King v. King
6:24-cv-01200
| D. Or. | May 27, 2025Background
- Sandra L. King was the trustee of the David F. King Testamentary Trust following her husband’s death, entitled to trust income for life, with the trust remainder going to her husband's children ("King Kids") after her death.
- In 2011, the King Kids sued King in Oregon state court, alleging misuse of trust assets and breaches of fiduciary duties.
- The state court (applying Nevada law) found King had breached the trust, including reckless and intentional violations as well as improper self-dealing; King was removed as trustee and held personally liable for damages and attorneys’ fees.
- The Oregon Court of Appeals affirmed the state court decision, including application of Nevada law and findings of breach.
- King filed for Chapter 7 bankruptcy in 2019. The King Kids and the successor trustee (WNB) sought to except from discharge the state judgments under Bankruptcy Code 523(a)(4) for fraud or defalcation by a fiduciary; the Bankruptcy Court granted summary judgment to the King Kids and WNB, which King appealed to the District Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing for 523(a)(4) claim | King Kids are creditors due to existing claims pre-judgment | King Kids are not proper claimants; claim is duplicative | King Kids have standing under bankruptcy and Nevada law |
| Defalcation sufficient to except debt from discharge | King’s reckless/fraudulent conduct = defalcation per law | No sufficient finding of intent or recklessness | State court found (at least) reckless conduct; defalcation satisfied |
| Grant of summary judgment for 523(a)(4) | Undisputed facts establish breach and liability | Disputed facts on intent/risk; summary judgment improper | No genuine issue of material fact; summary judgment proper |
| Applicability of recoupment doctrine | Judgment debts and trust income are logically related | No logical relationship between transactions | Recoupment applies; claims arise from same transaction |
Key Cases Cited
- In re Filtercorp, Inc. v. Gateway Venture Partners III, L.P., 163 F.3d 570 (9th Cir. 1998) (standard of review for bankruptcy appeals and summary judgment)
- Rivera v. Philip Morris, Inc., 395 F.3d 1142 (9th Cir. 2005) (summary judgment standard for material and genuine fact issues)
- Banks v. Gill Distrib. Ctr.’s, Inc., 263 F.3d 862 (9th Cir. 2001) (elements required to except debt from discharge for fraud/defalcation)
- Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392 (9th Cir. 1996) (standard for applying recoupment in bankruptcy)