楊清泉律師專欄 - IS DEFALCATION BY FIDUCIARY DISCHARGEABLE IN BANKRUPTCY? PART 2
楊清泉律師事務所
The state court found that the debtor did not have a malicious motive (everyone wants a new house in Malibu) but nevertheless granted the siblings summary judgment and awarded them damages based on the benefit that the debtor received due to the self-dealing. The debtor filed for Chapter 7 relief, and BankChampaign (now the trustee of the father’s trust), filed a non-dischargeability complaint. The bankruptcy court, and the 11th Circuit agreed that the judgment debt was a debt for “defalcation while acting in a fiduciary capacity” within the meaning of Section 523(a)(4). The 11th Circuit held that defalcation under Section 523(a)(4) requires more than mere negligence. Defalcation requires a known breach of a fiduciary duty, such that the conduct can be characterized as objectively reckless.
The 11th Circuit said that there are four groups on the issue:
1. Even an innocent act by a fiduciary duty can be a defalcation. This is the position adopted in California In re Sherman 658 F.3d 1009, 2011)
2. Defalcation requires a showing of recklessness. 11th, 5th, 6th and 7th Circuits.
3. Extreme recklessness must be established for a finding of defalcation. 2nd Circuit.
4. No position. 3rd Circuit.
How will the Supreme Court decide, will it adopt any of the foregoing or fashion its own position? If you are a fiduciary, the best course of action for you is to adopt the better part of caution and avoid any kind of self-dealing because it is very likely that any debt arising out of your defalcation in a fiduciary capacity will not be dischargeable. Investing trust money in a cockfight is defalcation in California where even an innocent act is defalcation.
Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
The 11th Circuit said that there are four groups on the issue:
1. Even an innocent act by a fiduciary duty can be a defalcation. This is the position adopted in California In re Sherman 658 F.3d 1009, 2011)
2. Defalcation requires a showing of recklessness. 11th, 5th, 6th and 7th Circuits.
3. Extreme recklessness must be established for a finding of defalcation. 2nd Circuit.
4. No position. 3rd Circuit.
How will the Supreme Court decide, will it adopt any of the foregoing or fashion its own position? If you are a fiduciary, the best course of action for you is to adopt the better part of caution and avoid any kind of self-dealing because it is very likely that any debt arising out of your defalcation in a fiduciary capacity will not be dischargeable. Investing trust money in a cockfight is defalcation in California where even an innocent act is defalcation.
Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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