IN RE BULLOCK
670 F.3d 1160 (2012)
In Re Randy Curtis BULLOCK, Debtor.
Randy Curtis Bullock, Appellant,
v.
BankChampaign, N.A., Appellee.
No. 11-11686.
United States Court of Appeals, Eleventh Circuit.
February 14, 2012.
Bill D. Bensinger, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Birmingham, AL, for Defendant-Appellee.
Before BARKETT and PRYOR, Circuit Judges, and BUCKLEW,* District Judge.
Appellant Randy Curtis Bullock, Debtor-Defendant in the underlying bankruptcy adversary proceeding, appeals the district court's decision affirming the bankruptcy court's determination that the Illinois judgment debt owed to Appellee BankChampaign, N.A. is not dischargeable, pursuant to 11 U.S.C. § 523(a)(4). After careful review and with the benefit of oral argument, we affirm.
I. Background
In 1978, Appellant Bullock became the trustee of his father's trust. The trust's sole asset was a life insurance policy on his father's life, and Bullock and Bullock's four siblings were the beneficiaries. The terms of the trust provided that Bullock, as trustee, could borrow from the trust in only two situations: (1) to pay the life insurance premiums, and (2) to satisfy a beneficiary's request for withdrawal.
Despite the trust's limitations on borrowing, Bullock borrowed from the trust by making three loans that were secured by the cash value of the life insurance policy. First, in 1981, upon his father's request, Bullock borrowed $117,545.96 for his mother so she could repay a debt that she owed to Bullock's father's business. Second, in 1984, Bullock borrowed $80,257.04 for his mother and himself to purchase certificates of deposit, which were later cashed in and used toward the purchase of a garage fabrication mill in Ohio. Third, in 1990, Bullock borrowed $66,223.96 for his mother and himself to purchase real estate. These loans were all fully repaid.
Thereafter, Bullock's two brothers learned of the existence of the trust, and they filed suit against Bullock in Illinois state court. In the lawsuit, Bullock's brothers claimed that Bullock had breached his fiduciary duty as trustee by engaging in self-dealing via the three loans. The brothers moved for summary judgment on that claim, and in 2002, the Illinois court granted their motion. Specifically, the Illinois court stated that it could not "be disputed the loans made by [Bullock] while acting as trustee are considered self-dealing transactions. All of the loans were made to entities [Bullock] had a financial interest in or to a relative." [R:Tab K].
In its order awarding damages for the self-dealing, the Illinois court stated that Bullock did "not appear to have had a malicious motive in borrowing funds from the trust." [R:Tab M, Ex. 7]. However, the Illinois court concluded that "neither the facts and circumstances surrounding the loans nor the motives of [Bullock] can excuse him from liability." [R:Tab M, Ex. 7]. As a result, the Illinois court determined that damages should be awarded based on the benefit that Bullock received due to the self-dealing. The Illinois court stated that such would be hard to quantify, but based on its equitable powers, it determined that $250,000 represented the amount of the benefit that Bullock had received from the self-dealing. In addition, the Illinois court ordered that Bullock pay $35,000 in attorneys' fees. The Illinois court also put the property obtained with the self-dealt funds (a mill located in Ohio) under a constructive trust to secure it as collateral for the $285,000 judgment amount. The Illinois court placed another constructive trust on Bullock's beneficial interest in his father's trust as an additional source of collateral for the judgment.
* Honorable Susan C. Bucklew, United States District Judge for the Middle District of Florida, sitting by designation.
1. Because the Illinois court awarded the Bank a constructive trust over the Ohio mill, Bullock is unable to sell or lease the mill without the approval and cooperation of the Bank.
2. Because we find that Bullock's conduct constituted defalcation under § 523(a)(4), we need not reach the issue of whether his conduct also constituted fraud under § 523(a)(4).
3. The court in Central Hanover analyzed the meaning of defalcation under the predecessor statute to § 523(a)(4).
4. In Quaif, an issue before the Court was whether an agent who failed to remit insurance premiums, and instead commingled the money with his company's funds and used the funds to pay his company's operating expenses, committed a defalcation. See Quaif, 4 F.3d at 952. The Quaif Court held that the agent's conduct was a defalcation within the meaning of § 523(a)(4). See id. at 955.
5. In 2007, the Second Circuit re-evaluated the position that it took in the Central Hanover case and determined that it would align itself with the First Circuit when defining defalcation under § 523(a)(4).
6. The market value of the collateral is not in the record before this Court.