Opinion ID: 196380
Heading Depth: 1
Heading Rank: 2

Heading: Breach of Fiduciary Duty Amounting to Defalcation

Text: 4 In addition to donative intent, Tritter incorporated by reference the issues raised in his district court brief. Chief among those issues is whether the bankruptcy court erred in ruling that Tritter breached his fiduciary duty under the relevant statute and, thereby, engaged in defalcation pursuant to Sec. 523(a)(4). 1 We need not decide whether the propriety of the expenditures at issue should be judged under the UGMA, Mass. Gen. L. ch. 201A (1957), in effect when the account was established, or under the UTMA, ch. 201A (1986), which replaced the UGMA, effective January 30, 1987. The expenditures at issue here were not for the minor's benefit under either Act. 5 Tritter argues that the UGMA grants a custodian broader discretion than the UTMA and should apply to this case. The UGMA provides, in relevant part, as follows: 6 The custodian shall pay over to the minor for expenditure by him, or expend for the minor's benefit, so much of or all the custodial property as the custodian deems advisable for the support, maintenance, education and benefit of the minor in the manner, at the time or times and to the extent that the custodian in his discretion deems suitable and proper.... 7 Ch. 201A, Sec. 4(b) (1957) (emphasis added). Payment of a parent's legal fees, even for custody matters, is not an expenditure for the minor's benefit within the meaning of the UGMA. See Perlberger v. Perlberger, 626 A.2d 1186, 1202 (Pa.Super., 1993) (interpreting Pennsylvania UGMA, which contains language identical to Sec. 4(b) of the Massachusetts UGMA). Tritter has failed to cite any cases in support of his argument that his use of the funds for legal fees was for his daughter's benefit under the Massachusetts UGMA. We conclude that the bankruptcy court did not err in ruling that payment of a parent's legal fees, even to litigate custody or visitation issues, is not an expenditure for the minor's benefit. Assuming there may exist exceptions to this general rule in extraordinary circumstances, such circumstances are not present here. 8 The bankruptcy court also found that Tritter, in his capacity as custodian of his daughter's account, failed to keep proper records and commingled funds. Tritter does not contest those findings. Under the UGMA, the custodian was required to keep custodial property separate and distinct from his own property in a manner to identify it clearly as custodial property, Ch. 201A, Sec. 4(g) (1957). The UGMA also required the custodian to keep accounts of all his transactions with respect to the property held by him as custodian.... Id., Sec. 4(h). Tritter clearly failed to comply with those duties as custodian under the UGMA. 9 Pursuant to 11 U.S.C. Sec. 523(a)(4), a debt incurred by fraud or defalcation while acting in a fiduciary capacity is non-dischargeable. In order for [plaintiffs] to prevail under Sec. 523(a)(4), [they] must prove by a preponderance of the evidence that the Debtor committed fraud or defalcation while acting in a fiduciary capacity. In re Christian, 172 B.R. 490, 495 (Bankr.D.Mass., 1994). Tritter became a fiduciary for purposes of Sec. 523(a)(4) when the account was established under the UGMA, naming him as custodian. See In re Johns, 181 B.R. 965, 973 (Bankr.D.Ariz.1995)(holding that custodian of UGMA or UTMA accounts acts in a fiduciary capacity for purposes of Sec. 523(a)(4)). 10 Tritter breached his fiduciary duties under both the UGMA and the UTMA by 1) expending the funds to pay his own legal fees, not for the minor's benefit; 2) failing to keep the custodial funds separate from his own funds; and 3) failing to keep proper records. The bankruptcy court correctly ruled that Tritter's breach of his fiduciary duties constituted defalcation within the meaning of 11 U.S.C. Sec. 523(a)(4), notwithstanding the absence of any proof of intentional wrongdoing. See In re Christian, 172 B.R. at 495. 11 The decision of the bankruptcy court is affirmed.