Case Summary:
Midwest Property commenced this adversary action against the Defendant to determine the nondischargeability of its claim under § 523(a)(4). The Defendant served as a general contractor in a project for the construction of a log home. After receiving $119,000 from the owner, the Defendant paid all subcontractors on the job, except one. While one subcontractor was left unpaid, the Defendant retained $18,000 to cover the cost of his own labor and other costs on the project. The Court held that the Defendant’s retention of the funds did not constitute “defalcation of a fiduciary.” General contractors have a right to retain funds to cover their own costs, providing the retention of funds is proportional to any amounts paid to subcontractors. Accordingly, the Defendant’s conduct could not be characterized as reckless and Midwest’s complaint for nondischargeability was discharged.

Statute/Rule References:
11 U.S.C. § 523(a)(4) -- Nondischargeability - Fraud in Fiduciary Capacity
Wis. Stat. § 779.02(5) -- Theft by Contractor

Key Terms:
Defalcation while Acting as a Fiduciary
Express Trust
Statutory Trust
Theft by Contractor