499 B.R. 903
10th Cir. BAP2013Background
- Harvey P. Karch died; probate in Montana with Warren as personal representative.
- Probate court ruled Jenise and Jerri were not proper heirs and allocated shares among six heirs; Warren liable to Barbara, Linda, Peggy.
- State Court Judgment entered March 22, 2011 for $45,953.16; final.
- Warren and spouse filed Chapter 7 in May 2011; Barbara, Linda, Peggy filed adversary to deny discharge of the State Court Judgment under § 523(a)(4).
- Bankruptcy trial in September 2012; Warren admitted improper distributions to Jenise/Jerri; about $20,000 unaccounted; bankruptcy court relied on Storie to deny discharge.
- On appeal, Bullock v. BankChampaign overruled Storie; case remanded for consideration consistent with Bullock.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defalcation under §523(a)(4) requires intentional wrongdoing after Bullock. | Barbara et al. urged no mental culpability needed per Storie. | Warren argues Bullock requires intent or conscious disregard. | Bullock controls; standard requires intent or conscious disregard. |
| Whether the record shows conscious disregard by Warren for proper heirs. | Warren breached fiduciary duties by improper distributions. | Evidence inadequate to prove conscious disregard at trial. | Remand to determine conscious disregard consistent with Bullock. |
Key Cases Cited
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (U.S. (2013)) (defalcation requires a culpable state of mind—intent or conscious disregard)
- Antlers Roof-Truss & Builders Supply v. Storie (In re Storie), 216 B.R. 283 (10th Cir. BAP 1997) (defalcation does not require mental culpability under §523(a)(4) (pre-Bullock))
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (defining scienter as a mental state embracing intent to deceive, manipulate, or defraud)