US Supreme Court decision, Bullock v. BankChampaign
Bullock v. BankChampaign (United States Supreme Court, decided 5/13/13), decision on nondischargeability of debt pursuant to 11 USC 523(a)(4), which is nondischargeability of debt based on debt arising from debtor committing “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny”.
Unanimous United States Supreme Court decision, holding that "defalcation" under 11 USC 523(a)(4) of the Bankruptcy Code requires that the debtor, at time of the debtor’s defalcation, had “scienter”. “Scienter” element requires knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.
Bullock was decided in the context of a proceeding commenced to deny the debtor a discharge for certain state law judgments arising from his appointment as a nonprofessional trustee. Pursuant to Code section 523(a)(4), debts arising from defalcation while acting in a fiduciary capacity are excepted from discharge. Such an exception from discharge has been codified since 1867 and subject to varying interpretations. In coming to its decision, the Supreme Court employed various tenets of statutory construction.
The term "defalcation" appears in the Code only once, in section 523(a)(4). An analysis of the Bullock opinion would be valuable for members of our Committee, exploring its potential impact on burdens of pleading and proof in bankruptcy and how this opinion fits with established state and federal law.