On Jan. 12, the Supreme Court denied a petition for writ of certiorari to resolve the split among circuit courts over the interpretation of “defalcation” for dischargeability purposes. In the case of Denton v. Hyman , ( In re Hyman ), the 2nd U.S. Circuit Court of Appeals held that the conduct of the debtor, in his capacity as fiduciary, did not rise to the level of defalcation under 11 U.S.C. § 523(a)(4). The court determined that defalcation required a showing of conscious misbehavior or extreme recklessness. It reasoned that the state court judgment, which included findings that the debtor had breached his fiduciary duty and misappropriated property, lacked the necessary factual determinations regarding intent. Consequently, it held that the debtor was not collaterally estopped from litigating the claim of defalcation.
The Facts
In 1984, the debtor, Andrew Hyman, and George W. Denton worked for an insurance agency representing the Guardian Life Insurance Co. of America. The agency marketed Guardian life insurance products through pension plans that were administered through National Pension Services Inc., a separate company affiliated with the insurance agency, according to court documents.
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