## Facts

- A father created a trust for his children and named his son, Randy Curtis Bullock, as a nonprofessional trustee; the trust’s only asset was a life insurance policy.
- The trust allowed borrowing only to pay insurance premiums or satisfy a beneficiary withdrawal request.
- Bullock nevertheless caused the trust to make three loans that benefited himself or his family, including assistance with a business debt, joint certificates of deposit, and a real estate purchase; the loans were later repaid.
- An Illinois court found Bullock engaged in self-dealing and breached fiduciary duties, but found no apparent malicious motive.
- The Illinois court entered a judgment for damages and attorneys’ fees and imposed constructive trusts over certain property interests, including Bullock’s beneficial interest.
- Bullock later filed Chapter 7 bankruptcy and sought to discharge the judgment debt.
- The successor trustee, BankChampaign, N.A., brought an adversary proceeding asserting the debt was nondischargeable under 11 U.S.C. § 523(a)(4) as “fraud or defalcation while acting in a fiduciary capacity.”

## Issues

1. What mental state is required for “defalcation while acting in a fiduciary capacity” under 11 U.S.C. § 523(a)(4) to render a debt nondischargeable?

## Decision

- The Supreme Court unanimously vacated the Eleventh Circuit’s judgment and remanded.
- The Court held that “defalcation” in § 523(a)(4) includes a culpable mental state: knowledge of, or gross recklessness regarding, the improper nature of the fiduciary conduct.
- The Court rejected interpretations that would treat mere negligence, innocent mistake, or a technical fiduciary breach as defalcation.

## Legal Principles

- “Defalcation” under 11 U.S.C. § 523(a)(4) requires a culpable state of mind.
- If the conduct does not involve bad faith, moral turpitude, or similar immoral conduct, defalcation requires an “intentional wrong.”
- An “intentional wrong” includes (1) actual knowledge that the fiduciary conduct is improper, or (2) criminal-law-style recklessness: conscious disregard of, or willful blindness to, a substantial and unjustifiable risk that the conduct violates a fiduciary duty.
- Civil “objective recklessness,” standing alone, is insufficient absent the requisite conscious disregard or willful blindness.

## Conclusion

The Court narrowed the scope of nondischargeability for fiduciary misconduct by holding that § 523(a)(4) defalcation demands proof of knowledge or criminal-law-type gross recklessness, and it remanded for application of that standard to Bullock’s conduct.


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