Husky International Electronics Inc. Vs. Daniel Lee Ritz Case Summary

Husky International Electronics, Inc. v. Daniel Lee Ritz, Jr. (2016)

NATURE OF THE CASE

A debt of $164,000.00 was incurred by Chrysalis Manufacturing Corp. to plaintiff Husky International Electronics, Inc. Daniel Lee Ritz, Jr., the director of Chrysalis and owner of 30% of common stock, transferred all of Chrysalis’ assets to other entities the respondent, Ritz controlled, diminishing the ability to pay the debt. Thus, in 2009 Husky filed suit against Ritz, at which time Ritz to file a Chapter 7 bankruptcy. To recover losses from the debt owed, Husky filed a complaint in the bankruptcy case of Ritz, arguing Ritz’ transfer of assets form one company he owned to the other, is “actual fraud” under the Bankruptcy Code’s discharge exceptions 11.U.S.C.. §523(a)(2)(A), and does not negate his liability to Husky. The District affirms Ritz was liable under state law, however the debt did not originate by “actual fraud” and could be discharged under bankruptcy.

FACTS

In 2003 to 2007, Husky International Electronics, Inc., supplied components used in electronic devices to Chrysalis Manufacturing Corp., when the respondent was the Director, resulting in a debt of

The Fifth Circuit Court did not determine whether Ritz was indeed liable to Chrysalis’ debt, but did affirm he did commit “actual fraud”. Husky argued that the transfers were recognizable fraud to which the Court disagreed, stating the main element in “actual fraud” requires a misrepresentation of the debtor to the creditor when applying and is not determined to be actions taken after such credit is granted. The Fifth Circuit found Ritz did make false representations and reversed the findings of the District Court by finding that the phrase “actual fraud” includes all fraudulent conveyance schemes, including those that do not involve false representation and remanded the case to further