fiduciary debt

Randy Bullock filed for bankruptcy in 2009 to discharge a judgment debt from a 1999 lawsuit brought by his brothers. His brothers had sued him for breach of fiduciary duty as trustee of their father's trust. Bullock was appointed trustee in 1978, and without the beneficiaries' knowledge, took three loans from the trust, which he ultimately paid back in full. In 2002, an Illinois state court awarded the brothers damages of $285,000, concluding that Bullock did not appear to have malicious intent, but that he indisputably engaged in self-dealing, thus violating his fiduciary duty. After filing for bankruptcy, BankChampaign, N.A., who was appointed successor trustee, sued Bullock pursuant to 11 U.S.C. § 523(a)(4), claiming that he could not discharge the judgment debt because it arose from a "defalcation." The court concluded that Bullock's self-dealing constituted defalcation, and the district court and Eleventh Circuit affirmed. The Supreme Court's decision will determine what level of misconduct by a trustee rises to "defalcation" under the Bankruptcy Code.

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