Husky International Electronics, Inc. v. Ritz
136 S. Ct. 1581
| SCOTUS | 2016Background
- Husky sold components to Chrysalis, which incurred a $163,999.38 debt; Daniel Ritz was a Chrysalis director and substantial owner.
- Ritz transferred large sums from Chrysalis to companies he controlled, depleting assets that could have paid creditors.
- Husky sued Ritz in Texas state court to hold him personally liable under state law and later initiated an adversary proceeding in Ritz’s Chapter 7 bankruptcy to except the debt from discharge under 11 U.S.C. § 523(a)(2)(A) as "actual fraud."
- The bankruptcy and district courts found Ritz personally liable under Texas law but held the debt dischargeable because Ritz made no false representation to Husky; the Fifth Circuit affirmed, requiring a misrepresentation to establish "actual fraud."
- The Supreme Court granted certiorari to resolve a circuit split and reversed the Fifth Circuit, holding that "actual fraud" can include fraudulent-conveyance schemes that do not involve a false representation.
Issues
| Issue | Husky's Argument | Ritz's Argument | Held |
|---|---|---|---|
| Whether “actual fraud” in § 523(a)(2)(A) requires a false representation to a creditor | "Actual fraud" includes fraudulent conveyances and other non‑representation schemes that hinder collection | "Actual fraud" necessarily requires a misrepresentation to the creditor (reliance/causation at inception) | Court: "Actual fraud" encompasses fraudulent‑conveyance schemes even without a false representation; reverse Fifth Circuit |
| Whether the statute’s phrase “obtained by” limits § 523(a)(2)(A) to fraud at the inception of credit transactions | Fraudulent transfers can yield nondischargeable debts when debts are traceable to the fraud (recipient may have obtained assets by fraud) | "Obtained by" requires causation/reliance at the inception of the debt; fraudulent transfers usually do not fit | Court: "obtained by" does not categorically exclude fraudulent transfers; overlap with other Code provisions is permissible |
Key Cases Cited
- Field v. Mans, 516 U.S. 59 (1995) (statutory terms in § 523(a)(2)(A) should bear their common‑law elements)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (modern fraudulent‑transfer law traces to the Statute of 13 Elizabeth)
- Neal v. Clark, 95 U.S. 704 (1878) (distinguishing "actual" fraud from implied or constructive fraud)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (distinguishing willful and malicious injury under § 523(a)(6))
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000) (recipient of fraudulently conveyed assets can be deemed to have obtained them by fraud)