Bullock v. BankChampaign, N. A. (11-1518)

argument 11-1518

Bullock v. BankChampaign, N. A.

Supreme Court of the United States 1h 0m 5 speakers 8 chapters transcribed 6 days ago official recording ↗

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What is the legal definition of “defalcation” under the Bankruptcy Code?

John G. Roberts 0:00

We'll hear argument next in case eleven, fifteen, eighteen, bullock versus excuse me, bank champagne. Mr. Byrne.

Mr. Byrne 0:08

Please the court. This case presents one of the most confounding questions of bankruptcy law That is the meaning of defalcation which is found currently in section five twenty three A four of the code. It is an undefined term in a bankruptcy code with more than a hundred defined terms. and it has been in the bankruptcy code or bankruptcy act excuse me since eighteen forty one. and in every version of it since then. There is no plain contemporary, ordinary meaning that we can resort to with respect to interpretation of the word because it is not in common use. This case presents both the question of the action required to establish defalcation and the mental state that must that must accompany it. And on the mental state issue, the circuits have split in probably three ways at least.

Mr. Byrne 1:01

The eleventh circuit here held that petitioner committed defalcation by acting reckl recklessly and uh affirmed on summary judgment. Right. Well before we get to the various

Samuel A. Alito 1:18

candidates for applicable mental state if there is one. Could you tell me what this mental state applies to? Does it apply to facts or does it apply to law?

Mr. Byrne 1:29

Uh, Your Honor, it it should apply to both, uh, but it'll it applies uh it it mu the act must be accompanied by a culpable mental state. We will argue that and have argued that mistake of law can be relevant to the knowledge that the actor has when he commits the act. And we have argued that in this particular circumstance, particularly involving dischargeability, That a mistake of law ought to be permissible in responding to the claim of defalcation.

Unknown 1:58

Well what we have here uh is I think everybody agrees that these transactions were not authorized. and they were self dealing to the extent that there was a a benefit to uh Mr Bullock from the investments that were made. So what m in addition to being una authorized and self dealing, which the government tells us should be enough to make de for a deca defulcation, what else other than that it was not authorised And it was self dealing.

Mr. Byrne 2:36

Your Honor, we we believe that a showing of extreme recklessness at least is required as to the self dealing. And so we have ad advocated for the first and second circuit standard which requires either extreme recklessness or conscious misbehavior by the actor.

Unknown 2:57

Against the cash value of the life insurance, making an investment for the benefit of himself and his mother. uh getting profit from that investment and not sharing it with the other siblings siblings who are also So w what More than I mean he he did that all advertently.

Mr. Byrne 3:18

Uh well Your Honor, let me go back to the question of first were the were the loans authorized? Now this case uh the finding of defalcation here is based entirely on the two Illinois court orders and collateral estoppel. And the Illinois Court specifically reserved the question of whether the loans were authorized, but but let me put that aside and Please and Answer your second question. And what what sets this case apart, what what at least creates a factual question on whether Mr. Bullock committed defalcation was what was his what was the overall transaction. This is a family trust. It was created by his father involving his father's life insurance policy. There is uncontradicted evidence that he did not know that making a loan to his mother at his father's request

Mr. Byrne 4:05

would somehow run afoul of the law more than a decade later when this all came to when this all came to court. So we say, Your Honor, that there is at least a factual question that would have entitled him, should have entitled him to a trial on the question of the mental state that occurs to the other thing. Well, Your Honor, they were done at the bidding of the mother and also they were They went into the family business. These are two loans that went into the f the business created by the father and the mother, the garage building business. That's where the proceeds went. And so it would not і would be any surprise.