(Published in the Spring 2016 issue of The Bankers' Statement)

Summary

Smart Summary for Commercial Landlords

On May 16, 2016 the United States Supreme Court issued an opinion regarding the meaning of “actual fraud” under the Bankruptcy Code. Husky Int’l Electronics, Inc. v. Ritz represents a win for creditors by making it easier to show that a debtor committed fraud. A showing of a more general fraud, as opposed to a specific false representation by the debtor, will suffice to prevent certain debts from being discharged in bankruptcy.

Background

Early this week, a California Bankruptcy Court schooled counsel on abiding by local rules, avoiding gamesmanship, and maintaining a level of civility in litigation proceedings. These lessons arose in the context of an adversary proceeding in which counsel filed an emergency motion for a continuance of the deadline to respond to a complaint following retention of new counsel.

Lesson #1: Check for Typos

Yes, Gathering Agreements Can Be Rejected as Executory Contracts (At Least Under One Court’s Interpretation of Texas Law)

In its recently issued decision in Husky International Electronics, Inc. v. Ritz, a 7-1 majority of the Supreme Court has clarified that intentionally fraudulent transfers designed to hinder or defraud creditors can fall within the definition of “actual fraud” under Section 523(a)(2)(A) of the Bankruptcy Code and can sometimes result in corresponding liabilities being non-dischargeable in a personal bankruptcy proceeding.¹

(Bankr. W.D. Ky. May 17, 2016)

On May 16, 2016, the U.S. Supreme Court decided Husky International Electronics, Inc. v. Ritz, No. 15-145, holding that the "actual fraud" bar to discharge under section 523(a)(2)(A) of the Bankruptcy Code encompasses an individual debtor's knowing receipt of fraudulently transferred property.

Statutory Background

The Supreme Court’s Decision: