Warren E. Burger: We’ll hear arguments next in 72-490 McDonnell Douglas Corporation against Green. Mr. Riddle you proceed whenever you’re ready.
Veryl L. Riddle: Chief Justice and may it please the Court. This case is before the Court to review the decision of the Eighth Circuit. The plaintiff below who is the respondent here, Mr. Percy Green a black man, and the defendant below who is the petitioner here is the McDonnell Douglas Corporation. We’ll refer to the parties to this suit by their names Mr. Green and by McDonnell during the course of the argument to the Court. Mr. Green was a mechanic and had worked at McDonnell Douglass for 1966, up until the time of his layoff in 1964. During that period of time, he had established a work record that qualified him by the rating records and the supervisors at the plant as being of average, or suppose said another way, satisfactory. He was in that period of time, well up until 1963. He was a member of the union and is such was protected by the union rights as it had bargained with the company for such as seniority and what have you. However in 1962, the respondent here Mr. Green, became interested in doing some work outside of the work that he had been doing and made inquiry as to whether or not he could transferred over to the electronics division of McDonnell. At that time he was told by supervisors and by people with whom he worked that for him to transfer over to that division would cause him to give up what seniority rights and whatever protection he had under the labor contract. And it was pointed out to him that that new department that he was looking at was engaged in work related to the Gemini program and it could be a one shot contract, because of that there was some uncertainty as to the durability of it. Well, considering those factors, 1962 Mr. Green declined to transfer and didn’t make an application. A few months later the next year, Mr. Green again looked over at the other department and decided that maybe he should transfer. The pay wasn’t significantly greater, but apparently it was a more prestigious position and would utilize his skills to a greater extent. When he looked at it the second time, he was again advised that “because you’re a member of the union now, you have a certain seniority rights, but and again this is the Gemini program and you may -- when you get over there as a non-union member or employee of McDonnell, you won’t have the security of the job that you have now.” Well, in spite of that he decided to make the transfer and for approximately a year thereafter.
Potter Stewart: It was 1963?
Veryl L. Riddle: It was at 1963. For approximately a year thereafter, he worked there as a technician over in the electronics division working on simulators for the Gemini program. Well, as was predicted by some, the program was winding down and there was a layoff coming up. The company using a pattern, or using a practice in this particular essence that they had used before called the “totem pole” referred to in the case, made a determination that some of the excess technicians working on that program would have to be dismissed, and of course -- due course of time, Mr. Green and 14 to 15 others in fact were dismissed or laid off. At the time that they were laid off, the time that Mr. Green was laid off, he made some protest to his superiors and to some of the executives of McDonnell and pointed out that in his opinion he was being discriminated because he was a black man, and because he was a known protestor and leader in civil rights activities around town. Pointed out that his position in those activities was such that the company would be taking some risk if they laid him off, but in spite of the various and prolonged discussions, he was laid off. Now, sometime after within a few weeks and in fact in October 1964, Mr. Green participated and was referred to in the record and in the briefs as a “stall-in” now this “stall-in” as was referred to by some of the witnesses in the case as an attempt to sabotage the facility and the operations of McDonnell. I think to fully understand the significance and the impact of the other “stall-in” I would call the Court’s attention to pages 57, 58 and 59 of the volume one of the appendix.
Warren E. Burger: How? Give me that number again?
Veryl L. Riddle: It’s on the volume 1 of the appendix and at page 507, 508 and 509. It’s the last two or three pages in the -- in that volume. Now look at the plan that was devised by Mr. Green and others. One could readily see that this wasn’t a carelessly planned program. It was designed carefully and for the purpose of totally disrupting the flow of traffic to and from the plant facilities of McDonnell which are located on and near the airport, Lambert Field in St. Louis. The plan being to park cars on roads that led to the excess and roads that led away during a shift change where something between 10 and 1500 people are going to be going to and from on limited access, and this is not a case such as a football field where the roads coming into small directions. This is a case where there’s an airport and the access roads are much more limited than in the typical installation.
Potter Stewart: Is the plant of the company right out there near the regular St. Louis Airport?
Veryl L. Riddle: Yes, it is.
Potter Stewart: That’s what I know.
Veryl L. Riddle: It’s right near the runways and in fact, the manufacturing facilities are principally on the runway itself, or on the airport itself.
Potter Stewart: On the airport?
Veryl L. Riddle: Yes. So as a result of this activity, the participants in fact drove their cars and parked them at strategically located positions. And at that time as the plan called for, they locked their doors. They put their brakes on. They shut their motor off, and planned to stay there in that position for at least one hour. And they were instructed to stay there and resist being taken away unless the officers made certain explanations to them as to why they should leave. Now, the impact of a complete “stall-in” or a blockage of traffic at that time and under those conditions could have and except for alert police activity, could have been catastrophic and could have destroyed an entire shift operation at the plant. And the amount of money and the amount of property potentially subject to destruction or damage as result to this is very, very substantial. Now, following that program, Mr. Green was arrested and pay the fine, found guilty. And sometime thereafter, I believe it was July the 2nd of 1965, Mr. Green had continued in his activities, some of with were lawful and some of them which were unlawful. And at that time his group action locked the gates doors at a building that housed McDonnell Douglas personnel downtown. At a time when the employees were attempting to leave the building, effect to this was to temporarily imprison the occupants of the building during a period of time that they would’ve been leaving. And then on July the 22nd, just a few days after the lock-in at the Roberts building downtown, Mr. Green applied for a job as a mechanic at McDonnell Douglas.
Potter Stewart: Does the record show whether or not he was employed during this period after his original layoff from your company?
Veryl L. Riddle: Later record indicates that he was employed of and on, but I don’t believe the employment was steady or with one employer throughout that period of time. Of course when he made this application the reaction from the people at McDonnell was predictable. They said “No, we will not be able to use you.” Following that, he filed his complaint with the EEOC. EEOC made its investigation and made its report. They found that there was reasonable basis for Mr. Green to bring a lawsuit and he filed one at that time under Section 704 of the Act. Case come on for trial, well after a period of time had passed, Mr. Green filed his lawsuit in the United States District Court in Missouri. It came on for trial before Chief Justice -- Chief Judge Meredith there and it was tried for about four days. During the course of the trial, or before the trial actually begun, Green made an effort to amend his petition to include raise or cause of action under 703 in addition to 704 and that was denied by the court. The case went to trial under 704, but during the course of the trial Green attempted to interject 1981 Civil Rights Act as a basis for his discussion in the trial of the issues involving race. At the close of that case, Judge Meredith made some findings, one of which was that the evidence shows that plaintiff’s civil rights activities were not considered as a factor and the decision to layoff the plaintiff. And then he made these findings, and I think it’s important for the Court to carefully consider just what was before Judge Meredith and what it was that he found. He says “The plaintiff contends the defendant violated 7043 because of his opposition to employment practices. Plaintiff also contends in his post trial brief the defendant’s refusal to hire him was based on race and his participation in civil rights activities, violation of 1981 and this important to conclusion and finding by the court. The court feels that the court’s discussion of the case under 704 will effectively dispose of any claim arising under Section 1981.” And these are the controlling standards that Judge Meredith applied in reaching his decision. He says this, “The matter before the court’s controlling an ultimate fact the questions are whether the plaintiff’s misconduct is sufficient to justify defendant’s refusal to rehire, and two, whether the ‘stall-in’ and ‘lock-in’ are the real reasons for defendant’s refusal to rehire the plaintiff.” The court finds that they are. Then the trial court proceeded to say that the plaintiff there Mr. Green had failed to establish by the greater way to preponderance that the defendant’s refusal to rehire plaintiff resulted from racial prejudice or plaintiff’s legitimate civil rights activities. It seems clear from the record and then again quoting this are, “that the defendant’s reasons for refusing to rehire the plaintiff were motivated solely and simply by the plaintiff’s participation in the stall-in and the lock-in.’ The burden of proving other reasons was on the plaintiff. Now, the case was appealed and went to the Eighth Circuit.
Potter Stewart: But doesn’t that language sound like the District Court dealing only with the alleged 704 violation? And he had stricken from the complaint, or what did he do, refused to allow amendment of the complaint?
Veryl L. Riddle: Under 703.
Potter Stewart: Under 703.
Veryl L. Riddle: But the conclusion of the court there, Your Honor was, plaintiff has not shown the defendant was motivated by racial prejudice or because of the plaintiff’s legitimate civil rights activities. He made the joint finding.
Potter Stewart: But your submission I think that although the amendment to the complaint was not allowed that nonetheless in the course of the trial it was by agreement the implicit agreement that issue was tried?
Veryl L. Riddle: It was tried and it was tried fairly. And four days of trial and a careful reading of the transcript will indicate that at least 80% of all subjects inquired about and all questions do relate to the question of race. And I think that it was for that reason that the trial judge, the district judge felt that under the contentions being made, that he could dispose of that issue in this case and did dispose of it.
Potter Stewart: Although he had so far as the record goes and so far as the formal record goes, he had stricken and not permitted that issue to be tried in this lawsuit, and it’s correct isn’t it?
Veryl L. Riddle: If the lawsuit had been tried consistent with what that ruling striking race, if it been tried consistent with that theory, yes I don’t think there’d be any validity in our position at all, but in fact it wasn’t. It was tried thoroughly and this was the feeling of one member of the panel of the Eighth Circuit and the panel is shared by four members of that court.
William H. Rehnquist: Mr. Riddle, I understand I find it to contend even if it was tried by consent that he was handicapped by the trial court’s failure to allow discovery on that count. What’s you’re response to that contention?
Veryl L. Riddle: Position to that Your Honor is this, that there was adequate discovery and there was enough discovery here to allow that issue to be tried. There were discovery opportunities available to the plaintiff’s counsel that he didn’t avail himself of. And voluminous records were in fact to made him available to any many use during the course of the trial. We think that the ruling made in the pretrial as to the extent of the discovery was based upon the unreasonableness and burdensomeness of it. It then required for tons in thousands and thousands of documents that were acquired weeks and weeks just to prepare all on issue that doesn’t seem to be irrelevant to of any issues that the case presented. Now, the Eighth Circuit looked at the decisions below and affirmed it in every respect except it sent it back for a retrial on the racial discrimination issue. Now, if the court had stopped there and used the basis raised by his Honor that it had been stricken and so maybe he didn’t had his full day in court and going back and try it again. If it stopped there, the case wouldn’t be here today, but the court did some very significant additions to adjust that. It said “One, that the prima facie case is made when the applicant here, a black man” -- I think I should read that exactly as it is from out of the court’s opinion. “When a black man demonstrates that he possesses the qualifications to fill a job opening and that he was denied the job which continues to remain open, we think he present a prima facie case of racial discrimination.” Now what that does is to reverse at the point when Judge Meredith says it was up to the plaintiff in that case to establish that his discharge or his -- the refusal to reinstate him was based upon his race that this was a burden that the petitioner or that the plaintiff had in the lower court. The Eighth Circuit is saying that he merely makes that prima facie showing and then the burden is upon the company of McDonnell here to establish that it was not racially motivated. Now, in addition to that the shifting of the burden of proof, I might say at this juncture that Congress in considering this one of the floor managers, we’ve cited that in our brief. One of the floor managers carefully explained to members of Congress that the burden of proof in these cases under Title VII will be as it has always been that the burden will always be on the plaintiff, the person bringing the lawsuit and it made it abundantly clear that this was what Congress intended. Here, the Eighth Circuit by its opinion is shifting that burden of proof, but that’s not all it did. Second off, it said that subjective elements from the employer, in this case from McDonnell would be given little weight or its weight would be limited. In the context of this case, and I might say further to that the third thing it said was that somehow McDonnell would have to establish or show that under these circumstances its refusal to rehire Green was related to job performance, while limiting the value or the weight of subjective evidence as the Eighth Circuit opinion did. Test the other imposition had plus the burden of weight shift caused one member of the Eighth Circuit to think that the effect of this opinion would be to order McDonnell to reinstate or rehire Green. And the view apparently was shared by four members of the court. I think it’s clear when the employer here is inhibited by testifying as to his reasons, subjective reasons for making employment decisions that when that is being told or when the Eighth Circuit is telling the District Court that “you’re to give very little weight to that” that we think that that means practically that once the plaintiff Green here would make this prima facie case that we couldn’t rebut that prima facie case then by showing that our refusal to employ him was because he attempted to sabotage our plant, or locked some of our employees into the office building downtown. I think the Eighth Circuit is saying that this is to be given very little weight and it probably will not justify your actions in refusing to employ. Now there seems to be no question to what unlawful activity of any person would be adequate justification for an employer to refuse to hire. And I think that would be true whether the applicant is white, whether he is an Indian or whether he is black, or whether he is a Baptist or a Jew, or Catholic. I think that that is clear and I think the effect of this opinion, if it’s applied literally, will cause a preempt reversal discrimination. For example, I don’t think it could be seriously questioned that if a white man were to throw a rock in the chairman of McDonnell’s window last night and he called me this morning and says “Can I discharge the man?” I would say “Yes.”
Thurgood Marshall: You could also say you could put him in jail.
Veryl L. Riddle: Yes, and if a black man were to throw, by this opinion is it’s been interpreted and as we interpret a rock through his window, yes if I could -- he could discharge him, I would have to say following the mandate of this opinion we’ll have to look to see how this might adversely influenced his ability to perform a job.
Thurgood Marshall: But you could still put him in jail.
Veryl L. Riddle: Still put him in jail. But got out of jail, if we had to look at job performance, then we could very well be in position of having to get into that before I could be at ease and say “No, you can’t discharge him.” I use that as an illustration of how --
Potter Stewart: Or either this was a -- the question would be must we hire him rather than can we discharge him, isn’t it?
Veryl L. Riddle: I think the rule would be the same, Your Honor. I think it applies to not only to discharge, I think it would apply to promotion and I think it would apply to job applicants.
Potter Stewart: Yes.
Veryl L. Riddle: What remaining time I have I’d like to reserve for rebuttal, Mr. Chief Justice.
Warren E. Burger: Very well. Mr. Gilden.
Louis Gilden: Mr. Chief Justice and may it please the Court. In answer to the question posed by Mr. Justice Stewart, I want to comment that Judge Meredith stated that the court feels that the court’s discussion of the case under 42 U.S.C. --
Potter Stewart: Where are you reading from?
Louis Gilden: I’m reading from page A45 of the petition for writ of certiorari. The court feels that the court’s discussion of the case under 42 U.S.C. 2000 (e) 3 (a), that’s 704 (a), will effectively dispose of any claim arising under Section 1981, Section 42 U.S.C., Section 2000 (e) (a).
Potter Stewart: Bottom of page two?
Louis Gilden: That’s on the bottom of page A45. This case was treated that’s a 704 case all the way through. And Mr. Justice Rehnquist, I submit that Judge Lay’s comments that the Hebrew expression, “We tie their hands and have reproached them because they don’t use them” is a classic statement of this particular case. Because plaintiff Green attempted to get statistical information by interrogatories, by motion of produce for inspection, and on the question of interrogatories the court struck the interrogatories on the grounds that they were oppressive. On the question of the motion of produce for inspection, the court said specifically in its opinion that this is a race case and therefore you’re not entitled to all these statistics. So therefore, on two occasions plaintiff had to come in and try this case knowing full well what the decision of the court, 704 (a); both on the question of motion to produce for inspection and both in the comments of the court in its opinion that’s a 704 (a) case. This case was tried totally as a 704 (a) case. The only statistics that were brought in the court were by Mr. Peter Robertson who was a representative of the Equal Employment Opportunity Commission and he came in on the eve of trial, and he was of that time in 1965 a representative of the Missouri Commission on Human Rights. And he at that time did the investigation of the case, and he came in with some statistical information. And night he came on the eve of trial and I interviewed him just prior to trial. I had no opportunity, I was plaintiff’s counsel. I had no opportunity to produce any of these figures. I was foreclosed totally from introducing the statistics on employment. If this was a race case I would like to see it. It’s never been submitted on the -- as statistical case before Judge Meredith. It was totally a 704 (a) case. The records that were brought in by Mr. Peter Robertson related primarily to his disparate treatment when he worked for McDonnell Douglas before his layoff in August of 1964. This case is a case to be tried and listened to on its particular issue, the facts in this particular case. Mr. Riddle has gone through a whole chronology of the “stall-in” and the “lock-in” and the “lock-in” is not a matter before this Court. The court held that Mr. Green had nothing to do with it.
Byron R. White: I take it though you do not dispute the fact that it took place both?
Louis Gilden: The “lock-in” did take place, that’s correct. The “stall-in” did take place. Mr. Green pled guilty to the “stall-in”. He was out there for ten minutes and I submit to the Court that in October of 1964 there was no Equal Employment Opportunity Act. The act became effective July the 2nd 1965. There was no legal recourse. In any of the laws of this country, we didn’t know about 1981 at that time. That became somewhat crystal clear after Jones v. Mayer. We didn’t know about 1981. We only knew about the Equal Employment Act that had been enacted in July of 1964 to become effective in July of 1965 that’s the all we knew. And on that particular date, what was he protesting? He was protesting discrimination in employment of McDonnell Douglas. That’s what he was doing.
Warren E. Burger: So do you -- is it your position that that includes the right to use unlawful means and that those unlawful means may never be then taken into account?
Louis Gilden: No, Your Honor, I don’t submit that. That isn’t my position in this case. McDonnell can use that reason and -- but I think one has to look at which is what the Court of Appeals had before, was a record on 704 (a). They had a record before them that showed the treatment of Green when he was working for McDonnell Douglas and they saw that in August of 1964 when this totem pole was drawn up that the Vice-president of McDonnell Douglas, based upon the evidence of Mr. Robertson, drew a line over Green’s name and he was the highest senior man in a whole department of 100 white men in a research department. The only black man and they drew the line over his name as the man to be laid off.
Potter Stewart: I thought that issue wasn’t before us here at all?
Louis Gilden: No, I’m that’s the response --
Potter Stewart: That everybody had based the statute to be different?
Louis Gilden: Well, I think Your Honor, I think it’s important in terms of what the courts tell a prima facie case would be in this -- in the opinion of the Eighth Circuit. I think it’s a question of what the court knew at that particular time based upon the evidence before it, and what Green would introduce in the race case. And that he would show the treatment he had to show that the treatment of discrimination when he works there continue when he applied for the job in --
Potter Stewart: You’re not saying the Court of Appeals prejudged the case --
Louis Gilden: Oh! No, I’m not saying if they --
Potter Stewart: -- and remanded the case to the District Court.
Louis Gilden: That’s correct, but only on those facts Mr. Justice Stewart, only on those facts. They knew that Green was qualified. They said that in the opinion.
Potter Stewart: Well, the respondent indicates that --
Louis Gilden: That’s right.
Potter Stewart: -- he was a satisfactory mechanic that too is not an issue.
Louis Gilden: Yes, but the court said that he could -- that Green could show that the reasons given were protectoral, and that would go to the race situation.
Potter Stewart: Right.
Louis Gilden: And that he could show that the real reason like Green wasn’t hired was because the way they treated him before. That --
Potter Stewart: No, no. The real reason was because of his race. That’s what he’d have to show not --
Louis Gilden: That’s correct. And they could also show that they also have this as part of the record that Mr. Riddle said there were 14 or 15 reasons why he wasn’t hired. 14 or 15 reasons, now they only two reasons and they also brought in the record that there was the picketing of Mr. McDonnell’s home from the street, not anywhere near the house. And one of the witnesses talked about that as a basis for not hiring.
Warren E. Burger: If there was one good reason the fact that there were 14 others, would you think no difference would make?
Louis Gilden: Well, that would be a matter for the trial on the race case before the District Courts, Your Honor.
Warren E. Burger: Yes, but when the Court of Appeals remanded it, they undertook to try to allocate the burden of proof.
Louis Gilden: No, they didn’t Your Honor. What they did, they didn’t shift the burden. The burden of proof was still with the plaintiff in this case.
Warren E. Burger: Did they not direct? Did they not direct the district judge virtually not to give weight to this evidence?
Louis Gilden: No, no. They didn’t say that Your Honor.
Warren E. Burger: Give very little weight, if any?
Louis Gilden: Oh! No, they didn’t say that. They only said that employment decisions based upon subjective criteria. They didn’t say subjective evidence, they said subjective criteria. And this Court in Greek said that Congress directed the thrust of the act against the consequences of employment decisions, not simply the motivation and the consequences would not for highly --
Warren E. Burger: What do you find in the statute that supports what the Court of Appeals said?
Louis Gilden: In the statute in terms of subjective evidence? It goes into some of the case law that we’ve had Your Honor, in terms of the weight to be given to subjective criteria. Not subjective evidence, subjective criteria. In fact, the second question presented by McDonnell here doesn’t even relate to the decision. They did not bore McDonnell from introducing subjective evidence. Nothing in the opinion saying that, nothing.
William H. Rehnquist: What is your answer to the Chief Justice’s question that what do you find in the statute that supports the Court of Appeals decision on the burden of proof and on prima facie case?
Louis Gilden: There’s nothing specifically in the statute relating to what the burden of proof would be in a case involving an application for employment. Not specifically stated. But the court had before a somewhat shallow record based upon 704 (a). They knew how Green had been treated and based upon the facts before them. They set forth what could constitute a prima facie case. And then they anticipated, they anticipated that Green could come forward -- would have to come forward more with more evidence. They anticipated, they said that because after they said McDonnell would have to show that the reasons they didn’t hire Green were because he was irresponsible toward his work. They then said that Green would have to come back and show that the reasons were protectoral or else McDonnell Douglas had engaged racial discriminatory practices at the plant. And they showed what the burden would have to be with Green later on. They didn’t anticipate that he could rest at the close of his prima facie, so called minimal prima facie showing. That he would have to come back. They also knew that McDonnell would come in with the “stall-in” as a reason, and they would -- and Green would have to come in and show that reason that it was protectoral.
William H. Rehnquist: What’s your response to Mr. Riddle’s contention that in the congressional debates preceding the enactment of this, the question of the prima facie case was considered and the congressional conclusion was that the burden of proof should be on the plaintiff in all state?
Louis Gilden: There’s no question that the burden of proof is on the plaintiff, Your Honor. And there’s no question that we -- that Green was called upon to assume that burden before the District Court. There’s no question about that. And I would say to this Court that McDonnell hasn’t even appealed that point to this Court. They haven’t even raised it. They have raised two hypothetical questions before this Court that are nearly going to be somewhat helpful, I assume, if this Court remands this case to District Court in terms of what some of the guidelines and standards might be. Can in a Title VII case, is an employer supposed to hire a person who engages, a black man who engages in unlawful activities? That’s a matter for the District Court to decide in either -- if that were the only fact presented that would be a matter of judging for the District Court. But the court contemplated more facts. It contemplated more discover, more information. I might submit, I might submit, this makes it part, it’s not part of this record at all. And as a matter not in the record, it was a matter that was presented by the appendix in the appellate court that subsequent to these proceedings, the F15 contract was denied in McDonnell Douglas by the Secretary of Defense on the ground that they were discriminating against blacks. That was subsequent to the trial of Percy Green against McDonnell Douglas. Now if a contract was denied to McDonnell Douglas on the F15 because they were engaged relations discriminatory factors, I’m quite sure that relay some substance not for just going back to the court on some pretence, but on the basis that we have something to talk about.
Warren E. Burger: Suppose instead of having just engaged in the blocking of the highway, “stall-in” I guess that’s called here? He had thrown some dynamite under trucks of McDonnell Douglas, would you think then McDonnell Douglas would have to assume the burden of showing by objective evidence -- some objective evidence to use the Court of Appeals terms that that rendered him an unsuitable employee?
Louis Gilden: Well, Your Honor the dynamiting -- Mr. Chief Justice, the dynamiting certainly would be objective evidence. There’s nothing subjective about dynamiting of building --
Warren E. Burger: Well, is there anything subjective about blocking a public highway?
Louis Gilden: The court never said, Mr. Chief Justice that they couldn’t introduce that. They just said that the courts filed them that McDonnell would come in with that evidence on the race case.
Warren E. Burger: The court instructed the trial court in effect, you don’t have to pay any attention to that and really said “You’d better not pay any attention to it.”
Louis Gilden: Your Honor, I don’t really read the opinion that way. I read it on the --
Warren E. Burger: Well, that’s the way I read it.
Louis Gilden: Well, it doesn’t say that specifically. It says that --
Warren E. Burger: I don’t know how you could read it any other way?
Louis Gilden: Well, it says that employment decisions based upon subjective criteria carry little weight. They didn’t say they forebode them from producing it at evidence. Carry little weight and that’s just the line of decisions that the Eighth Circuit just went ahead and went along with. That wasn’t a fact that they were mandating a District Court to keep out the “stall-in.” The “stall-in” was objective. There’s nothing subjective about a “stall-in.”
Warren E. Burger: Well, in that evidence was before the District Court, wasn’t it?
Louis Gilden: The “stall-in?”
Warren E. Burger: Yes.
Louis Gilden: Yes, it was.
Warren E. Burger: And the District Court decided the case on that basis, did they not?
Louis Gilden: On the 704 (a) issue Your Honor, on the 704 (a) issue they decided on that basis, because the court was very specific about how they’re trying this case. They never -- the court never changed this opinion, and its opinion and in its ruling on the discovery etcetera, it was not a race case. It was a 704 (a) civil rights protest case. And there were two allegations that Green had made in his complaint before EEOC, civil rights and the question of race. And the Equal Employment Opportunity Commission had merely made one finding and that was on civil rights, and what the District Court did was strike race because it felt that there had to be a reasonable cause finding as a jurisdictional prerequisite to the institution of an action under Title VII. And then in fact, McDonnell were the ones who filed the motion to strike race from the pleading. The court didn’t do it on its own. And the court held that it was not a race case, and the case was tried strictly on that.
Byron R. White: Mr. Gilden, what do you understand the court to have meant by this, if McDonnell can demonstrate the Green’s participation in the “stall-in” in some objective way reflects adversely upon job performance, McDonnell’s refusal to rehire Green will be justified.
Louis Gilden: What page is that? Is that --
Byron R. White: This is in page A13, bottom of the page.
Louis Gilden: Your Honor, that was excised from the opinion. That’s the original opinion.
Speaker: Oh! It was?
Louis Gilden: Yes, that was excised and that’s why I -- we had carried, you see point five was totally excised and changed by Judge Bright, and the opinion was changed to Griggs opinion to a non-Griggs opinion. And so I think what some confusion in this because you have to read the new point five which is carried on page A31.
Warren E. Burger: You think there is no significance to be attached to the content of the Section 5 after they excised it?
Louis Gilden: You mean the original.A5?
Warren E. Burger: Yes.
Louis Gilden: I don’t think it has any bearing whatsoever. It’s -- court made a change in this decision and I think what all they called upon to make decisions upon the change. I don’t think we’re called upon to anticipate or to make this Court -- no court would rebound by a court that struck the original opinion, use the original opinion as a basis for law. The only opinion we have before us is A31 to A33 which is that close to two pages which sets forth a standards, and that case they said “However applicants past participation in unlawful conduct directed as prospective employer might indicate the applicant’s lack of a response or attitude toward performing work for that employer.” But they didn’t say “It had to be job related.” It didn’t say it had to be job related. It was not a Griggs decision.
Speaker: It doesn’t have to indicate that an irresponsible attitude toward his work.
Louis Gilden: Right, right. And I think the reason they’re saying that Your Honor is this. That I think the court --
Speaker: But normally they demonstrate that on Matherne?
Louis Gilden: Well, I would say that the start --
Speaker: Isn’t that right?
Louis Gilden: Yes, that’s right. I would say that the “stall-in” would be a basis for a trial judge to consider and the totality of the evidence before it as to whether or not racial discrimination was the reason that Green wasn’t hired in July of 1965, or whether that “stall-in” was in October of 1964 where there was no Equal Employment Opportunity Act was the basis. And the court was sending this matter back for what the real reasons for. Whether the reasons were protectoral --
Speaker: Or would it be enough that the company showed in everybody accepted that the reason he was fired was because he participated in the “stall-in?”
Louis Gilden: If that were the only fact, Your Honor?
Speaker: Yes.
Louis Gilden: I would say that could be a basis for not hiring, yes, if that was the only fact. If that was the only fact that. If that was the only fact before the District Court, but the court contemplated it.
Speaker: Well, I know but that wouldn’t necessarily show that there are even, maybe not even intimate that he had an irresponsible attitude.
Louis Gilden: Well, I would say that the court make a decision based upon the guidelines and standards set forth in the opinion as to whether the question of a “stall-in” against an employer complaining about racial discrimination on the plant, in October of 1964 would be an irresponsible attitude towards employer for the type of illegal protest he was engaged in, and that’s the determination the court would make, the District Court would make based upon the facts before it.
Warren E. Burger: Focusing on that same language where the court said “However” this is in the revised opinion, and after comes past participation and unlawful conduct directed at his perspective employer might indicate the applicant’s lack of a responsible attitude. Where do you find -- what do you find in the statute that says that employer might consider that?
Louis Gilden: Well, Your Honor, I think, you know this is a double-edged sword. They -- McDonnell, I would say it’s not in the statute. This is mere dictum in the court, into the court’s decisions. The basic decision relates to whether or not Green had to have a reasonable cause finding as a statutory prerequisite to the institution of an action. That’s t the only decision before the Eighth Circuit. This is where dictum --
Warren E. Burger: When you say that’s dictum, you mean the district judge can completely ignore it?
Louis Gilden: Well, I would say that he would think about the guidelines set up by the Eighth Circuit, but its dictum. That’s not the rule of the case.
Warren E. Burger: Pretty pointed dictum, isn’t it?
Louis Gilden: It is pretty pointed, yes. And I would say that a District Court would do well to submit to those guidelines and I submit that that is based upon these facts. Based upon the facts submitted before the appellate court that these guidelines would be appropriate because the court was well aware of what evidence was -- had been submitted on the 704 (a) issue, and based upon these guidelines that was -- that would be appropriate. I submit that the two questions that have been presented for this Court aren’t even rules of this case. The question of whether a black man can be denied employment if he engages in civil rights protest under Title VII, and the questions of subjective evidence. There’s nothing in any of the decisions which would keep McDonnell Douglas from submitting subjective evidence before the trial judge. If that’s all they had and I might state for this Court, and this Court well knows that if I come into court as Mr. Crone did in the trial and said “I don’t discriminate against blacks.” What kind of a statement is that? That’s a subjective statement. That’s not objective. What the court is saying in subjective criteria is a near sort of declamation about your own integrity and your virtue and your own honesty. I do not discriminate against blacks. That kind of declaiming about how virtuous you are and honest you are and how good a person you are. That is subjective evidence, but when you come in and say that somebody engages in some activity or behavior, there would be something objective. The court never says the “stall-in” was not objective.
Warren E. Burger: Judge Johnson thought the District Court was going to have some problems with trying to figure out just what was the holding, and what was dictum, and what was guideline, didn’t he?
Louis Gilden: I think Judge Johnson was still relating to the excised opinion, Your Honor. He was still going into job performance in his second dissenting opinion and I had he read the decision a little more closely, he would’ve come the decision that the question of Griggs, Griggs was not before the court. The question of job performance was not before the court, and the court had carefully laid down very, very accurate and very precise standards for the District Court to be guided by. I submit that there’s only one issue, and I’ve been kept from my discovery on race as to McDonnell Douglas is engaged in racial discriminatory practices. I haven’t had that trial. It hasn’t been tried. I submit that Green should have that trial. He should have an opportunity to show that the reasons given were protectoral. He should have an opportunity to show that the broad statistics, if there are any, and I assume that might be in view of what happened and which I’ve informed the Court about. About he racial discriminatory hiring practice at McDonnell Douglas and based upon that, I hope to prevail a District Court again if this Court gives me this opportunity. Thank you very much.
Warren E. Burger: Thank you Mr. Gilden. You have about three minutes left Mr. Riddle.
Veryl L. Riddle: Mr. Chief Justice, I’m pained to have to correct my brother counsel here on the F15 contract which he mentioned to the Court to acknowledge that it was not on the record. The fact of the matter that contract has been awarded to McDonnell Douglas, and all orders made with respect to equal opportunity employment had been complied by and conformance with the executive orders for quite sometime. I’m pained to have to deny that off the record comment. I would say in closing to this Court that this law Title VII has been tremendously beneficial in achieving the objectives identified by Congress. And a lot of lawsuits had been filed at the District Courts throughout the country and the act has, I think, been a success, remarkable success. This case particularly case as result of the opinion of the Eighth Circuit has created a lot of questions and has caused a lot of concern by members of the bar, by District Courts and by employers and employees as well. I think that the cause of the complete reversal of the traditional principles that involve in trying this issue, were the only issue ever to determine the real reason why a person is refused employment, discharged from employment, or other action or relations that he has with his employer. And to get at the real issue in the traditional sense, courts have done a good job and they’ll continue to do a good job. I think that there is nothing at all, nothing in the law. There is just nothing at all in the decisions in the past where you have a one on one, an individual employer or an individual applicant to make an application for a job. And this decision, if it’s followed and conscientious District Courts are going to try to follow it. For them to try this, the law be turned on its head. And I submit for those reasons that the case certainly should be reversed, and we think it ought to go back, with an order from this Court that the judgment of the trial court who heard the evidence and who concluded that this sort of unlawful conduct was not protected and it would form an abundant basis for refusal to employ any person. Thank you.
Warren E. Burger: Thank you Mr. Riddle. Thank you gentlemen. The case is submitted.


John G. Roberts, Jr.: We'll hear argument next in Case No. 15-145, Husky International Electronics v. Ritz. Mr. Dvoretzky.
Shay Dvoretzky: Mr. Chief Justice, and may it please the Court: Congress amended the discharge bar in 1978 to add actual fraud as an additional ground for barring discharge. That amendment must be given meaning. Our interpretation is the only one that does so. Consistent with the common-law understanding that Congress codified, "actual fraud" is a term of art that includes a recipient's knowing participation in a deliberate fraudulent transfer. By contrast, the Fifth Circuit's holding that actual fraud invariably requires a misinterpretation makes Congress's amendment superfluous because it equates actual fraud with the preexisting terms, "false pretenses" and "false representation." Respondent's interpretation is even worse. It merely restates a preexisting scienter requirement. And in any event, Congress could not plausibly have added "or actual fraud" to the discharge bar in order to modify the previous terms to mean intentional false pretenses or an intentional false representation.
John G. Roberts, Jr.: You'd -- you'd acknowledge, wouldn't you, that if the language we used in Field against Mans is applicable, or if we meant it, that you lose? Some degree of reliance is required to satisfy the element of causation inherent in the phrase "obtained by"?
Shay Dvoretzky: I don't think that language is applicable here, because that language has to be --
John G. Roberts, Jr.: No, no. I understand, and I understand your argument there. But if it is, if we think that language does apply across the board, you certainly lose.
Shay Dvoretzky: Yes, if you believe that "obtained by" invariably requires reliance, but it does not. The -- the language in Field was in the context of a misrepresentation case. What obtained by requires is causation. In the context of a fraudulent transfer where the recipient knowingly participates in a deliberate fraudulent transfer, centuries of common law established that he commits actual fraud himself. He therefore obtains the property by actual fraud. That's that --
Ruth Bader Ginsburg: But you would have to -- you would have to show down the road that the -- the money was obtained by Ritz. Because as I understand it, it was transferred from the first company to a bunch of other companies, not to Mr. Ritz himself.
Shay Dvoretzky: That -- that's correct, Justice Ginsburg. Down the road, we would need to show that our State law veil-piercing theory is correct. That, however, is not the basis on which the Fifth Circuit rejected our claim. The Fifth Circuit rejected our claim on the sole ground that it thought actual fraud invariably requires a misrepresentation.
Anthony M. Kennedy: Would you have to show under State law not only the veil-piercing -- that there's veil piercing, but that there is fraud under State law?
Shay Dvoretzky: Correct. We would need to show two things under State law: First of all, that Ritz orchestrated a fraudulent transfer by transferring assets from Chrysalis to his other entities in order to hinder creditors. Second of all, we would have to show that he perpetrated that fraud for his own personal benefit, which is what would then allow us to pierce the corporate veil and hold him personally liable for the fraud that he committed.
Elena Kagan: Are you piercing the corporate veil as to the first company, or as to the transferee companies?
Shay Dvoretzky: We are piercing the -- it could be either, but -- but I think we are piercing the veil as to the transferee companies because we're pursuing this on a recipient theory.
Elena Kagan: Right. Because -- because I understood your whole brief to be pursuing this on a recipient theory.
Shay Dvoretzky: Correct.
Elena Kagan: And your brief, you know, makes some sense as that. But then when you look back to your complaint, it suggests that the veil-piercing actually was attempted as to the transferor company, which doesn't do you any good under your theory.
Shay Dvoretzky: So the complaint fully spells out all of the details related to the transfers. And generally -- this is at Joint Appendix 97 -- asks for avoidance of all fraudulent transfers to the extent necessary to satisfy plaintiff's claims. Throughout the litigation, the claims were then pursued on a transferee theory. The Fifth Circuit understood the claim that way and rejected it solely because, again, the lack of a misrepresentation. The problem with the Fifth Circuit's interpretation is that it nullifies Congress's amendment, or actual fraud. It makes it meaningless simply by restating the previous terms, "false pretenses" or "false representations." When Congress added "or actual fraud" to the discharge bar, it was legislating against the backdrop of hundreds of years of common-law usage of that term. For centuries, courts had used "actual fraud" to refer to fraudulent transfers.
Stephen G. Breyer: I -- I know. And I'm rather slightly self-regarding the statement. But, I mean, 20, 30 years ago, I had a case on fraudulent conveyance where my law clerk looked up every single case in sight, poor man. And we went back to Queen Elizabeth, and I wrote down what I thought it was. Well, obviously, that affects my -- my -- my thinking on this. And I don't have any way of knowing that it's still -- what I wrote was correct. It's called Burnazos, if you want to look at it. But not now. The -- but the point of the classical examples that we found -- let's take one of them -- is a person knowing that he's about -- has creditors. He has to know that he has creditors. Maybe he knows of the insolvency, and he transfers money to his wife rather than to the creditors. And she knows it too, and this is a way of getting the money away. That's a fraud classic, right?
Shay Dvoretzky: Yes.
Stephen G. Breyer: Okay. So now when I look at the statute, I see these words: To the extent that it's a debt, it's a debt obtained by actual fraud. Now, wait. Whose debt are we talking about? We're talking about Creditor C, who was a creditor of the transferor. And it's the transferee, the -- the wife who obtained -- she's the one who's got the money. And so it sounds like the bankruptcy statute is saying she's the one in her bankruptcy. Now, that can't be right. And so -- so how is this supposed to work? I mean, now you're -- the obvious question to ask you is the question, if it doesn't mean representation, give me one example of what it does mean. Well, I just gave you one, and as you can see, I'm -- I'm quite confused as to how that works. And I haven't seen another one.
Shay Dvoretzky: I think the way your hypothetical works, Justice Breyer, is that the recipient in that instance, the wife --
Stephen G. Breyer: Uh-huh.
Shay Dvoretzky: -- commits actual fraud herself.
Stephen G. Breyer: Yeah.
Shay Dvoretzky: And when she commits actual fraud herself, she incurs her own debts.
Stephen G. Breyer: So for the fee -- the problem with her is she is not trying to deceive a creditor of hers. She is not -- she is not trying to deceive her creditor, it's the transferor whose creditors are being fraudulently deceived.
Shay Dvoretzky: True. But if she is conspiring, in effect, with the transferor, she is facilitating his fraud.
Stephen G. Breyer: All right. So you're saying in the bankruptcy of the wife, this is money obtained by fraud, which it is. And the fact that she's helped him defraud his creditors is sufficient to bring us under the 1924 Massachusetts Statute. It's copied from the UCC, which ultimately is traced back to the Statute of Elizabeth. That's how it works?
Shay Dvoretzky: Yes.
Stephen G. Breyer: Thank you.
Shay Dvoretzky: She -- she commits -- she commits fraud. In the course of committing, fraud she obtains money. She then has a debt for that money, and it's nondischargeable under 523(a)(2)(A).
Stephen G. Breyer: Thank you.
Shay Dvoretzky: That understanding is consistent with the common-law understanding of actual fraud, which is what Congress codified in order to add an additional ground for discharge. The legislative history of the 1978 Code makes clear that Congress was adding an additional ground for discharge, so it was expanding -- an additional ground for barring discharge, excuse me. So it was expanding the scope of the discharge bar.
Elena Kagan: It does make the language "false pretenses" or "false representations" completely superfluous, yes?
Shay Dvoretzky: It does, but the key point here is that it also expands upon that language, whereas the Fifth Circuit's -- the Fifth Circuit's interpretation also makes "false pretenses" and "false representations" superfluous without giving Congress's amendment any additional work to do. So too for Respondent's interpretation, which first of all, merely restates a preexisting scienter requirement, so it gives the amendment no additional broadening scope. And second of all, is grammatically indefensible because "or actual fraud" is not a narrowing phrase that modifies what comes before it. Congress could perhaps have simply replaced "false pretenses" and "false representations" with "or actual fraud," but that might have led to an unwarranted negative inference by the deletion of terms "false pretenses" and "false representations" that had been in the statute for a very long time.
Ruth Bader Ginsburg: So you -- you would like the Court to -- to hold that "actual fraud" means something other than false pretenses or misrepresentation; that it's -- it's a broader term, it includes things that were not already included, period, and then whatever other issues would be -- to be resolved on remand?
Shay Dvoretzky: That's -- that's correct, Justice Ginsburg. With respect to Respondent's interpretation, first of all, as we established in our reply brief, false pretenses and false representations already required intentional fraud. No court had interpreted those terms in the discharge bar before 1978 to apply to innocent conduct, and so there is no basis to think that when Congress added "or actual fraud" to the statute, it was simply restating an existing rule. This Court has, in the past, refused to infer -- to interpret congressional amendments simply to restate existing rules when there is a plausible -- indeed, settled, in light of the common-law -- understanding, like the one we offer that gives the amendment an additional function. The other problem with Respondent's interpretation, of course, is grammatical. "Or" is a disjunctive term that expands on what comes before; it's not a term that limits what comes before. And moreover, "actual fraud" is a noun phrase that in -- that represents both conduct; fraud, and the way in which it is carried out, intentionally. It's not simply a mens rea.
John G. Roberts, Jr.: Why did Congress take the term "fraud" out of the Bankruptcy Act in 1903?
Shay Dvoretzky: The legislative history doesn't tell us why Congress did that. What we do know is that when Congress took out that term in 1903, at least one legislator expressed concern that this was leaving a category of frauds outside the discharge bar, and that that was a mistake because the -- the purpose of the discharge bar has long been to afford relief only for the honest but unfortunate debtor and not to allow the Bankruptcy Code to be used for an engine for fraud. In 1978, Congress closed that gap by adding the additional ground for discharge back in.
John G. Roberts, Jr.: So all -- all you've got in 1903 is one -- one legislator.
Shay Dvoretzky: Yes. We have one legislator expressing the concern --
John G. Roberts, Jr.: I have a big -- this isn't necessarily hostile to your position, but it's kind of a big change to take fraud out of a bankruptcy statute. I mean, nobody seems to know why.
Shay Dvoretzky: Nobody seems to know why. We don't dispute, of course, that typically, most commonly frauds will involve misrepresentations, and so those frauds were still covered. And of course, as a result of Congress's drafting, there are other discharge bars that apply to narrower types of -- narrow and different types of fraud. And so Congress didn't completely forget about fraud in 1903. It did, however, take it out of this particular discharge bar, over the concern expressed by at least one -- one legislator. In the interim period, between 1903 and 1978, courts did note that the discharge bar in effect at that time covered only false pretenses and false representations, and that there was in fact a gap. And then in 1978, as part of a comprehensive overhaul of the Bankruptcy Code, Congress closed that gap. And so we submit that this Court should interpret the -- the discharge bar in a way that gives full effect to Congress's amendment. Our interpretation is consistent with the plain common-law meaning of the words "actual fraud." It does not require grammatical distortions, and it accords with the purpose of the discharge bar, which is, again, to provide relief only for honest debtors and not to allow the Bankruptcy Code to be used as an engine for fraud in the way that occurred in this case.
Elena Kagan: Ms. Murphy points out that there are lots of other provisions in 523(a), which have a lot of overlap on this provision on your reading. And then also the fraudulent conveyance provisions, if you would talk a little bit about those.
Shay Dvoretzky: Sure. Let me address the fraudulent conveyance provisions first. The fraudulent conveyance provisions are targeted at the transferor, not the transferee. And so our reading of 523 complements those provisions rather than conflicts with them. 727 provides that there is no discharge at all if a debtor transfers assets to -- to hinder creditors within a year of the bankruptcy filing. 548 allows the trustee to pursue claims for transfers within two years, but nothing about our reading of 523 is inconsistent with that. It simply provides that, in addition to those things, creditors may pursue fraud claims where there is a fraudulent transfer against the -- the transferee. And if the transferee ends up in a double bankruptcy situation, so to speak, then at that point, 523 complements the other provisions. With respect to the other discharge bars that address fraud, there is inevitably some overlap among these discharge bars. Partly that's a result of Congress's drafting. Congress chose to use the word "fraud" in multiple places, and so you're going to have overlap as a result of that. Partly it is a result of a belt-and-suspenders approach to effectuate the policy of ensuring, again, that fraudulent debtors don't get away with their fraud. Our reading, however, does not lead to any more overlap than Respondent's reading does. Either way, there is going to be overlap between the false pretenses and false representations type of fraud, which Respondent thinks (a)(2)(A) is limited to. And fiduciary fraud, for example, under (a)(4), if that fiduciary fraud takes the form of a false pretense or a false representation.
Stephen G. Breyer: All right. My question, so I better ask -- no. Go. You go. I'll ask -- I don't want to take your time.
Shay Dvoretzky: So the overlap is inevitable. That's not a reason to prefer Respondent's interpretation when our interpretation also gives Congress's amendment additional work to do. Briefly, with respect to (a)(6), it's not at all clear that this -- this conduct would fit within (a)(6), which has a higher standard, willful and malicious injury, not just reckless disregard, which is sufficient to establish actual fraud. If I may, I'll reserve the remainder of my time.
John G. Roberts, Jr.: Thank you, counsel.
Stephen G. Breyer: I'll ask. Ask.
John G. Roberts, Jr.: Ms. Harrington.
Sarah E. Harrington: Thank you, Mr. Chief Justice, and may it please the Court: The Court of Appeals erred in holding that Section 523(a)(2)(A) always requires proof of an intentional misrepresentation in order to prove actual fraud. There are three main reasons why Petitioner and the government are right about our interpretation of Section 523(a)(2)(A). The first is that this Court has said many times that when Congress uses a term that has an established common-law meaning, courts should give it that meaning when it's used in a statute. For centuries, the term "fraud" has been used at common law to refer to schemes that are in -- that -- that where property is transferred with the -- with the intent to hinder, delay, or defraud a creditor. There is no reason to give that text any different meaning than in Section 523(a)(2)(a). The second is that our view is the only thing that -- the only interpretation that gives any meaning to the 1978 amendment. And the third is that our view is consistent with Congress's overarching purpose and the Bankruptcy Code, that -- that dishonors creditors -- excuse me -- dishonors debtors, not be permitted to use the Code to get rid of their debts. Now, Respondent offers a competing textual interpretation of the term -- of the phrase "or actual fraud." I think Petitioner has explained well why that interpretation doesn't make any sense as an -- as a grammatical matter. It also wouldn't give any effect to the 1978 amendment. Petitioner also relies on the -- on the word "obtained," which Justice Breyer was referring to as well. Excuse me. Respondent does -- Respondent suggests that our interpretation doesn't give any meaning to the word "obtained," if obtained doesn't mean that a false representation was directed at a creditor. But under our view, the word "obtained" actually does two things: The first thing it does is the work that this Court described it as doing in Cohen v. de la Cruz, which is it requires the causal connection between the fraudulent act and the debtor's acquisition of -- or possession of the property or money. But the second thing it does, in the fraudulent transfer context, specifically, is it sort of screens out the innocent recipient of a fraudulent transfer. And so if Congress had instead used the phrase "obtained as a result of actual fraud," then argue -- arguably, that could have brought in an innocent recipient of a fraudulent transfer, because as a result, I would suggest that you focus on the transaction that caused the transfer of property. But "obtained by" really focuses on the action of the recipient. And so it really just gets at the recipient's mental state and -- and fraudulent activity.
Stephen G. Breyer: That's the part -- you see, it's still gnawing at me is I wish you had read this case. Because -- because when we went through it, this -- this sentence, fraudulent -- and I wouldn't raise this, except the only example other than the misrepresentation that you've come up with is the fraudulent conveyance. And what I said, after reading all -- "fraudulent conveyance law permits creditors to recover money that a debtor has disposed of in a manner similar," and then I described three paradigm cases. All right. So what they're thinking of is the transferor has creditors. And what he did well before going into bankruptcy, but he knew he was likely to be insolvent, the transferor transfers money to his friends rather than the creditors, to a place that it's hard to get at, you know, to somebody who is going to -- all right. Now, looking at this statute, it seems to me that the person whose debt is going to survive bankruptcy is not the transferor, because normally, fraudulent conveyance law permitted his bankruptcy judge to claw back the money. But that's not what you're talking about. You're talking about the transferee, and you're saying here, the transferee's participation in the transferor's effort to defraud his creditor is something that also survives. And at that point I ask, of all the bad things that people can do that might survive, why in heaven's name do they pick on this one in respect to the transferee? I mean, after all, maybe the transferee robbed a bank. I mean, there are all kinds of bad things that might survive, and -- and don't. So was -- so am I -- something's wrong with my analysis, as you understand it, and that's what I've got to get into my head.
Sarah E. Harrington: Well, see, there are all kinds of debts that -- that do survive a bankruptcy, including the debt for the transferor.
Stephen G. Breyer: Yeah. I got what I'm talking about right, in terms of the debt.
Sarah E. Harrington: Well -- so I think it is important to realize there are two distinct debts: There's the original debtor -- there's original debt from the creditor to debtor one. Debtor one transfers his property to a friend. If the friend -- with the intent to defraud his creditor. If the friend shares that intent, then the State law or some Federal law gives the creditor a cause of action to go after the recipient, to go after the friend. If that -- if that is successful, then there's a new debt that's created from -- to the creditor from the -- from the friend. And that's the debt we're talking about here. With respect to why that wouldn't be dischargeable, when -- if you're outside the time limits that are covered by 548 or 727, the transferors wouldn't -- it's because the transferee, the recipient, is the person who ends up with the money or the property, right? So the second overarching purpose of the Bankruptcy Code is to let creditors get their money back when they can. And so it makes sense that Congress would have wanted to give maybe a stronger remedy --
Stephen G. Breyer: I see.
Sarah E. Harrington: -- against the person who actually has the stuff at the end of the day. And so I think that's why our -- our reading is consistent with the purpose of the -- of the Code in general.
John G. Roberts, Jr.: Is -- is the veil piercing that's going on here with respect to Chrysalis as well, or just the company to which Chrysalis's assets were shifted?
Sarah E. Harrington: Well, you know, Mr. Dvorestzky suggested that it's -- with -- with respect to the recipients, recipient corporations, I think that there -- there are many questions about the State law cause of action that would need to be resolved on the remand if the Court were to reverse. And I would just point out, on -- on the final page of our brief, we have the text of the veil piercing -- the Texas veil piercing, such that in -- in order -- in order to prevail under that section, the Petitioner is going to have to prove there's an actual fraud for the direct personal benefit of the holder. And so they're basically going to have to prove that Mr. Ritz obtained money or property by actual fraud, in order to prevail under the State law cause of action.
John G. Roberts, Jr.: So how does that work in the bankruptcy case? We say this debt can't be discharged, but maybe it will turn out that it could have been, depending on how -- how the State law claim goes?
Sarah E. Harrington: There's -- so what happens is there's an adversary proceeding in the bankruptcy -- in the larger bankruptcy proceeding itself. And so instead of having parallel litigation in State court, that action was stayed when the bankruptcy petition was filed. And basically, all the action is transferred to the bankruptcy court.
John G. Roberts, Jr.: So the bankruptcy court will decide the question under State law?
Sarah E. Harrington: Yes, yes.
John G. Roberts, Jr.: Okay.
Sarah E. Harrington: And the bankruptcy court held that it -- it wasn't satisfied in this case, because the bankruptcy court viewed those Texas laws as requiring a misrepresentation, and also as 523(a)(2)(a) is requiring misrepresentation. And so I think there -- there are a lot of things that would need to be sorted out about the State law cause of action on remand. I just want to say one last thing on redundancy, if I could. There's a couple of specific provisions in 523 that the Respondent suggests are redundant. One of them is 523(a)(4), and Respondent suggests that -- and that's the -- that covers fraud in a fiduciary capacity, such that if we're correct that anything that would be covered by (a)(4) would -- would also be covered by 523(a)(2)(A). But that's not correct, because 523(a)(4) is not -- is not limited to situations in which money or property was obtained by fraud. And so it could cover a fraud where a fiduciary caused one of your properties to go to a third party. And -- and so that would be covered by (a)(4) and wouldn't be covered by (a)(2)(a). And just in general, one last thing on redundancy, I think Congress is trying to be comprehensive in preventing dishonest debtors from discharging their debts in bankruptcy. And so Congress used broad words like "fraud," and instead of sitting down and thinking -- trying to think up every different fraudulent scheme that people might come up with, Congress just wanted to be comprehensive and say "fraud," and it uses the same word "fraud" in multiple places. That's going to create overlap. But that's a feature of the system, and not a flaw in the system. Thank you.
John G. Roberts, Jr.: Thank you, counsel. Ms. Murphy.
Erin E. Murphy: Mr. Chief Justice, and may it please the Court: Section 523(a)(2) applies to a specific type of debt, a debt for something with which the debtor has fraudulently induced the creditor to part. That conclusion follows from the text of the statute for at least three reasons: First, because the statute expressly says that the debt has to be for something obtained by the debtor's conduct; second, because the statute explicitly and repeatedly talks about forms of conduct where the debtor obtains something by inducing detrimental reliance; and third, because the statute makes clear on its face that it's the creditor whose detrimental reliance has to be induced. Because Section 523(a)(2) applies only when the debtor induces the creditor to part with something, it does not apply to a debt for receiving money through a fraudulent conveyance. That may be a form of fraud. It may well be a form of actual fraud, but it's not a form of fraud that gives rise to a debt that is subject to exception from discharge under 523(a)(2).
Ruth Bader Ginsburg: Well, what -- what would Congress have to write to cover a scheme like this?
Erin E. Murphy: Well, I think --
Ruth Bader Ginsburg: You say it's not covered under (a)(2).
Erin E. Murphy: Sure. I think the most natural way to do would be by saying "fraudulent conveyance" or "fraudulent transfer" or a "fraud that involves intent to delay, defraud or -- or hinder a creditor." Those are the terms that Congress uses when it's legislating about fraudulent conveyance, which Congress has done repeatedly and pervasively for a hundred and fifty years. If you look at the fraudulent conveyance statutes, not a single one of them uses this term "actual fraud." So this is not a term that's associated, particularly with --
Stephen G. Breyer: Well, you have the 1924 Massachusetts statute copied from the Uniform Commercial Code, which, in referring to fraudulent conveyance in Section 7, uses these words: "Each conveyance made with actual intent as distinguished from intent presumed in law to" -- da, da, da -- "hinder, delay, or defraud present or future creditors is fraudulent."
Erin E. Murphy: Sure.
Stephen G. Breyer: I grant they did use the word "actual intent," rather than "actual intent to hinder delay, defraud," and then they said it is fraudulent. That sounds an awful lot like the words "actual fraud."
Erin E. Murphy: And -- and to be clear, we don't dispute that fraudulent conveyance is a form of actual fraud. It's just not a form of actual fraud that falls within the scope of this particular exception because this exception says more than just the words "actual fraud." It says that you have to have a debt for money, property, services or credit to the extent obtained by false pretenses, false representations and --
Stephen G. Breyer: Well, a --
Erin E. Murphy: -- actual fraud.
Stephen G. Breyer: The -- the friend who obtained the $40,000 which the friend knew was owed to the creditor of the transferor has obtained money, money through -- it is a debt. She owes the debt. She now owes the debt to the creditors of the transferor because she has the $40,000 knowing that it's wrongly conveyed. So she now owes the debt to the creditors, and her debt was obtained by actual fraud.
Erin E. Murphy: I don't think it was.
Stephen G. Breyer: Because?
Erin E. Murphy: Because she didn't use the fraud to obtain the money. And this gets back to what you were talking about when you were giving the hypothetical. The fraud in a fraudulent conveyance is the first debtor concealing or misrepresenting the nature --
Stephen G. Breyer: That's true.
Erin E. Murphy: -- of the conveyance to the creditor.
Stephen G. Breyer: But it doesn't say --
Anthony M. Kennedy: We're not limited --
Stephen G. Breyer: Sure.
Anthony M. Kennedy: We're not limited to fraudulent conveyances here. You want to read the statute and say something like for money obtained from the innocent party in the first instance by. And that -- that -- but fraud can continue through -- through a whole chain.
Erin E. Murphy: Sure and -- and --
Anthony M. Kennedy: And -- and if it continues through the whole chain, the person on the end of the chain may have never had any relation with the innocent party at all.
Erin E. Murphy: Well, I think that what you need to have the fraud that comes within (a)(2) is inducement. Now, the inducement, the fraudulent inducement, it doesn't have to be direct. It's not our position that, you know, unless the misstatement is made expressly to the creditor, the debt doesn't count. You can have a misstatement, you know, that you caused to be made, that the statute actually uses that language causing a misrepresentation to be made that the victim at the end, the creditor ultimately relies upon. So we're not saying there has to be a direct relationship here.
Sonia Sotomayor: I'm totally confused because I think -- I was following you up until that last statement.
Erin E. Murphy: Okay.
Sonia Sotomayor: All right? I was following you up to when you said that it has to be a debt you obtain by fraud from the person.
Erin E. Murphy: Yes.
Sonia Sotomayor: Whether I agree with you or not, that's a different issue because I'm not sure that you fully answered Justice Breyer. But I don't understand where the inducement comes into this. Why -- why did -- you can commit fraud against a person directly in a variety of different ways that don't require a misrepresentation. And we know that actual fraud doesn't, as a matter of fact, require a misrepresentation.
Erin E. Murphy: Well, as far as I can tell, and Petitioner hasn't suggested otherwise, there's really only two forms of fraud here. There is -- there is misrepresentation or fraudulent conveyance. They really haven't pointed to anything else. So, you know, the question, I think, really is: Is fraudulent conveyance supposed to be in this statute? And in this particular statute, I think fraudulent conveyance sticks out like a sore thumb.
Elena Kagan: Well, you just said you're not contesting that fraudulent conveyance is a form of actual fraud; is that right?
Erin E. Murphy: When it's done with intent, you know, the necessary intent to make it actual fraud. But yes, that's right.
Elena Kagan: So, now, this language -- I mean, the language just seems a lot more simple than you're making it, because you add inducement to the language, you add from the creditor to the language. But the language doesn't say any of those things. It just says is there a debt? And we know that there is a debt here. The debt is for money. The language says, well, what has to be true of that money? It has to be obtained by actual fraud. And here, the money, the allegation is, was obtained by fraudulent concealment. So whether or not the creditor has been induced and whether or not the money has come from the creditor seems to be irrelevant under this very simple statutory phrase.
Erin E. Murphy: I think that there is two -- two problems with that, in our view. First, I don't agree that the fraud is how you obtained the money. You obtained money, and by doing so helped someone else commit a fraud on their creditor. But you did not use fraud to obtain the money in a fraudulent conveyance. You have been a participant in a fraud on someone else. So I think even --
Sonia Sotomayor: That leaves out every conspiracy theory that exists. I mean, if you're helping someone by accepting the money, you're committing a crime.
Erin E. Murphy: Right. But this statute says more. It says that you have to obtain the money that is what gives rise to the debt. It's a very different --
Sonia Sotomayor: A conspiracy theory says you don't have to commit every act.
Erin E. Murphy: The --
Elena Kagan: The transferee -- the transferee obtains the money by way of the fraudulent conveyance, right? How else does the transferee obtain the money?
Erin E. Murphy: The transferee obtains the money through the transferor that decides to give them the money, and that --
Elena Kagan: Through a fraudulent conveyance.
Erin E. Murphy: The fraud occurs on the back end. Because of the transfer, there is then fraud when the debtor effectively, you know, either conceals the transaction, that's the fraud, or conceals the true nature of the transaction.
Stephen G. Breyer: What about Mr. Ponzi's cousin who, in fact, had nothing to do with any of the misrepresentations, but knowing the entire truth says Ponzi, my friend, when you get those bags of cash, hide them under my bed, all right? Now, he himself has not, in fact, lied to anybody or made any misrepresentations, but he's part of the big scheme.
Erin E. Murphy: Well --
Stephen G. Breyer: And I take it we would say that that money under the bed has been obtained by actual fraud, hasn't it?
Erin E. Murphy: Not by him.
Stephen G. Breyer: Oh, so you're going to get him off, too.
Erin E. Murphy: I mean, I'm not quite sure in your hypothetical, where, you know --
Stephen G. Breyer: There was -- I mean, you know, there are dozens and dozens of cases where -- where people do have misrepresentations. There is no doubt there's a misrepresentation in this thing. But after all, not every participant in the great scheme himself lies.
Erin E. Murphy: Sure. But --
Stephen G. Breyer: And those people, I would think, would -- you would expect to have fall within -- since they're part of the big Ponzi scheme, they would be right within this statute and their debts would not be forgiven --
Erin E. Murphy: Well --
Stephen G. Breyer: -- because they weren't the ones who lied.
Erin E. Murphy: (a) just -- it's not a conspiracy statute. And Petitioner themselves, they offer as their example something that doesn't fall within (a)(2), aiding and abetting somebody else's fraud. So they -- they say that this is one of the ways in which this statute -- you know, they have to give some theories as to what narrows this statute so that it doesn't completely swallow the additional fraud provisions that Congress has added here. And that's part of their theory, is that, you know, you do have to have used the fraud to obtain it yourself. But I think that part of it is that you can't just look at the term "actual fraud" in isolation, just as the other side agrees that you can't look at the term "false representation" in isolation. Because they assume that false representation means fraudulent misrepresentation. That's not what the statute says, and that's not what false representation means at common law. At common law, false representation includes negligent representation and innocent misrepresentation. If you look at the Restatement in 1976, it expressly says that. So does Prosser. So they're agreeing that you can't just take these terms and pluck them out of the statute and say, oh, what did it mean at common law? That's the end of the analysis. The question is, what did these terms mean in this statute? And when you look at this statute, Congress put the term "actual fraud" next to a bunch of terms that by their nature speak of inducement.
Elena Kagan: But it would be a very strange thing, Ms. Murphy, if -- if I agreed with you, if I were Congress and I said, I want to make it really clear that this should be only intentional, false pretenses and false representation. There are a gazillion ways to do that, but starting with the simple one, saying intentional false pretenses and an intentional false representation. But the one thing I wouldn't do, I think, is to say actual fraud. Because actual fraud is not synonymous with -- with intent. Actual fraud refers to -- to conduct that's done with a certain kind of intent. And that conduct, as you just said, includes more than false representation and false pretenses. So I wouldn't use a term that had to do with conduct just to state a mens rea requirement.
Erin E. Murphy: So -- so here's why -- and two responses as to why I don't think it's actually that unusual in this context. I mean, first of all, this isn't a theory that we concocted after the fact. The sponsors of the bill, when they introduced this legislation on the House and Senate floor, both of the key sponsors said what Subsection (a) was intended to do, and I quote, "It was intended to codify current case law, e.g., Neal v. Clark, interpreting fraud as actual or intentional fraud rather than implied fraud." But if they --
Elena Kagan: But if I have that case right, that case is actually a case about a fraudulent conveyance. It's not a case about a false representation. So they said, look at this case. It's a case about a fraudulent conveyance that suggests that there's more fraud in the world than just misrepresentations. And we want to make clear that that's going -- that that's supposed to be a part of this.
Erin E. Murphy: That's ignoring the second half of what the sponsor said, because they didn't say, we intend this to codify Neal v. Clark, period. And Neal v. Clark didn't hold that fraudulent conveyance was something that comes within the scope of the statute. It held that the fraudulent conveyance there did not come within the scope of the statute --
Ruth Bader Ginsburg: Whatever --
Erin E. Murphy: -- because --
Ruth Bader Ginsburg: Whatever may have been said in -- in the course of the legislative history, the statute says "or." And I think you would concede that your reading requires converting "or" into "by"; that is, misrepresentation, false pretenses by actual fraud.
Erin E. Murphy: I think that's a fair statement, but I think that this case is pretty analogous to the McNally case where this Court also had the disjunctive "or" before it in interpreting the Mail Fraud Statute. And in that case the Court -- it was a very similar situation where you had a statute that was on the books, you had decisions from this Court interpreting that statute, and then Congress added to the statute language that was mirroring the language in this Court's cases. And in that circumstance, the Court said, you know what, we have to look at that language in light of the fact that they took it from our cases. And here, if you look at the -- the cases that they took this language from, they are cases that use actual fraud to distinguish intentional fraud from constructive fraud. They are not cases that use actual fraud to say, oh, here's what kind of fraud counts under this statute, fraudulent conveyance. In fact, the only cases that happen to involve fraudulent conveyance and the term "actual fraud" are cases where the Court held that the debt did not fall within the scope of the exception to discharge.
Ruth Bader Ginsburg: Do you have any other example in all of the U.S. Code where the word and series of words A, or B, or C, and "or" is taken to mean "by," and refer not to a discrete category, but modifies the earlier category.
Erin E. Murphy: I'm not sure I have an example where it would -- you know, where -- where it quite works like that. But what I would say is that there are many places in the U.S. Code where an item that comes at the end of or later in a list is used to inform the meaning of the word before it. And if you look at Neal v. Clark itself, that's exactly the reasoning the Court employed there. The reason the Court concluded that the only kind of fraud that counted was intentional fraud was because the next item in the list was embezzlement. And the Court said because embezzlement requires intent, we're going to infer from that term that fraud requires intent as well. So the basic principle that adding language to a statute can inform and limit the words that come before it is nothing that extraordinary. It's just --
John G. Roberts, Jr.: Can you give me an example in common parlance, not -- not in the U.S. Code, where someone would speak along the lines you're saying the statute is written?
Erin E. Murphy: Sure. There's an example in a statutory construction book of the phrase "cats, dogs, or domesticated animals." When you're thinking about that phrase, "domesticated animals" is the one that tells you cats doesn't include lions and tigers. And it's given in the context of --
John G. Roberts, Jr.: That's not great --
Erin E. Murphy: -- the veterinarian says, you know, I will treat these three types of animals. It's limiting the one that comes before it. I think another phrase that I came across was highways, bridges, and public sidewalks. You know, "public sidewalks" is what tells you that bridges doesn't include the one in my backyard. So the third term can be a term that informs the meaning. Now, here I'm -- I don't think you have to conclude that that's the only thing "actual fraud" achieves in this statute in order to accept our reading of the statute. "Actual fraud" in this statute -- you know, the concept of misrepresentation doesn't have to be completely synonymous with the concept of false representation. What you can essentially view "actual fraud" as doing is putting a thumb on the scale of the broadest conception of misrepresentation possible, even if that's broader than the common law tort of false misrepresentation. So one thing that some courts have said when looking at this statute is that it's not clear that false representation reached future looking, you know, statements about whether I intend to perform in the future. And some courts have said, well, you know, we don't need to resolve that debate anymore because now that the statute says "actual fraud," that's good enough to tell us that the kinds of misrepresentations that come within the scope in this statute include any kind of misrepresentation that induces the creditor to part with something, even if it might not technically have qualified as false representation at common law. So I think that there's plenty of ways for this term to do work without having it kind of put this sore thumb into the statute of fraudulent conveyance, which is just nothing like the rest of the terms in this statute. It's nothing like false statements, false representations, false financial statements. All of those types of conduct that this statute has always covered involve inducing the creditor to part with something. And that's what differentiates (a)(2) from the 18 other exceptions in the statute. This is not the intentional fraud provision. There's plenty of other provisions in the statute that cover forms of intentional fraud, some of them by directly using the word "fraud," others like (a)(6) by covering intentional injuries to property interests. So it's not as if you need to put this remedy into (a)(2) in order to ensure that if you really do have intentional fraud in the receipt of a fraudulent conveyance, there will be a means of having a debt that's nondischargeable. So I don't know why you kind of strain to get it in here where it seems like such a poor fit. And the other thing that I think is worth keeping note of is that Congress has legislated, quite specifically, on fraudulent conveyance for 150 years. And there are two things that you can note repeatedly when Congress does so. First of all, it uses particular language of -- of fraudulent convenance. It talks about a fraudulent conveyance or a fraudulent transfer, or a transfer made with intent to injure, hinder, delay, or defraud a creditor. But the other thing is that the remedies Congress has created for fraudulent conveyance are not creditor-specific. They are instead consistent with the basic principle of equitable distribution. Under 727(a)(2), you have a complete bar to discharge which benefits everybody because no debtor gets a discharge. Under 548(a)(1) and the other provisions that allow the trustee to void transactions, the money comes back to the estate and then gets distributed equitably to all creditors. Here, instead, you have a creditor who's basically jumping the line and saying we should get all of this money, even though within the context of the Chrysalis bankruptcy, the trustee did not see fit to try to void these transactions, and there was no attempt by the trustee to void transactions in this bankruptcy, either. So you end up with a remedy that is really nothing like the ones that Congress has offered when it is actually legislating clearly on the topic of fraudulent transfers --
Sonia Sotomayor: I don't know that that moves me that much. Does that mean that if you're a -- if you've accepted a fraudulent amount of money, you get to keep it?
Erin E. Murphy: Absolutely not, because --
Sonia Sotomayor: Well, that's what you're saying --
Erin E. Murphy: No, I'm not. Because the trustee's powers allow them to void the transaction and --
Sonia Sotomayor: But if they choose not to, that still means you get to keep it.
Erin E. Murphy: Well --
Sonia Sotomayor: That one creditor has --
Erin E. Murphy: The creditor has the ability to --
Sonia Sotomayor: -- the expense, et cetera.
Erin E. Murphy: -- try and get the trustee to void the transaction, and the trustee can void the next transaction on down the line as well. The statutory powers include, you know, if -- if the recipient then fraudulently conveys away the property, you can keep undoing the transfers until you ultimately get at the property. So there's plenty of ability for the trustee to get at the property without resorting to this. Now, we're not saying that there can never be a creditor-specific remedy for the receipt of a fraudulent conveyance. If, say, you have a trustee who has that debt against the recipient, I think the right thing for them to do is to go use the Subsection (a)(6) exception, which allows an exception for willful and malicious injury to the property interests of another. And courts have -- every court that's looked at that question has said that (a)(6) is an appropriate place for this kind of debt to be accepted from discharge. So you've got courts who have looked at this question and said --
Ruth Bader Ginsburg: What does it take to show -- what is it, the phrase "malicious," or what?
Erin E. Murphy: "Willful and malicious --
Ruth Bader Ginsburg: Oh.
Erin E. Murphy: -- injury to" --
Ruth Bader Ginsburg: -- what -- what does it take to show that?
Erin E. Murphy: So it can be either subjective intent to cause injury, or it can be a substantial certainty that injury will result. There's a bit of dispute below in the -- in the courts of appeals about whether an objective substantial certainty that harm will result is sufficient, or you need a subjective substantial certainty. I'm not sure, at the end of the day, that ever is an outcome determinative distinction. But for this case, it makes no difference at all, because the Fifth Circuit is the circuit that applies the broader objective test. And applying that objective text here, the Fifth Circuit concluded, as did the two courts below, that these transfers were not made with intent to injure the Petitioner, and were not even made with substantial certainty that injury to the Petitioner --
Stephen G. Breyer: That's your case.
Erin E. Murphy: -- would result.
Stephen G. Breyer: And I'm still -- as Justice Sotomayor said, seemed to me there is a -- look what you're saying here. The bankrupt or insolvent person transfers the jewels to his wife. Okay? And now what this would be saying under their reading is the jewels survive her bankruptcy, and quite right, that her husband's trustee could have clawed it back before, but he didn't. And so now it went through her bankruptcy, and if it survives, somebody can get it. And -- and maybe the fair thing to do is to do what you do with environmental cases or you have a bunch of people who are victims and they divide it up, because you're quite right, that all of the creditors who might have shared in the jewels are the victims, the creditors of the transferor. But so what? I mean, how does -- how does that help you with your basic argument? It just -- it's a different argument that says that this particular creditor shouldn't get all of it.
Erin E. Murphy: Well, I think it's actually kind of true in every fraudulent conveyance case because typically the --
Stephen G. Breyer: It's also true in every misrepresentation case. If it survives bankruptcy --
Erin E. Murphy: Not at all. No, it's absolutely not true. In a misrepresentation case, the misrepresentation was made to the creditor. So the creditor -- the debt that the creditor is trying to get the money for is directly related to inducing that creditor to part with the money.
Stephen G. Breyer: So he does, perhaps, to a thousand. He lied to a thousand people.
Erin E. Murphy: Well, then each one of them --
Stephen G. Breyer: There are a thousand victims. And here we have, let's say, a thousand victims, all those creditors who didn't get the money they should have gotten. I mean, it's the same problem, isn't it?
Erin E. Murphy: I -- I don't think it is because in that context you are going to have a creditor-specific injury and a creditor-specific remedy, and I think you need that, too, in the fraudulent conveyance context. So if, for instance, you know, the jewels belonged to one of the creditors, then they're going to go use (a)(6) and get the jewels back. They're not going to have a problem. (a)(6) is available for that intentional injury to their property --
Stephen G. Breyer: I see.
Erin E. Murphy: -- interest. So you don't need it over here when you have a very different statute that has been focused on this concept of inducement. And I would note here, every single one of this Court's cases that involved (a)(2) has always had a debtor who is using fraud to induce the creditor to part with something. That's the way this statute had been understood up until the Seventh Circuit's decision came along and -- and had this new idea that you could get at fraudulent conveyance through this statute. Before that, it was pretty commonly understood that what (a)(2) was about, that differentiated it from other provisions, was that it was about fraudulent inducement. And that's the ultimate problem here. They may have a debt. They may have a debt that even involves actual fraud, but they don't have a debt for anything with which Petitioner was ever fraudulently induced to part resulting in my client obtaining anything by the kind of fraud that counts under 5 -- Section 523(a)(2). If there are no further questions.
John G. Roberts, Jr.: Thank you, counsel. Mr. Dvorestzky, you have four minutes remaining.
Shay Dvoretzky: Thank you. A veterinarian's office with a sign saying that the veterinarian treats dogs, cats or domesticated animals treats more than just dogs and cats. Surely that office will also treat guinea pigs and hamsters. And so the "domesticated animals" phrase does have something in common with dogs and cats, just as "fraudulent transfers" has something in common with false pretenses and false representations. These are all schemes to cheat creditors. But by adding "or actual fraud," Congress was expanding upon the pre-existing terms, expanding dogs and cats to cover something additional. Respondent does not have any theory for what Congress was doing through this language to expand upon the previous terms. With respect to false representation, courts had unanimously interpreted false representations to refer to the tort of deceit. In his brief, Respondent equates false representations with the tort of deceit. Even if false representations might have been understood as something else, adding "or actual fraud" would not narrow false representations to exclude unintentional -- unintentional representations. It would at best simply show that you could also have a discharge bar for an intentional misrepresentation. With respect to Neal, Neal has to be understood in light of what was at issue at -- in that case. The -- the fundamental premise of Neal was that some forms of fraudulent transfers are fraud under the predecessor of Section 523(a)(2)(A) And so the only reason that the Court drew a line there between "intentional" and "unintentional" participation was on the premise that if the participation had been intentional, that would have been nondischargeable fraud. With respect to the statutory text here, nothing about the statute talks about inducing a creditor to part with anything. It simply talks about obtaining money by fraud. And for the reasons that I explained earlier, a transferee commits fraud and, therefore, incurs a new debt for which he is liable if he knowingly participates in a fraudulent transfer. Ms. Murphy made the point that there -- suggested that there's something anomalus about allowing creditors to pursue a fraudulent transfer remedy for the benefit of an individual creditor. There's nothing anomalus about that. State fraudulent transfer laws exist outside of bankruptcy, and so before the bankruptcy state takes effect, it is essentially a free-for-all where creditors pursue their rights under State fraudulent transfer laws.
Stephen G. Breyer: We -- we treat -- we treat in our veterinarian clinic domestic animals, your -- domestic animals or your household -- domestic animals, your dog -- your -- your favorite friends or your domestic pets, you see. Domestic pets is meant to say which domestic animals? Domestic animals, dogs, cats, or household pets? Domestic animals seems to cover the whole thing. They're saying, or it's like, i.e., household pets.
Anthony M. Kennedy: Come on and answer --
Stephen G. Breyer: Well, not for you. I mean, it's good for you, this word "or." (Laughter.)
Stephen G. Breyer: Granted, I've had a horrible time trying to find an example. But -- but it could be it means i.e. She's saying it means i.e., household pets.
Shay Dvoretzky: Not when Congress adds "or domestic animals" as a specific amendment. That has to be given some effect. Lastly, (a)(6) doesn't solve this problem. If (a)(6) simply covered any intentional wrong, it would simply subsume all of the discharge bars. Any intentional misrepresentation would fall within (a)(6). (a)(6) has to be given a narrower construction in order to differentiate it from the other bars. Moreover, (a)(6) doesn't apply in Chapter 13. In particularly in 2005 when Congress reformed Chapter 13 to crack down on fraud, it did not mean to allow the sort of scheme that went on in this case or the sort of fraudulent transfer that Justice Breyer hypothesized to -- to lead to a discharge.
Sonia Sotomayor: Are you limiting actual frauds to just fraudulent conveyances? Are there other deceptive schemes that you would include?
Shay Dvoretzky: There are. I think the Heartland usage of "actual fraud" at common law, most commonly it did refer to fraudulent transfers to hinder creditors. There were -- may I answer? There were also other types of conveyances, conveyances to defeat a divorcing spouse's interest, for example, the devastatit in Neal to diminish an estate. We also give an example in our brief of undue influence. These are also forms of actual fraud, but the Heartland of it is fraudulent conveyances.
John G. Roberts, Jr.: Thank you, counsel. The case is submitted.