Devin Sullivan

Document Type

Research Memorandum

Publication Date




The Bankruptcy Code (“Code”) provides debtors with relief from many of their outstanding debts. However, even under the broad protection of the Code, some debts cannot be erased. Pursuant to section 523(a)(4) of the Code, an individual debtor may not discharge any debt for fraud or defalcation (unauthorized appropriation of money) while acting in a fiduciary capacity. 11 U.S.C. § 523(a)(4). The federal courts are currently split on the issue of whether a debtor who qualifies as a “fiduciary” under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 et seq, (“ERISA”) will also qualify as a fiduciary under the Code.

At stake in two recent cases was the status of a corporate officer's liability where employee benefit fund contributions withheld by the corporate employer were not remitted to the respective union pension and welfare funds prior to the corporation’s bankruptcy. In Trustee of Iron Workers v. Mayo (In re Mayo), 2007 Bankr. Lexis 3197 (D. Vt. Sept. 17, 2007), the Vermont Bankruptcy Court sided with those courts finding that being an ERISA fiduciary makes a debtor a fiduciary under the Code. As a result, the owner of a steel erection company, when declaring personal bankruptcy, was barred from discharging the $181,000 debt his company owed under a collective bargaining agreement to the employee benefit funds. Meanwhile, the Sixth Circuit held the opposite in Bd. of Trustees of the Ohio Carpenters’ Pension Fund v. Bucci (In re Bucci), 493 F.3d 635 (6th Cir. 2007), cert. denied, 128 S. Ct. 2903 (2008), permitting a company president to discharge liability for the debt his company owed to a multiemployer pension fund, ruling that the president’s status as an ERISA fiduciary was not sufficient to trigger the Code’s bankruptcy discharge exception. The split in authority comes down to the differences between the ERISA and Code definitions of “fiduciary.” While ERISA uses a functional test to determine whether a relationship is fiduciary, the Code employs a formal test that asks whether a fiduciary relationship was explicitly agreed upon between the creditor and party in bankruptcy. Those jurisdictions that have precedent building upon a narrow construction of the Code’s term “fiduciary capacity” are unable to reconcile ERISA’s functional definition of fiduciary with their prior decisions. However, other jurisdictions are not so constrained by prior opinions and have easily found that an ERISA fiduciary satisfies the requirements of the Code’s exception to discharge provision. The following discussion traces the reasoning in Bucci and Mayo, further discusses the reasons for the split in authority, and provides advice for practitioners going forward.


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