases because they were believed to involve special dangers that
claims might be fabricated.  Ibid. (citing Note, Appellate Review in
the Federal Courts of Findings Requiring More than a Preponderance of
the Evidence, 60 Harv. L. Rev. 111, 112 (1946).  In these cases, the
courts were concerned to protect the validity of written instruments
and the reliance placed upon such documents.  /25/

   The reasons for requiring proof by clear and convincing evidence
have little relevance in proceedings to except a debt from discharge
under the Bankruptcy Code.  In many cases, including this one, the
validity of a written instrument is not at issue.  In addition, many
important federal antifraud provisions "are not coextensive with
common-law doctrines of fraud." Huddleston, 459 U.S. at 388-389.  In
fact, as the Court observed in Huddleston, statutory remedies for
fraud were enacted precisely because of the shortcomings of common law
fraud remedies.  Id. at 389.  Accordingly, arguments based on the
common law of fraud have little application in the context of a
bankruptcy proceeding under Section 523(a).

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JOHN G. ROBERTS, JR.

      Deputy Solicitor General

   ROBERT A. LONG, JR.

      Assistant to the Solicitor General

   JAMES R. DOTY

      General Counsel

   PAUL GONSON

      Solicitor

   JACOB H. STILLMAN

      Associate General Counsel

   RICHARD A. KIRBY

      Senior Litigation Counsel

   JOSEPH O. CLICK

      Attorney Securities and Exchange Commission Washington, D.C.
      20549

   ALFRED J.T. BYRNE

      General Counsel Federal Deposit Insurance Corporation
      Washington, D.C. 20429

   JULY 1990

   /1/ Congress created the RTC "to contain, manage, and resolve
failed savings associations." Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, Section
101(7), 103 Stat. 183.

   /2/ Other federal agencies also obtain civil fraud remedies under a
preponderance of the evidence standard.  For example, a preponderance
standard applies to Medicare and Medicaid fraud claims.  See 42 U.S.C.
1320a-7a;  42 C.F.R. 1003.114(a).  In addition, where the Internal
Revenue Service establishes that any part of a tax underpayment is
attributable to fraud, the entire underpayment is subject to fraud
penalties unless the taxpayer establishes, by a preponderance of the
evidence, that the underpayment is not attributable to fraud.  See
Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239,
Section 7721(a), 103 Stat. 2395 (to be codified at 26 U.S.C. 6663(b)).
 The Commodity Futures Trading Commission's findings of violations of
the antifraud provisions of the CEA also are reviewed under a
preponderance standard.  See Lawrence v. CFTC, 759 F.2d 767, 773 (9th
Cir. 1985).

   /3/ Section 523 provides, in part:

         (a) A discharge under section 727, 1141, 1228(a), 1228(b), or
      1328(b) of this title does not discharge an individual debtor
      from any debt --

                      * * * *

         (2) for money, property, services, or an extension, renewal,
      or refinancing of credit, to the extent obtained by --

         (A) false pretenses, a false representation, or actual fraud,
      other than a statement respecting the debtor's or an insider's
      financial condition;

         (B) use of a statement in writing --

         (i) that is materially false;

         (ii) respecting the debtor's or an insider's financial
      condition;

         (iii) on which the creditor to whom the debtor is liable for
      such money, property, services, or credit reasonable relied;
      and

         (iv) that the debtor caused to be made or published with
      intent to deceive.

   In addition, Section 523(a)(4) of the Bankruptcy Code, 11 U.S.C.
523(a)(4), excepts from discharge in bankruptcy any debt "for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or
larceny."

   /4/ See note 3, supra.

   /5/ We agree with the courts below that principles of collateral
estoppel apply in bankruptcy proceedings.  See Pet. App. 6a-7a,
35a-36a.  Although the Court formally reserved this question in Brown
v. Felsen, 442 U.S. 127 n.10 (1979), it subsequently stated that "(i)n
many cases * * * principles of issue preclusion would obviate the need
for a bankruptcy court to reexamine factual questions." Kelly v.
Robinson, 479 U.S. 36, 48 n.8 (1986).  Collateral estoppel, unlike the
doctrine of res judicata at issue in Brown v. Felsen, supra, applies
only to those factual issues actually and necessarily determined in
prior litigation between the parties.  See Montana v. United States,
440 U.S. 147, 153 (1979);  Parklane Hosiery Co. v. Shore, 439 U.S.
322, 326 n.5 (1979).  Consequently, there is no danger that bankruptcy
issues will be determined in cases where the parties lack an adequate
incentive to litigate them.  Where, as here, factual issues are
actually litigated in nonbankruptcy courts, application of collateral
estoppel principles is appropriate and fully consistent with the prior
decisions of this Court.  See generally Heiser v. Woodruff, 327 U.S.
726 (1946);  Fischer v. Pauline Oil & Gas Co., 309 U.S. 294, 302-303
(1940);  Davis v. Friedlander, 104 U.S. 570 (1881).  Virtually every
court of appeals to consider the question has held that collateral
estoppel is applicable in discharge exception proceedings.  See In re
Braen, 900 F.2d 621 (3d Cir. 1990);  Combs v. Richardson, 838 F.2d
112, 114 (4th Cir. 1988);  Klingman v. Levinson, 831 F.2d 1292 (7th
Cir. 1987);  In re Shuler, 722 F.2d 1253, 1256 (5th Cir.), cert.
denied, 469 U.S. 817 (1984);  Lovell v. Mixon, 719 F.2d 1373, 1376
(8th Cir. 1983);  Spilman v. Harley, 656 F.2d 224, 226 n.2 (6th Cir.
1981).  See also In re Lombard, 739 F.2d 499, 503 (10th Cir. 1984)
(collateral estoppel applies at least where the bankruptcy court does
not have exclusive jurisdiction).  But cf. In re Houtman, 568 F.2d 651
(9th Cir. 1978) (judgment of a nonbankruptcy court establishes only
prima facie case of nondischargeability).

   We also agree with the court of appeals that collateral estoppel
applies in this case only if Section 523(a) requires proof of fraud by
a preponderance of the evidence.  See Price Waterhouse v. Hopkins, 109
S. Ct. 1775 (1989).

   /6/ See S. Rep. No. 989, 95th Cong., 2d Sess. 77-80 (1978);  H.R.
Rep. No. 595, 95th Cong., 1st Sess. 129-132, 363-365 (1977);  S. Rep.
No. 1173, 91st Cong., 2d Sess. (1970);  H.R. Rep. No. 1502, 91st Cong.
2d Sess. (1970);  H.R. Rep. No. 1409, 75th Cong., 1st Sess. (1937);
S. Rep. No. 1916, 75th Cong., 3d Sess. (1938).

   /7/ The determination whether a debt is excepted from discharge
under Section 523(a) is a matter of federal bankruptcy law.  See Brown
v. Felsen, 442 U.S. at 136.  Accordingly, the standard of proof in a
Section 523(a) proceeding is also a matter of federal law.

   /8/ A heightened standard of proof not only increases the
probability that an error will favor the debtor, but also increase the
overall probability of an erroneous decision.  See Winter, The Jury
and the Risk of Nonpersuasion, 5 Law & Soc. Rev. 335, 337 (1970);
Ball, The Moment of Truth:  Probability Theory and Standards of Proof,
14 Vand. L. Rev. 807, 816-817 (1961).

   /9/ The Court has required proof by clear and convincing evidence
only where constitutional or other highly important individual
interests are at stake.  See, e.g., Santosky v. Kramer, supra
(proceeding to terminate parental rights);  Addington v. Texas, supra
(involuntary civil commitment proceedings);  Boddie v. Connecticut,
401 U.S. 371 (1971) (right to sue for divorce);  Woodby v. INS, 385
U.S. 276 (1966) (determination of alien's deportability);  New York
Times v. Sullivan, 376 U.S. 254 (1964) (First Amendment rights);
Chaunt v. United States, 364 U.S. 350 (1960) (proceeding to revoke
United States citizenship);  Schneiderman v. United States, 320 U.S.
118, 125, 159 (1943) (denaturalization proceedings).  See also Cruzan
v. Director, Missouri Dep't of Health, No. 88-1503 (June 25, 1990)
slip op. 17-19 (State may require clear and convincing proof of
patient's choice to discontinue life-sustaining treatment).

   /10/ See Act of Mar. 2, 1867, ch. 176, Section 33, 14 Stat. 517;
Act of July 1, 1898, ch. 541, Section 17, 30 Stat. 550;  Act of June
22, 1938, ch. 575, Section 17a, 52 Stat. 840.  In the 1898 statute,
Congress provided that "judgments" sounding in fraud were excepted
from discharge.  In 1903, Congress substituted the term "liabilities"
for "judgments." Act of Feb. 5, 1903, ch. 487, Section 5, 32 Stat.
798.  As the Court has noted, the 1903 amendment was intended to
broaden the category of claims excepted from discharge.  Brown v.
Felsen, 442 U.S. at 138 (quoting H.R. Rep. No. 1698, 57th Cong., 1st
Sess. 3, 6 (1902)).  In this case, the court of appeals' decision in
effect permits some fraud claims to be discharged even if they have
been reduced to judgment, a result inconsistent even with the narrow
fraud exception of the 1898 statute.

   /11/ Specifically, Section 727(a)(4) denies the debtor a discharge
if:

      the debtor knowingly and fraudulently, in or in connection with
      the case -- (A) made a false oath or account;  (B) presented or
      used a false claim;  (C) gave, offered, received, or attempted
      to obtain money, property, or advantage, or a promise of money,
      property, or advantage, for acting or forbearing to act;  (D)
      withheld from an officer of the estate entitle to possession
      under this title, any recorded information, including books,
      documents, records, and papers, relating to the debtor's
      property or financial affairs.

Section 152, 18 U.S.C., imposes criminal liability on a debtor who
engages in the above conduct.

   /12/ Prior to enactment of the Bankruptcy Code, the courts of
appeals held that the preponderance standard applied in this context.
See, e.g., In re Robinson, 506 F.2d 1184, 1187 (2d Cir. 1974);  Union
Bank v. Blum, 460 F.2d 197, 200-201 (9th Cir. 1972).  The Code
codified this understanding.  Remarkably, some bankruptcy courts have
refused to give effect to the plain statements in the legislative
history or the pre-Code decisions of the courts of appeals.  See e.g.,
In re Garcia, 88 Bankr. 695, 699 (Bankr. E.D. Pa. 1988) (citing
cases).  These decisions are plainly wrong.

   /13/ The preponderance standard in Section 727 also belies the
notion underlying the decision below that Congress must have
legislated against the backdrop of a "prevailing view" that fraud had
to be proved by clear and convincing evidence.  Section 727 -- like
Section 523 -- is silent as to the standard of proof, yet Congress
plainly intended the preponderance of the evidence standard to apply.
See H.R. Rep. No. 595, supra, at 384;  S. Rep. No. 989, supra, at 99.
It seems likely that thee only reason Congress expressly stated its
intent in the legislative history of Section 727 was that the fraud
covered by that section is also subject to criminal sanctions under 18
U.S.C. 152, a concern not presented in the same manner with respect to
Section 523.

   /14/ See United States v. Local 560, Int'l Bhd. of Teamsters, 780
F.2d 267, 279 n.12 (3d Cir. 1986) (RICO);  First Nat'l Monetary Corp.
v. Weinberger, 819 F.2d 1334, 1340 (6th Cir. 1987) (CEA).  In
addition, the FDIC pursues state law remedies for fraud in states that
require proof of common law fraud only by a preponderance of the
evidence.

   /15/ Congress has enacted significant additional securities
antifraud legislation without disturbing the Huddleston holding.  See
H.R. Rep. No. 355, 98th Cong., 1st Sess. 15-16 (1983) (report
accompanying the Insider Trading Sanctions Act of 1984, Pub. L. No.
98-379, 98 Stat. 1264).

   /16/ Such wasteful relitigation would be minimized by applying a
preponderance standard in Section 523(a) proceedings.  If the creditor
has obtained a judgment for fraud in a prior proceeding, under either
the preponderance standard or the clear and convincing standard,
relitigation in the bankruptcy court will be barred by principles of
collateral estoppel so long as the identical issues were actually and
necessarily determined in the prior litigation.  If the plaintiff has
litigated and lost a fraud claim in a prior proceeding, under either
standard of proof, relitigation would not be permitted in the
bankruptcy court.  This is so because Section 523 does not provide a
substantive cause of action for fraud.  The fraud victim's claim must
arise out of federal securities law, state common law, or some other
nonbankruptcy source of law with its own standard of proof.  If the
plaintiff has failed to establish a right to recover in the prior
litigation, there is no debt to be excepted from discharge.  See
Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 161
(1946) (whether "claims of creditors are valid and subsisting
obligations against the bankrupt" is generally determined by reference
to state law).

   /17/ In addition, a clear and convincing standard for fraud could
lead to application of different standards of proof to the various
exceptions to discharge enumerated in Section 523(a).  Several of the
ten categories of excepted debts set out in Section 523(a) are
unrelated to fraud.  See, e.g., 11 U.S.C. 523(a)(1)(A)-(B) (certain
tax liabilities), 523(a)(5) (alimony and child support), 523(a)(6)
(certain educational loans), 523(a)(9) (judgment or consent decree for
driving while intoxicated).  There is no indication that Congress
intended some excepted debts to be treated less favorably than others.
 Consequently, the Court should hesitate to require that some
exceptions be proved by clear and convincing evidence while others
require proof only by a preponderance of the evidence.

   Indeed, a clear and convincing standard for fraud might lead to
application of different standards of proof under Section 523(a)(2).
That provision excepts from discharge not only debts incurred through
fraud, but debts incurred as a result of "false pretenses, a false
representation, or actual fraud." (Emphasis supplied).  The most
natural interpretation of this disjunctive language is that Section
523(a)(2) excepts certain debts in addition to those incurred as a
result of "actual fraud." Thus, cases considering the standard of
proof applicable to allegations of actual fraud may not apply to all
excepted debts under Section 523(a)(2).

   /18/ Applying the standard of proof applicable to the underlying
cause of action for fraud was consistent with the theory that a
discharge did not extinguish the debt, but merely provided a defense
to the enforcement of the debt.  See 1A J. Moore, J. Mulder & L. King,
Collier on Bankruptcy Paragraph 17.27, at 1719 (14th ed. 1978);  see
also J. Moore & E. Levi, Gilbert's Collier on Bankruptcy Paragraph
572, at 382-383 (4th ed. 1937) (discussing pleading requirements for
asserting discharge as a defense).

   /19/ In Oriel v. Russell, 278 U.S. 358, 362-364 (1929), the Court
held that a bankruptcy trustee's right to a "turnover" order must be
established by clear and convincing evidence.  The Court observed that
a charge of failure to turn over property was "equivalent to one of
fraud" (id. at 362), but the Court's decision rested primarily on the
fact that "the (turnover) proceeding is one in which coercive methods
by imprisonment (for civil contempt) are probable and are
foreshadowed." Id. at 363.  The Court observed that, in the context of
a turnover order, a heightened standard of proof would prevent delays
caused by "efforts on the part of bankrupts to retry the issue
presented on the motion to turn over." Ibid.  In the context of
Section 523, however, the typical preponderance standard will avoid
such delays.

   /20/ See Saxton v. Harris, 395 P.2d 71, 72 (Alaska 1964);  Sellers
v. West-Ark Constr. Co., 283 Ark. 341, 343-344, 676 S.W.2d 726, 728
(1984) (preponderance standard in cases tried to a jury;  clear and
convincing proof needed to cancel or reform a writing in equity);
Clay v. Brand, 236 Ark. 236, 242-243, 365 S.W.2d 256, 259-260 (1963);
Liodas v. Sahadi, 19 Cal. 3d 278, 289-290, 562 P.2d 316, 320-324, 137
Cal. Rept. 635, 641-642 (1977);  Kern v. NCD Indus., Inc., 316 A.2d
576, 582 (Del. Ch. 1973);  Nye Odorless Incinerator Corp. v. Felton,
35 Del. 236, 162 A. 504 (1932);  Watson Realty Corp. v. Quinn, 452 So.
2d 568, 569 (Fla. 1984);  Rigot v. Bucci, 245 So. 2d 51, 53 (Fla.
1971);  City Dodge, Inc. v. Gardner, 232 Ga. 766, 770, 208 S.E. 2d
794, 798 (1974);  Milligan v. Milligan, 209 Ga. 743, 744, 76 S.E.2d
18, 19 (1953) (fraud "being in itself subtle, slight circumstances may
be sufficient to carry conviction of its existence");  Grissom v.
Moran, 154 Ind. App. 419, 427, 290 N.E.2d 119, 123 (1972);  LaCaze v.
Louisiana, 541 So. 2d 322, 328 (La. Ct. App. 1989);  Atlas Credit
Corp. v. Miller, 216 So. 2d 100, 101 (La. Ct. App. 1968);  La. Civ.
Code Ann. art. 1957 (West 1987);  Martin v. Guarantee Reserve Life
Ins. Co., 279 Minn. 129, 137-138, 155 N.W.2d 744, 749 (1968);  Cowan
v. Westland Realty Co., 162 Mont. 379, 382-383, 512 P.2d 714, 716
(1973);  Tobin v. Flynn & Larsen Implement Co., 220 Neb. 259, 262-263,
369 N.W.2d 96, 99 (1985) (preponderance standard applies in actions at
law for damages);  Murphy Fin. Co. v. Fredericks, 177 Neb. 1, 4-5, 127
N.W.2d 924, 926 (1964) (same);  Fischetto Paper Mill Supply, Inc. v.
Quigly Co., 3 N.J. 149, 155, 69 A.2d 318, 321 (1949) (approving
"greater weight of the evidence" instruction);  Medivox Productions,
Inc. v. Hoffman-LaRoche, Inc., 107 N.J. Super. 47, 69, 256 A.2d 803,
814-815 (1969) (preponderance standard applies in legal actions;
clear and convincing standard applies in equitable actions);  Maynard
v. Durham & Southern Ry., 251 N.C. 783, 787-788, 112 S.E.2d 249, 252
(1960), (preponderance of the evidence sufficient to set aside
instrument procured by fraud;  clear and convincing proof required to
reform instrument) rev'd on other grounds, 365 U.S. 160 (1961);
Household Fin. Corp. v. Altenberg, 5 Ohio St. 2d at 192-194, 34 Ohio
Op. 2d at 348-349, 214 N.E.2d at 669-670 (preponderance standard
applies to legal actions for fraud;  clear and convincing standard
applies to equitable actions);  Ostalkiewicz v. Guardian Alarm, 520
A.2d 563, 569 (R.I. 1987);  Smith v. Rhode Island Co., 39 R.I. 146,
153-154, 98 A. 1, 4 (1916);  General Electric Credit Corp. v. M.D.
Aircraft Sales, Inc., 266 N.W.2d 548, 550 (S.D. 1978);  Aschoff v.
Mobil Oil Corp., 261 N.W.2d 120, 125 (S.D. 1977);  Piccadilly Square
v. Intercontinental Const. Co., 782 S.W.2d 178, 184 (Tenn. App. 1989);
 James v. Joseph, 156 Tenn. 417, 424, 1 S.W.2d 1017 (1928);  Wirtz v.
Orr, 575 S.W.2d 66, 70-71 (Tex. Civ. App. 1978);  Wyatt v. Chambers,
182 S.W. 16, 18 (Tex. Civ. App. 1915).  Cf. Travelers Indem. Co. v.
Armstrong, 442 N.E.2d 349, 361 (Ind. 1982) (clear and convincing
evidence required to obtain punitive damages for fraud).

   Illinois appears to have required proof of fraud only by a
preponderance of the evidence until 1983, although thereafter it has
required clear and convincing proof.  See L & S Enterprises Co. v.
Great American Ins. Co., 454 F.2d 457, 460 (7th Cir. 1971)
(preponderance);  Barrett v. Shanks, 382 Ill. 434, 47 N.E.2d 481
(1943) (same);  Hofmann v. Hofmann, 94 Ill. 2d 205, 222, 446 N.E. 2d
499, 506 (1983) (clear and convincing).

   /21/ See, e.g., 37 Am. Jur. 2d Fraud and Deceit Section 468 (1968);
 37 C.J.S. Fraud Section 94, 113 (1943);  Annotation, Quantum of Proof
in Civil Case on Issue Involving Fraudulent, Dishonest, or Criminal
Misappropriation of Property, 62 A.L.R. 1449 (1929);  2 T. Cooley,
Treatise on the Law of Torts Section 349, at 552-554 (4th ed. 1932);
M. Bigelow, The Law of Fraud and the Procedure Pertaining to the
Redress Thereof 474 (1877).

   /22/ See D.H. Holmes Dep't Store v. Feil, 472 So. 2d 1001 (Ala.
1985);  Rhoads v. Harvey Publications, Inc., 145 Ariz. 142, 700 P.2d
840 (1984);  Ficor, Inc. v. McHugh, 639 P.2d 385 (Colo. 1982);  Miller
v. Appleby, 183 Conn. 51, 55, 438 A.2d 811, 813 (1981) ("clear and
satisfactory evidence");  Pyne v. Jamaica Nutrition Holdings, Ltd.,
497 A.2d 118 (D.C. 1985);  Dobison v. Bank of Hawaii, 60 Haw. 225, 587
P.2d 1234 (1978);  Magic Valley Potato Shippers v. Continental Ins.,
112 Idaho 1073, 739 P.2d 372 (1987);  Beeck v. Aquaslide 'N' Dive
Corp., 350 N.W.2d 149, 155 (Iowa 1984) ("preponderance of clear,
satisfactory, and convincing evidence");  Stauth v. Brown, 241 Kan. 1,
734 P.2d 1063 (1987);  Sanford Constr. Co. v. S & H Contractors, Inc.,
443 S.W.2d 227 (Ky. 1969);  Butler v. Poulin, 500 A.2d 257 (Me. 1985);
 Peurifoy v. Congressional Motors, Inc., 254 Md. 501, 255 A.2d 332
(1969);  Transitron Elec. Corp. v. Hughes Aircraft Co., 649 F.2d 871
(1st Cir. 1981) (Massachusetts law);  Hi-Way Motor Co. v.
International Harvester Co., 398 Mich. 330, 247 N.W.2d 813 (1976);
Tietjens v. General Motors Corp., 418 S.W.2d 75 (Mo. 1967);  Lubbe v.
Barba, 91 Nev. 596, 540 P.2d 115 (1975);  Caledonia, Inc. v. Trainor,
123 N.H. 116, 459 A.2d 613 (1983);  Snell v. Cornehl, 81 N.M. 248, 466
P.2d 94 (1970);  Simcuski v. Saeli, 44 N.Y.2d 442, 377 N.E. 713, 406
N.Y.S. 2d 259 (1978);  Buehner v. Hoeven, 228 N.W.2d 893 (N.D. 1975);
Tice v. Tice, 672 P.2d 1168, 1171 (Okla. 1983);  Bausch v. Myers, 273
Or. 376, 541 P.2d 817 (1975);  Yoo Hoo Bottling Co. v. Leibowitz, 432
Pa. 117, 247 A.2d 469 (1965);  Davis v. Upton, 250 S.C. 288, 157
S.E.2d 567 (1967);  Schwartz v. Tanner, 576 P.2d 873 (Utah 1978);
Bardill Land & Lumber, Inc. v. Davis, 135 Vt. 81, 370 A.2d 212 (1977);
 Gibson v. Gibson, 207 Va. 821, 153 S.E.2d 189 (1967);  Beckett v.
Department of Social & Health Serv., 87 Wash. 2d 184, 550 P.2d 529,
531 (1976);  Campbell v. Campbell, 146 W. Va. 1002, 124 S.E.2d 345,
353 (1962) ("clear and distinct proof");  Miles v. Mackle Bros., 73
Wis. 2d 84, 242 N.W.2d 247 (1976);  Duffy v. Brown, 708 P.2d 433 (Wyo.
1985).

   /23/ See. e.g., Kopeikin v. Merchants Mortgage & Trust Corp., 679
P.2d 599, 601 (Colo. 1984) (en banc) (fraudulent concealment);
Goodfellow v. Kattnig, 533 P.2d 58, 60 (Colo. Ct. App. 1975);  Modern
Displays, Inc. v. Hennecke, 350 Mich. 67, 85 N.W.2d 80 (1957);
Goodrich v. Waller, 314 Mich. 456, 22 N.W.2d 862 (1946);  In re
Delligan's Estate, 111 Vt. 227, 234-235, 13 A.2d 282, 287 (1940).

   /24/ See, e.g., Arnett v. Sanderson, 25 Ariz. 433, 444, 218 P. 986,
990 (1923) ("It is true that proof of fraud should be clear and
convincing, but this does not mean that the clear and convincing proof
is not to be by a preponderance of the evidence;  in fact, fraud is
determined by a preponderance of the evidence.");  Gilbert v.
Mid-South Machinery Co., 267 S.C. 211, 222-223, 227 S.E.2d 189, 194
(1976) ("Fraud must be established by a preponderance of the evidence
* * * and, while the evidence must be clear and convincing, such clear
and convincing proof may be met by a preponderance of the evidence.")
(quoting 37 C.J.S. Fraud Section 114a (1943)).

   /25/ The Court noted this history in Cruzan v. Director, Missouri
Dep't of Health, No. 88-1503 (June 25, 1990), slip op. 18, and has
applied a heightened standard of proof to protect the integrity of
formal documents in earlier cases.  See United States v. American Bell
Tel. Co., 167 U.S. 224 (1897) (suit to set aside a patent);  Southern
Dev. Co. v. Silva, 125 U.S. 247 (1888) (suit to rescind a land
purchase contract).