Bullock v. BankChampaign, 569 U.S. 267 (2013).





Settlor created a trust for his children and named one of the children as the trustee.  The trustee breached his fiduciary duties by borrowing funds from the trust and thus his siblings obtained a judgment against him for the benefits he received from his self-dealing.  The trustee had previously repaid all borrowed funds with interest and the trial court determined that he had no malicious motive.  The trustee later filed for bankruptcy and sought discharge of the judgment.  The Bankruptcy Court held that the debt was not dischargeable under 11 U.S.C. § 523(a)(4) which provides that discharge is not available “for fraud or defalcation while acting in a fiduciary capacity.”  Both the Federal District Court and the Eleventh Circuit Court of Appeals agreed.


The Supreme Court of the United States in an unanimous opinion reversed.  The Court explained that the debt could be discharged because the trustee was not (in my words) “evil.”  The Court held that for the debt to be nondischargeable, the trustee must have acted with a culpable statement mind “involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.”


Moral:  A bankrupt trustee who breached fiduciary duties but not in an evil manner may be successful in getting a judgment based on that breach discharged.