Supreme Court Grants Cert to My Morning Drive

When you live in Champaign, Illinois, it is a surprise to get to work and found out the U.S. Supreme Court has agreed to hear a case involving a business you drive past every morning. This morning was different, however. The Court just granted cert in a bankruptcy case called Bullock v. BankChampaign, No. 11-1518. A debtor filed bankruptcy owing a debt for self-dealing he committed while serving as trustee of his father's insurance trust. A creditor, BankChampaign, objected under section 523(a)(4) which prevents the discharge of debts for "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." The debtor acted with his mother's knowledge and on her behalf. The question for the Supreme Court is the level of wrongfulness needed before the discharge exception will kick in. It is hardly the most important issue kicking around the bankruptcy system, but the lower courts had split giving the Supreme Court a reason to act.

There are some unusual facts in the case that, at first blush, make the case less than an ideal vehicle for the Supreme Court to resolve the issue. After the state court had determined the debtor acted wrongfully, it imposed a lien against some real property in Ohio to secure payment of the judgment. BankChampaign is the successor trustee on the insurance trust and hence now controls the lien. The debtor says that he would satisfy the debt against him by selling the property but BankChampaign has blocked sales of the land. The lower court said BankChampaign's later actions did not have any bearing on the wrongfulness of the debtor's conduct at the time of the defalcation. The creditor, however, is seeking discharge of a debt that seems within its power to have satisfied.