Daniel Lee Ritz, Jr., was a controlling shareholder and director of Chrysalis Manufacturing Corp. He also used Chrysalis as his personal ATM: systematically transferring large sums from that company to other entities he controlled.

Far from turning into a butterfly, Chrysalis was unable to pay its debts, including those to Husky International Electronics. When Husky sued Ritz, seeking to hold him personally liable for the Chrysalis debt, he filed for Chapter 7 bankruptcy. Husky asked the bankruptcy court not to discharge Ritz’s debts on the grounds that he had committed actual fraud.

The trial court held that Ritz had not committed actual fraud and therefore his debts could be discharged in bankruptcy. The Fifth Circuit Court of Appeals affirmed. The Supreme Court granted certiorari.

Questions:

1. Did Ritz commit actual fraud? Can his debts be discharged in bankruptcy?

2. Did the debtor make any false statements?

3. Was the making of a false statement necessary to prove this kind of fraud?

4. Now that the Supreme Court has determined the debtor’s conduct to constitute “actual fraud,” can the debt be discharged in bankruptcy?