Case Summary:
In prior proceedings, the District Court determined the Defendant’s produce LLC had violated its Perishable Agricultural Commodities Act (“PACA”) trust obligations to the plaintiff. It made no findings about whether the defendant was individually liable. The Defendant then filed an individual Chapter 7 petition, and the Plaintiff sought to except the PACA debt from discharge under section 523(a)(4). In denying a motion to dismiss the adversary complaint, the Bankruptcy Court determined the defendant-owner was personally liable for the dissipation of the PACA trust assets. The Court also ruled that a PACA trust imposed fiduciary duties within the meaning of section 523(a)(4). The Plaintiff then filed a motion for summary judgment, and the only question remaining was whether the Debtor’s conduct constituted fraud or defalcation within the meaning of section 523(a)(4). The Court rejected the Plaintiff’s arguments that the Supreme Court’s interpretation of “defalcation” in Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013), did not apply to statutory breaches of fiduciary duty and that a breach of fiduciary duty imposed by PACA constituted per se defalcation within the meaning of section 523(a)(4). Instead, applying Bullock, the Court looked to the facts available and could not conclude whether or not the Debtor had knowledge of, or acted with gross recklessness in respect to, the improper nature of the behavior that resulted in a breach of his fiduciary duties. Accordingly, the Court denied summary judgment.

Statute/Rule References:
11 U.S.C. § 523(a)(4) -- Nondischargeability - Fraud in Fiduciary Capacity

Key Term:
Defalcation while Acting as a Fiduciary