Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Appellant, a Chapter 7 debtor, appealed the district court's order affirming the bankruptcy court's ruling that certain of his debts were nondischargeable under 11 U.S.C. 523(a)(4). At issue was whether loans obtained from a limited partnership that appellant managed in his capacity as officer and director of the partnership's corporate general partner were incurred through defalcation while acting as a fiduciary to the partnership. The court affirmed and held that even if the existence of the loans themselves were not a defalcation, the bankruptcy court did not err in further concluding that appellant recklessly breached his duty to the partnership by failing to protect against the increasing financial risk created by those loans by ensuring that the partnership perfected its liens on the pledged collateral, particularly when the failure accrued to his benefit.