494 B.R. 16
Bankr. D. Mass.2013Background
- Funds are three ERISA multi-employer plans; plaintiff is their trustee and treasurer and union official.
- Zani Tile Co., Inc., run by the Debtor, failed to pay Deductions and Contributions to the Funds after 2008.
- Contributions are plan assets; Debtor oversaw payment, with monthly remittance reports to the Funds.
- Delinquency occurred from late 2008, through cessation of payments in August 2010; Debtor also had personal financial dealings with Zani and third parties.
- Judgment in district court awarded plaintiff damages for unpaid Deductions and Contributions; Debtor filed Chapter 7 in 2011.
- On remand, the court ultimately determined Contributions were nondischargeable under § 523(a)(4) due to defalcation by a fiduciary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unpaid Contributions constitute defalcation under § 523(a)(4). | Debtor breached fiduciary duty, causing a defalcation by prioritizing his interests over the Funds. | Unpaid Contributions are a breach of contract, not defalcation or fraud. | Defalcation established; nondischargeable. |
| Whether the Debtor acted in a fiduciary capacity with respect to the Funds. | Debtor controlled funds and owed duties, constituting fiduciary function. | He lacked the discretion to engage in fiduciary management under ERISA. | Debtor acted as fiduciary; fiduciary status found. |
| What standard applies to 'defalcation' under § 523(a)(4) and is intent required. | Some fault short of fraud suffices given breach of loyalty. | Defalcation requires a culpable state of mind; more than mere contract breach. | Defalcation requires intentional or reckless disregard; standard satisfied. |
Key Cases Cited
- In re Baylis, 313 F.3d 9 (1st Cir. 2002) (defalcation includes breach of loyalty; strict fiduciary fault)
- In re Hyman, ??? (2d Cir. 2007) (functional fiduciary analysis under defalcation)
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (U.S. 2013) (defalcation requires a culpable state of mind similar to intent or recklessness)
- In re Fahey, 470 B.R. 649 (Bankr. D. Mass. 2012) ( ERISA fiduciary defalcation discussion in district bankruptcy context)
- Raso v. Fahey (In re Fahey),, 482 B.R. 678 (1st Cir. BAP 2012) (panel remand and fiduciary defalcation analysis)