(U.S. Sup. Ct. May 16, 2016)

The Supreme Court resolves a split among the circuits as to whether 11 U.S.C. § 523(a)(2)(A), which in part excepts from discharge debts obtained by actual fraud, requires a false representation to a creditor or is applicable to other forms of fraud that do not require a false representation. The Court holds that a false representation is not required. The debtor caused an entity he controlled to transfer funds to other debtor-controlled entities while the transferor entity owed a significant debt to the creditor. The Court explains that “actual” in “actual fraud” means the fraud must be fraud that is not merely implied fraud or fraud in law. “Fraud” has historically encompassed a broad variety of activities, including the transfer of assets that hinders a creditor’s ability to collect a debt. The debtor argued that a narrower interpretation should be applied because the broader interpretation created overlap with other dischargeability provisions. The debtor also argued that effecting a fraudulent conveyance does not cause the debtor to “obtain” a debt and thus the narrower interpretation is correct. The Court rejects both arguments, based largely on statutory construction, and remands for a determination of whether the debtor here “obtained” a debt because it owned interests in the entities receiving the fraudulent conveyances. The dissent is consistent with the debtor’s argument that a fraudulent conveyance does not cause the transferor to obtain debt by actual fraud. Opinion below.

Majority Opinion: Justice Sotomayor

Dissenting Opinion: Justice Thomas

2016-05-16 – huskey international electronics v ritz