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E. 11 U.S.C. S 523(a)(4)
Busseto Foods, Inc. v. Laizure (In re Laizure), 548 F.3d 693 (9th Cir. 2008) (Recipient of prepetition payment in settlement of embezzlement stated claim under S 523(a)(4) when settlement payment was recovered by bankruptcy trustee. "'[T]he import of Section 502(h) is that where a claim is allowable as provided in that section, its status is as a claim in existence on the date of the filing of the petition regardless of when, after the petition, the trustee has taken the necessary action and recovered.' . . . The trustee's action . . . clearly reinstates the claim[.] . . . '[T]he 502(h) claim takes on the characteristics of the original claim[.]' . . . By avoiding [debtor's] repayment to [creditor], the trustee put [creditor] in a position where it was still not fully repaid the total amount of [debtor's] embezzled funds. Under S 502(h), [creditor] therefore returned to the same position it was in before [debtor] made the final repayment. . . . '[T]he claim arising from the avoidance of a transfer under 11 U.S.C. S 502(h) is a claim against the debtor, not just a claim against the estate.'").
Kubota Tractor Corp. v. Strack (In re Strack), 524 F.3d 493 (4th Cir. 2008) (Corporate officer's guaranty of corporate debt was nondischargeable under S 523(a)(4) because floor plan financing agreement created a trust, the corporation breached that fiduciary relationship and the debtor was personally responsible for the corporation's defalcation. Financing agreement that provided corporation "shall segregate the proceeds and hold the same in trust for [lender]" demonstrated "'with reasonable certainty,' the intent to establish an express trust" under Virginia law. "Unlike a standard debtor-creditor relationship, in which 'the person receiving the money [has] the unrestricted use thereof, being liable [only] to pay a similar amount . . . to the payor,' . . ., [corporation] was not entitled to treat the proceeds as its own and use them as it wished." Debtor's personal liability on guaranty of corporation's indebtedness was nondischargeable because: "Strack personally guaranteed Enterprise's debt to Kubota. . . . [T]he indebtedness arose from Enterprise's defalcation or failure to remit the proceeds to Kubota as the Agreement required. . . . Strack was personally responsible for this defalcation by willfully violating the Agreement and using the proceeds owed to Kubota for other purposes. . . . [T]his wrongful conduct constituted a breach of the fiduciary duty that Strack owed to Enterprise as the corporation's President. . . . Strack's indebtedness to Kubota arose from his 'defalcation while acting in a fiduciary capacity' and is therefore excepted from discharge in bankruptcy under 11 U.S.C. S 523(a)(4).").
Melquiades v. Hill (In re Hill), 390 B.R. 407 (B.A.P. 10th Cir. 2008) (Oklahoma General Corporation Act that imposes a "trust" on corporate assets for payment of liabilities before any distribution may be made to shareholders upon dissolution did "not sufficiently and explicitly create a trust or define a trust res that would satisfy . . . statutory trust requirements.").
©2009 Keith M. Lundin
