Professor Byington Cited by Several Bankruptcy Courts

Jon ByingtonProfessor Jonathon Byington’s article, The Challenges of the New Defalcation Standard, 88 American Bankruptcy Law Journal (2014) (peer reviewed), has been cited by three different bankruptcy courts. The article covers the Bankruptcy Code’s exception to discharge relating to debts for defalcation while acting in a fiduciary capacity. In 2013, the United States Supreme Court issued an opinion in Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013), resolving a long-standing circuit split on the meaning of defalcation by establishing a new elevated standard based on the Model Penal Code’s definition of “recklessly.” The article explores each element of the new standard and identifies pitfalls to avoid. It also suggests an analytical framework to apply the new standard.

Professor Byington’s article was first cited by the United States Bankruptcy Court for the District of Hawaii in Clarke v. Latimer (In re Latimer), 2014 WL 2441469, 2014 Bankr. LEXIS 2368, Case No. 14-0004 (May 29, 2014), where the court cited the article as a source for the requirement that a plaintiff must prove that there was a substantial and unjustified risk that a fiduciary duty would be breached.

Additionally, the article was relied upon by the United States Bankruptcy Court for the District of Colorado in MacArthur Co. v. Cupit (In re Cupit), 514 B.R. 42, 51 (Bankr. D. Colo. 2014), where the court quoted Professor Byington’s analysis of how the new standard changes the law because requiring the debtor to have a subjective awareness of risk precludes the imposition of constructive knowledge of fiduciary duties.

Most recently, in Aiello v. Aiello (In re Aiello), __ B.R. __, 2015 WL 4255706, Case No. 12-70806-JAD (July 13, 2015), the United States Bankruptcy Court for the District of Pennsylvania quoted and then followed Professor Byington’s recommendation that courts “should consider the probability that the fiduciary debtor’s conduct will violate a fiduciary duty and the significance or magnitude of the pertinent fiduciary duty.” The court also recognized Professor Byington’s observation that the heightened mental standard from Bullock may make it difficult to prevail on a summary judgment motion alleging nondischargeability due to defalcation.

The article, The Challenges of the New Defalcation Standard, can be found on the Social Science Research Network.