In re Marchiando, 92 C 20105
| Decision Date | 22 June 1992 |
| Docket Number | Adv. No. 91 A 3069.,Bankruptcy No. 91 B 34022,No. 92 C 20105,92 C 20105 |
| Parties | In re Nancy S. MARCHIANDO, Debtor. STATE OF ILLINOIS, DEPARTMENT OF THE LOTTERY, Plaintiff-Appellant, v. Nancy S. MARCHIANDO, Defendant-Appellee. |
| Court | U.S. District Court — Northern District of Illinois |
Mark E. Wilson, Asst. Atty. Gen., Chicago, Ill., for plaintiff-appellant.
Bradley J. Waller, Boyle, Cordes & Brown, DeKalb, Ill., for defendant-appellee.
The State of Illinois, Department of Lottery (Department), appellant, seeks review of the bankruptcy judge's order granting summary judgment in favor of Nancy S. Marchiando, appellee, 138 B.R. 548. The order declared that appellee's debt to the Department, which arose from the defalcation of lottery proceeds, was dischargeable. The bankruptcy judge held that appellee was not a fiduciary under 11 U.S.C. § 523(a)(4) because no express trust was created by the terms of the Illinois Lottery Law, Ill.Rev.Stat.1989, ch. 120, ¶ 1151 et seq.
The sole issue presented for review is whether the bankruptcy judge erred in granting appellee's motion for summary judgment by holding that Marchiando did not act in a fiduciary capacity under 11 U.S.C. § 523(a)(4) (1988).
The facts are undisputed and relatively straightforward. Accordingly, we will adopt the facts as found by the bankruptcy judge.
On October 1, 1983, appellee opened and began operating a grocery business in Sycamore, Illinois. In December of that same year, she became licensed by the State of Illinois to serve as an agent for the Department.
On February 26, 1991, appellee filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 (1988), (Code). Appellee listed "The Illinois State Lottery" as the holder of an unsecured claim for $16,000. Appellee's personal property was listed at $8,380, including $2,580 in cash and $300 in a checking account.
On May 26, 1991, the Department filed a Proof of Claim in the amount of $16,639.95. This represented principal in the amount of $15,977.77 and $662.18 in the form of a "2% finance charge thru 12/31/90 in accordance with state statute."
On June 21, 1991, the Department filed a complaint charging appellee with failure to perform a statutory duty by failing to segregate lottery proceeds in a trust account for the Department's benefit and by failing to pay such proceeds on demand. The complaint also alleged that appellee converted the lottery proceeds for her business and personal needs. The complaint prayed for a determination that the debt owed to the Department is nondischargeable under § 523(a)(4) of the Code.
Appellee admits she failed to segregate the lottery proceeds as alleged and that she owes the Department the money in question. Appellee contends, however, that the debt is dischargeable.
In her motion for summary judgment, appellee argued that defalcation while acting in a fiduciary capacity can only arise with reference to an "express trust." She further argued that an "express trust" is not created by § 10.3 of the Illinois Lottery Law, Ill.Rev.Stat.1989, ch. 120, ¶ 1160.3. Appellee further argued that the term "trust fund" used in the statute does not transform a mere agency relationship into a fiduciary relationship for bankruptcy purposes.
The bankruptcy judge granted the motion holding, among other things, that because the language in the Illinois statute did not create an express trust it, therefore, cannot be the basis of a fiduciary relationship under § 523(a)(4) of the Code.
In deciding a motion for summary judgment, the court must read all facts in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Richardson v. Penfold, 839 F.2d 392, 394 (7th Cir.1988). Summary judgment is appropriate where the pleadings, depositions and affidavits show that there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Anderson, 477 U.S. at 247, 106 S.Ct. at 2509; Poller v. Columbia Broadcasting System, 368 U.S. 464, 467, 82 S.Ct. 486, 488, 7 L.Ed.2d 458 (1962); Miller v. ICX, 358 F.Supp. 1378, 1380 (N.D.Ill.1972).
The facts are not in dispute and the only issue before the court is whether appellee is entitled to a discharge, as a matter of law, under § 523(a)(4) of the Code. This Section excepts from discharge any debt which is attributable to "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." 11 U.S.C. § 523(a)(4) (1988).
The purpose of the Bankruptcy Code is to provide the debtor with a new opportunity in life and a clear field for future efforts, unhampered by pressure and discouragement of pre-existing debt. Lines v. Frederick, 400 U.S. 18, 19, 91 S.Ct. 113, 114, 27 L.Ed.2d 124 (1970); In Re Pitney, 119 B.R. 841, 843 (Bkrtcy.M.D.Fla.1990). Exceptions to discharge are allowed, however, if the creditor proves by a preponderance-of-the-evidence that a particular obligation of the debtor falls within the scope of § 523. Grogan v. Garner, ___ U.S. ___, ___, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
All questions of dischargeability of debts in bankruptcy proceedings are federal law questions. Matter of McCraney, 63 B.R. 64, 65 (Bkrtcy.N.D.Ala.1986) (citing Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979)). The concept of a fiduciary is a matter of federal law. See Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934) ); In Re Guy, 101 B.R. 961, 986 (Bkrtcy.N.D.Ind. 1988); McCraney, 63 B.R. at 66. The traditional definition of a "fiduciary" is not applicable in bankruptcy law. In Re Cairone, 12 B.R. 60, 62 (Bkrtcy.D.R.I.1981). The general meaning—a relationship involving confidence, trust and good faith—is far too broad. Cairone, 12 B.R. at 62. The fiduciary relationship referred to in § 523(a)(4) has been held to be limited to express and technical trusts, Cairone, 12 B.R. at 62 (citing Davis, 293 U.S. 328, 55 S.Ct. 151), neither of which the law implies from a contract, Chapman, 43 U.S. (2 How.) 202, 11 L.Ed. 236 (1844). Further, it must have existed prior to the act creating the debt and without reference to that act. Davis, 293 U.S. at 333, 55 S.Ct. at 153.1 Thus, implied or constructive trusts and trusts ex maleficio are not susceptible to the establishment of a fiduciary relationship under the Code. See Cairone, 12 B.R. at 62. Similarly, ordinary commercial relationships such as creditor-debtor and principal-agent relationships have been held not to create a fiduciary relationship in the bankruptcy context. Cairone, 12 B.R. at 62.
A fiduciary relationship for dischargeability purposes may exist where a state statute has defined a particular relationship. In Re Janikowski, 60 B.R. 784, 788 (Bkrtcy.N.D.Ill.1986). The state law creating the fiduciary relationship must, however, have imposed a trust on the property and set forth the fiduciary duties. Janikowski, 60 B.R. at 788.
While federal law determines what a "fiduciary" is, state law takes on added importance in determining whether a specific case involves an "express trust." See Davis, 293 U.S. at 334, 55 S.Ct. at 154 (); Guy, 101 B.R. at 986; McCraney, 63 B.R. at 65-66. Under Illinois law, an express trust exists where there is (1) intent to create a trust; (2) definite subject matter or trust property; (3) ascertainable beneficiaries; (4) a trustee; (5) specifications of a trust purpose; and (6) delivery of trust property to the trustee. Yardley v. Yardley, 137 Ill.App.3d 747, 759, 92 Ill.Dec. 142, 151, 484 N.E.2d 873, 882 (2nd Dist.1985); Estate of Wilkening, 109 Ill.App.3d 934, 940, 65 Ill.Dec. 366, 371, 441 N.E.2d 158, 163 (1st Dist.1982); see Wynekoop v. Wynekoop, 407 Ill. 219, 95 N.E.2d 457, 460 (1950); see also Pitney, 119 B.R. at 843. If any of the necessary elements of a trust are not described with certainty, no trust is created. Wilkening, 109 Ill.App.3d at 940-41, 65 Ill.Dec. at 371, 441 N.E.2d at 163 (citing Marble v. Marble, 304 Ill. 229, 235, 136 N.E. 589 (1922)).
Section 10.3 of the Illinois Lottery Law provides, in pertinent part, as follows:
§ 10.3. All proceeds from the sale of lottery tickets or shares received by a person in the capacity of a sales agent shall constitute a trust fund until paid to the Department either directly, or through the Department\'s authorized collection representative. Proceeds shall include unsold instant tickets received by a sales agent and cash proceeds of sale of any lottery products, net of allowable sales commissions and credit for lottery prizes paid to winners by sales agents. Sales proceeds and unsold instant tickets shall be delivered to the Department or its authorized collection representative upon demand. Sales agents shall be personally liable for all proceeds which shall be kept separate and apart from all other funds and assets and shall not be commingled with any other funds or assets. In the case of a sales agent who is not an individual, personal liability shall attach to the owners and officers of the sales agent. The Department shall have a right to file a lien upon all real and personal property of any person who is personally liable under this Section for any unpaid proceeds, which were to be segregated as a trust fund under this Section, at any time after such payment was to have been made. Such lien shall include any interest and penalty provided for by this Act and shall be deemed equivalent to, and have the same effect as, the State tax lien under the Retailers\' Occupation Tax Act.
Ill.Rev.Stat.1989, ch. 120, ¶ 1160.3.
Section 21 of the Illinois Lottery Law further provides that the agents shall be liable for...
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