Opinion
Case No. 11-51591 Adv. Pro. No. 12-05008
03-03-2013
In re: MICHAEL D. CHIDESTER, Debtor. CINCINNATI INSURANCE CO., Plaintiff, v. MICHAEL D. CHIDESTER, Defendant.
Chapter 7
MEMORANDUM DECISION DENYING SUMMARY JUDGMENT
At Harrisonburg in said District this 1st day of March, 2013:
The matter before the Court is Cincinnati Insurance Company ("Cincinnati" or sometimes "plaintiff")'s motion for summary judgment on its complaint to except from discharge a state court default judgment. For the reasons set forth herein, the Court denies the motion for summary judgment.
On November 8, 2011, Michael Chidester filed his Chapter 7 petition in this Court. Four months later, Cincinnati Insurance Company initiated this adversary complaint seeking to have the debt owed to it declared non-dischargeable under 11 U.S.C. § 523(a)(4). Prior to holding a trial on the complaint, Cincinnati filed a motion for summary judgment. The motion for summary judgment was argued, and the Court took the matter under advisement. After reviewing the pleadings, exhibits and arguments voiced at the hearing, the Court makes, pursuant to Federal Rule of Bankruptcy Procedure 7052, the following findings of fact and conclusions of law.
Facts
The facts are largely uncontested. On December 2, 2003, the Ablemarle County Circuit Court appointed the debtor as the permanent guardian and conservator of the estate of Billy Lynwood Clemmer. In connection with his appointment as guardian, the debtor was required to post a $5,000 bond without surety. In connection with his appointment as conservator, the debtor was required to post a $200,000 bond with surety. On December 8, 2003, the debtor applied for a $200,000 bond with Cincinnati and on December 10, 2003, the bond was filed with the Circuit Court. The bond application contained an indemnification clause with the pertinent terms:
Plaintiff's Exhibit 1, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1, (Albemarle County Chancery Order 12-3-2003 ID No. 00060514004 Case No 2003-0019000). see VA. CODE ANN. § 64.2-2009 (2012)(instructing that the appointment order directs terms for guardian or conservator as with or without surety). Under Virginia law, a "conservator" is a person appointed by a court to manage the financial affairs of an incapacitated person and a "guardian" is a person appointed by the court to manage the personal affairs of an incapacitated person. see VA. CODE ANN. § 64.2-2000 (2012).
see Plaintiff's Exhibits 2 and 3, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 2, 2012) ECF No. 1.
The [debtor] agree[s] to completely indemnify [Cincinnati] from and against any liability, loss, cost, attorneys' fees, and expenses whatsoever, including the enforcement of this agreement, which [Cincinnati] shall at any time sustain as surety or by reason of having been surety on this bond or any other bond issued for [the debtor.]It is this indemnification provision that renders Cincinnati a plaintiff in this proceeding.
Plaintiff's Exhibit 3 at 2, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1.
As conservator, and as guardian, the debtor was subject to certain statutory duties set forth in Title 64 of the Virginia Code. The statutory duty relevant to this controversy is the duty to account set forth in VA. CODE ANN. § 64.2-1305 (2012). The debtor filed an accounting on September 27, 2005, and a second accounting on June 23, 2006. Shortly after the second accounting, the debtor obtained permission to sell real estate owned by Mr. Clemmer. The sale generated proceeds apparently in the amount of $176,638.52. Approximately six months after the sale, on April 23, 2007, Mr. Clemmer died. The debtor should have filed a final accounting following Mr. Clemmer's death, but failed to do so. To date, the debtor has not filed an accounting reporting the disposition of the sale proceeds. The Commissioner of Accounts reported to the Albemarle County Circuit Court that the debtor had failed to timely file a proper accounting. At once, the Circuit Court issued a summons for the debtor to appear and show cause why his bond should not be forfeited. The show cause order succinctly reported:
Previously Title 37 and Title 64. In 2012, the General Assembly re-numbered VA. CODE § 37.2-1019 as VA. CODE § 64.2-2019. 2012 VIRGINIA LAWS CH. 614 (S.B. 115).
This duty is required of both guardians and conservators. See VA. CODE ANN. §§ 64.2-2020(A)("[I]f the guardian is a conservator, a settlement of accounts shall also be filed with the commissioner of accounts as provided in § 64.2-1305.") and 2021(E) ("conservators shall comply with . . . the duty to account set forth in VA. CODE ANN. § 1305"). Failure to comply with section 1305 subjects the conservator to a fine and, potentially, contempt of court. VA. CODE ANN. § 64.2-1215 (2012).
See Plaintiff's Exhibit 6, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1 (Order dated 8-31-2006 authorizing sale of real estate for the purchase price of $192,500).
See Plaintiff's Exhibit 7, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1 (Settlement Statement dated September 6, 2006, unsigned).
Plaintiff's Exhibit 8, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1 (Circuit Court of Albemarle County Order dated July 24, 2008 ID No. 00491129001 Case No. 2007-00000226).
Id.
The Court having received a report from the Commissioner of Accounts that the fiduciary has failed to file a proper Accounting within the time required by law, doth direct the Clerk of Court to issue a summons against [the debtor] returnableThe debtor did not appear at the show cause hearing. On January 23, 2009, the Albemarle County Circuit Court issued an order forfeiting the debtor's bond and ordering the plaintiff to pay Mr. Clemmer's estate the bond's $200,000 value. This order recited who had been present at the hearing: the commissioner of accounts, the attorney for the executor of the deceased Mr. Clemmer's estate, the attorney for Cincinnati, but not the debtor. After Cincinnati paid Mr. Clemmer's estate, Cincinnati filed a complaint against the debtor seeking indemnification under the bond agreement. The complaint alleged a count for indemnification and a count for breach of contract. The debtor never answered the complaint.
to August 21, 2008 at 9 a.m. for the Court to take such action against the fiduciary as is required by law.
Id.
The show cause order directed the debtor to appear on August 21, 2008, yet the order forfeiting the bond referenced the hearing held on December 16, 2008. See Plaintiff's Exhibit 8 (show cause order) and Plaintiff's Exhibit 9, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1 (bond forfeiture order). The record does not reflect any continuance orders or other notice of what occurred on August 21, 2008 (if anything) or why the hearing was actually held four months later on December 16, 2008.
Plaintiff's Exhibit 9.
See id.
Plaintiff's Exhibit 11, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1(Circuit Court for Ablemarle County Case No. CL10000596-00 Complaint filed July 22, 2010).
On October 19, 2010, Cincinnati filed a motion for entry of a default judgment. The Ablemarle County Circuit Court conducted a hearing at which Cincinnati presented evidence to the Circuit Court pertaining to the debtor's failure to respond to the complaint and the appropriate amount for damages. The Albemarle County Circuit Court issued a default judgment order in favor of Cincinnati and setting damages at the $200,000 bond amount plus 6% interest, plus fees and costs of $14,244.94. Cincinnati alleges that this default judgment debt is non-dischargeable as a matter of law under 11 U.S.C. § 523(a)(4).
Specifically, the order grants judgment in the amount of $200,000 plus attorney's fees and costs incurred to November 10, 2010 in the amount of $9,244.94 plus future costs and attorney's fees incurred in the collection of the judgment in the amount of $5,000. Plaintiff's Exhibit 13, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1.
Conclusions of Law and Discussion
This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334. This matter is a core proceeding, as it is a determination of the dischargeability of a particular debt. 28 U.S.C. § 157(b)(2)(I). This Court may hear and determine core proceedings, including motions for summary judgment, pursuant to 28 U.S.C. § 157(b), Fed. R. Bankr. P. 7056 and the Western District of Virginia District Court General Order of Reference dated December 6, 1994. The plaintiff is a creditor in this bankruptcy case; the defendant is the debtor in this bankruptcy case.
In determining whether to grant the plaintiff's motion for summary judgment, the Court must apply the summary judgment standard of review articulated by the Fourth Circuit:
Summary judgment should be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Facts are material when they might affect the outcome of the case, and a genuine issue exists when the evidence would allow a reasonable jury to return a verdict for the nonmoving party. The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make an adequate showing on an essential element for which it has the burden of proof at trial. In ruling on a motion for summary judgment, the nonmoving party's evidence is to be believed, and all justifiable inferences are to be drawn in that party's favor. To overcome a motion for summary judgment, however, the nonmoving party may not rely merely on allegations or denials in its own pleading but must set out specific facts showing a genuine issue for trial.The News and Observer Publishing Co. v. Raleigh-Durham Airport, 597 F.3d 570, 576 (4th Cir. 2010) (internal citations and quotations omitted) (summarizing Supreme Court precedents). With this standard in mind, the Court makes the following conclusions of law.
Cincinnati alleges that its debt is non-dischargeable because it arose from the debtor's defalcation while acting in fiduciary capacity. Under Bankruptcy Code section 532(a)(4), a debt is not dischargeable in bankruptcy if it arose from fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. 11 U.S.C. § 523(a)(4). A plaintiff claiming a debt is non-dischargeable due to a debtor's defalcation must prove: (1) the debtor was acting in a fiduciary capacity when the debt arose; and (2) that the debt arose from the debtor's defalcation. Kubota Tractor Corp. v. Strack (In re Strack), 524 F.3d 493, 497 (4th Cir. 2008).
In applying the Strack test, generally courts will consider state law to determine if the debtor qualifies as a "fiduciary" and federal bankruptcy law to determine if the liability triggered in connection with that status is the kind contemplated by section 523(a)(4), and accordingly may be excepted from a bankruptcy discharge. See Halstead v. Bilter (In re Bilter), 413 B.R. 290, 304 (Bankr. E.D.Va. 2009)(federal law determines whether a fiduciary duty exists under section 523(a)(4); in making the determination, the bankruptcy court may refer to state law). The debtor in this case concedes that he was appointed Mr. Clemmer's guardian and conservator. In Virginia, a court-appointed guardian is defined by statute as a "fiduciary." Specifically, "a guardian stands in a fiduciary relationship to the incapacitated person . . . and may be held personally liable for a breach of that fiduciary duty to the incapacitated person."Likewise, "a conservator stands in a fiduciary relationship to the incapacitated person for whom he was appointed conservator and may be held personally liable for a breach of any fiduciary duty." The debtor concedes he was both guardian and conservator, and has raised no specific facts calling into question whether he was acting in a fiduciary capacity when the debt arose. The Court, therefore, concludes the debtor was acting in a fiduciary capacity when the debt arose. Cincinnati has satisfied the first prong of the test outlined in Strack.
The terms "fiduciary" and "defalcation" are not defined within the Bankruptcy Code. See 11 U.S.C. §§ 101, 523 (2012).
See KMC Factoring, L.L.C. v. McKnew (In re McKnew), 270 B.R. 593, 628 (Bankr. E.D. Va. 2001)("To determine the existence of a fiduciary relationship under section 523(a)(4), a court must apply federal law. However, state law is relevant to this inquiry.") (citations omitted); see also Credit Experts, LLC v. Santos (In re Santos), 2012 WL 2564366, at *5 (Bankr. E.D.Va. July 2, 2012) (citing Strack, 524 F.3d at 498 ("in determining whether such a trust was established, we look to the law of the Commonwealth of Virginia"); accord Ostrum v. Porter (In re Porter), 2008 WL 114914, at *4 (Bankr. N.D. W.Va. Jan. 10, 2008)(describing that federal law will define the scope of § 523(a)(4) fiduciary capacity, but state law will determine if a trust obligation exists).
VA. CODE ANN. § 64.2-2019(A)(2012).
VA. CODE ANN. § 64.2-2021(D)(2012).
The second part of the Strack test requires that the debt arose from the debtor's defalcation. To determine if the debtor's conduct is "defalcation" and renders the debt excepted from discharge, the Court will consider federal law for guidance. Federal case law regarding this matter, however, is evolving.
The current standard in the Fourth Circuit does not require a finding of recklessness or intentional misconduct for determining if a debt is excepted from discharge under section 523(a)(4). The Fourth Circuit requires merely finding "the failure to meet an obligation or a non-fraudulent default." In re Uwimana, 274 F.3d 806, 811(4th Cir. 2001); Pahlavi v. Ansari (In re Ansari), 113 F.3d 17, 20 (4th Cir. 1997)(Defalcation "does not have to rise to the level of fraud, embezzlement, or even misappropriation."). The Fourth Circuit further expounded, "even an innocent mistake which results in misappropriation or failure to account" can be a defalcation. Uwimana, 274 F.3d at 811. The Fourth Circuit's standard, however, directly contrasts with that of other many circuits. Indeed, presently a split exists among circuit courts of appeals regarding the appropriate standard to measure conduct for purposes of section 523(a)(4). The Eleven Circuit Court of Appeals recently summarized the current split among circuit courts of appeals regarding when a "defalcation" renders a debt excepted from discharge:
It is interesting that the Fourth Circuit's ruling involved a debtor who had actually engaged in misconduct beyond an innocent mistake. In Uwimana, the debtor used public funds for personal use without authorization. Likewise, most courts following Uwimana and finding defalcation that is non-dischargeable have involved debtors who have engaged in intentional misconduct, not innocent mistakes or authorized use of funds. See, for example, In re Hadley, 2011 WL 3664746 (Bankr. E.D. Va. Aug. 19, 2011)(inventory and proceeds required to be held in trust disappeared without explanation); In re Bilter, 413 B.R. 290 (Bankr. E.D. Va. 2009)(debtor fiduciary used and lost all trust funds without authorization); Ostrum v. Porter (In re Porter), 2008 WL 114914 (Bankr. N.D. W.Va. Jan. 10, 2008)(non-dischargeable judgment limited only to the extent of the lost trust proceeds, not to the extent of proceeds later explained as used for beneficiary's burial expenses).
The Fourth, Eighth, and Ninth Circuits have concluded that even an innocent act by a fiduciary can be a defalcation. See In re Uwimana, 274 F.3d 806, 811 (4th Cir. 2001) (stating that "even an innocent mistake which results in misappropriation or failure to account" can be a defalcation); In re Cochrane, 124 F.3d 978, 984 (8th Cir. 1997) (concluding that defalcation does not require intentional wrongdoing; stating that it includes a fiduciary's innocent failure to fully account for money received); In re Sherman, 658 F.3d 1009, 1017 (9th Cir. 2011) (noting that intent to defraud is not required; stating that defalcation includes a fiduciary's innocent failure to fully account for money received). The Fifth, Sixth, and Seventh Circuits require a showing of recklessness by the fiduciary. See In re Harwood, 637 F.3d. 615, 624 (5th Cir. 2011) (stating that defalcation is a willful neglect of a duty, which does not require actual intent; it is essentially a recklessness standard); In re Patel, 565 F.3d 963, 970 (6th Cir. 2009) (stating that a defalcation requires a showing of more than negligence; instead, the fiduciary "must have been objectively reckless in failing to properly account for or allocate funds"); In re Berman, 629 F.3d 761, 766 (7th Cir. 2011) (stating that "defalcation requires something more than negligence or mistake, but less than fraud"). The First and Second Circuits require a showing of extreme recklessness. See In re Baylis, 313 F.3d 9, 20 (1st Cir. 2002) (stating that "defalcation requires something close to a showing of extreme recklessness"); In re Hyman, 502 F.3d 61, 68 (2d Cir. 2007) (stating that defalcation "requires a showing of conscious misbehavior or extreme recklessness"). The Third Circuit has not addressed the issue, and the Tenth Circuit has made the brief statement in an unpublished opinion that defalcation requires some portion of misconduct. See In re Millikan, 188 F. App'x 699, 702 (10th Cir. 2006).Bullock v. BankChampaign, N.A. (In re Bullock), 670 F.3d 1160, 1165-66 (11th Cir. 2012). In Bullock, the Eleventh Circuit affirmed the bankruptcy court's holding that the debtor committed defalcation after deciding that the debtor as a fiduciary knowingly engaged in self-dealing and benefited from that self-dealing. The Eleventh Circuit and the district court reasoned that they were compelled to affirm the bankruptcy court based on circuit precedent. Specifically these courts concluded that because the Eleventh Circuit previously had aligned itself with the "objectively reckless standard," they too must adopt the objectively reckless standard for determining if conduct constitutes defalcation. Thus, once the Eleventh Circuit found that the debtor acted recklessly as a fiduciary, it concluded that the obligation was non-dischargeable. The Eleventh Circuit, district court and bankruptcy court all acknowledged that the debtor's actions did not result in any loss to the trust. In order to establish an amount for the non-dischargeable obligation, therefore, the bankruptcy court deferred to the state court and merely adopted its judgment amount as the non-dischargeable debt. The state court had simply quantified a value for the benefit to the debtor, and entered a judgment against the debtor for the value of the benefit. The debtor appealed and, ultimately, the United States Supreme Court granted certiorari. Until the United States Supreme Court rules, we do not know the appropriate standard to measure whether a breach of fiduciary duty constitutes non-dischargeable defalcation, as well as the extent to which a bankruptcy court may impose non-dischargeable liability in the absence of an actual loss. Specifically, we do not know if Cincinnati must show that Mr. Chidester was reckless, objectively reckless, extremely reckless, negligent or simply committed an oversight in performing his fiduciary responsibilities. Thus, it is premature to determine if a genuine issue exists as to a material fact. Without certainty as to the appropriate legal standard to be met, the Court cannot measure fully if a fact is material. The Court, therefore, cannot grant judgment as a matter of law at this juncture.
See discussion at 670 F.3d at 1164-65.
The Eleventh Circuit determined he acted recklessly when he obtained a loan secured by trust assets because he should have known that to do so was self-dealing. Bullock, 670 F.3d at 1166.
The plaintiff in Bullock sued the debtor in state court and obtained judgment. The state court acknowledged that the amount of damages would be hard to quantify but "based on its equitable powers, it determined that $250,000 represented the amount of the benefit that [the debtor] had received from the self-dealing." 670 F.3d at 1162.
Bullock v. BankChampaign, 11-1518 (Oct. 29, 2012).
The questions submitted to the Supreme Court include whether defalcation under section 523(a)(4) requires some degree of intent and whether section 523(a)(4) includes actions that result in no loss of trust property. See Brief for Petitioner, Bullock v. BankChampaign, 11-1518 (December 13, 2012) and Brief of United States as Amicus Curiae Supporting Respondent, Bullock v. BankChampaign, 11-1518.
The plaintiff advances an alternative argument in support of summary judgment. The plaintiff contends that the default judgment from the Ablemarle County Circuit Court should be given collateral estoppel effect as to the debtor's alleged defalcation. "Issue preclusion, or collateral estoppel, bars the 'successive litigation of an issue of fact or law litigated and resolved in a valid court determination essential to the prior judgment[.]'" In re Giordano, 472 B.R. 313, 325 (Bankr. E.D. Va. 2012), (quoting Taylor v. Sturgell, 555 U.S. 880, 892 (2008)). Collateral estoppel may apply in bankruptcy dischargeability cases. Grogan v. Garner, 498 U.S. 279, 284-85 (1991). As the Fourth Circuit explains, in the dischargeability proceeding, the bankruptcy court may use collateral estoppel to give preclusive effect to the state court judgment, after applying the concept using the rule from that forum.
This is slightly different from finding that there are no material facts in issue. The two parties may not agree on a material fact, but if one party is entitled to collateral estoppel on that fact, then the other party may be precluded from contesting it.
[P]rinciples of collateral estoppel apply in dischargeability proceedings in bankruptcy. In determining the preclusive effect of a state-court judgment, the federal courts must, as a matter of full faith and credit, apply the forum state's lawPahlavi v. Ansari (In re Ansari), 113 F.3d 17, 19 (4th Cir. 1997). In Virginia, three elements must be shown for collateral estoppel to apply: (1) the parties to the two proceedings must be the same; (2) the factual issue actually must have been litigated in the prior action and must have been essential to the prior judgment; and (3) the prior action must have resulted in a valid final judgment against the party sought to be precluded in the current action. TransDulles Center, Inc. v. Sharma, 472 S.E.2d. 274, 275 (Va. 1996).
of collateral estoppel. . . . Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so.
First, we consider whether the parties to the two proceedings are the same. The parties here are Cincinnati (the plaintiff) and Mr. Chidester (the debtor). Cincinnati and the debtor were the same two parties in the proceeding in the Albemarle County Circuit Court in Case No. CL10000596-00. The debtor was a party in the chancery proceeding in the Albemarle County Circuit Court, Estate Court File No. 2007-226 in which the Commissioner of Accounts requested a summons against Mr. Chidester to appear and show cause why his bond should not be forfeited. Cincinnati appeared in that chancery proceeding. Based on these facts, the Court finds that the parties to the proceedings are the same. The first requirement for collateral estoppel has been met.
Next, the factual issue actually must have been litigated in the prior action and must have been essential to the judgment in the prior action. In the state court legal action, case CL 10000596-00, Cincinnati's complaint was for breach of contract and indemnity, not defalcation. Similarly, Cincinnati's motion for default judgment does not mention defalcation. According to Cincinnati, at the Circuit Court hearing on the motion for default judgment, the Circuit Court considered Cincinnati's evidence regarding how the debtor was served and regarding the calculation of the amount of the money damages (the principal amount of the bond, the appropriate amount of interest, the appropriate amount of attorney's fees to date and the appropriate amount of future attorney fees and costs). If we consider the state chancery action, the record contains no indication of evidence presented or argued, specifically with regard to how Mr. Chidester may have misused or misappropriated funds. It appears that the only evidence provided to the Circuit Court dealt with contract damages and service of process, not defalcation. The state court appeared to characterize the bond as a contract, not as a trust agreement. Although violation of a bond implies a breach of fiduciary duty, it is not clear whether the state court actually decided the breach of fiduciary duty. Instead the record shows a presentation of the contract (the bond), the failure to comply with state law duty to file an accounting (triggering the contractual bond obligation), and the resulting loss ($200,000 paid from the bond). Absent a showing that defalcation as a fiduciary was argued, and proven, this Court cannot hold that it was actually litigated. See In re Hadley, 2011 WL 3664746 at * 5 (holding that the court will not afford preclusive effect via collateral estoppel when the court cannot discern with certainty what precise issues were actually litigated in the state court action and whether those issues were essential to the state court judgment); See also In re Santos, 2012 WL 2564366 at * 3 (holding that the court will not confer collateral estoppel effect when it was not shown that the kind of breach of fiduciary duty resulting in the state court judgment is the same kind of breach of fiduciary duty contemplated by section 523(a)(4)). Therefore, the default judgment in favor of the plaintiff cannot collaterally estop the debtor from litigating the issue of defalcation in this proceeding.
See Plaintiff's Exhibit 12, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No 1.
See Plaintiff's Motion Requesting Judicial Notice, Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Aug. 31, 2012) ECF No. 19 (requesting judicial notice of the affidavits filed in the state court proceeding). Plaintiff attached the affidavit filed in the state court motion for judgment. Accepting that the affidavit attached is the affidavit filed in state court, even if we were to consider its contents, we note that Mr. Harrington simply describes his calculation of the bond forfeiture amount along with the appropriate amount of attorney's fees.
The chancery order in Estate File No. 2007-226 reveals a single phrase in its recitals that could support a finding of defalcation, yet the record contains no indication of how this conclusion was derived. See Plaintiff's Exhibit 9, at 2, ¶ 6 Cincinnati Ins. Co. v. Chidester (In re Chidester), 12-05008 (Feb. 1, 2012) ECF No. 1 (". . . Michael Chidester . . . has failed to account for and turn over the assets held by the Conservator . . . .").
--------
Conclusion
The law regarding the appropriate standard for measuring whether a debtor's conduct is the type of defalcation contemplated by 11 U.S.C. § 523(a)(4) is unsettled. The United States Supreme Court is expected to rule by or before June 30, 2013 in a case involving the definition of "defalcation" under section 523(a)(4). This Court concludes that it is inappropriate to hold that Cincinnati is entitled to non-dischargeable judgment as a matter of law when the relevant law is unsettled. Furthermore, Cincinnati has not shown that the default judgment in Case No. CL10000596-00 in the Circuit Court for Ablemarle County has preclusive effect as to the debtor's alleged defalcation because it is not clear that breach of fiduciary duty, misuse of funds, or unexplained loss was actually litigated. The Court denies the plaintiff's motion for summary judgment without prejudice and directs that a trial date be scheduled after June 30, 2013. The Court will issue a separate order denying the plaintiff's motion and scheduling a further pre-trial conference for the purpose of setting this matter for trial.
______________
Rebecca B. Connelly
U. S. Bankruptcy Judge