Court Opinion

ID: 7805419
Source: CourtListenerOpinion
Date Created: 2022-08-31 20:00:58.324952+00
Date Added: 2024-06-11T16:30:00.534438
License: Public Domain

USCA11 Case: 21-12133    Date Filed: 08/31/2022   Page: 1 of 33

                                              [PUBLISH]
                          In the
         United States Court of Appeals
               For the Eleventh Circuit

                 ____________________

                        No. 21-12133
                 ____________________

In Re: NATHAN AARON FORREST,
 MARSHA WEIDMAN FORREST,
                                                      Debtors.
__________________________________________________
SPRING VALLEY PRODUCE, INC.,
PRODUCE EXCHANGE CO., INC.,
FRESH DIRECT, INC.,
S. ROZA & COMPANY, INC.,
                                          Plaintiffs-Appellants,
versus
NATHAN AARON FORREST,
MARSHA WEIDMAN FORREST,
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2                      Opinion of the Court                21-12133

                                              Defendants-Appellees.

                     ____________________

           Appeal from the United States District Court
                for the Middle District of Florida
              D.C. Docket No. 8:20-bk-03819-RCT
                    ____________________

Before WILSON, BRANCH, and LAGOA, Circuit Judges.
WILSON, Circuit Judge:
        In this case of first impression, we determine whether the
Bankruptcy Code’s exception to discharge in 11 U.S.C. § 523(a)(4)
applies to debts incurred by a produce buyer who is acting as a trus-
tee under the Perishable Agricultural Commodities Act (PACA).
Appellant Spring Valley Produce, Inc. (SVP) is a creditor of Chapter
7 debtors Nathan and Marsha Forrest (the Forrests). The Forrests
owe a pre-petition debt for produce which they are seeking to dis-
charge. SVP initiated this adversary proceeding, seeking a declara-
tion that the debt was nondischargeable under § 523(a)(4). The
bankruptcy court granted the Forrests’ motion to dismiss and held
that § 523(a)(4) does not apply to PACA-related debts. After careful
review of the briefs and the record and with the benefit of oral ar-
gument, we affirm the bankruptcy court’s order dismissing SVP’s
claims because § 523(a)(4) does not except debts incurred by a
PACA trustee from discharge.
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21-12133               Opinion of the Court                        3

       In so holding, we adopt the following three-part test for de-
termining whether a debtor is acting in a “fiduciary capacity” under
§ 523(a)(4) in relation to a creditor. First, the relationship must
have (1) a trustee, who holds (2) an identifiable trust res, for the
benefit of (3) an identifiable beneficiary or beneficiaries. Second,
the relationship must define sufficient trust-like duties imposed on
the trustee with respect to the trust res and beneficiaries to create
a “technical” trust, with the strongest indicia of a technical trust
being the duty to segregate trust assets and the duty to refrain from
using trust assets for a non-trust purpose. Third, the debtor must
be acting in a fiduciary capacity before the act of fraud or defalca-
tion creating the debt.
             I. Factual Background and Procedural History
        The undisputed facts are as follows. The Forrests are own-
ers and officers of Central Market of FL, Inc. (Central Market),
which buys and sells produce. SVP sold $261,504.15 worth of pro-
duce to Central Market for which Central Market never paid. Dur-
ing the transactions at issue, SVP and Central Market were licensed
under PACA. SVP preserved its right as a PACA trust beneficiary
by including the required statutory statement on its invoices to
Central Market. Upon receiving and accepting SVP’s produce ship-
ments, Central Market became a PACA trustee of a trust res con-
sisting of that produce.
       On May 15, 2020, the Forrests filed a Chapter 7 bankruptcy
petition hoping to discharge their business debts, including the
debt owed to SVP. On August 14, 2020, SVP commenced this
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4                      Opinion of the Court                21-12133

adversary proceeding, seeking a declaration that the debt is nondis-
chargeable under § 523(a)(4). That statute excepts from discharge
debts “for fraud or defalcation while acting in a fiduciary capac-
ity[.]” 11 U.S.C. § 523(a)(4). SVP contended that Central Market
incurred the debt “while acting in a fiduciary capacity” because it
was serving as a PACA trustee when they failed to pay. And as
principals of Central Market, SVP contended, the Forrests were
personally liable for that PACA-related debt.
       The Forrests moved to dismiss SVP’s amended complaint,
arguing that a PACA trustee is not acting in a “fiduciary capacity”
as that term is understood in the context of § 523(a)(4). Section
523(a)(4) does not apply to PACA-related debts, the Forrests ar-
gued, because PACA does not require segregation of trust assets
nor prohibit use of trust assets for non-trust purposes. The bank-
ruptcy court granted the Forrests’ motion to dismiss. While deter-
mining that PACA imposes some trust-like duties, the bankruptcy
court found that a PACA trust lacks the crucial element of a segre-
gated trust res. Given the importance of this issue and the split of
authority within this circuit, the bankruptcy court certified its or-
der for direct appeal to this court pursuant to 28 U.S.C. § 158(d).

                          II. Standard of Review
       On direct appeals from the bankruptcy court, we review the
bankruptcy court’s findings of fact for clear error and its conclu-
sions of law de novo. In re Dean, 537 F.3d 1315, 1318 (11th Cir.
2008). A court’s interpretation of the Bankruptcy Code is a
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21-12133                  Opinion of the Court                               5

question of law. Pollitzer v. Gebhardt, 860 F.3d 1334, 1338 (11th
Cir. 2017).

                                  III. Discussion
       The parties dispute the correct test governing the scope and
application of 11 U.S.C. § 523(a)(4). We also note that bankruptcy
courts within this circuit have generated varying results in applying
§ 523(a)(4). 1 Therefore, we begin by determining the appropriate
standard governing § 523(a)(4)’s exception to discharge.
              A. The § 523(a)(4) Exception to Discharge
       The general rule is that an individual debtor’s pre-bank-
ruptcy debts are dischargeable in a Chapter 7 bankruptcy case. In
re Fernandez-Rocha, 451 F.3d 813, 815–16 (11th Cir. 2006). Section
523 of the Bankruptcy Code lists various exceptions to this general
rule of discharge. See generally 11 U.S.C. § 523. These exceptions
are construed narrowly. In re Fernandez-Rocha, 451 F.3d at 816.
The exception at issue provides that debts “for fraud or defalcation
while acting in a fiduciary capacity” are discharged. 11 U.S.C.

1 One main point of dispute among bankruptcy courts in this circuit is whether
trust assets must be segregated from non-trust assets for § 523(a)(4) to apply.
Compare In re Arthur, 589 B.R. 761, 770 (Bankr. S.D. Fla. 2018) (concluding
that § 523(a)(4) does not apply to PACA trusts because PACA trusts do not
require segregation of trust assets), with In re Tucker, No. 06-5107, 2007 WL
1100482, at *4–5 (Bankr. M.D. Ga. Apr. 10, 2007) (concluding that the segrega-
tion of trust assets is not a requirement and thus § 523(a)(4) applies to PACA
trusts).
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6                          Opinion of the Court                       21-12133

§ 523(a)(4). For ease of reference, we will often refer to this statu-
tory provision and all earlier versions of the provision as the “Fidu-
ciary Capacity Exception.” We also note that when we use the
term “fiduciary capacity” in this opinion, we are referring only to
that term as understood in the context of § 523(a)(4).
       The Fiduciary Capacity Exception has existed through vari-
ous bankruptcy statutes in effect since 1841. Quaif v. Johnson, 4
F.3d 950, 953 (11th Cir. 1993) (per curiam). But these statutes have
all used similar language and all versions have referred to “defalca-
tion” and to “fiduciary capacity” or “fiduciary character.” Id. The
focus of this case is not the meaning of the term “‘defalcation,’ a
word that only lawyers and judges could love.” 2 In re Jahrling, 816
F.3d 921, 925 (7th Cir. 2016). Instead, this case focuses on the
meaning of the term “fiduciary capacity.”
       The scope of the term fiduciary capacity in § 523(a)(4) is a
question of federal law. See In re Angelle, 610 F.2d 1335, 1341 (5th
Cir. 1980) (adopting that rule in the context of an earlier version of
the Fiduciary Capacity exception). 3 Early Supreme Court cases in-
terpreting the Fiduciary Capacity Exception have repeatedly stated

2 “‘Defalcation’ refers to a failure to produce funds entrusted to a fiduciary.”
Quaif, 4 F.3d at 955.
3 We have adopted as binding precedent all Fifth Circuit decisions issued be-
fore October 1, 1981, as well as all decisions issued after that date by a Unit B
panel of the former Fifth Circuit. Stein v. Reynolds Sec., Inc., 667 F.2d 33, 34
(11th Cir. 1982).
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21-12133                Opinion of the Court                          7

that fiduciary capacity should not be construed expansively and is
limited to the concept of “technical” trusts. Quaif, 4 F.3d at 953.
           1. Principles from Early Supreme Court Cases on the
                        Fiduciary Capacity Exception
       The following Supreme Court cases provide us with a few
key principles on the Fiduciary Capacity Exception. The first case
interpreting the Fiduciary Capacity Exception was Chapman v.
Forsyth, 43 U.S. (2 How.) 202 (1844). There, a principal was seek-
ing to have debts incurred by his factor (or agent) excepted from
discharge under the Fiduciary Capacity Exception. Id. 206–07. The
principal gave cotton to his factor, who was to sell the cotton and
remit the proceeds back to the principal. Id. at 206. The creditor
in that case, the principal, argued that “[a] factor, with goods and
money in his hands belonging to his principal, is in estimation of
law, a trustee.” Id. at 204. Thus, the crux of the creditor’s argu-
ment was that the factor’s failure to remit payment to the principal
for the sale of the principal’s cotton constituted a debt incurred for
defalcation while acting in a fiduciary capacity.
       The Court rejected this argument. Id. at 208. In doing so,
the Court noted that if the Fiduciary Capacity Exception “em-
brace[d] such a debt, it [would] be difficult to limit its application.”
Id. And “[s]uch a construction would have left but few debts on
which the law could operate.” Id. The Court did agree that “[i]n
almost all the commercial transactions of the country, confidence
is reposed in the punctuality and integrity of the debtor, and a vio-
lation of these is, in a commercial sense, a disregard of a trust.” Id.
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8                        Opinion of the Court                    21-12133

But the Court ultimately held that the Fiduciary Capacity Excep-
tion “speaks of technical trusts, and not those which the law implies
from the contract” and held that a principal-factor relationship did
not fall within the exception. Id. (emphasis added).
       Put differently, fiduciary capacity refers to a trust “in its tech-
nical sense.” Upshur v. Briscoe, 138 U.S. 365, 375 (1891). In
Upshur, the Court focused on the prepositional phrase “while act-
ing in” and concluded that the Fiduciary Capacity Exception
“would seem to apply only to a debt created by a person who was
already a fiduciary when the debt was created.” Id. at 378. Thus,
the Court added a temporal limitation to the Fiduciary Capacity
Exception in which the fiduciary obligations must predate the act
of defalcation by the debtor.
        The last Supreme Court case addressing the meaning of fi-
duciary capacity and technical trusts was Davis v. Aetna Ac-
ceptance Co., 293 U.S. 328 (1934). 4 There, the creditor had a chat-
tel mortgage in automobiles sold by the debtor. Id. at 330. The
debtor sold one of the cars but failed to remit payment to the cred-
itor. Id. When the debtor filed for bankruptcy, the creditor sought
to have the debt on the mortgaged automobile excepted from dis-
charge under the Fiduciary Capacity Exception and sued for con-
version of the automobile. Id. at 330–31.

4 The Court did address § 523(a)(4) in Bullock v. BankChampaign, N.A., 569
U.S. 267 (2013), but that case focused on the meaning of defalcation and did
not address technical trusts.
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21-12133                Opinion of the Court                         9

       The Court asked whether the debtor, who held mortgaged
property, was “a trustee in that strict and narrow sense” of the Fi-
duciary Capacity Exception. Id. at 333. The Court reaffirmed the
principle that the debtor must be acting in a fiduciary capacity be-
fore the act of defalcation. Id. The Court found that “[i]t is not
enough that, by the very act of wrongdoing out of which the con-
tested debt arose, the bankrupt has become chargeable as a trustee
ex maleficio.” Id. While the documents executing the transaction
characterized it as a trust relationship, the Court placed no empha-
sis on what the transaction was called, but instead focused on the
substance of the transaction. Id. at 334. And there, “[t]he substance
of the transaction [was] this, and nothing more, that the mort-
gagor, a debtor, has bound himself by covenant not to sell the
mortgaged chattel without the mortgagee’s approval.” Id. The
Court then said that “[t]he resulting obligation is not turned into
one arising from a trust because the parties to one of the docu-
ments have chosen to speak of it as a trust” and concluded that the
Fiduciary Capacity Exception did not apply to this type of transac-
tion. Id.
        These early Supreme Court cases thus give us the following
rules. First, the Fiduciary Capacity Exception does not apply to
trusts implied by contract but applies to technical trusts or trusts in
the technical sense. Chapman, 43 U.S. at 208. Second, the debtor
must be acting in a fiduciary capacity before the act of defalcation
creating the debt for the exception to apply. Upshur, 138 U.S. at
378. Third, the substance of the transaction, rather than its form,
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10                     Opinion of the Court                 21-12133

controls in determining whether a transaction fits the “strict and
narrow” definition of a technical trust. Davis, 293 U.S. at 333–34.
        2. A Technical Trust Requires A Trustee, an Identifiable
       Beneficiary, an Identifiable Trust Res, and Sufficient Trust-
                                Like Duties
       Although the Supreme Court has not provided a precise def-
inition of technical trusts, we can look to definitions of trusts and
general trust principles for clarity. As the Court in Chapman noted,
there are two ways to look at the term “trust.” 43 U.S. at 208. In a
broad sense, the Court reasoned that there is some degree of
“trust” imposed in almost all commercial transactions. Id. The
Court rightfully chose not to extend the Fiduciary Capacity Excep-
tion to this broad definition of trusts because doing so would except
an inordinate number of debts from discharge. Instead, the Court
limited the exception to technical trusts or trusts in the “technical
sense.” Upshur, 138 U.S. at 375.
       Legal definitions on trusts provide the following insight on
the distinction between trusts in a broad sense and trusts in a tech-
nical sense:
      In its technical sense, a trust is the right, enforceable
      solely in equity to the beneficial enjoyment of prop-
      erty, the legal title of which is vested in another and
      implies separate coexistence of the legal and the equi-
      table titles vested in different persons at the same
      time; in its more comprehensive sense the term em-
      braces every bailment, every transaction by agent or
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21-12133               Opinion of the Court                      11

      factor, every deposit, and every matter in which the
      slightest trust or confidence exists. The word trust,
      however, is frequently employed to indicate duties,
      relations, and responsibilities which are not strictly
      and technically trusts.
Trust, Black’s Law Dictionary (11th ed. 2019) (citing William C.
Dunn, Trusts for Business Purposes 2 (1922)).
        This distinction between trusts in the technical sense and
trusts in the more comprehensive or broad sense tracks with the
Supreme Court’s reasoning in Chapman. For example, the broad
definition of trusts would include the principal-factor relationship
at issue in Chapman. But trusts in the technical sense are much
narrower and include specific rights that do not exist in the broad
or comprehensive definition of trust.
      The Restatement (Third) of Trusts provides further insight
on the characteristics of this narrower definition of trusts:
      In the strict, traditional sense, a trust involves three
      elements: (1) a trustee, who holds the trust property
      and is subject to duties to deal with it for the benefit
      of one or more others; (2) one or more beneficiaries,
      to whom and for whose benefit the trustee owes the
      duties with respect to the trust property; and (3) trust
      property, which is held by the trustee for the benefi-
      ciaries.
Restatement (Third) of Trusts § 2 cmt. f (2003).
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12                         Opinion of the Court                      21-12133

       As the Court noted in Davis, the Fiduciary Capacity Excep-
tion speaks of trusts in a “strict and narrow” sense. 293 U.S. at 333.
Thus, for the Fiduciary Capacity Exception to apply, the relation
between the creditor and the debtor must resemble this narrower
definition of trusts, or trusts in the technical sense. Although we
have not spelled out these three elements before, our decisions on
the Fiduciary Capacity Exception have generally looked to
whether the statute requires the debtor to hold trust property for
the benefit of the creditor. See Carey Lumber Co. v. Bell, 615 F.2d
370, 374 (5th Cir. 1980) (finding that the debtor was acting in a fi-
duciary capacity where the statute “clearly define[d] the trust res”);
In re Fernandez-Rocha, 451 F.3d at 818 (finding that the debtor was
not acting in a fiduciary capacity where statute did not “require a
doctor to place funds ‘in trust’ for the benefit of third party pa-
tients”).
       As the Restatement notes, a trust in the “strict, traditional
sense” involves duties imposed on the trustee with respect to the
trust res and the beneficiary. And in analyzing whether a statutory
trust can meet the narrow definition of a technical trust under the
Fiduciary Capacity Exception, we have generally looked to the du-
ties imposed by the statute. Thus, along with having an identifiable
trustee, beneficiary, and trust res, a technical trust for purposes of
§ 523(a)(4) should also impose sufficient trust-like duties. 5

5 This definition of technical trusts also follows how many bankruptcy courts
in this circuit have defined technical trusts in applying the Fiduciary Capacity
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21-12133                   Opinion of the Court                                13

         3. Trust-Like Duties Sufficient to Create a Technical Trust
        The core issue here is what type of trust-like duties are suffi-
cient to create a technical trust under the Fiduciary Capacity Ex-
ception. While we have never expressly held what trust-like duties
would be sufficient, we are not writing on a clean slate. Our prec-
edent has generally emphasized two duties: the duty to segregate
trust assets and the duty to refrain from using trust-assets for non-
trust purposes. The parties dispute whether either of these duties
is a requirement for a technical trust. SVP contends that these du-
ties are not required and that the PACA statutory trust imposes
other duties that are sufficient. The Forrests respond that PACA
fails to meet the narrow definition of a technical trust under
§ 523(a)(4) because it does not require segregation of trust assets,
nor does it prohibit the use of trust assets for a non-trust purpose,
and under our caselaw, the duty to segregate trust assets is a re-
quirement for the Fiduciary Capacity Exception to apply. In its re-
ply brief, SVP argues that a PACA trust imposes sufficient segrega-
tion and does not expressly permit the use of trust assets for a non-
trust purpose.

Exception. For example, one bankruptcy court adopted the rule that a tech-
nical trust requires “a segregated trust res, an identifiable beneficiary, and af-
firmative trust duties established by contract or by statute.” In re Triggiano,
132 B.R. 486, 490 (Bankr. M.D. Fla. 1991). Another bankruptcy court adopted
a different three-part test, reasoning that a technical trust requires “sufficient
words to create a trust, a clearly defined trust res, and an intent to form a
trust.” In re Davis, 115 B.R. 346, 350 (Bankr. N.D. Fla. 1990).
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14                      Opinion of the Court                 21-12133

       Given this dispute among the parties, and bankruptcy courts
within this Circuit, we review our caselaw, as well as the decisions
of our sister circuits, to determine what trust-like duties are suffi-
cient for a statute to create a technical trust. In doing so, we note
that state law may provide different definitions or requirements of
a trust generally, but the scope of fiduciary capacity under
§ 523(a)(4) is a question of federal law. In re Angelle, 610 F.2d at
1341.
       There are only five published decisions in this Circuit and
the former Fifth Circuit discussing the Fiduciary Capacity Excep-
tion. Of those five, four dealt with the concept of statutory trusts.
Statutory trusts fall somewhere between the traditional categories
of a trust created voluntarily between the parties by contract,
known as an express trust, and a trust created by operation of law,
known as a constructive or resulting trust. Quaif, 4 F.3d at 953.
While express trusts might fall under § 523(a)(4), resulting trusts do
not because they fail the basic requirement that the debtor must be
acting in a fiduciary capacity before the act of defalcation creating
the debt. Id. In determining whether a statutory trust constitutes
a technical trust under § 523(a)(4), we have looked to the trust-like
duties imposed by a statute. In the two cases in which we found
that a statutory trust did create a technical trust, the trust-like du-
ties that were sufficient consisted of the duty to segregate trust as-
sets or the duty to refrain from using trust assets for a non-trust
purpose.
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21-12133               Opinion of the Court                        15

       Starting with cases from the former Fifth Circuit, the first
case addressing § 523(a)(4) was Carey Lumber Co. v. Bell. At issue
there were Oklahoma lien trust statutes requiring that funds “re-
ceived under any mortgage given for the purpose of construction
or remodeling any structure shall upon receipt by the mortgagor
be held as trust funds for the payment of all valid lienable claims
due.” Carey Lumber, 615 F.2d at 373 n.2. The Oklahoma statutes
further provided that “[s]uch trust funds shall be applied to the pay-
ment of said valid lienable claims and no portion thereof shall be
used for any other purpose until all lienable claims due and owing
shall have been paid.” Id. We rejected the debtor’s argument that
the Fiduciary Capacity Exception did not apply, finding that “the
Oklahoma statutes clearly define the trust res and charge the trus-
tee with affirmative duties in applying the trust funds.” Id. at 374.
Thus, we found that the statutes’ duties to hold funds in trust and
that trust funds could be used only for trust purposes was sufficient
for the debtor to be acting in a fiduciary capacity. Id.
       Another case, In re Cross, addressed whether a debtor was
acting in a fiduciary capacity based on a contract between the par-
ties, not a statute. 666 F.2d 873, 876 (5th Cir. Unit B 1982). The
debtor was in construction and entered into a contract with the
creditor where the creditor would provide funds to the debtor to
build a post office. Id. We found that this contract did not establish
a fiduciary duty, noting the contract did not require the debtor “to
maintain a segregated account” for the construction funds received
from the creditor. Id. at 881. Similarly, in In re Angelle, we
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16                      Opinion of the Court                 21-12133

doubted “that a statute which merely makes misappropriation of
funds a crime without, for example, requiring segregation of ac-
counts would be enough to charge the parties with an intent to
create a trust.” 610 F.2d at 1340 (emphasis added).
       The first case decided by the Eleventh Circuit on the Fiduci-
ary Capacity Exception was Quaif v. Johnson. There, the statute
at issue was a Georgia statute that required insurance agents to
hold insurance premium payments from insured parties in a sepa-
rate account and prohibited insurance agents from commingling
the premiums with their personal funds. 4 F.3d at 953. In holding
that the Georgia statute created a technical trust and that the Fidu-
ciary Capacity Exception applied, we noted the following:
       It is true that some cases have indicated that a separa-
       tion of the funds is necessary to establish the existence
       of a technical trust. See Matter of McCraney, 63 B.R.
       64, 67 (Bankr. N.D. Ala. 1986); In re Kelley, 84 B.R.
       225, 230 (Bankr. M.D. Fla. 1988). However, the court
       does not believe that a separation of premium funds
       into distinct bank accounts is an essential requirement
       of a trust. The Georgia statute requires that the pre-
       miums must be separate from other types of funds,
       but may be kept in a common premium account as
       long as there were adequate records of the sources of
       these funds. The court finds that this is sufficient
       “segregation” to satisfy the requirement that the fidu-
       ciary duties be created prior to the act of defalcation.
Id. at 954.
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21-12133                   Opinion of the Court                                17

       The parties, and bankruptcy courts in this Circuit, dispute
whether this paragraph from Quaif expressly held that the duty to
segregate trust assets is a requirement for a technical trust to exist,
or whether it is only a factor in the analysis. We do not read Quaif
to stand for the proposition that a segregation of funds requirement
is always necessary for a technical trust to exist. In fact, we noted
that bankruptcy courts have adopted this rule, but we chose not to
adopt it. And while the phrase “sufficient ‘segregation’” could be
interpreted as a segregation requirement, when read in context it
seems to be more of a reference to the requirement that the Geor-
gia statute imposed sufficient duties pre-defalcation. Further, our
holding in Carey Lumber shows that a statute can impose sufficient
duties if it requires that the trustee cannot use trust funds for a non-
trust purpose even though the statute did not impose a duty to seg-
regate trust assets. However, when one reads Quaif, In re Cross,
and In re Angelle together, it is apparent that the duty to segregate
trust assets is an important factor in the analysis. 6
       We also note that our sister circuits have emphasized the
duties to segregate trust assets and to refrain from using trust assets

6 Our most recent published decision addressing the Fiduciary Capacity Ex-
ception, In re Fernandez-Rocha, involved a Florida statute that required doc-
tors to have sufficient means to pay malpractice claims. 451 F.3d at 815. How-
ever, that statute failed to meet the technical trust standard for the more fun-
damental reason that the statute did not establish a trust res, trustee, and ben-
eficiary. See id. at 818 (explaining that the statute did not “require a doctor to
place funds ‘in trust’ for the benefit of third party patients”).
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18                      Opinion of the Court                 21-12133

for a non-trust purpose. For example, the Seventh Circuit has held
that the hallmarks of an express trust for purposes of the Fiduciary
Capacity Exception are “segregation of funds, management by fi-
nancial intermediaries, and recognition that the entity in control of
the assets has at most ‘bare’ legal title to them.” In re Berman, 629
F.3d 761, 769 (7th Cir. 2011) (alteration adopted and emphasis
added). Similarly, in discussing its caselaw on the Fiduciary Capac-
ity Exception, the Fifth Circuit remarked that although it had “not
expressly identified the particular ‘trust-like’ duty” sufficient for a
technical trust, “one such duty has loomed large—the duty that a
trustee refrain from spending trust funds for non-trust purposes.”
In re Tran, 151 F.3d 339, 343–44 (5th Cir. 1998).
        Further support that the duty to segregate trust assets and
the duty not to use trust assets for non-trust purposes are significant
duties of a trustee comes from the Restatement (Third) of Trusts.
The Restatement lists several duties imposed on trustees, including
the duty of loyalty and the duty to segregate and identify trust
property. The duty of loyalty provides that “a trustee has a duty to
administer the trust solely in the interest of the beneficiaries.” Re-
statement (Third) of Trusts § 78(1) (2007). In other words, the trus-
tee has a duty not to use trust assets for a non-trust purpose. The
Restatement also provides that the trustee has “a duty to keep the
trust property separate from the trustee’s own property and, so far
as practical, separate from other property not subject to the trust.”
Id. § 84.
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21-12133                   Opinion of the Court                               19

        In short, our caselaw shows that we have not clearly defined
a technical trust in any one decision. But synthesizing all of these
cases, we hold that the following test applies in determining
whether a debtor is acting in a “fiduciary capacity” under
§ 523(a)(4). First, the fiduciary relationship 7 must have (1) a trus-
tee, who holds (2) an identifiable trust res, for the benefit of (3) an
identifiable beneficiary or beneficiaries. This tracks the traditional
and narrow definition of trusts in early Supreme Court cases as well
as our own approach and the approach taken by bankruptcy courts
in this Circuit. Second, the fiduciary relationship must define suf-
ficient trust-like duties imposed on the trustee with respect to the
trust res and beneficiaries to create a technical trust. Based on our
caselaw, the two most important trust-like duties, and the ones that
we have held create a technical trust, are the duty to segregate trust
assets and the duty to refrain from using trust assets for a non-trust
purpose. Third, the debtor must be acting in a fiduciary capacity
before the act of fraud or defalcation creating the debt. Quaif, 4
F.3d at 953.
       We also emphasize that our holding today is limited to the
narrow meaning of “fiduciary capacity” in the context of
§ 523(a)(4)’s exception to discharge. Our decision does not address
whether a fiduciary relationship creates a trust in other contexts.
For instance, a statute or contract might define a relationship as

7 The term “fiduciary relationship” here refers to either a statutory trust or an
express trust created by contract.
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20                      Opinion of the Court                  21-12133

that of a trust, but the scope of fiduciary capacity in the context of
§ 523(a)(4) is more limited and the exception does not apply simply
because the parties or a statute label the relationship as a trust. See
Davis, 293 U.S. at 334 (“The resulting obligation is not turned into
one arising from a trust because the parties to one of the docu-
ments have chosen to speak of it as a trust.”); In re Tran, 151 F.3d
at 345–46 (noting that although the statute used the phrase “in
trust,” it did not create the required fiduciary relationship for
§ 523(a)(4) to apply). And on that note, although our discussion
today focuses on a statutory trust, this analysis should equally apply
to trusts created by contract, or express trusts. Courts should be
wary of parties using labels like “trust” or “beneficiary” in contracts
and, just like a statute, should ensure that the contract meets all the
requirements of a technical trust. Further, our decision does not
extend to analyzing whether a trustee has committed a breach of
trust or to fiduciary relationships not involving trusts.
 B. PACA-Related Debts Are Not Excepted from Discharge Under
                          § 523(a)(4)
       With a clear test in place, we now address whether a PACA
trustee is acting in a fiduciary capacity in the context of § 523(a)(4).
       The sale of perishable agricultural commodities, generally
referred to as produce, can be a “real gamble.” H.R. Rep. No. 98-
543, at 406 (1983). To mitigate the risks facing small-business pro-
duce sellers and promote fair practices among dealers, Congress
enacted PACA in 1930. 7 U.S.C. § 499a–499t. PACA mandates li-
censing of all commission merchants, dealers, and brokers who buy
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21-12133               Opinion of the Court                      21

and sell produce in interstate commerce. Id. § 499c(a). Under
PACA, it is unlawful for a produce buyer to fail to deliver prompt
payment to a produce seller, and the seller can sue the buyer for
damages for this unlawful act. Id. §§ 499b(4), 499e(a).
       Congress further amended PACA in 1984 to establish a stat-
utory trust between produce buyers and sellers. Frio Ice, S.A. v.
Sunfruit, Inc., 918 F.2d 154, 156 (11th Cir. 1990). The PACA trust
was created in response to the unfavorable practice of produce buy-
ers granting a security interest in their unpaid produce to lenders,
leading to an increase in delinquent payments. Id. The PACA stat-
ute provides, in part, that:
      Perishable agricultural commodities received by a
      commission merchant, dealer, or broker in all trans-
      actions, and all inventories of food or other products
      derived from perishable agricultural commodities,
      and any receivables or proceeds from the sale of such
      commodities or products, shall be held by such com-
      mission merchant, dealer, or broker in trust for the
      benefit of all unpaid suppliers or sellers of such com-
      modities or agents involved in the transaction, until
      full payment of the sums owing in connection with
      such transactions has been received by such unpaid
      suppliers, sellers, or agents.
7 U.S.C. § 499e(c)(2). A PACA trust “automatically arises in favor
of a produce seller upon delivery of produce.” Frio Ice, 918 F.2d at
156. To preserve the benefits of the trust, the produce seller must
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22                     Opinion of the Court                 21-12133

file written notice of intent to preserve its rights with the United
States Department of Agriculture and the produce buyer. Id.
        1. PACA Creates a Trustee, Identifiable Beneficiaries, and
                       an Identifiable Trust Res
        Our first step of the analysis under the Fiduciary Capacity
Exception looks to whether the statute creates a trustee and iden-
tifiable beneficiaries and trust res. Here, the PACA statute, on its
face, creates all three. The statute states that “a commission mer-
chant, dealer, or broker” who receives perishable agricultural com-
modities must hold those items in trust for the benefit of “all un-
paid suppliers or sellers of such commodities.” 7 U.S.C. § 499e(2).
Thus, the produce buyer is acting as a trustee. The beneficiaries
are “all unpaid” produce sellers. The trust res consists of produce
received “in all transactions,” as well as “any receivables or pro-
ceeds” of that produce. A PACA trust therefore satisfies the first
requirement of a technical trust under § 523(a)(4).
       2. PACA Does Not Impose Sufficient Trust-Like Duties to
                     Create a Technical Trust
       Turning to the second requirement, we must determine
whether the PACA statute imposes sufficient trust-like duties to
create a technical trust. Aside from the duty to hold produce in
trust until produce sellers are paid, the statute itself does not pro-
vide any specific duties on the PACA trustee. But the PACA regu-
lations provide further guidance.
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21-12133               Opinion of the Court                        23

        The PACA regulations state that “[t]rust assets are to be pre-
served as a nonsegregated ‘floating’ trust.” 7 C.F.R. § 46.46(b).
They also indicate that “[c]ommingling of trust assets is contem-
plated.” Id. Congress sought to structure the PACA trust as a non-
segregated trust “to minimize the burden of the PACA trust on pro-
duce dealers.” Frio Ice, 918 F.2d at 159. While the regulations
seem to lack the quintessential trust-like duty of segregating trust
assets, SVP argues in its reply brief that PACA meets the segrega-
tion requirement set out in Quaif. According to SVP, the PACA
trust is like the statutory trust at issue in Quaif because the PACA
trust contains a common account for trust property from all the
produce sellers. This segregation satisfies the standard in Quaif,
the argument goes, because we held that further separation into
distinct accounts is not a requirement so long as the trust property
is held in a separate account from non-trust property. Further, the
regulations only refer to the commingling of trust assets, but do
not refer to commingling of non-trust assets.
       We reject SVP’s argument for three reasons. First, SVP
seems to equate a nonsegregated trust and segregated trust where
the property for multiple beneficiaries is held in a common ac-
count. But these are two different concepts. The duty to segregate
relates to the “duty to keep the trust property separate from the
trustee’s own property.” Restatement (Third) of Trusts § 84 (2007).
Thus, if a trust is “nonsegregated,” then that implies that trust per-
mits trust assets to be in the same account as non-trust assets.
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24                     Opinion of the Court                 21-12133

       Second, SVP conflates the terms “commingle” and “min-
gle.” “Mingle” refers to the interaction of property from different
trusts. Id. cmt. c. This is what we were addressing in Quaif where
we held that it was sufficient to keep the insurance premiums in a
common account. Mingling is permitted when it is “impractical or
undesirable” to maintain separate account as long as accurate rec-
ords are maintained and the funds are not put into the trustee’s
personal account. Id. On the other hand, “commingle” means “to
mix personal funds with those of a beneficiary or client, [usually] in
an improper or illegal way.” Commingle, Black’s Law Dictionary
(11th ed. 2019). Thus, the phrase “[c]ommingling of trust assets is
contemplated” refers to the commingling of trust assets with non-
trust assets.
       Third, the PACA statute is distinguishable from the statute
in Quaif because, there, the statute expressly forbade the insurance
agent from commingling insurance premiums with his personal
funds. Quaif, 4 F.3d at 953. The PACA statute contains no such
provision. On the contrary, the PACA regulations suggest that
commingling is permitted. We therefore conclude that PACA does
not impose the important trust-like duty to segregate trust assets.
       Also lacking from the PACA statute is the duty to refrain
from using trust-assets for a non-trust purpose. The Forrests argue
that PACA permits a PACA trustee to use trust assets for a non-
trust purpose. They cite to the Federal Register discussing the
PACA trust which states that:
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21-12133                Opinion of the Court                        25

       Trust assets are available for other uses by the buyer
       or receiver. For example, trust assets may be used to
       pay other creditors. It is the buyer’s or receiver’s re-
       sponsibility as trustee to insure that it has sufficient
       assets to assure prompt payment for produce and that
       any beneficiary under the trust will receive full pay-
       ment, including sufficient assets to cover the value of
       disputed shipments.
Regulations Under the Perishable Agricultural Commodities Act;
Addition of Provisions to Effect a Statutory Trust. 49 Fed. Reg.
45735-01, 45738 (Nov. 20, 1984).
        In its reply brief, SVP contends that the PACA trustee cannot
use trust assets for non-trust purposes “if doing so results in the
trustee having an insufficient amount to pay the outstanding PACA
Trust claims.” This is because, SVP argues, the PACA regulations
require the PACA trustee “to maintain trust assets in a manner so
that the trust assets are freely available to satisfy outstanding obli-
gations to sellers of perishable agricultural commodities.” 7 C.F.R.
§ 46.46(d)(1). According to SVP, the only situation when the PACA
trustee can use trust assets for a non-trust purpose is when there is
an excess amount in the trust and doing so would not dissipate the
trust. And, the argument goes, this excess amount would not con-
stitute PACA trust assets.
       We find this argument lacks merit. The PACA statute pro-
vides that the trust consists of produce received as well as proceeds
from the sale of that produce. 7 U.S.C. § 499e(c)(2). Consider the
following scenario. A produce buyer buys $10,000 worth of fruits
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26                      Opinion of the Court                 21-12133

and vegetables from a produce seller. Those items go into the
PACA trust. The produce buyer then sells that produce to its cus-
tomers for $12,000, netting a profit of $2,000. As that $12,000 is
proceeds of the produce received, it is a trust asset and goes back
into the PACA trust. But since the produce buyer has an outstand-
ing debt to the produce seller of only $10,000, the produce buyer
could spend up to $2,000 of trust assets for a non-trust purpose
while still upholding its duty to maintain enough assets to satisfy
outstanding claims. Thus, the PACA statute and accompanying
regulations do not prohibit the use of trust assets for non-trust pur-
poses, and it could be permissible to do so in certain situations.
       Despite the absence of a requirement to segregate trust as-
sets and to refrain from using trust assets for a non-trust purpose,
SVP maintains that PACA imposes other trust-like duties sufficient
to create a technical trust. In particular, SVP points to the follow-
ing duties: the trustee must hold all assets subject to the PACA trust
for the benefit of unpaid produce sellers until they receive full pay-
ment; the trustee must maintain sufficient trust assets to satisfy out-
standing debts to unpaid produce sellers; and the trustee must keep
accurate records of all transactions for a period of two years.
        Starting with the trustee’s obligation to hold trust assets for
the benefit of unpaid produce sellers until they receive full pay-
ment, this is not so much a duty, but rather goes to the first part of
our test in determining whether a statute creates a trustee, benefi-
ciary, and trust res. Under the second part of our test, we focus on
the duties of the trustee to manage the property being held in trust.
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21-12133                Opinion of the Court                        27

And here, PACA does not impose the typical trust-like duty of seg-
regation nor does it prohibit the trustee from using the trust assets
for a non-trust purpose. Further, the statute does not expressly say
that PACA beneficiaries must be paid from the PACA trust. In-
stead, the statute provides that the trust assets must be held in trust
“until full payment of the sums owing in connection with such
transactions has been received by such unpaid suppliers, sellers, or
agents.” 7 U.S.C. § 499e(c)(2). But the statute does not specify
whether the unpaid produce sellers are to be paid with funds from
the PACA trust or funds from another source.
        Next, we recognize that the PACA regulations do impose a
duty on the trustee to maintain sufficient assets to satisfy outstand-
ing debts, but we are not convinced that this duty is “trust-like” in
nature. SVP cites no authority suggesting that this is a typical trust-
like duty rather than a means to enforce the contractual obligations
of the produce buyer to pay the produce seller. After all, “the cen-
tral purpose of [the PACA trust] is to ensure payment to trust ben-
eficiaries.” Frio Ice, 918 F.2d at 159.
        Lastly, SVP is correct that the duty to keep accurate records
is a typical trust-like duty. See Restatement (Third) of Trusts § 83
(2007) (“A trustee has a duty to maintain clear, complete, and accu-
rate books and records regarding the trust property and the admin-
istration of the trust.”). However, we find that this trust-like duty
alone cannot create a technical trust absent the important trust like
duties of segregation and refraining from using trust assets for a
non-trust purpose.
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28                     Opinion of the Court                21-12133

        SVP also argues that general principles of trust law impose
additional duties on PACA trustees, citing our decision in Gargiulo
v. G.M. Sales, Inc., 131 F.3d 995 (11th Cir. 1997). There, we reaf-
firmed the rule that “[g]eneral principles of trust law govern the
PACA trust, and under such principles, even if property is trans-
ferred in breach of the trust, a ‘bona fide purchaser’ receives the
property free of the trust.” Id. at 999. But that case was in the
context of a PACA creditor seeking disgorgement of loan payments
to banks made with PACA trust funds. Id. at 998. The “[g]eneral
principles of trust law” in Gargiulo thus refer to the circumstances
under which a PACA creditor could disgorge those payments. Id.
at 999. Further, a PACA trustee who misappropriates PACA trust
funds might be in “breach of trust,” id. at 999, but when analyzing
the Fiduciary Capacity Exception, we are determining whether the
fiduciary relationship between the debtor and creditor meets the
narrower definition of a technical trust. Thus, our holding today
that a PACA trustee is not acting in a fiduciary capacity in the con-
text of § 523(a)(4) does not affect a determination on whether a
PACA trustee’s misuse of trust assets constitutes a breach of trust.
In addition, our holding does not impact the legal definition of
PACA assets as trust assets, thus entitling PACA creditors to prior-
ity in bankruptcy proceedings. C.H. Robinson Co. v. Tr. Co. Bank,
N.A., 952 F.2d 1311, 1315 n.3 (11th Cir. 1992) (“Trust assets are ac-
tually exempt from the bankruptcy estate, and all trust beneficiaries
must be paid in full before any remainder is distributed to secured
creditors.”).
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21-12133                Opinion of the Court                        29

        In sum, the second step of our analysis under the Fiduciary
Capacity Exception requires us to examine the trust-like duties im-
posed by the statute on the trustee. And here, we find that PACA
does not impose sufficient trust-like duties to create a technical
trust. Two of the hallmark duties of a technical trust are not im-
posed by the statute: the duty to segregate trust assets and the duty
to refrain from using trust assets for a non-trust purpose. To the
contrary, the PACA regulations suggest that commingling and the
use of PACA trust assets for non-trust purposes is permitted. PACA
does impose other duties on produce buyers, but one of these du-
ties is not necessarily trust-like in nature and the remaining duties
are simply not sufficient to meet the narrow definition of a tech-
nical trust.
       3. A PACA Trust More Closely Resembles A Constructive
                        or Resulting Trust
         Based on our decision in Frio Ice, we find that a PACA trust
bears closer resemblance to a constructive or resulting trust than a
technical trust. As discussed, constructive or resulting trusts do not
qualify as technical trusts under § 523(a)(4) because they do not
meet the third requirement that the debtor must be acting in a fi-
duciary capacity before the act of defalcation creating the debt. In
Frio Ice, the issue was whether a district court could order an in-
junction to enforce payment from a PACA trust. Frio Ice, 918 F.2d
at 155; see also 7 U.S.C. § 499e(c)(5) (“The several district courts of
the United States are vested with jurisdiction specifically to enter-
tain . . . actions by trust beneficiaries to enforce payment from the
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30                      Opinion of the Court                 21-12133

trust.”). We held that “[u]pon a showing that the trust is being dis-
sipated or threatened with dissipation, a district court should re-
quire the PACA debtor to escrow its proceeds from produce sales,
identify its receivables, and inventory its assets.” Frio Ice, 918 F.2d
at 159 (footnote omitted). In other words, a district court can order
the PACA trustee to segregate trust assets upon a showing that the
trust is being dissipated. In fact, we noted that “[s]egregation often
may be the only means by which a federal court can prevent dissi-
pation.” Id. If segregation of trust assets is a strong indicator of a
technical trust and that duty is only imposed after an act of defalca-
tion—i.e., dissipation of trust assets—then a PACA trust resembles
a constructive or resulting trust to which § 523(a)(4) would not ap-
ply.
              4. SVP’s Policy Arguments Are Not Persuasive
       We now turn to the policy arguments made by SVP. While
we are convinced that a PACA trust does not meet the narrow ex-
ception to discharge in § 523(a)(4), we recognize that this case in-
volves two statutes with competing interests. As many courts have
made clear, whether § 523(a)(4) discharges a PACA trustee’s obli-
gations “represents a tug-of-war between two competing federal
statutes.” In re Villa, 625 B.R. 111, 121 (Bankr. N.D. Fla. 2021). On
the one hand, the Bankruptcy Code, “grant[s] a fresh start to the
honest but unfortunate debtor.” Marrama v. Citizens Bank of
Mass., 549 U.S. 365, 367 (2007) (internal quotation marks omitted).
And on the other hand, PACA was enacted “to encourage fair trad-
ing practices in the marketing of perishable commodities.” Frio
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21-12133               Opinion of the Court                      31

Ice, 918 F.2d at 155. Our holding today balances these two inter-
ests.
         SVP contends that our holding is contrary to Congress’s in-
tent, will negatively impact the produce industry, and will erode
the protections afforded by PACA. First, SVP argues that because
Congress amended PACA in 1984 and amended § 523(a)(4) in 2005,
this timing difference shows that Congress could have chosen to
exclude PACA trust obligations from § 523(a)(4) but chose not to.
However, we find that this timing-difference argument cuts both
ways. As the bankruptcy court below noted, “Congress has never
been shy or reluctant about enacting express exceptions to the
bankruptcy discharge.” Congress has enumerated nineteen excep-
tions to discharge. See 11 U.S.C. § 523(a)(1)–(19). While Congress
could have chosen to exclude PACA-related debts from § 523(a)(4),
it is just as possible that Congress could have chosen to add an ex-
press exception to discharge for those debts.
        SVP also suggests that Congress could have classified PACA
debts as ordinary business debts and imposed other remedies for
produce sellers such as liens. But instead, Congress chose to im-
pose a trust relationship between produce buyers and sellers. SVP
argues that the purpose of this was to except PACA debts from dis-
charge under § 523(a)(4). This argument too lacks merit. SVP cites
no support in the PACA statute or regulations showing that this
was Congress’s purpose in creating the PACA trust. On the con-
trary, the statute provides that the purpose of the PACA trust was
to address the “burden on commerce in perishable agricultural
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32                      Opinion of the Court                  21-12133

commodities” resulting from produce buyers granting security in-
terests in their unpaid produce to lenders. 7 U.S.C. § 499e(c)(1).
Because Congress labelled PACA debts as trust property, “secured
lenders will be forced to return trust property they have received
unless they can establish their status as bona fide purchasers.” C.H.
Robinson Co., 952 F.2d at 1315. Thus, the PACA trust provides
PACA creditors with a means to disgorge payments made from the
PACA trust to third-party lenders. Further, the status of PACA
debts as trust property entitles PACA creditors to the highest pri-
ority in bankruptcy proceedings. See id. (“[W]hen trust assets are
distributed in bankruptcy, trust beneficiaries are to be paid first.”).
Therefore, without support to the contrary, we are not convinced
that the purpose of the PACA trust was to except a produce buyer’s
debts from discharge when there remain other benefits of labelling
those debts as assets of a trust.
       Finally, SVP argues that not excepting PACA-related debts
from discharge will leave PACA creditors without recourse. But as
we have already noted, there are several avenues of recourse re-
maining to PACA creditors. They can seek disgorgement of pay-
ments made in breach of the PACA trust, and they are entitled to
the highest priority in bankruptcy. In addition, PACA beneficiaries
can obtain injunctive relief in district court to have trust assets seg-
regated for the benefit of all unpaid produce sellers. Frio Ice, 918
F.2d at 159.
      Allowing PACA debtors to be freed from personal liability
for their debts through bankruptcy discharge promotes the
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21-12133                Opinion of the Court                         33

overarching goal of the Bankruptcy Code of providing debtors with
a fresh start. At the same time, PACA still provides significant ben-
efits to unpaid produce sellers as those creditors are entitled to the
highest priority in a Chapter 7 liquidation. Our decision will not
erode the protections of PACA and will strike a balance between
these two statutes.

                               IV. Conclusion
        We hold that debts incurred by a produce buyer acting as a
PACA trustee are not excepted from discharge under § 523(a)(4).
While a PACA trust does identify a trustee, beneficiary, and trust
res, thus satisfying the first step of our analysis, it does not impose
sufficient trust-like duties to fit the narrow definition of a technical
trust under § 523(a)(4). PACA does not impose the duties to segre-
gate trust assets and refrain from using trust assets for a non-trust
purpose, which are strong indicia of a technical trust. Instead, a
PACA trust more closely resembles a constructive or resulting
trust, which do not fall within § 523(a)(4)’s exception to discharge.
Therefore, we affirm the bankruptcy court’s order dismissing
SVP’s complaint in this adversary proceeding.
       AFFIRMED.