U.S. Supreme Court Sides with Emory Student Group’s Client, Vacates Bankruptcy Decision
On Monday, May 13, the U.S. Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., a case brought before the court by the Emory Law School Supreme Court Advocacy Project (ELSSCAP), concerning how to define the term “defalcation.”
The students’ petition asked the Court to consider the degree of misconduct that constitutes defalcation under the Bankruptcy Code sufficient to prevent a debt from being discharged.
In an unanimous decision delivered by Justice Stephen Breyer, the Court held: “The term ‘defalcation’ in the Bankruptcy Code includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.”
In October, certiorari was granted in the case, the first time the Emory student group has reached the merits stage on behalf of a client in the Supreme Court. The students involved in drafting the briefs, at both the certiorari stage and the merits stage, were Ed Philpot 13L, Rachel Erdman 14L, Louis Laverone 13L, Scott Forbes 13L and Michael Wiseman 14L.
Students worked with Professor Sarah Shalf, ELSSCAP’s faculty advisor and director of Emory’s Externship and Professionalism programs; Thomas M. Byrne of Sutherland Asbill & Brennan, an ELSSCAP partner firm, who argued the case before the Court; and James Engelthaler of Thigpen, Behel, Engelthaler & Scott, counsel for ELSSCAP’s client in the Court of Appeals. The students and Shalf, along with Engelthaler and petitioner Randy Bullock, attended arguments before the Court on March 18 in Washington, D.C.
“I’m grateful that the students, Tom Byrne, and Jim Engelthaler are able to share in the excitement of this victory. But most of all, I am delighted that we have won this case for our client Randy Bullock: He needed a ‘fresh start,’ and the Supreme Court has granted him another chance at one,” Shalf said.
It was a complex case with facts dating from 1978, when Bullock’s father named Bullock trustee of his estate, which consisted solely of the proceeds of a life insurance policy, whose provisions allowed borrowing against the policy’s value.
Bullock borrowed against the policy three times, but also repaid the debts plus interest charged by the insurer. The first time was in 1981, at the father’s request, to loan his mother money to repay a debt to the father’s business. In 1984, Bullock borrowed to pay for certificates of deposit used by the son and mother to buy a mill. In 1990, funds were borrowed against the policy to buy real property.
“The petitioner saw that all of the borrowed funds were repaid to the trust along with 6 percent interest,” the Court observed.
In 1999, Bullock’s brothers filed suit, alleging breach of fiduciary duty. An Illinois court agreed, and entered a $250,000 judgment against Bullock. When Bullock declared bankruptcy, the bankruptcy court refused to discharge this debt, and that decision was affirmed on two levels of appellate review.
In vacating and remanding the case, the Court acknowledged the lack of clarity thus far.
“It is important to have a uniform interpretation of federal law, the choices are limited, and neither the parties nor the Government has presented us with strong considerations favoring a different interpretation,” Breyer wrote.
The timing of the opinion’s release was especially sweet for the 13L students, as it was handed down on the same day several of them received their JD degrees during Emory Law’s commencement ceremonies.