Opinion
Civil Action No. 98-40221-GAO, BANKRUPTCY NO. 97-48642
February 25, 2002
MEMORANDUM AND ORDER
The appellant debtor, Richard P. Bennett, appeals from a judgment of the United States Bankruptcy Court declaring a certain debt nondischargeable under 11 U.S.C. § 523(a)(4). That provision of the Bankruptcy Code precludes the discharge of a debt incurred by "fraud or defalcation while acting in a fiduciary capacity." 11 U.S.C. § 523(a)(4). The judgment of the Bankruptcy Court is AFFIRMED.
Background
The appellees, Roger Curboy, Daniel Curboy, Samuel Curboy, and Kenneth Curboy ("the Curboys"), are the heirs of the Estate of George W. Curboy ("the Estate"). Bennett was the executor of the will of George W. Curboy. Sometime prior to August 1996, Bennett paid himself out of the Estate a fee in the amount of $57,275.00 for his services as executor. The Massachusetts Probate and Family Court ("the Probate Court") did not approve the fee, and Bennett acknowledged in deposition testimony that he knew that the fee was subject to the approval of the Probate Court. Appellant's Br., App., Ex. 3 at A-18. Bennett claimed that the Curboys agreed to the amount by agreeing that he would receive a fee equal to three percent (3%) of the value of the entire Estate, but the Curboys denied that and pointed out that they were forced to compel Bennett to file an accounting to confirm that Bennett had removed money from the Estate. On July 7, 1997, after a hearing, the Probate Court ordered Bennett to return $12,275.00 with interest to the Estate within 60 days. Id. Ex. 2 at A-5. However, it appears that Bennett had already spent the funds, and he did not comply with the court's order. On November 5, 1997, the Probate Court found Bennett in contempt for "having wilfully failed and refused to" comply with the court's order of July 7, 1997. Id. Ex. 3 at A-6. The Probate Court ordered Bennett to "forthwith sell two motor cycles and apply proceeds to arrearage" with the balance due by December 13, 1997. Id. Bennett did not appeal the judgment, and he never returned any money to the Estate.
Two days before the last deadline set by the Probate Court, Bennett filed a Chapter 7 bankruptcy petition. The Curboys subsequently filed a complaint to determine the dischargeability of the debt Bennett owed to the Estate. After hearing, the United States Bankruptcy Court ruled that the debt was nondischargeable pursuant to 11 U.S.C. § 523(a)(4) because Bennett's failure to comply with the Probate Court's order to return to the Estate a portion of the fee taken without approval constituted "defalcation" within the meaning of § 523(a)(4).
Discussion
The term defalcation "refers generally to a failure to account for money or property entrusted to a fiduciary." Sullivan Mfg. Co. v. Sullivan (In re Sullivan), 217 B.R. 670, 676-77 (Bankr. D. Mass. 1998). "[W]hen a fiduciary takes money upon a conditional authority which may be revoked and knows at the time that it may, he is guilty of a `defalcation' though it may not be a `fraud' or an `embezzlement' or perhaps not even a `misappropriation.'" Central Hanover Bank Trust Co. v. Herbst, 93 F.2d 510, 512 (2d Cir. 1937); see also Kwiat v. Doucette, 81 B.R. 184, 188 (D.Mass. 1987) (citing Herbst, 93 F.2d at 512). Judge Learned Hand's discussion in Herbst of what constitutes defalcation "remains the most authoritative explication of the measure of the term." Andy Warhol Found. v. Hayes (In re Hayes), 183 F.3d 162, 171 (2d Cir. 1999).
There is no question that an executor of a probate estate is a "fiduciary" within the meaning of the statutory phrase. See Western Surety Co. v. Daly (In re Daly), 247 B.R. 369, 378 (Bankr.S.D.N.Y 2000).
Bennett devotes considerable attention in his brief to the question whether discharge of a debt may be denied where the alleged defalcation was innocent or "merely negligent," and not more culpable. But the question is beside the point. There is no basis in the facts of this case to find innocent or negligent misappropriation. There can be no reasonable dispute that what Bennett did qualifies as a defalcation within the meaning of the statute. Bennett, as executor, paid himself a fee from the Estate without the approval of the Probate Court. When ordered to return the excess above what the court determined was proper, he did not do so. As a result he was found in contempt by the Probate Court of its prior order. He then failed to comply with a second order that money be repaid to the Estate. If that mishandling of the funds entrusted to him as executor does not amount to defalcation, it is hard to think what would.
Conclusion
For the foregoing reasons, the judgment of the Bankruptcy Court is affirmed.
The appellees' request for attorneys' fees is denied.