The United States Bankruptcy Code excludes several types of claims from the discharge provisions. Perhaps the most common exception is a debt obtained by fraud. The code states that a discharge in bankruptcy does not apply to a debt “for money, property [or] services . . . to the extent obtained by false pretenses, a false representation, or actual fraud. . . .” A Rockland steel fabricating company is now being sued by a Florida firm for allegedly making fraudulent statements that induced it to ship steel.
The dispute began in 2011 when the Rockland firm, Solutions in Stainless, Inc., d/b/a United Stainless &* Alloy, ordered two shipments of stainless steel from the plaintiff Taunton Metals. According to the allegations of the complaint, Solutions did not pay for the product, but when Taunton brought suit, Solutions agreed to pay the full amount plus attorneys’ fees.
Shortly thereafter, the complaint alleges that the owner of Solutions filed a petition for personal bankruptcy, declaring $408,264 in assets and more than $6.2 million in debt. After some legal maneuvering, the judge in the bankruptcy case lifted the automatic stay, and Taunton obtained a judgment for $2,147,207. In May 2018, after Taunton entered its judgment, the owner of Solutions again filed bankruptcy and listed Taunton’s claim as one of its debts.
This report of the case does clearly describe the actions or statements that Taunton alleges were fraudulent. Taunton is apparently alleging that an earlier offer of a personal guarantee by Solutions’ president was made with no intent of following through and that Taunton]shipped the steel based on the promise of a guarantee.
The case is once again before a bankruptcy judge. The outcome is not clear, but the case shows how a business dispute can spill over into a bankruptcy case. Anyone who gets caught in a similar net may wish to consult an experienced bankruptcy lawyer for advice on defenses and remedies.