567 B.R. 715
Bankr. S.D. Tex.2017Background
- Husky sues Chrysalis and the Debtor (Ritz) to deny dischargeability of a $163,999.38 debt under § 523(a)(2)(A).
- Ritz controlled Chrysalis and orchestrated transfers of Chrysalis funds to entities he controlled.
- TUFTA veil-piercing under Texas Bus. & Org. Code § 21.223 and TUFTA § 24.005 were used to assert actual fraud.
- Chrysalis was insolvent with debts far exceeding assets; transfers totaled $1,161,279.90.
- The Supreme Court reversed the Fifth Circuit in Husky Int’l Elecs., Inc. v. Ritz (2016) and remanded for facts and law consistent with its decision.
- The court ultimately holds the debt is non-dischargeable and awards damages, pre- and post-judgment interest, and attorneys’ fees to Husky.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether transfers from Chrysalis to Debtor-controlled entities amounted to actual fraud. | Husky: yes, badges of fraud show intent to defraud. | Ritz: insufficient misrepresentation or fraud under state law. | Yes, actual fraud proven under TUFTA. |
| Whether the Debtor’s actual fraud was for his direct personal benefit. | Husky: transfers benefited the Debtor personally. | Ritz: benefits were limited or not proven. | Yes, transfers benefitted Debtor personally. |
| Whether the Debtor’s personal liability is non-dischargeable under § 523(a)(2)(A). | Husky: fraud-based liability should be nondischargeable. | Ritz: not necessarily nondischargeable. | Yes, personal liability is nondischargeable. |
| What relief can Husky obtain (damages, interest, fees) and is it subject to dischargeability? | Husky seeks actual damages, prejudgment/post-judgment interest, and fees. | Ritz contests some relief types. | Award of actual damages ($163,999.38), prejudgment interest, post-judgment interest, and attorneys’ fees with non-dischargeable status. |
| Does the court have jurisdiction/constitutional authority to enter final judgment? | Husky: core § 523(a)(2)(A) matters fit bankruptcy court jurisdiction. | Ritz: Stem v. Marshall limits final judgments in some contexts. | Court has constitutional authority to enter final judgment. |
Key Cases Cited
- Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (interprets actual fraud to include fraudulent conveyances without misrepresentation for § 523(a)(2)(A))
- Matter of Ritz, 832 F.3d 560 (5th Cir. 2016) (remands to address state-law veil-piercing and fact findings under TUFTA)
- Spring Street Partners-IV L.P. v. Lam, 730 F.3d 427 (5th Cir. 2013) (badge-of-fraud analysis and actual fraud standard under TUFTA)
- In re Soza, 542 F.3d 1060 (5th Cir. 2008) (badges of fraud may be considered non-exclusively to prove actual fraud)
- In re 1701 Commerce, LLC, 511 B.R. 812 (Bankr. N.D. Tex. 2014) (badges of fraud as circumstantial proof of intent under TUFTA)