trucks in this case we got here as a result of an adversary proceeding and backups in court where the judge said because huskey had not shown a fortunate representation there could be no dale pearson under texas business organizations code twenty one point two twenty three and he said in the same sentence because there was no showing of a fraudulent misrepresentation to justify vaile piercing then there could be no fraud as an exception to discharge under section five twenty three  of that was in two thousand and eleven while our appeal was pending to the district court judge harman chief judge wrote his opinion in spring street partners for which i added some clarity to the issue of actual fraud under the uniform fraudulent transfers act that case had not been in that opinion and not been issued the time that i wrote the appeal in the district court but judge harmon found it twenty three but she then echoed the bankruptcy court in saying that still there could be no exception to discharge under five twenty three eighty eight because there was no representation and she cited the united states supreme court decision in the field of the mines so the issue we bring to the court in this case today is is a fraud transfer an actual fraud under section five twenty three a to the sixth circuit has answered this question yes in the case of the time out of it cited in thousand and thirteen in this case the fifth circuit will decide whether to join the sixth seventh and tenth circuits or whether it will reach a result that will allow corporate debtors to escape liability by flawed gently transferring corporate assets to the corporate owners that's what happened here and we submit that in this case it is time for the fifth circuit to make it clear that that is not what the bankruptcy code allows now if i could i want to just look at an issue of statutory construction i don't know if you have that section five twenty three a two a in front of you it is actually set out in page fourteen of the police brief if you just want to glance at it because they want to make this point section five twenty three exceptions to discharge discharge under section seven twenty seven does not discharge a debtor from any debt for money property services or an extension renewable or financing of credit to the extent obtained by an here's the point that i want to make false pretenses a false representation or actual fraud if mcclellan did before being reversed by the seventh circuit if we read those terms as being the same then we're construing section five twenty three a two way as containing words that have no meaning the words or actual fraud then are necessarily merely surplices the correct construction of the statute must be that the words or actual fraud mean something different from false representations and let me address the question of whether there was a fraudulent transfer in this case mr ritz says no it was not a fraudulent transfer they were loan repayments the bankruptcy court soundly rejected that argument and said yes there was a fraudulent transfer the district court rejected this argument and said yes there was a loan agreements alleged loans and in this case there were literally hundreds alleged location agreements that are not in writing that have no repayment terms that provide no interest rate  don't really exist at all and didn't exist until after this litigation was commits are not loans these are underlies capital time traditions and when you draw them out we were committing a fraud and that's what happened here fell the problem with it fitting is that it kind of cuts against your argument about where we should read these other provisions that you want us to read to cover you i mean there's a specific provision that deals with it not i'm not trying to give you trouble i just don't understand exactly how come we are worried about these problems you present when we have a provision in the code that looks like it's targeted right into what happened also provides relief if a fraudulent transfer is an actual fraud that is our position in the us and i think i think i think that the law to  after having studied it in some way in the context of this case to made it is very clear that flaws look transfer is an actual fraud for purposes of section five twenty three is your position that every fraudulent transfer is an actual fraud or is your position no bankruptcy court here made findings such to support an actual fraud determination here there can be constructive fraudulent transfers and that is the distinction of the section five twenty three because that's that is the importance of the word actual in that statutory provision because it partly distinguishes construct and fraud i think i pointed out for in the brief this is the way through until until and that's the distinction between constructive sawed an actual fraud it's a question of the minutes constructive fraud is irrespective of any bad and ted a of the actor judge bohem lists two of them in his opinion as i point out in the brief at least two others are also extant in the evidence at trial and or in the record and i could argue that there are four or five there is no magic number one of the ones i did not argue is that they  in control of the assets if you recall the evidence in the record here mr rich was transferring one point one million dollars and hundreds of transfers to corporations that he owned or control actual fraud is that the holding that you seek yes of the it is five is relief under five to three a six that's alternative really do you have an effect do you have a finding in this record that would support relief under five to three  falls short of an actual fraud may also be a basis to accept the debt from discharge and that's why a planet or time but no you do not need to reach that if we if we win the first talking about the facts of this case because husky would lead this court to believe that the facts in this case are on the speeded they are disputed and in fact i think they painted a completely different picture than than ms that husky portrays were there transfers yes there were numerous transfers and they were constantly coming in and out they were bank wire transfers coming in and out and they were intended to finance the business operations of the company this happened over one and a half years but the fact that i want the court to look at arse are several but this is a big one two point eight million dollars wen in from these entities there were six sentences that made the transfers these were entities that mr ritz controlled own stock in some he managed others that he was essentially in control  movement two point eight million dollars from these other companies into for solace which is the company to which husky's parts were sold one point eight million dollars were sold or were moved out these transfers were made essentially over a period of time this is not a situation where all the transfers were made the money coming in were made at the beginning and the transfers out made at the end they were coming in and out in and out now will admit those documents were where are those loans were not documented correctly they should have been properly documented but there was testimony at trial from this finney that these were intended as loans so is part of the analysis huskey is claiming that you can't count any of the money going in but you can count the money going out as a fraudulent conveyance now i'm not really sure he may well be right there's really two two types of fraudulent conveyance as there's fraudulent conveyances in which the transfer does not is not made for a reasonable reasonably equivalent consideration that's what the judge in this case found there are other kinds of transfers where they're made with an intent to hinder or delay the creditor from collecting his dead rather than when ritz transferred all of its money out of chrysalis yes your honor but it's the same i mean the transfers were coming in and out at all times virtually for about a year and a half and they were it only coming in and out over the time period that husky sold hearts and even afterwards when ritz transferred all of its money out of christmas it simultaneously later transferred all  money back into christmas now it was coming what these transfers were and i want the court to look at the record excerpts that i applied and because these documents every single transfer that went in and out over at least the one and a half year time period and you'll see that there's wire transfers coming in there's wire transfers repaying that loan coming out or coming and coming out coming in coming in should have been done that way but and perhaps perhaps they don't count for purposes of the term and whether it's reasonably equivalent value or you thought that but but they certainly they certainly do count when you look at whether there was intent because intent is the prime factor in this case did mr rich intend to hinder or delay these creditors i think the answer is no and i'm clearly going on here this is why this business was bought as a turnaround it was in bad shape from day one and mr rich bought this company to attempt to turn it around there was a merger plan  d somewhere sometime before september two thousand and six in the plan was to merge three of these entities com com which was created for the purpose of of being the merger recipient dyna list and cresses they were going to merge that into konkona and there was a public entity called virtual systems and who was the proposed merger partner to bring to roll up all those assets into virtu systems so that was that was what was going on that that failed merger that merger plan failed and february of two thousand and seven after that the plan was let's keep this company going let's let's keep it a viable entity so we can sell these assets and then in in may of two thousand and seven the manufacturing stock all of the sales occur between transfer of the hundred sixty three thousand dollars after the was already going down not this time of the sales but your honor there was also money going in at the time the hundred sixty three thousand was taken out all the way up all the way up to may of two thousand and seven there were massive the money amounts of money going in if you take a look at i think it's exhibit twenty five that shows that con con was basically financing the payroll so your honor during all of this time between jan between january two thousand and six and may of two thousand and seven there were business operations going on they were manufacturing product at their count california plant they had numerous employees that they were paying through comic con they were buying and selling inventory and some of that was made from violence so i think critical one critical fact i want the court to consider is is guaranteed that mr rich signed even at all the sales were completed to huskie in january of two thousand and seven after that mr rich guaranteed a one hundred thirty three thousand dollar debt owed to aero elector that was done so that he could keep the business going so that he could induce them to sell additional product so he could keep the business viable so that he could even after the merger plan fail so that he could sell the assets or the stock of the company to a buyer please also consider the deposits in the bank accounts this where this is not a situation where money was going out there was no business going on there was no money being generated that there was no viable business this company over between january two thousand and six and may of two thousand and seven earned nine and a half million if you look at between november of two thousand and six is when the sales at issue the husky sales started in may of two thousand and seven when the company shut its stores two point seven million dollars of bank deposits from sales were made into her solaces bank account if you if you only count the income that occurred after all the sales were made that would be february of two thousand and seven through may of two thousand and seven one and a half million dollars of deposits were made into for solace bank account and other words and that was all from sales of product those were not transfers those were from sales of product so i would ask the court to consider these facts as to the intent what was mr rich's intent is that's that's critical to both the header and delay issue and the will and malicious injury issues the intent of the person is critical on that this does not present a set of facts of a greedy desperate person attempting to drain the company of assets i mean if you look at the timing and the amount and the quantity of the transfers i think just this paints a picture of a person that was basically attempting to keep this company running complete the merger plan when the merger plan failed he was attempting to keep this a viable and valuable entity to get to maximize the value can you please i would look to see that day that ritz was putting money in during the february to may time period something that's actually in the record not in these exhibits that you put together post district court but something that's actually in the record which but what record page is what i want to read for that existed at trial not is corrected before this court one of one of those exhibits was corrected if the nine point one right yes yes right and that was a summary of a summary of all the other exhibits twenty five admission of the summary of the summary you're basically that's what you're looking you're talking about the summary of the summary what would you want me to look at that would prove that the case is like you say it is i don't want to be argumentative with you i just want to go back and read what it's like you could look at all the record that certs that were submitted which were exhibits at trial and also like you to consider the bank deposits throughout the first two months the you are correct that there was a mistake on the first two banks two months i think it was january and february those were corrected in the table put in the brief but throw those out because as the court is is has indicated perhaps that isn't even relevant ok i'm just trying to figure out where in the record are the things that you call the record excerpts where can i go to the record to find these documents that you've submitted here on a trial exhibits are part of the record in this for first the first thing the court ought to look at is whether fraudulent conveyance can comply with the obtained by clause in the statute this court over the years well let's take a look at the statute first the statute says you got to have a debt for money property or services obtained by fraud so the issue is how do you read that does fraud need to occur at the inception of the debt or does the money property or services need to be procured from the from the creditor mr darrelle will argue no it doesn't need to occur at the inception of the debt  and he'll say no the prop money property or services don't need to be procured from this from the creditor and i think if any natural reading of the statute it's the statute is  little bit vague will acknowledge that but a natural reading of it would lead you to the conclusion that the property which in this case are the parts obtained from  husky must be obtained as a result of fraud and must be obtained from husking as a result of fraud and even your honor i would ask you to look at the c curring opinion in the club that was a slip decision in that case and judge triple on this very issue said given the overall structure of section five twenty three it seems clear that congress intended that five twenty three a to ebay should cover all debts relating to the pick your amount of money or property by fraud and five twenty three a six that's malicious and willful intent to injure should apply in this situation the language obtained by in quotes clearly indicates that the fraudulent conduct the current at the inception of that the debtor committed the fraud committed a fraudulent act to induce the creditor to part with his or her money or his money or property that's not what happened in this case we all acknowledge i think everybody knows mr ritz never even talked to anyone at husky until after all the sales were made he knew he knew that they were a supplier but he didn't even know the sales were going on so there was no representation there was no reliance and there was no on this particular issue there was no property obtain as a result of fraud and i would argue on that very issue that that this statute ought to be read to require that husky sold parts from discharge of any debt for money or property obtained by false representation doesn't cure i think that legislative history the legislative history contradict your your argument no your honor i think i think the obtained by language was added later the obtained by language was was added later in one thousand seventy eight the bankruptcy code always said false pretenses false representations or actual fraud and there's always been this question as to whether the elements are the same or whether they overlap or whether they're different which i frankly don't think that's really that's not even an issue in this particular case assuming argue window that in fact that congress added the term actual fraud to the statute in one thousand nine hundred seventy eight i know you said you don't think it did you know but maybe i misstated that yes they've added that to the  bankruptcy code in one thousand seven hundred but there was no change after that but if they added the term actual fraud were false representation already was in the code then doesn't that tell you that actual fraud is something different than false representation i think perhaps your honor it is i'm not really prepared to talk about what a false what the other one a false pretenses are or false representation is all i know is that this particular court has basically defined actual fraud over the last twenty years the same way it's  actual fraud as a debt i'm sorry it is designed actually fraud wiring a representation it's it's needs to be false it needs to have intent to deceive which which the court didn't find in this case the court didn't find any reliance there's got to be causation it's got to be damage recover it sets forth those elements mercer and no one sets forth those elements a cost of this court in  five set force those identical elements and in two thousand and twelve all the decisions were unpublished that i could find on that but they also set forth the same elements one is caught cardwell forty seven federal argue into it that there is not binding authority to the contrary and that if this is instead an issue of first impression would we be running afoul of the other circuits if we were to hold as you would have a still hold analysis one thing is in the district court found that rich used chrysalis to perpetrate a fraud on his creditors she actually she actually found a judge bomb found that fraudulent transfer but as mr darrelle pointed out there's two kinds of frauds and conveyances there's actual fraud conveyances and there's constructive fraud even under his case even under mcclellan the fraud that we're talking about in this particular case would be construed as constructive fraud it wouldn't come in with the fact the so that within the ambit of that case but i think the judge i think the district court judge did get it right when she relied on field versus man this court has relied on the field versus man itself in mercer it made the same field versus man analysis would would we have to see you went through how you said the evidence in the record supports that money was coming in as well as going out and that we should go to the record would we have to find the finding that transfers to were made without if the court determines that are fraudulent conveyance can be actual fraud under five twenty three a two my argument is that that case itself supports my position it says that constructive fraud which that's all reasonably value deals with that would be a constructive fall a constructive friday blameless clueless person can do that without without scienter that would not that would not consider constitute actual fraud you could leave that finding undisturbed and then i think i think not only did the court below not find it the evidence overwhelmingly supports the well let me try to speak to at least two points while answering the court's questions  mr ritz seems to think that he has read trying the case in the fifth circuit he wants you to look at his his tables and his charts and in some of which were admitted into evidence and some were not only were supposed to perform a mathematical calculation to figure out whether more money came up with here's the problem with what is it depends on what window of time you look at because as you slide the window around you get a different result and in the window immediately preceding the bankruptcy filing is when the one point one million dollars came out exchange for reasonably equivalent value and that is exactly right this court has to review the bankruptcy judges for findings of fact for clear error judge ball goes on for about two pages in his opinion all of the arguments of mr weber max and that his client testified to in the bankruptcy court were made before judge bomb concluded that mr rich was not a credible witness here was the fact finder on is that the the debt that is the accepted some of this charge if the court goes with with my argument on this is not the poacher's of the electronic components for hundred sixty three thousand dollars the debt is  made chrysalis of the able to pay that is two different things mcclellan talks about that pretty clearly and gives some examples so i think it is correct to say that there must be a fraud in the purchase of the electronic components from host the by christmas i don't think any court has agreed with that so far that argument has been made before and i think it's statute that says you can't transfer your assets and money away in order to prevent your creditors from being able to collect their d i have anything else happy to answer a question it was point is zero came up so great time thank you for your brief an argument think this weber or yours is an interesting case to say the least it'll be submitted will