Supreme Court of the United States

Husky International Electronics, Inc., Petitioner v. Daniel Lee Ritz, Jr.

May 16, 2016578 U.S. 355

Summary

The Supreme Court held that the phrase 'actual fraud' in 11 U.S.C. §523(a)(2)(A) encompasses fraudulent conveyance schemes, even those effected without any false representation to a creditor, because the term carries its fixed common-law meaning under which transfers made with intent to hinder creditors have always constituted fraud. The Court rejected arguments that this reading duplicates §§523(a)(4) and (a)(6) or §727(a)(2), and held that the 'obtained by' requirement is satisfied at least where a fraudulent-conveyance recipient obtains assets through the fraud. It reversed the Fifth Circuit and remanded for determination whether Ritz's particular debt was obtained by his transfer scheme. Justice Thomas dissented, contending that 'obtained by' confines §523(a)(2)(A) to debts caused by fraud, with reliance, at the inception of the credit transaction.

Holding

  • Whether 'actual fraud' in 11 U.S.C. §523(a)(2)(A) requires a false representation to a creditor.. No. The term 'actual fraud' in §523(a)(2)(A) encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation.
  • Whether interpreting 'actual fraud' to encompass fraudulent conveyances renders it duplicative of §§523(a)(4) and (a)(6) or redundant of §727(a)(2).. No. Any overlap is inevitable and the provisions retain meaningful differences: §523(a)(4) covers only fraud while acting in a fiduciary capacity, §523(a)(6) reaches willful and malicious injury whether or not the injury results from fraud, and §727(a)(2) is broader in scope (denying discharge of all debts) but narrower in timing (covering only transfers within the year preceding the petition).
  • Whether fraudulent conveyances can satisfy §523(a)(2)(A)'s requirement that the debt be 'obtained by' actual fraud.. Yes, at least sometimes. Although the transferor does not obtain debts through a fraudulent conveyance, the recipient—who with the requisite intent also commits fraud—can obtain assets by participating in the fraud, and if that recipient later files for bankruptcy, debts traceable to the fraudulent conveyance are nondischargeable under §523(a)(2)(A).
  • Whether 'actual fraud' was added to §523(a)(2)(A) to restrict rather than expand the exception's reach.. No. Reading the final item of the disjunctive list 'false pretenses, a false representation, or actual fraud' to modify and limit the others would require changing the word 'or' to 'by,' an unusual statutory modification for which no other example could be identified.

Docket 15-145

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