Intentional Conduct May Be Required to Prove Defalcation under Secti...

By: Elizabeth Vanderlinde

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The Bankruptcy Court for the Eastern District of Wisconsin in In re Mueller[1] recently concluded that a genuine issue of material fact existed as to whether the debtor had the requisite mental state required to commit defalcation under section 523(a)(4) of the Bankruptcy Code (the “Code”), and therefore summary judgment was inappropriate.[2] The debtor failed to make certain required fringe benefit contributions to the plaintiffs under certain collective bargaining agreements entered into in connection with three construction projects.[3] The plaintiffs claimed that the debtor's failure to make such contributions violated Wisconsin's theft by contract statute and supported a finding of defalcation.[4] By contrast, the debtor argued that his failure to pay was inadvertent and reflective of the problems arising in the contracted projects.[5]

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