599 B.R. 868
Bankr. E.D. Va.2019Background
- Plaintiff Brenda L. Chavis, as co‑beneficiary of Bobbie F. Wynder’s estate, sued debtor Leroy Mangrum, Jr. to except from discharge a state‑court judgment requiring Mangrum to repay $116,330.64 obtained by cashing Wynder’s annuity while acting under a general power of attorney (POA).
- The Virginia Circuit Court found Mangrum violated Va. Code §64.2‑1612 by cashing the annuity; the Virginia Supreme Court affirmed that portion of the judgment. The judgment formed the basis of the §523(a)(4) nondischargeability complaint.
- The adversary trial was limited to whether Mangrum’s conduct constituted “defalcation” under §523(a)(4) after Bullock v. BankChampaign (i.e., whether he acted with bad faith, actual knowledge, or recklessness).
- Mangrum testified (and the court found him credible) that he acted at Wynder’s express direction, deposited proceeds initially in a joint account, later into his personal account, and believed he could apply leftover funds to her expenses and retain any balance after her death.
- The court found Mangrum was an unsophisticated, nonprofessional fiduciary who lacked awareness of the legal duties imposed by the Virginia Power of Attorney Act and did not act in bad faith, knowingly, consciously disregard, or willfully blind to a substantial and unjustifiable risk.
- Conclusion: Chavis failed to prove the requisite culpable state of mind for defalcation under §523(a)(4) and the Debt is dischargeable; parties bear their own fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Debt is nondischargeable as a “defalcation” under 11 U.S.C. §523(a)(4) | Mangrum cashed the annuity in violation of the POA statute; state‑court judgment establishes the debt arose from fiduciary wrongdoing and thus is nondischargeable | Mangrum acted on Wynder’s explicit instructions, was an unsophisticated lay fiduciary, lacked knowledge of legal duties and requisite culpable state of mind | Debt is dischargeable; Chavis did not prove bad faith, actual knowledge, conscious disregard, or willful blindness required by Bullock |
Key Cases Cited
- Bullock v. BankChampaign, N.A., 569 U.S. 267 (defalcation requires intent, knowledge, or reckless conduct; reckless conduct requires subjective awareness)
- Grogan v. Garner, 498 U.S. 279 (preponderance standard for nondischargeability claims)
- Kubota Tractor Corp. v. Strack, 524 F.3d 493 (4th Cir.) (elements of §523(a)(4) claim: fiduciary capacity and defalcation)
- Global‑Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (willful blindness requires subjective belief of high probability and deliberate avoidance of knowledge)