THE HUSKY CASE: FRAUD, BANKRUPTCY, AND VEIL PIERCING

A recent Supreme Court decision, Husky International Electronics, Inc. v. Ritz, explores the meaning of the word “fraud” under a federal bankruptcy statutory section. That section uses the term “actual fraud,” and bears upon the question of whether a particular debt should be denied a discharge. The Court’s approach in defining fraud affords guidance to the question of defining fraud under other statutes. The Husky case also raised a veil piercing issue to be dealt with on remand.

That issue involved the application of Texas statutory law precluding veil piercing in cases brought by contract creditors unless they were victims of “actual fraud.” Recognizing the need to protect the deserving contract or tort creditor, as well as limited liability’s role in promoting a vibrant business environment, the author reviews mainstream veil piercing law. The author concludes that a statute like that of Texas, which limits veil piercing by contract creditors to cases involving actual fraud, would be a poor model to impose on mainstream veil piercing law. The centrality of fraud, bankruptcy law, and state veil piercing law in American creditor-debtor relations makes the Husky case a compelling subject.