Commercial Fraud Committee Newsletter

vol 14, num 3 | November 2018

Commercial Fraud

AN ABI COMMITTEE NEWSLETTER

Visit the Commercial Fraud Committee page

► IN this issue:

Co-Chair Corner
In re Scandia Seafood (New York), Inc.: When It Comes to the Administration of an Assignment for the Benefit of Creditors, Beware of Overreach
Fruits and Vegetables: Establishing Fiduciary Capacity Under § 523(a)(4)
Distinction Without Difference: Substantial Certainty Under § 523(a)(6)

Co-Chair Corner

Rick Rein
Horwood Marcus & Berk Chartered
Chicago

Ryan W. Blackney
Freeborn & Peters LLP.
Chicago

It’s been another a great year for the Commercial Fraud Committee; it produced three newsletters consisting of 10 articles, and two webinars. Here are a few highlights of the committee’s activities in 2018, as well as several ways for you to get more involved in 2019:

Committee Panel and Networking Event at the 2018 Annual Spring Meeting
The Commercial Fraud Committee paired with the Legislation Committee at the 2018 Annual Spring Meeting to present “A Primer on the Uniform Voidable Transaction Act: Substance, Implementation and Legal Interpretation.” The panelists included Leanne Gould (Gould Consulting Services; Atlanta), Christopher A. Jones (Whiteford Taylor Preston LLP; Falls Church, Va.), Prof. Kenneth C. Kettering (Brooklyn Law School; New York), Erika Lynn Morabito (Foley & Lardner LLP; Washington, D.C.) and Thomas R. Walker (McGuireWoods LLP; Atlanta).

At the Spring Meeting, we also hosted a networking event at the High Velocity Sports Bar at the Marriott Marquis.

Committee Panel and Networking Events at the Upcoming 2018 Winter Leadership Conference
The Commercial Fraud Committee is pairing with the Technology Committee for the upcoming 2018 Winter Leadership Conference for a panel entitled, “Cybersecurity in 2019: How Protected Are You?” The way that we practice law is changing, as the legal industry is going through a dramatic digital transformation. Cybercriminals are increasingly seeing law firms as a target for cybercrime. This panel of experts will discuss the current state of cybersecurity, best practices for how to protect yourself from, and respond to, a cybersecurity attack, and blockchain. The panelists are Cliff Dutton (Epiq; New York), David Fisher (Integra; Denver), Rebecca Fruchtman (Bank of America Merrill Lynch; Chicago), John G. Loughnane (Nutter McClennen & Fish LLP; Boston) and Elizabeth B. Vandesteeg (Sugar Felsenthal Grais & Helsinger LLP; Chicago).

The Commercial Fraud Committee plans to host a networking reception at the upcoming Winter Leadership Conference in Scottsdale, Ariz. Stay tuned for more information.

Committee Panel at the Upcoming 2019 Annual Spring Meeting
The Commercial Fraud Committee will be pairing with the International Committee for the upcoming 2019 Annual Spring Meeting. The panel will explore the challenges with foreign-asset discovery in chapter 15 proceedings. The discussion will include obstacles in obtaining discovery when locating and seizing assets, obtaining records to determine the financial condition of the parties, and how foreign law may limit discovery.

Committee Webinars Regarding Actual Fraud and Cybersecurity
In September, the committee put on a webinar entitled, “Cyberfraud Risks to Bankruptcy Trustees and Other Fiduciaries.” The panel gave insight on the risks, as well as the types of insurance available.

On July 27, 2018, our committee also produced a well-attended webinar entitled, “Husky Aftermath: Where Do Things Stand with ‘Actual Fraud’?” The webinar explained how courts wrestle with applying Husky to except from an individual’s discharge creditor claims involving fraud or fraudulent transfers. It provided a background on how some courts carve a narrow path, while others take the opinion at its fullest meaning, suggesting a broad new cause of action for nondischargeability.

Committee Newsletters and New Case Updates
The Commercial Fraud Committee provided written analysis and commentary to our members throughout 2018. For example, the committee published three newsletters in 2018 that included 10 total articles.

Ways for You to Get Involved The committee is only as good as its members and their contributions. To that end, we encourage you to get more involved in the committee during 2019. There are several ways to do so, including:

Write a short article for our newsletter;
Speak about a particular topic on a webinar or a committee-wide call; and
Post updates regarding new cases and other issues to our listserve.

If you are interested in learning more, please reach out to us. We would love to help you become more involved with the committee.

In re Scandia Seafood (New York), Inc.: When It Comes to the Administration of an Assignment for the Benefit of Creditors, Beware of Overreach

Douglas T. Tabachnik
Law Offices of Douglas T. Tabachnik, P.C.
Freehold, N.J

It is been over a year since the unusual involuntary bankruptcy case of In re Scandia Seafood (New York) Inc. was tried on a motion by the assignee in an assignment for the benefit of creditors (ABC) to dismiss, and for sanctions against the petitioning creditors and their counsel. What made the case unusual was that it consisted of an involuntary bankruptcy against a debtor that had been liquidating in state court under an ABC for 117 days. This is significant, because it meant that if the bankruptcy court had kept the case, there would be no opportunity for preferential transfer litigation, since that period is measured from the filing date of the chapter 7 case and more than 90 days had elapsed since the assignment for the benefit of creditors had been filed and was pending.

Fruits and Vegetables: Establishing Fiduciary Capacity Under § 523(a)(4)

Rob Loh
Stout Risius Ross, LLC
New York

First enacted during the Great Depression, the Perishable Agricultural Commodities Act (PACA) in part sought to protect the suppliers of fruits and vegetables who had been left unpaid when purchasers went bankrupt. The PACA was further strengthened in 1984 when it was amended to include statutory trust protections for unpaid suppliers. The new requirements for purchasers of fruits and vegetables included a requirement to hold any proceeds derived from the sale of fruits and vegetables in trust for the benefit of the supplier.

Coosemans Miami Inc. (the plaintiff) is one such produce-supplier that is covered by PACA protections. Describing itself as being “at the forefront of the specialty produce business,” the plaintiff sold its goods to food service customers, wholesalers and retailers.

Distinction Without Difference: Substantial Certainty Under § 523(a)(6)

Christian A. Pereyda
Engel, Hairston & Johanson, P.C.
Birmingham, Ala.

Section 523(a)(6) of the Bankruptcy Code prohibits the discharge of debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.” Two decades ago, the Supreme Court clarified that “[t]he word ‘willful’ modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” In the wake of Geiger, circuits have agreed that a debtor’s “substantial certainty” of resulting injury satisfies the willfulness prong of § 523(a)(6), but have disagreed about “whether that substantial certainty must be judged subjectively or objectively.” But if circuits agree that a debtor is “charged with the knowledge of the natural consequences of his actions” and that willfulness may be proven by circumstantial evidence, then how would a subjective test of substantial certainty differ from an objective test?

The Next Eye On Bankruptcy Airs 11/29/18