FRAUDULENT MISREPRESENTATION

Bartenwerfer v. Buckley

Issues

If a member of a partnership did not know of fraud committed by their partner, does the debt of the innocent partner due to that fraud remain even after filing for bankruptcy?

This case asks the Supreme Court to decide whether a member of a partnership is prohibited from discharging debt fraudulently incurred by their partner without their knowledge. Kate Bartenwerfer argues that the Court cannot prohibit her from discharging debts in bankruptcy merely because those debts were obtained by her partner’s imputed fraud that she was not responsible for. Kieran Buckley counters that the Bankruptcy Code asks only whether debts were obtained by fraud and does not draw distinctions based on whether any individual debtor is responsible for that fraud. This case has implications for prioritizing relief to debtors or creditors in bankruptcy and for the liabilities of individuals in a marriage or domestic partnership.

Questions as Framed for the Court by the Parties

Whether an individual may be subject to liability for the fraud of another that is barred from discharge in bankruptcy under 11 U.S.C. § 523(a)(2)(A), by imputation, without any act, omission, intent or knowledge of her own.

Kate Bartenwerfer and her then-boyfriend, David Bartenwerfer, bought a house in San Francisco, CA with the intent to remodel it. In re Bartenwerfer, 596 B.R. 675, 677 (Bankr. N.D. Cal. 2019). Neither Mr. nor Mrs. Bartenwerfer had a contracting license or any experience with contracting, but Mr. Bartenwerfer nonetheless began managing the extensive renovations full-time.

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fraudulent misrepresentation

Fraudulent misrepresentation is a tort claim, typically arising in the field of contract law, that occurs when a defendant makes a intentional or reckless misrepresentation of fact or opinion with the intention to coerce a party into action or inaction on the basis of that misrepresentation.

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Husky International Electronics, Inc. v. Ritz

Issues

Does the term "actual fraud" require that, to obtain an exemption from discharge of a debtor's bankruptcy debts under 11 U.S.C. § 523(a)(2)(A), a creditor show that a debtor made a fraudulent misrepresentation, or does it include a debtor's fraudulent transfer as an exception to discharge?

The Supreme Court will decide whether "actual fraud" under 11 U.S.C. § 523(a)(2)(A) ("section 523(a)(2)(A)") of the Bankruptcy Code includes fraudulent transfers as an exemption to the discharge of debts owed to a creditor, or whether it requires that the creditor show a fraudulent misrepresentation. Husky International Electronics, Inc., a component manufacturer, argues that a creditor has shown actual fraud by a debtor if that debtor was knowingly involved in a fraudulent transfer of funds, regardless of whether the debtor made a misrepresentation to the creditor. Husky argues that, given the longstanding common law use of "actual fraud" to include any kind of intentional fraud, including fraudulent transfers, Congress intended to expand the scope of section 523(a)(2)(A) beyond mere misrepresentations. David Lee Ritz, owner of Chrysalis Manufacturing Corp. and one of Husky’s customers, contends that the term "actual fraud" only adds a requirement of intention on behalf of the debtor. He maintains that Congress would have clearly stated that fraudulent transfers would bar a debtor's discharge if it had wanted to expand the Bankruptcy Code in that way. Instead, Ritz maintains that a creditor must show that the debtor intentionally made a fraudulent misrepresentation. The Court's decision could pose a concern to debtors who have made transfers of funds before filing for bankruptcy, and may restrict creditors’ remedies to recover debts. ​

Questions as Framed for the Court by the Parties

Does the “actual fraud” bar to discharge under § 523(a)(2)(A) of the Bankruptcy Code apply only when the debtor has made a false representation, or whether the bar also applies when the debtor has deliberately obtained money through a fraudulent-transfer scheme that was actually intended to cheat a creditor?

Between 2003 and 2007, Husky International Electronics, Inc., a supplier of electronic device components, sold and delivered electronic device components to Chrysalis Manufacturing Corp., an electronic circuit board manufacturer controlled, directed, and partially owned by Daniel Lee Ritz, Jr. See Husky Int'l Elecs., I

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Universal Health Services, Inc. v. Escobar

Issues

Should the scope of the False Claims Act be expanded to include noncompliance of staffing regulations?  

 

The U.S. Supreme Court will consider whether the False Claims Act (“FCA”) applies to fraudulent misrepresentation in payment claims due to violations of staffing regulations for medical centers. Petitioner Universal Health Services argues that the basis for liability stemming from the FCA does not allow for the implied certification theory, under which liability may be based on merely filing for payment, and thus should merit reversal of the judgment below. On the other hand, respondent Escobar contends that UHS knowingly and materially committed fraud under the FCA provisions notwithstanding the absence of an express fraudulent statement. This case will determine whether businesses that provide services to the government will be subject to FCA liability and will establish the range of remedies available to qui tam litigants under the FCA.

Questions as Framed for the Court by the Parties

  1. Is the “implied certification” theory of legal falsity under the False Claims Act, 31 U.S.C. § 3729 et seq., viable?
  2. If the “implied certification” theory is viable, can a government contractor’s reimbursement claim be legally false under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment; or does liability for a legally false reimbursement claim require that the statute, regulation, or contractual provision expressly state that it is a condition of payment?

Yarushka Rivera (“Rivera”), the daughter of relators Carmen Correa and Julio Escobar (“Escobar”), was a member of MassHealth, Massachusetts’ Medicaid program, and in 2007 received mental health support at Arbour Counseling Services (“Arbour”), which was owned and operated by petitioner Universal Health Services (“UHS”). See 

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