{"id":317,"date":"2016-10-02T15:12:48","date_gmt":"2016-10-02T19:12:48","guid":{"rendered":"https:\/\/addedvalueweb.net\/aphco\/?p=317"},"modified":"2016-10-03T14:54:25","modified_gmt":"2016-10-03T18:54:25","slug":"supreme-court-adopts-broad-view-of-actual-fraud","status":"publish","type":"post","link":"https:\/\/addedvalueweb.net\/aphco\/supreme-court-adopts-broad-view-of-actual-fraud\/","title":{"rendered":"Supreme Court adopts broad view of \u201cactual fraud\u201d"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-full wp-image-322\" src=\"https:\/\/addedvalueweb.net\/aphco\/wp-content\/uploads\/2016\/10\/Supreme-Court-seal-opt-200px.png\" alt=\"supreme-court-seal-opt-200px\" width=\"200\" height=\"200\" srcset=\"https:\/\/addedvalueweb.net\/aphco\/wp-content\/uploads\/2016\/10\/Supreme-Court-seal-opt-200px.png 200w, https:\/\/addedvalueweb.net\/aphco\/wp-content\/uploads\/2016\/10\/Supreme-Court-seal-opt-200px-150x150.png 150w\" sizes=\"auto, (max-width: 200px) 100vw, 200px\" \/>In a recent decision, the United States Supreme Court ruled that \u201cfraudulent conveyance schemes\u201d fall within the definition of \u201cactual fraud\u201d for non-dischargeability purposes under the Bankruptcy Code. \u00a0The Court overruled the Fifth Circuit which had held that a misrepresentation was a necessary element of \u201cactual fraud.\u201d \u00a0The Court held that \u201cactual fraud\u201d as it relates to bankruptcy discharges may be committed by purposeful concealment in addition to false misrepresentations.<\/p>\n<p>Husky International Electronics, Inc. v. Ritz, involved a business owner, Daniel Lee Ritz, Jr. (\u201cRitz\u201d), who transferred assets from a company he directed, Chrysalis Manufacturing Corp. (\u201cChrysalis\u201d), to other entities in which he owned substantial equity. \u00a0Prior to the transfers, Husky had sold equipment to Chrysalis and was owed unsecured debt by Chrysalis.<\/p>\n<p>When Husky sued Ritz personally for the debt under a state law fraud theory, Ritz filed for chapter 7 bankruptcy relief. \u00a0Husky then sought to have the Chrysalis debt declared non-dischargeable as to Ritz under section 523(a)(2)(A) of the Bankruptcy Code. \u00a0That section prevents debtors from discharging debts \u201cobtained by false pretenses, a false representation, or actual fraud.\u201d \u00a0Husky argued that Ritz engaged in \u201cactual fraud\u201d when he transferred assets from Chrysalis to other entities he controlled in an apparent fraudulent conveyance scheme.<\/p>\n<p>The Court held that a fraudulent conveyance scheme constitutes \u201cactual fraud\u201d but did not explicitly rule that the Husky debt was \u201cobtained by\u201d fraud. \u00a0The Court hinted that if the transferor and transferee were in some meaningful way the same, the debt may be deemed to be \u201cobtained by\u201d fraud. \u00a0The Court noted that the phrase \u201cobtained by . . . actual fraud\u201d does not require that the debt result from fraud that took place at the inception of the credit transaction. \u00a0The Court also noted that the creditor need not prove that he \u201crelied\u201d on a fraudulent misrepresentation or omission when granting credit.<\/p>\n<p>A dissent criticized the majority opinion arguing among other factors that the Husky debt was not \u201cobtained\u201d by fraud, both because the debt did not originate between Ritz and Husky, but also because any fraudulent conveyance by Ritz did not create the Chrysalis debt.<\/p>\n<p>While the Court\u2019s decision was a narrow interpretation of the phrase \u201cobtained by . . . actual fraud,\u201d it opens the door for creditors to make non-dischargeability claims against corporate insiders who engage in fraudulent transfer schemes, provided the creditor can prove that the corporate insider is otherwise personally liable for the corporation\u2019s debt.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In a recent decision, the United States Supreme Court ruled that \u201cfraudulent conveyance schemes\u201d fall within the definition of \u201cactual fraud\u201d for non-dischargeability purposes under the Bankruptcy Code. \u00a0The Court overruled the Fifth Circuit which had held that a misrepresentation was a necessary element of \u201cactual fraud.\u201d \u00a0The Court held that \u201cactual fraud\u201d as it&hellip;<\/p>\n","protected":false},"author":2,"featured_media":322,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[12,11],"class_list":["post-317","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-fraud","tag-supreme-court"],"_links":{"self":[{"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/posts\/317","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/comments?post=317"}],"version-history":[{"count":0,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/posts\/317\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/media\/322"}],"wp:attachment":[{"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/media?parent=317"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/categories?post=317"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/addedvalueweb.net\/aphco\/wp-json\/wp\/v2\/tags?post=317"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}