Supreme Court Resolves Circuit Dispute

As I have previously discussed, in Bullock v. BankChampaign the Supreme Court decided when a fiduciary duty can be released during a bankruptcy proceeding. The case resolved a Circuit split concerning if a “culpable state of mind” was included in the “defalcation” exception. The court unanimously held that such a state of mind is necessary to qualify as an exception. 

Chris Bullock was the trustee of his father’s trust. The trust provisions did not allow the family from borrowing from the trust. Despite the provision, Chris made a loan to his mother to reimburse a debt. In addition, he made a loan to himself. As a result, Chris made several improper loans.  All of the improper loans were made at the same interest rate the trust was earning. The Bullock court described Bullock’s actions as “objectively reckless” because he “should have known he was engaging in self-dealing, given that he knowingly benefited from the loans.” The court started it’s analysis by applying a canon of statutory interpretation that looks at the “linguistic neighbors” of the term “defalcation” to define what the term includes by examining the intent. 

See Duane Morris LLP, United States: U.S. Supreme Court Resolves Circuit Split In Bullock v. BankChampaign,N.A., Mondaq, Jul. 5, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.