SUPREME
COURT OF THE UNITED STATES
BULLOCK v.
BANKCHAMPAIGN, N. A.
CERTIORARI
TO THE U.S. COURT OF APPEALS FOR THE 11th CIRCUIT
No. 11–1518. Argued March 18, 2013—Decided May 13, 2013
Petitioner’s father
established a trust for the benefit of petitioner andhis siblings, and made
petitioner the (nonprofessional) trustee. The trust’s sole asset was the
father’s life insurance policy. Petitioner borrowed funds from the trust three
times; all borrowed funds were repaid with interest. His siblings obtained a
judgment against himin state court for breach of fiduciary duty, though the
court found noapparent malicious motive. The court imposed constructive trusts
on certain of petitioner’s interests—including his interest in the original
trust—in order to secure petitioner’s payment of the judgment, with respondent
serving as trustee for all of the trusts. Petitioner filed for bankruptcy.
Respondent opposed discharge of petitioner’s statecourt-imposed debts to the
trust, and the Bankruptcy Court granted respondent summary judgment, holding
that petitioner’s debts were not dischargeable pursuant to 11 U. S. C.
§523(a)(4), which providesthat an individual cannot obtain a bankruptcy
discharge from a debt“for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.” The Federal District Court and the
Eleventh Circuit affirmed. The latter court reasoned that “defalcation requires
a known breach of fiduciary duty, such that the conduct can be characterized
as objectively reckless.”
Held: The term “defalcation”
in the Bankruptcy Code includes a culpable state of mind requirement involving
knowledge of, or gross recklessness in respect to, the improper nature of the
fiduciary behavior. Pp. 4−9.
(a) While “defalcation”
has been an exception to discharge in abankruptcy statute since 1867, legal
authorities have long disagreed about its meaning. Broad definitions of the
term in modern and older dictionaries are unhelpful, and courts of appeals have
disagreed about what mental state must
accompany defalcation’s definition. Pp. 4−5.
(b)
In Neal v. Clark, 95 U. S. 704, this Court interpreted the term
“fraud” in the Bankruptcy Code’s exceptions to discharge to mean“positive
fraud, or fraud in fact, involving moral turpitude or intentional wrong, as
does embezzlement; and not implied fraud, or fraud in law, which may exist
without the imputation of bad faith or immorality.” Id., at 709. The
term “defalcation” should be treated similarly. Thus, where the conduct at
issue does not involve bad faith, moral turpitude, or other immoral conduct,
“defalcation” requires an intentional wrong. An intentional wrong includes not
only conduct that the fiduciary knows is improper but also reckless conduct of
the kind that the criminal law often treats as the equivalent. Where actual
knowledge of wrongdoing is lacking, conduct is considered as equivalent if, as
set forth in the Model Penal Code, the fiduciary “consciously disregards,” or
is willfully blind to, “a substantial and unjustifiable risk” that his conduct
will violate a fiduciary duty. Pp. 5−7.
(c)
Several considerations support this interpretation. First, statutory context
strongly favors it. The canon noscitur a sociis argues for interpreting
“defalcation” as similar to its linguistic neighbors “embezzlement,”
“larceny,” and “fraud,” which all require a showing of wrongful or felonious intent.
See, e.g., Neal, supra, at 709. Second, the interpretation does
not make the word identical to its statutory neighbors. “Embezzlement” requires
conversion, “larceny” requires taking and carrying away another’s property, and
“fraud” typicallyrequires a false statement or omission; while “defalcation”
can encompass a breach of fiduciary obligation that involves neither conversion,
nor taking and carrying away another’s property, nor falsity.Third, the
interpretation is consistent with the longstanding principle that “exceptions
to discharge ‘should be confined to those plainly expressed.’ ” Kawaauhau v.
Geiger, 523 U. S. 57, 62. It is also consistent with statutory
exceptions to discharge that Congress normally confines to circumstances where
strong, special policy considerations,such as the presence of fault, argue for
preserving the debt, thereby benefiting, for example, a typically more honest
creditor. See, e.g., 11 U. S. C.
§523(a)(2)(A). Fourth, some Circuits have interpreted the statute similarly for
many years without administrative or other difficulties. Finally, it is
important to have a uniform interpretation of federal law, the choices are
limited, and neither the parties nor the Government has presented strong
considerations favoring a different interpretation. Pp. 7−9.
BREYER, J., delivered the opinion for a unanimous Court
