Husky International Electronics, Inc. v. Ritz - Post-Decision SCOTUScast
SCOTUScast 6-2-16 featuring Zvi Rosen
On May 16, 2016, the Supreme Court decided Husky International Electronics, Inc. v. Ritz. Between 2003 and 2007 Husky International Electronics sold and delivered electronic device components worth more than $160,000 to Chrysalis Manufacturing Corp. Chrysalis, then under the financial control of Daniel Ritz, failed to pay for the goods and Ritz encouraged the transfer of funds from Chrysalis to various other companies. Ritz held substantial ownership stakes in these companies, which had not given reasonably equivalent value in exchange for the Chrysalis funds.
In May 2009, Husky sued Ritz in federal district court, seeking to hold him personally liable for Chrysalis’s debt. Ritz filed a voluntary Chapter 7 bankruptcy petition, and Husky then filed a complaint in the bankruptcy court alleging actual fraud, to preclude a discharge of Ritz’s debts. The bankruptcy court ruled that Husky had failed to prove actual fraud, however, and the district court affirmed that decision. The U.S. Court of Appeals for the Fifth Circuit likewise affirmed the lower court judgments, finding no record evidence of a false representation by the debtor, which the Fifth Circuit deemed a necessary predicate to establish actual fraud.
The question before the Supreme Court was whether the “actual fraud” bar to discharge under Section 523(a)(2)(A) of the Bankruptcy Code applies only when the debtor has made a false representation, or whether the bar also applies when the debtor has deliberately obtained money through a fraudulent-transfer scheme that was actually intended to cheat a creditor.
By a vote of 7-1, the Supreme Court reversed the judgment of the Fifth Circuit and remanded the case. Justice Sotomayor delivered the opinion of the Court, which held that the term "actual fraud" in Section 523(a)(2)(A) of the Bankruptcy Code encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation. The majority opinion was joined by the Chief Justice and Justices Kennedy, Ginsburg, Breyer, Alito, and Kagan. Justice Thomas filed a dissenting opinion.
To discuss the case, we have Zvi Rosen, who is a visiting scholar at Hofstra University Maurice A. Deane School of Law.
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