(Slip Opinion) OCTOBER TERM, 2015 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
HUSKY INTERNATIONAL ELECTRONICS, INC. v.
RITZ
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT
No. 15–145. Argued March 1, 2016—Decided May 16, 2016
Chrysalis Manufacturing Corp. incurred a debt to petitioner Husky
International Electronics, Inc., of nearly $164,000. Respondent Dan-
iel Lee Ritz, Jr., Chrysalis’ director and part owner at the time,
drained Chrysalis of assets available to pay the debt by transferring
large sums of money to other entities Ritz controlled. Husky sued
Ritz to recover on the debt. Ritz then filed for Chapter 7 bankruptcy,
prompting Husky to file a complaint in Ritz’ bankruptcy case, seeking
to hold him personally liable and contending that the debt was not
dischargeable because Ritz’ intercompany-transfer scheme constitut-
ed “actual fraud” under the Bankruptcy Code’s discharge exceptions.
11 U. S. C. §523(a)(2)(A).
The District Court held that Ritz was personally liable under state
law but also held that the debt was not “obtained by . . . actual fraud”
under §523(a)(2)(A) and thus could be discharged in bankruptcy. The
Fifth Circuit affirmed, holding that a misrepresentation from a debt-
or to a creditor is a necessary element of “actual fraud” and was lack-
ing in this case, because Ritz made no false representations to Husky
regarding the transfer of Chrysalis’ assets.
Held: The term “actual fraud” in §523(a)(2)(A) encompasses fraudulent
conveyance schemes, even when those schemes do not involve a false
representation. Pp. 3–11.
(a) It is sensible to presume that when Congress amended the
Bankruptcy Code in 1978 and added to debts obtained by “false pre-
tenses or false representations” an additional bankruptcy discharge
exception for debts obtained by “actual fraud,” it did not intend the
term “actual fraud” to mean the same thing as the already-existing
term “false representations.” See United States v. Quality Stores,
2 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Syllabus
Inc., 572 U. S. ___, ___. Even stronger evidence that “actual fraud”
encompasses the kind of conduct alleged to have occurred here is
found in the phrase’s historical meaning. At common law, “actual
fraud” meant fraud committed with wrongful intent, Neal v. Clark,
95 U. S. 704, 709. And the term “fraud” has, since the beginnings of
bankruptcy practice, been used to describe asset transfers that, like
Ritz’ scheme, impair a creditor’s ability to collect a debt.
One of the first bankruptcy Acts, the Fraudulent Conveyances Act
of 1571, 13 Eliz., ch. 5, identified as “fraud” conveyances made with
“[i]ntent to delay hynder or defraude [c]reditors.” The degree to
which that statute remains embedded in fraud-related laws today,
see, e.g., BFP v. Resolution Trust Corporation, 511 U. S. 531, 540,
clarifies that the common-law term “actual fraud” is broad enough to
incorporate fraudulent conveyances. The common law also indicates
that fraudulent conveyances do not require a misrepresentation from
a debtor to a creditor, see id., at 541, as they lie not in dishonestly in-
ducing a creditor to extend a debt but in the acts of concealment and
hindrance. Pp. 3–6.
(b) Interpreting “actual fraud” in §523(a)(2)(A) to encompass
fraudulent conveyances would not, as Ritz contends, render duplica-
tive two of §523’s other discharge exceptions, §§523(a)(4), (6), given
that “actual fraud” captures much conduct not covered by those other
provisions. Nor does this interpretation create a redundancy in
§727(a)(2), which is meaningfully different from §523(a)(2)(A). It is
also not incompatible with §523(a)(2)(A)’s “obtained by” requirement.
Even though the transferor of a fraudulent conveyance does not ob-
tain assets or debts through the fraudulent conveyance, the transfer-
ee—who, with the requisite intent, also commits fraud—does. At
minimum, those debts would not be dischargeable under
§523(a)(2)(A). Finally, reading the phrase “actual fraud” to restrict,
rather than expand, the discharge exception’s reach would untenably
require reading the disjunctive “or” in the phrase “false pretenses, a
false representation, or actual fraud” to mean “by.” Pp. 7–10.
787 F. 3d 312, reversed and remanded.
SOTOMAYOR, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and KENNEDY, GINSBURG, BREYER, ALITO, and KAGAN, JJ., joined.
THOMAS, J., filed a dissenting opinion.
Cite as: 578 U. S. ____ (2016) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 15–145
_________________
HUSKY INTERNATIONAL ELECTRONICS, INC.,
PETITIONER v. DANIEL LEE RITZ, JR.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[May 16, 2016]
JUSTICE SOTOMAYOR delivered the opinion of the Court.
The Bankruptcy Code prohibits debtors from discharg-
ing debts “obtained by . . . false pretenses, a false repre-
sentation, or actual fraud.” 11 U. S. C. §523(a)(2)(A). The
Fifth Circuit held that a debt is “obtained by . . . actual
fraud” only if the debtor’s fraud involves a false represen-
tation to a creditor. That ruling deepened an existing split
among the Circuits over whether “actual fraud” requires a
false representation or whether it encompasses other
traditional forms of fraud that can be accomplished with-
out a false representation, such as a fraudulent convey-
ance of property made to evade payment to creditors. We
granted certiorari to resolve that split and now reverse.
I
Husky International Electronics, Inc., is a Colorado-
based supplier of components used in electronic devices.
Between 2003 and 2007, Husky sold its products to
Chrysalis Manufacturing Corp., and Chrysalis incurred a
debt to Husky of $163,999.38. During the same period,
respondent Daniel Lee Ritz, Jr., served as a director of
2 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Opinion of the Court
Chrysalis and owned at least 30% of Chrysalis’ common
stock.
All parties agree that between 2006 and 2007, Ritz
drained Chrysalis of assets it could have used to pay its
debts to creditors like Husky by transferring large sums of
Chrysalis’ funds to other entities Ritz controlled. For
instance—and Ritz’ actions were by no means limited to
these examples—Ritz transferred $52,600 to CapNet Risk
Management, Inc., a company he owned in full; $121,831
to CapNet Securities Corp., a company in which he owned
an 85% interest; and $99,386.90 to Dynalyst Manufactur-
ing Corp., a company in which he owned a 25% interest.
In May 2009, Husky filed a lawsuit against Ritz seek-
ing to hold him personally responsible for Chrysalis’
$163,999.38 debt. Husky argued that Ritz’ intercompany-
transfer scheme was “actual fraud” for purposes of a Texas
law that allows creditors to hold shareholders responsible
for corporate debt. See Tex. Bus. Orgs. Code Ann.
§21.223(b) (West 2012). In December 2009, Ritz filed for
Chapter 7 bankruptcy in the United States Bankruptcy
Court for the Southern District of Texas. Husky then
initiated an adversarial proceeding in Ritz’ bankruptcy
case again seeking to hold Ritz personally liable for
Chrysalis’ debt. Husky also contended that Ritz could not
discharge that debt in bankruptcy because the same inter-
company-transfer scheme constituted “actual fraud” under
11 U. S. C. §523(a)(2)(A)’s exemption to discharge.1
The District Court held that Ritz was personally liable
for the debt under Texas law, but that the debt was not
“obtained by . . . actual fraud” under §523(a)(2)(A) and
could be discharged in his bankruptcy.
——————
1 Husky also alleged that Ritz’ debt should be exempted from dis-
charge under two other exceptions, see 11 U. S. C. §523(a)(4) (excepting
debts for fraud “while acting in a fiduciary capacity”); §523(a)(6) (ex-
cepting debts for “willful and malicious injury”), but does not press
those claims in this petition.
Cite as: 578 U. S. ____ (2016) 3
Opinion of the Court
The Fifth Circuit affirmed. It did not address whether
Ritz was responsible for Chrysalis’ debt under Texas law
because it agreed with the District Court that Ritz did not
commit “actual fraud” under §523(a)(2)(A). Before the
Fifth Circuit, Husky argued that Ritz’ asset-transfer
scheme was effectuated through a series of fraudulent
conveyances—or transfers intended to obstruct the collec-
tion of debt. And, Husky said, such transfers are a recog-
nizable form of “actual fraud.” The Fifth Circuit dis-
agreed, holding that a necessary element of “actual fraud”
is a misrepresentation from the debtor to the creditor, as
when a person applying for credit adds an extra zero to
her income or falsifies her employment history. In re Ritz,
787 F. 3d 312, 316 (2015). In transferring Chrysalis’
assets, Ritz may have hindered Husky’s ability to recover
its debt, but the Fifth Circuit found that he did not make
any false representations to Husky regarding those assets
or the transfers and therefore did not commit “actual
fraud.”
We reverse. The term “actual fraud” in §523(a)(2)(A)
encompasses forms of fraud, like fraudulent conveyance
schemes, that can be effected without a false representation.
II
A
Before 1978, the Bankruptcy Code prohibited debtors
from discharging debts obtained by “false pretenses or
false representations.” §35(a)(2) (1976 ed.). In the Bank-
ruptcy Reform Act of 1978, Congress added “actual fraud”
to that list. 92 Stat. 2590. The prohibition now reads: “A
discharge under [Chapters 7, 11, 12, or 13] of this title
does not discharge an individual debtor from any debt . . .
for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by . . . false
pretenses, a false representation, or actual fraud.”
4 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Opinion of the Court
§523(a)(2)(A) (2012 ed.).
When “ ‘Congress acts to amend a statute, we presume it
intends its amendment to have real and substantial ef-
fect.’ ” United States v. Quality Stores, Inc., 572 U. S. ___,
___ (2014) (slip op., at 7). It is therefore sensible to start
with the presumption that Congress did not intend “actual
fraud” to mean the same thing as “a false representation,”
as the Fifth Circuit’s holding suggests. But the historical
meaning of “actual fraud” provides even stronger evidence
that the phrase has long encompassed the kind of conduct
alleged to have occurred here: a transfer scheme designed
to hinder the collection of debt.
This Court has historically construed the terms in
§523(a)(2)(A) to contain the “elements that the common
law has defined them to include.” Field v. Mans, 516 U. S.
59, 69 (1995). “Actual fraud” has two parts: actual and
fraud. The word “actual” has a simple meaning in the
context of common-law fraud: It denotes any fraud that
“involv[es] moral turpitude or intentional wrong.” Neal v.
Clark, 95 U. S. 704, 709 (1878). “Actual” fraud stands in
contrast to “implied” fraud or fraud “in law,” which de-
scribe acts of deception that “may exist without the impu-
tation of bad faith or immorality.” Ibid. Thus, anything
that counts as “fraud” and is done with wrongful intent is
“actual fraud.”
Although “fraud” connotes deception or trickery gener-
ally, the term is difficult to define more precisely. See 1 J.
Story, Commentaries on Equity Jurisprudence §189, p.
221 (6th ed. 1853) (Story) (“Fraud . . . being so various in
its nature, and so extensive in its application to human
concerns, it would be difficult to enumerate all the in-
stances in which Courts of Equity will grant relief under
this head”). There is no need to adopt a definition for all
times and all circumstances here because, from the begin-
ning of English bankruptcy practice, courts and legisla-
tures have used the term “fraud” to describe a debtor’s
Cite as: 578 U. S. ____ (2016) 5
Opinion of the Court
transfer of assets that, like Ritz’ scheme, impairs a credi-
tor’s ability to collect the debt.
One of the first bankruptcy acts, the Statute of 13 Eliz-
abeth, has long been relied upon as a restatement of the
law of so-called fraudulent conveyances (also known as
“fraudulent transfers” or “fraudulent alienations”). See
generally G. Glenn, The Law of Fraudulent Conveyances
89–92 (1931). That statute, also called the Fraudulent
Conveyances Act of 1571, identified as fraud “faigned
covenous and fraudulent Feoffmentes Gyftes Grauntes
Alienations [and] Conveyaunces” made with “Intent to
delaye hynder or defraude Creditors.” 13 Eliz. ch. 5. In
modern terms, Parliament made it fraudulent to hide
assets from creditors by giving them to one’s family,
friends, or associates. The principles of the Statute of 13
Elizabeth—and even some of its language—continue to be
in wide use today. See BFP v. Resolution Trust Corpora-
tion, 511 U. S. 531, 540 (1994) (“The modern law of fraud-
ulent transfers had its origin in the Statute of 13 Eliza-
beth”); id., at 541 (“Every American bankruptcy law has
incorporated a fraudulent transfer provision”); Story §353,
at 393 (“[T]he statute of 13 Elizabeth . . . has been univer-
sally adopted in America, as the basis of our jurisprudence
on the same subject”); Boston Trading Group, Inc. v.
Burnazos, 835 F. 2d 1504, 1505–1506 (CA1 1987) (Breyer,
J.) (“Mass. Gen. Laws ch. 109A, §§1–13 . . . is a uniform
state law that codifies both common and statutory law
stretching back at least to 1571 and the Statute of Eliza-
beth”). The degree to which this statute remains embed-
ded in laws related to fraud today clarifies that the
common-law term “actual fraud” is broad enough to
incorporate a fraudulent conveyance.
Equally important, the common law also indicates that
fraudulent conveyances, although a “fraud,” do not require
a misrepresentation from a debtor to a creditor. As a basic
point, fraudulent conveyances are not an inducement-
6 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Opinion of the Court
based fraud. Fraudulent conveyances typically involve “a
transfer to a close relative, a secret transfer, a transfer of
title without transfer of possession, or grossly inadequate
consideration.” BFP, 511 U. S., at 540–541 (citing Twyne’s
Case, 3 Co. Rep. 80b, 76 Eng. Rep. 809 (K. B. 1601)); O.
Bump, Fraudulent Conveyances: A Treatise Upon Con-
veyances Made by Debtors To Defraud Creditors 31–60 (3d
ed. 1882)). In such cases, the fraudulent conduct is not in
dishonestly inducing a creditor to extend a debt. It is in
the acts of concealment and hindrance. In the fraudulent-
conveyance context, therefore, the opportunities for a false
representation from the debtor to the creditor are limited.
The debtor may have the opportunity to put forward a
false representation if the creditor inquires into the
whereabouts of the debtor’s assets, but that could hardly
be considered a defining feature of this kind of fraud.
Relatedly, under the Statute of 13 Elizabeth and the
laws that followed, both the debtor and the recipient of the
conveyed assets were liable for fraud even though the
recipient of a fraudulent conveyance of course made no
representation, true or false, to the debtor’s creditor. The
famous Twyne’s Case, which this Court relied upon in
BFP, illustrates this point. See Twyne’s Case, 76 Eng.
Rep., at 823 (convicting Twyne of fraud under the Statute
of 13 Elizabeth, even though he was the recipient of a
debtor’s conveyance). That principle underlies the now-
common understanding that a “conveyance which hinders,
delays or defrauds creditors shall be void as against [the
recipient] unless . . . th[at] party . . . received it in good
faith and for consideration.” Glenn, Law of Fraudulent
Conveyances §233, at 312. That principle also under-
scores the point that a false representation has never been
a required element of “actual fraud,” and we decline to
adopt it as one today.
Cite as: 578 U. S. ____ (2016) 7
Opinion of the Court
B
Ritz concedes that fraudulent conveyances are a form
of “actual fraud,”2 but contends that 11 U. S. C.
§523(a)(2)(A)’s particular use of the phrase means some-
thing else. Ritz’ strained reading of the provision finds
little support.
First, Ritz contends that interpreting “actual fraud” in
§523(a)(2)(A) to encompass fraudulent conveyances would
render duplicative two other exceptions to discharge in
§523. Section 523(a)(4) exempts from discharge “any debt
. . . for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.” And §523(a)(6) ex-
empts “any debt . . . for willful and malicious injury by the
debtor to another entity or to the property of another
entity.”
Ritz makes the unremarkable point that the traditional
definition of “actual fraud” will cover some of the same
conduct as those exceptions: for example, a trustee who
fraudulently conveys away his trust’s assets. But Ritz’
interpretation does not avoid duplication, nor does our
interpretation fail to preserve a meaningful difference
between §523(a)(2)(A) and §§523(a)(4), (6). Just as a
fiduciary who engages in a fraudulent conveyance may
find his debt exempted from discharge under either
§523(a)(2)(A) or §523(a)(4), so too would a fiduciary who
engages in one of the fraudulent misrepresentations that
form the core of Ritz’ preferred interpretation of
§523(a)(2)(A). The same is true for §523(a)(6). The debtors
who commit fraudulent conveyances and the debtors who
make false representations under §523(a)(2)(A) could
likewise also inflict “willful and malicious injury” under
——————
2 See Tr. of Oral Arg. 30 (JUSTICE KAGAN: “[Y]ou’re not contesting that
fraudulent conveyance is a form of actual fraud; is that right?” Ms.
Murphy: “[Y]es, that’s right”); id., at 27 (Ms. Murphy: “[T]o be clear, we
don’t dispute that fraudulent conveyance is a form of actual fraud”).
8 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Opinion of the Court
§523(a)(6). There is, in short, overlap, but that overlap
appears inevitable.
And, of course, our interpretation of “actual fraud” in
§523(a)(2)(A) also preserves meaningful distinctions be-
tween that provision and §§523(a)(4), (a)(6). Section
523(a)(4), for instance, covers only debts for fraud while
acting as a fiduciary, whereas §523(a)(2)(A) has no similar
limitation. Nothing in our interpretation alters that
distinction. And §523(a)(6) covers debts “for willful and
malicious injury,” whether or not that injury is the result
of fraud, see Kawaauhau v. Geiger, 523 U. S. 57, 61 (1998)
(discussing injuries resulting from “ ‘intentional torts’ ”),
whereas §523(a)(2)(A) covers only fraudulent acts. Noth-
ing in our interpretation alters that distinction either.
Thus, given the clear differences between these provisions,
we see no reason to craft an artificial definition of “actual
fraud” merely to avoid narrow redundancies in §523 that
appear unavoidable.
Ritz also says that our interpretation creates redun-
dancy with a separate section of the Bankruptcy Code,
§727(a)(2), which prevents a debtor from discharging all of
his debts if, within the year preceding the bankruptcy
petition, he “transferred, removed, destroyed, mutilated,
or concealed” property “with intent to hinder, delay, or
defraud a creditor or an officer of the estate charged with
custody of property.” Although the two provisions could
cover some of the same conduct, they are meaningfully
different. Section 727(a)(2) is broader than §523(a)(2)(A)
in scope—preventing an offending debtor from discharging
all debt in bankruptcy. But it is narrower than
§523(a)(2)(A) in timing—applying only if the debtor fraud-
ulently conveys assets in the year preceding the bank-
ruptcy filing. In short, while §727(a)(2) is a blunt remedy
for actions that hinder the entire bankruptcy process,
§523(a)(2)(A) is a tailored remedy for behavior connected
to specific debts.
Cite as: 578 U. S. ____ (2016) 9
Opinion of the Court
Ritz’ next point of resistance rests on §523(a)(2)(A)’s
requirement that the relevant debt be “for money, prop-
erty, services, or . . . credit . . . obtained by . . . actual fraud.”
(Emphasis added.) The argument, which the dissent also
emphasizes, has two parts: First, it posits that fraudulent
conveyances (unlike other forms of actual fraud) cannot be
used to “obtai[n]” debt because they function instead to
hide valuables that a debtor already possesses. Brief for
Respondent 20, 31. There is, the dissent says, no debt at
the end of a fraudulent conveyance that could be said to
“ ‘resul[t] from’ ” or be “ ‘traceable to’ ” the fraud. Post, at 3
(quoting Field, 516 U. S., at 61, 64). Second, it urges that
“actual fraud” not be interpreted to encompass forms of
fraud that are incompatible with the provision’s “obtained
by” requirement.
It is of course true that the transferor does not “obtai[n]”
debts in a fraudulent conveyance. But the recipient of the
transfer—who, with the requisite intent, also commits
fraud—can “obtai[n]” assets “by” his or her participation in
the fraud. See, e.g., McClellan v. Cantrell, 217 F. 3d 890
(CA 7 2000); see also supra, at 6. If that recipient later
files for bankruptcy, any debts “traceable to” the fraudu-
lent conveyance, see Field, 516 U. S., at 61; post, at 3, will
be nondischargable under §523(a)(2)(A). Thus, at least
sometimes a debt “obtained by” a fraudulent conveyance
scheme could be nondischargeable under §523(a)(2)(A).
Such circumstances may be rare because a person who
receives fraudulently conveyed assets is not necessarily (or
even likely to be) a debtor on the verge of bankruptcy,3 but
they make clear that fraudulent conveyances are not
——————
3 Ritz’ situation may be unusual in this regard because Husky con-
tends that Ritz was both the transferor and the transferee in his
fraudulent conveyance scheme, having transferred Chrysalis assets to
other companies he controlled. We take no position on that contention
here and leave it to the Fifth Circuit to decide on remand whether the
debt to Husky was “obtained by” Ritz’ asset-transfer scheme.
10 HUSKY INT’L ELECTRONICS, INC. v. RITZ
Opinion of the Court
wholly incompatible with the “obtained by” requirement.
The dissent presses further still, contending that the
phrase “obtained by . . . actual fraud” requires not only
that the relevant debts “resul[t] from” or be “traceable to”
fraud but also that they “result from fraud at the inception
of a credit transaction.” Post, at 3 (emphasis added).
Nothing in the text of §523(a)(2)(A) supports that addi-
tional requirement. The dissent bases its conclusion on
this Court’s opinion in Field, in which the Court noted
that certain forms of bankruptcy fraud require a degree
of direct reliance by a creditor on an action taken by a
debtor. But Field discussed such “reliance” only in setting
forth the requirements of the form of fraud alleged in that
case—namely, fraud perpetrated through a misrepresen-
tation to a creditor. See 516 U. S., at 61. The Court was
not establishing a “reliance” requirement for frauds that
are not premised on such a misrepresentation.
Finally, Ritz argues that Congress added the phrase
“actual fraud” to §523(a)(2)(A) not to expand the excep-
tion’s reach, but to restrict it. In Ritz’ view, “actual fraud”
was inserted as the last item in a disjunctive list—“false
pretenses, a false representation, or actual fraud”—in
order to make clear that the “false pretenses” and “false
representation[s]” covered by the provision needed to be
intentional. Brief for Respondent 29–31. Ritz asks us, in
other words, to ignore what he believes is Congress’ “im-
prudent use of the word ‘or,’ ” id., at 32, and read the final
item in the list to modify and limit the others. In essence,
he asks us to change the word “or” to “by.” That is an
argument that defeats itself. We can think of no other
example, nor could petitioner point to any at oral argu-
ment, in which this Court has attempted such an unusual
statutory modification.
* * *
Because we must give the phrase “actual fraud” in
Cite as: 578 U. S. ____ (2016) 11
Opinion of the Court
§523(a)(2)(A) the meaning it has long held, we interpret
“actual fraud” to encompass fraudulent conveyance
schemes, even when those schemes do not involve a false
representation. We therefore reverse the judgment of the
Fifth Circuit and remand the case for further proceedings
consistent with this opinion.
So ordered.
Cite as: 578 U. S. ____ (2016) 1
THOMAS, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 15–145
_________________
HUSKY INTERNATIONAL ELECTRONICS, INC.,
PETITIONER v. DANIEL LEE RITZ, JR.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[May 16, 2016]
JUSTICE THOMAS, dissenting.
The Bankruptcy Code exempts from discharge “any debt
. . . for money, property, [or] services . . . to the extent
obtained by . . . false pretenses, a false representation, or
actual fraud.” 11 U. S. C. §523(a)(2)(A) (emphasis added).
The Court holds that “actual fraud” encompasses fraudu
lent transfer schemes effectuated without any false repre
sentation to a creditor and concludes that a debt for goods
may “sometimes” be “obtained by” a fraudulent transfer
scheme. Ante, at 3, 9. Because §523(a)(2)(A) does not
apply so expansively, I respectfully dissent.
I
In my view, “actual fraud” within the meaning of
§523(a)(2) does not encompass fraudulent transfer
schemes. There are two types of fraudulent transfer
schemes: “transfers made with actual intent to hinder,
delay, or defraud creditors, referred to as actual fraudu
lent transfers” and “transfers made for less than reasona
bly equivalent value when a debtor was in financial trou
ble, [which is] referred to as constructive fraudulent
transfers.” 2 Bankruptcy Law Manual §9A:29, p. 333 (5th
ed. 2015). I do not quibble with the majority’s conclusion
that the common-law definition of “actual fraud” included
fraudulent transfers. Ante, at 4–6. And I agree that,
2 HUSKY INT’L ELECTRONICS, INC. v. RITZ
THOMAS, J., dissenting
generally, we should give a common-law term of art its
established common-law meaning. Ante, at 4. Neverthe
less, the “general rule that a common-law term of art
should be given its established common-law meaning”
gives way “where that meaning does not fit.” United
States v. Castleman, 572 U. S. ___, ___ (2014) (slip op.,
at 5) (internal quotation marks omitted). Ultimately,
“[s]tatutory language must be read in context and a
phrase gathers meaning from the words around it.” Jones
v. United States, 527 U. S. 373, 389 (1999) (internal quota
tion marks omitted). In my view, context dictates that
“actual fraud” ordinarily does not include fraudulent
transfers because “that meaning does not fit” with the rest
of §523(a)(2). Castleman, supra, at ___ (slip op., at 5)
(internal quotation marks omitted).
Section 523(a)(2) covers only situations in which “money,
property, [or] services” are “obtained by . . . actual
fraud,” and results in a debt. See Cohen v. de la Cruz, 523
U. S. 213, 218 (1998). The statutory phrase “obtained by”
is an important limitation on the reach of the provision.
Section 523(a)(2)(A) applies only when the fraudulent
conduct occurs at the inception of the debt, i.e., when the
debtor commits a fraudulent act to induce the creditor to
part with his money, property, services, or credit. The
logical conclusion then is that “actual fraud”—as it is used
in the statute—covers only those situations in which some
sort of fraudulent conduct caused the creditor to enter into
a transaction with the debtor. A fraudulent transfer
generally does not fit that mold, unless, perhaps, the
fraudulent transferor and the fraudulent transferee con
spired to fraudulently drain the assets of the creditor. But
the fraudulent transfer here, like all but the rarest
fraudulent transfers, did not trick the creditor into selling
his goods to the buyer, Chrysalis Manufacturing Corpora
tion. It follows that the goods that resulted in the debt
here were not “obtained by” actual fraud. §523(a)(2)(A).
Cite as: 578 U. S. ____ (2016) 3
THOMAS, J., dissenting
A
I reach this conclusion based on the plain meaning of
the phrase “obtained by,” which has an “inherent” “ele
ment of causation,” and refers to those debts “resulting
from” or “traceable to” fraud. Field v. Mans, 516 U. S. 59,
61, 64, 66 (1995). As I have stated, “in order for a creditor
to establish that a debt is not dischargeable, he must
demonstrate that there is a causal nexus between the
fraud and the debt.” Archer v. Warner, 538 U. S. 314, 325
(2003) (THOMAS, J., dissenting) (relying on Field, supra, at
61, 64, and Cohen, supra, at 218). There is also “[n]o . . .
doub[t] that some degree of reliance is required to satisfy
th[is] element of causation.” Field, 516 U. S., at 66. The
upshot of the phrase “obtained by” is that §523(a)(2) covers
only those debts that result from fraud at the inception of
a credit transaction. Such a debt caused by fraud neces
sarily “follows a transfer of value or extension of credit
induced by falsity or fraud.” Ibid. (emphasis added).
Bankruptcy treatises confirm that “[t]he phrase ‘to the
extent obtained by’ is properly read as meaning ‘obtained
from’ the creditor.” 3 W. Norton & W. Norton, Bankruptcy
Law and Practice §57:15, p. 57–35 (3d ed. 2015). The
“term ‘by’ refers to the manner in which such money,
property, services is obtained and the creditor defrauded.”
Ibid. According to Collier on Bankruptcy, to invoke
§523(a)(2)(A) based on “actual fraud,” a creditor “must
establish” that he “justifiably relied” on the debtor’s “rep
resentation,” which the debtor “knew to be false” and
made “with the intent and purpose of deceiving the” credi
tor and that the creditor “sustained a loss or damage as
the proximate consequence.” 4 Collier on Bankruptcy
¶523.08[1][e], p. 523–47 (A. Resnick & H. Sommer eds.,
16th ed. 2015). Norton Bankruptcy Law and Practice is in
accord: Section 523(a)(2)(A) requires a “misrepresenta
tion,” “knowledge of falsity,” “intent to defraud,” “justifia
ble reliance,” and “resulting damage.” 3 Norton, supra,
4 HUSKY INT’L ELECTRONICS, INC. v. RITZ
THOMAS, J., dissenting
§57:15, at 57–33 to 57–34.
B
Applying those principles here, Husky cannot invoke
§523(a)(2)(A) to except the debt owed to it from discharge
because, ordinarily, it would be nonsensical to say that a
fraudulent transfer created the debt at issue. As the
majority notes, the debt at issue did not originate from
any transaction between Ritz and Husky. Ante, at 1–2.
Instead, Husky sold goods to Chrysalis, a company that
Ritz financially controlled. Ibid. In turn, Chrysalis—not
Ritz—incurred a debt to Husky of $163,999.38 for the
goods. Ante, at 1. As the Bankruptcy Court found, there
is no evidence that Ritz made “any oral or written repre
sentations to Husky inducing Husky to enter into a con
tract with Chrysalis.” In re Ritz, 459 B. R. 623, 628 (SD
Tex. 2011). In fact, the only communication between Ritz
and Husky occurred after Husky and Chrysalis entered
into the contract and after Husky had shipped the goods to
Chrysalis. Ibid. The Bankruptcy Court also found that
there was no evidence that Ritz transferred the funds to
avoid Chrysalis’ obligations to pay the debt it owed to
Husky—an unsecured creditor. Id., at 635. Because
Husky does not contend that Ritz fraudulently induced it
to sell goods to Chrysalis and cannot show that the con
structive fraudulent conveyance had anything to do with
its decision to contract with Chrysalis, Husky has not
established that §523(a)(2)(a) covers any debt owed to it.
II
The majority reaches the opposite conclusion and holds
that §523(a)(2) may prevent an individual debtor from
obtaining a discharge even if (1) the debtor makes no false
representation to the creditor, (2) the creditor does not
rely on any of the debtor’s actions or inactions, and
(3) there was no actual fraudulent conveyance at the
Cite as: 578 U. S. ____ (2016) 5
THOMAS, J., dissenting
inception of the credit transaction between the creditor
and the debtor. Ante, at 5–6, 9. It does so by giving new
meaning to the phrase “obtained by” in cases involv-
ing fraudulent transfers, disregarding our case law, and
second-guessing Congress’ choices. Ante, at 9.
The majority admits that a transferor “does not ‘obtai[n]’
debts in a fraudulent conveyance,” but contends that “the
recipient of the transfer—who, with the requisite intent,
also commits fraud—can ‘obtain’ assets ‘by’ his or her
participation in the fraud.” Ibid. (brackets omitted). “If
that recipient later files for bankruptcy, any debts trace-
able to the fraudulent conveyance,” the majority states,
“will be nondischargable under §523(a)(2)(A).” Ibid. (in
ternal quotation marks omitted). The majority thus holds
that “at least sometimes a debt ‘obtained by’ a fraudulent
conveyance scheme could be nondischargeable under
§523(a)(2)(A).” Ibid. But §523(a)(2)(A) does not exempt
from discharge any debts “traceable to the fraudulent
conveyance.” Instead, §523(a)(2)(A) exempts from dis
charge “any debt for” goods that are “obtained by” actual
fraud. And, as explained, it is extremely rare that a credi
tor will use an actual fraudulent transfer scheme to induce
a creditor to depart with property, services, money, or
credit. See supra, at 2–3.
In reaching its conclusion, the majority also disregards
this Court’s precedents interpreting §523(a)(2)(A), pre
sumably because those cases did not involve fraudulent
transfers. The majority cites Field only for the elemental
proposition that this Court “has historically construed the
terms in §523(a)(2)(A) to contain the ‘elements that the
common law has defined them to include.’ ” Ante, at 4
(quoting 516 U. S., at 69). The majority omits Field’s
conclusion that one of the elements of “actual fraud” in
§523(a)(2)(A) is “reliance” on some sort of false statement,
misrepresentation, or omission. Id., at 70 (emphasis
added). To be sure, like the rest of our cases interpreting
6 HUSKY INT’L ELECTRONICS, INC. v. RITZ
THOMAS, J., dissenting
§523(a)(2)(A), Field involves a false statement. But that
factual distinction is immaterial. Cases like Field—which
interpret the phrase “obtained by”—are as relevant in
cases that involve false statements and misrepresenta
tions as they are in a case like this one. After all, “ob
tained by” modifies false pretenses, false representations,
and actual fraud in §523(a)(2)(A). And in no case has this
Court suggested—never mind held—that §523(a)(2)(A)
may apply to circumstances in which there was no false
statement, misrepresentation, or omission when the debt
was first obtained.
The majority ostensibly creates a new definition of
“obtained by” because it thinks that this move is necessary
to avoid rendering “actual fraud” superfluous. See ante, at
4, 7–8. Not so. Actual fraud is broader than false pre
tenses or false representations, and “consists of any deceit,
artifice, trick, or design involving direct and active opera
tion of the mind, used to circumvent and cheat another.” 4
Collier on Bankruptcy ¶523.08[1][e], at 523–46. “Unlike
false pretenses or false representation, actual fraud, within
the meaning of the dischargeability exception, can focus
on a promise of future performance made with intent not
to perform.” 2F Bankruptcy Service §27:211, p. 59 (Supp.
Jan. 2016). In this way, “the actual fraud” exception
“permit[s] the courts to except from discharge debts in
curred without intent to repay, or by use of other false
implied representations, without the need to stretch the
false pretenses and false representations language.”
Zaretsky, The Fraud Exception to Discharge Under the
New Bankruptcy Code, 53 Am. Bankruptcy L. J. 253, 257
(1979). Some courts, for example, have held that “a debtor
commits actual fraud within the meaning of §523(a)(2)(A)
when he incurs credit card debt with no actual, subjective
intent to repay it,” but has not made an affirmatively false
representation or engaged in false pretense. In re Morrow,
488 B. R. 471, 479–480 (Bkrtcy. Ct. ND Ga. 2012); see
Cite as: 578 U. S. ____ (2016) 7
THOMAS, J., dissenting
also, e.g., In re Alam, 314 B. R. 834, 841 (Bkrtcy. Ct. ND
Ga. 2004). Defining actual fraud this way does not render
that term superfluous and—unlike the majority’s defini
tion—does not render “obtained by” a nullity.
Regardless, even if there is some overlap between the
definitions of “false pretenses,” “false representations,”
and “actual fraud,” “[r]edundancies across statutes are not
unusual events in drafting.” Connecticut Nat. Bank v.
Germain, 503 U. S. 249, 253 (1992). “[T]he canon against
surplusage assists only where a competing interpretation
gives effect to every clause and word of a statute.” Marx v.
General Revenue Corp., 568 U. S. ___, ___ (2013) (slip op.,
at 13) (internal quotation marks omitted). “But, in this
case, no interpretation of [§523(a)(2)(A)] gives effect to
every word.” Ibid. Under either my reading or the major-
ity’s reading, “actual fraud” is broader than and subsumes
“false pretenses” and “false representations.” Accordingly,
that “actual fraud” may introduce some redundancy in the
statute is not dispositive.
At bottom, the majority’s attempt to broaden
§523(a)(2)(A) to cover fraudulent transfers impermissibly
second-guesses Congress’ choices. When Congress wants
to stop a debtor from discharging a debt that he has con
cealed through a fraudulent transfer scheme, it ordinarily
says so. See §727(a)(2) (stating that a court shall grant
the debtor a discharge unless the debtor engages in an
actual fraudulent transfer scheme within a certain time of
filing a bankruptcy petition). If Congress wanted
§523(a)(2)(A) to cover fraudulent transfer situations, “it
would have spoken more clearly to that effect.” Staples v.
United States, 511 U. S. 600, 620 (1994). Ultimately, “it is
not for us to substitute our view of policy for the legisla
tion which has been passed by Congress.” Florida Dept. of
Revenue v. Piccadilly Cafeterias, Inc., 554 U. S. 33, 52
(2008) (ellipsis and internal quotation marks omitted).
8 HUSKY INT’L ELECTRONICS, INC. v. RITZ
THOMAS, J., dissenting
* * *
The majority today departs from the plain language of
§523(a)(2)(A), as interpreted by our precedents. Because I
find no support for the Court’s conclusion in the text of the
Bankruptcy Code, I respectfully dissent.