Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, March 9, 2013

Potential Clarification of Fiduciary Duties

Unknown-2In 1978, Randy Curtis Bullock was named trustee of his father's trust.  The sole asset was a life insurance policy with a $1 million death benefit and accumulated cash value. Randy and his four siblings were the only beneficiaries. The trust terms indicated that Randy could only borrow from the trust to pay the insurance premiums and/or to satisfy a withdrawal request.  In contradiction of the trust terms, Randy borrowed from the trust to satisfy a debt on his father's business, to purchase certificates of deposit for him and his mother, and to purchase real estate for him and his mother--a mill in Ohio. The total value of these loans was $263,000.  Randy says that all of his loans were evidenced by notes to the trust, secured, and repaid with full interest. 

In 1999, Randy's two brothers filed suit alleging that Randy breached his fiduciary duties.  The court granted the brothers' motion for summary judgement and did find Randy's loans to be self-dealing.  The trial court entered judgment against Randy and placed the Ohio mill under constructive trust, which was awarded to BankChampaign. 

Randy maintains that the bank refuses to sell the mill, which he needs them to do to satisfy the judgment.  He filed for Chapter 7 bankruptcy to discharge the debt.  In response, BankChampaign said that the state court judgment was not a dischargeable debt because Randy incurred it as a misappropriation of funds while acting as a fiduciary.  In May 2010, the Bankruptcy Court held that Randy was estopped from challenging the state court judgment.  The court did question the bank's actions in holding the collateral hostage, but they stated it was not the issue before them. On appeal, the 11th circuit affirmed the Bankruptcy Court's judgment.  

Randy is now going for the U.S. Supreme Court, arguing that this case presents the Court with the opportunity to clarify the meaning of the Section 523(a)(4) phrase, "defalcation while acting in a fiduciary capacity."  The Supreme Court has grated Randy's petition for a writ of certiorari. 

See John T. Brooks and Samantha E. Weissbluth, A Reckless Act?, WealthManagement.com, Feb. 26, 2013. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention. 

https://lawprofessors.typepad.com/trusts_estates_prof/2013/03/potential-clarification-of-fiduciary-duties.html

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