In re Griffin (Chapter 7, Case No. 11-51603, Adv. No. 11-05090)

The debtor, as an individual and as president of a plumbing company, signed an indemnity agreement as an inducement for the creditor to issue surety bonds on behalf of the company. The company and the debtor agreed that all funds coming due on certain projects that the company was working on would be trust funds. The debtor, individually and on behalf of the company, received funds but failed to use the funds to pay the obligations on the projects. The creditor contended that, as a result of the debtor's failure to properly use the trust funds, it had to pay claims for which debtor was liable under the indemnity agreement and that the debtor's obligation was nondischargeable as the result of a fraud or defalcation while acting as in a fiduciary capacity under 11 U.S.C. ยง 523(a)(4). The court held that the debtor was acting in a fiduciary capacity because under the indemnity agreement he had agreed and declared that the funds due under the projects were trust funds to be held for payment of certain claims. The court did not reach, on the debtor's motion to dismiss, the question of whether the debtor's action was a defalcation.

Friday, October 28, 2011