                                                           FILED
 1                         ORDERED PUBLISHED                APR 15 2015

 2                                                     SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP Nos.    NV-14-1468-DJuKu
                                   )                  NV-14-1469-DJuKu
 7   TONYA CAROL HEERS,            )                  (Related Appeals)
                                   )
 8                  Debtor.        )      Bk. No.     2:13-bk-19887-LED
                                   )
 9                                 )      Adv. Nos. 2:14-ap-01029-LED
     TONYA CAROL HEERS,            )                2:14-ap-01030-LED
10                                 )
                    Appellant,     )
11                                 )
     v.                            )      O P I N I O N
12                                 )
     DARRELL PARSONS, JR.; AMERICAN)
13   CONTRACTORS INDEMNITY COMPANY,)
                                   )
14                  Appellees.     )
     ______________________________)
15
                     Argued and Submitted on March 19, 2015
16                            at Las Vegas, Nevada
17                           Filed - April 15, 2015
18             Appeal from the United States Bankruptcy Court
                         for the District of Nevada
19
          Honorable Laurel E. Davis, Bankruptcy Judge, Presiding
20
21   Appearances:     William L. McGimsey argued for appellant Tonya
                      Carol Heers; Abran E. Vigil of Ballard Spahr LLP
22                    argued for appellee Darrell Parsons, Jr.; Misty
                      Perry Isaacson of Pagter and Perry Isaacson,
23                    APLC, argued for appellee American Contractors
                      Indemnity Company.
24
25   Before:   DUNN, JURY and KURTZ, Bankruptcy Judges.
26   Opinion by Judge Dunn
     Dissent by Judge Kurtz
27
28
 1   DUNN, Bankruptcy Judge:
 2
 3        Debtor defendant appellant Tonya Carol Heers (“Debtor”)
 4   appeals summary judgment orders in two separate adversary
 5   proceedings excepting debts from her discharge under
 6   § 523(a)(4)1 for defalcations while acting in a fiduciary
 7   capacity.   We AFFIRM.
 8                            I. FACTUAL BACKGROUND
 9        The facts in these two related appeals are not in dispute.
10   Darrell Parsons, Jr. (“Parsons”), was the sole heir of his
11   father, Darrell Parsons, Sr., who died intestate on November 1,
12   2008.    Parsons’ father’s estate (“Estate”) initially was
13   estimated to be worth approximately $3 million2 and included
14   real estate in California and North Carolina; a business which
15   leased coin-operated lockers to corporate customers throughout
16   the United States; and bank accounts into which cash proceeds
17   from the business were deposited.
18        When his father died, Parsons had to choose an
19   administrator for the Estate.     Parsons learned of his father’s
20   death from Thomas Warden (“Warden”), a friend and attorney for
21   his father.    Warden handled a number of legal matters for
22   Parsons’ father, and on several occasions, Warden had drafted
23
24        1
           Unless specified otherwise, all chapter and section
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
     and all “Rule” references are to the Federal Rules of Bankruptcy
26   Procedure, Rules 1001-9037. All “Civil Rule” references are to
     the Federal Rules of Civil Procedure.
27
          2
           Ultimately, the gross Estate value was determined to be
28   $5,087,791.

                                       -2-
 1   testamentary documents for Parsons’ father, none of which were
 2   executed.   Warden advised Parsons that a probate proceeding
 3   would need to be filed in California, and he volunteered to
 4   serve as administrator and to refer the matter to a competent
 5   probate attorney.
 6        Parsons apparently was upset with Warden because he was not
 7   notified of his father’s death until after the burial and was
 8   unwilling to designate Warden to administer the Estate.     Parsons
 9   discussed the situation with the Debtor, who was a criminal
10   defense attorney who had handled traffic ticket matters for
11   Parsons.    Debtor indicated that she was inexperienced in probate
12   matters, but she expressed interest in administering the Estate.
13   She told Parsons that her mother and law partner was a “probate
14   wizard,” and she advised Parsons that she could handle the
15   Estate matter for less than Warden.
16        Debtor in fact did not have any knowledge of probate law,
17   and prior to her involvement with the Estate, she had never been
18   involved in the administration of a decedent’s estate.     She
19   likewise had never been involved in any estate planning.
20   Nevertheless, Parsons asked Debtor to administer the Estate, and
21   she accepted.   On or about February 6, 2009, Debtor was
22   appointed as administrator of the Estate by the Los Angeles
23   County, California Superior Court (“Probate Court”).   She was
24   issued general letters of administration on February 27, 2009.
25   On that same date, Debtor signed and filed with the Probate
26   Court a statement acknowledging her “Duties and Liabilities of
27   Personal Representative” (“Duties Statement”), which stated,
28   among other things, that “[w]ithin four months after Letters [of

                                     -3-
 1   administration] are first issued to you as personal
 2   representative, you must file with the court an inventory and
 3   appraisal of all the assets in the estate.”   Upon her
 4   appointment as Estate administrator, Debtor became a fiduciary
 5   to the Estate.
 6        In December 2008, Debtor had met with Parsons and Warden,
 7   at which time Warden delivered to Debtor a Bekins box of records
 8   including bank statements, notes and records showing bank
 9   accounts and other information with respect to the decedent’s
10   assets.   In addition, by that time, Warden had completed an
11   inventory of assets in Parsons’ father’s home.
12        The Debtor was bonded by American Contractors Indemnity
13   Company (“ACIC”).   Thereafter, probate and estate administration
14   proceeded, but neither efficiently nor smoothly.
15        Debtor understood that her duties in administering the
16   Estate included the preparation and timely filing of tax
17   returns, including the estate tax return, and payment of any
18   taxes owed on behalf of the Estate, so long as the Estate had
19   funds available to pay the taxes.    To assist her in performing
20   these duties, Debtor selected an accounting firm headed by D.K.
21   Wallin, a former controller for the state of Nevada (the “Wallin
22   Firm”).   The Wallin Firm was licensed in both California and
23   Nevada.
24        Debtor met with the Wallin Firm in February 2009, but she
25   was not presented with an engagement letter and did not sign a
26   contract of any kind at that time.   An engagement letter
27   eventually was presented to her in October 2009.   Lorrie
28   Edelblute (“Edelblute”) was the Wallin Firm employee who was

                                    -4-
 1   assigned to the Estate matter.
 2        Despite her knowledge of her non-delegable duty to do so,
 3   Debtor took no steps on her own to ascertain when the estate tax
 4   return for the Estate was due, which was no later than August 3,
 5   2009 - nine months following the decedent’s date of death.
 6   According to Debtor, she was advised by Edelblute that the
 7   estate tax return was due by August 15, 2009.      However, in
 8   subsequent proceedings before the Probate Court, Edelblute was
 9   never called to testify in support of Debtor’s contentions.        On
10   August 11, 2009, Debtor signed and filed with the Internal
11   Revenue Service (“IRS”) a Form 4768 request for extension of the
12   Form 706 estate tax return deadline, which included an estimated
13   estate tax due of $825,000, as calculated by the Wallin Firm,
14   and further specifically referenced the past due deadline for
15   the estate tax return filing as August 3, 2009.      With the Form
16   4768 extention request, Debtor included a tax payment of $10,000
17   because she thought she had only a total of $20,000 available in
18   the Estate bank account to which she had access.
19        Debtor eventually hired another accounting firm, Gamut and
20   King, to assist her with her Estate work.      In April 2010, Debtor
21   received a notice from the IRS that they had not received the
22   estate tax return for the Estate.      Debtor then paid an
23   additional $16,000 to the IRS, in spite of the estimate from the
24   Wallin Firm that the estate tax would actually be approximately
25   $825,000.   Apparently, the estate tax return for the Estate was
26   finally filed on September 15, 2010.      Debtor eventually sent
27   additional payments totaling approximately $1,300,000 to the IRS
28   on behalf of the Estate, but in November 2010, Debtor received a

                                      -5-
 1   letter from the IRS advising her that the Estate owed an
 2   additional $397,000.
 3        Upon inquiry to Gamut and King, Debtor learned that the
 4   additional IRS claim represented penalties for failing to file
 5   the estate tax return by the August 2009 deadline.    Debtor
 6   requested Gamut and King to appeal the IRS penalty assessment,
 7   but the appeal was rejected.   Late payment penalties plus
 8   interest ultimately totaled $439,621.61.
 9        Debtor filed her first inventory and appraisal for the
10   Estate in February 2010.   A “corrected” inventory was filed on
11   June 22, 2010, and the final accounting also was filed in June
12   2010.
13        Debtor filed a Second Account in the probate proceeding on
14   July 11, 2011, to which Parsons objected.   Specifically, Parsons
15   requested a finding that Debtor was personally liable for the
16   tax penalties and interest assessed by the IRS against the
17   Estate as a result of breaches by Debtor of her fiduciary duties
18   as administrator, focusing on the late filing of the estate tax
19   return and the late payment of the estate tax owed.
20        The Probate Court heard Parsons’ objection to Debtor’s
21   Second Account at a trial on March 25-26, 2012.   Following the
22   presentation of testimony and argument and the admission of
23   numerous exhibits, the Probate Court took the matter under
24   advisement and issued a written decision on June 22, 2012
25   (“Second Account Findings”).
26        The Second Account Findings opened with a time line with
27   respect to the decedent’s death and the probate proceedings.
28   The Probate Court described the “most salient and undisputed”

                                    -6-
 1   facts of the matter as follows:
 2        [Debtor] was the general administrator of this
          [Estate] with the sole responsibility to assure that
 3        tax returns were filed and taxes owing were paid. The
          accounting firm she engaged did not file the estate
 4        tax return by the August 3, 2009 deadline. As a
          result, interest and penalties became due and owing to
 5        the IRS in the amount of $439,621.61.
 6        The Probate Court was troubled that although Debtor blamed
 7   the Wallin Firm for the missed estate tax deadline, no
 8   engagement letter setting forth the respective duties of the
 9   parties was signed with the Wallin Firm until October 2009.    In
10   addition, although Debtor testified that she was unaware of the
11   missed deadline until she was notified by the IRS, she had
12   signed the Form 4768 extension request on August 11, 2009, which
13   clearly designated the estate tax return deadline as August 3,
14   2009.
15        The Probate Court determined that Debtor was dilatory in
16   gathering and organizing Estate asset information, which was
17   “illustrative of [Debtor’s] pattern of lethargy when it came to
18   working on this [Estate].”   Under California Probate Code
19   § 8800(b), the Estate inventory was due in June 2009, within
20   four months after letters of administration issued, but was not
21   filed until February 2010.
22        The Probate Court further was mystified by Debtor’s failure
23   to pay most if not all of the estate tax liability as soon as
24   she became aware of the due date because the “inventory and
25   appraisals coupled with the accountings filed in this case show
26   that sufficient or close to sufficient monies existed in the
27   cash accounts of Darrell Parsons, Senior to pay almost all, if
28   not all, of the estimate[d] tax.”    The Probate Court found that

                                    -7-
 1   Debtor’s decision to pay $10,000 as a down payment on an
 2   estimated $825,000 estate tax liability “makes absolutely no
 3   sense.”
 4        The failure to explain why [Debtor] had not marshaled
          sufficient control over the cash assets in the
 5        [Estate] that, if provided to the IRS, would have
          eliminated or at least, mitigated, the penalties and
 6        interest, presents a mystery to this court and
          substantially supports that [Debtor] breached her duty
 7        of care.
 8   Second Account Findings, at 14.
 9        In its order regarding Debtor’s Second Account (“Second
10   Account Order”), the Probate Court awarded what it characterized
11   as a surcharge against the Debtor in the amount of the IRS
12   estate tax late filing penalties and interest totaling
13   $439,621.61, plus interest “at the legal rate.”   However, the
14   Probate Court further ordered that any subsequent award of
15   compensation to the Debtor as Estate administrator would be
16   offset against the surcharge amount and did not award Parsons
17   any attorneys fees.   The Second Account Order was not appealed
18   and is final.
19        In an order entered on November 12, 2013, the Probate Court
20   determined the surcharge judgment (“Surcharge Judgment”) to be
21   $347,243.96 as of April 29, 2013, with interest accruing thereon
22   at a rate of $95.13 per day.   The Surcharge Judgment, among
23   other things, reflects offsets of $150,000 from a settlement
24   payment (“Bond Payment”) by ACIC to Parsons on Debtor’s
25   fiduciary bonds and $65,262.07, representing Debtor’s statutory
26   commission/compensation as administrator of the Estate.    The
27   Surcharge Judgment likewise is final.
28        Prior to that time, in July 2013, ACIC filed a motion in

                                    -8-
 1   the Probate Court to obtain judgment against Debtor for its Bond
 2   Payment.   Debtor did not oppose the motion, and on August 21,
 3   2013, the Probate Court entered judgment in favor of ACIC for
 4   the Bond Payment and $22,374.30 in attorneys fees, plus interest
 5   at 10% (“Bond Judgment”).    Debtor did not appeal the Bond
 6   Judgment, and it is final.
 7        Debtor filed for relief under chapter 7 on November 26,
 8   2013.3
 9        Both Parsons and ACIC filed timely adversary proceedings
10   against Debtor, seeking determinations that the Surcharge
11   Judgment and the Bond Judgment should be excepted from Debtor’s
12   discharge under § 523(a)(4) for defalcations by Debtor while
13   acting in a fiduciary capacity.    Debtor filed answers to both
14   complaints denying that the subject debts should be excepted
15   from her discharge.   Both Parsons and ACIC filed motions for
16   summary judgment in June 2014, supported by documentary evidence
17   and the declarations of one of ACIC’s in-house counsel and its
18   trial counsel.   The centerpiece supporting both summary judgment
19   motions was the Probate Court’s Second Account Findings.      Debtor
20   filed memoranda in opposition to both motions for summary
21   judgment, to which Parsons and ACIC replied.    Both Parsons and
22
23        3
           From the briefs and records filed in these appeals, there
24   is some question as to whether Debtor filed her chapter 7
     petition on November 16 or 26, 2013. We have exercised our
25   discretion to take judicial notice of documents filed in
     Debtor’s main bankruptcy case and in the two adversary
26   proceedings from which these appeals arise to resolve this
     question, among others. See O’Rourke v. Seaboard Sur. Co. (In
27   re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989);
     Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R.
28   227, 233 n.9 (9th Cir. BAP 2003).

                                     -9-
 1   ACIC relied primarily on the asserted preclusive effects of the
 2   Second Account Findings, coupled respectively with the final
 3   Surcharge Judgment and Bond Judgment.
 4        The bankruptcy court heard oral argument (“Hearing”) on
 5   both summary judgment motions on August 6, 2014.   At the
 6   Hearing, while all parties unsurprisingly emphasized different
 7   aspects of the undisputed facts, the focus of the argument was
 8   on the impact of the recent Supreme Court decision in Bullock v.
 9   BankChampaign, N.A., 133 S. Ct. 1754 (2013), interpreting
10   application of the “defalcation while acting in a fiduciary
11   capacity” standard in § 523(a)(4) cases.   Following argument and
12   colloquy with counsel, the bankruptcy court announced its
13   conclusions orally.    Initially, the bankruptcy court noted that
14   Debtor did not dispute the statements of undisputed facts
15   submitted by Parsons and ACIC and had submitted no declarations
16   in opposition.   The bankruptcy court further pointed out that
17   the Supreme Court has recognized that bankruptcy courts can
18   apply issue preclusion to the findings of fact and conclusions
19   of law of other courts with respect to the elements of exception
20   to discharge claims.   The bankruptcy court also noted that there
21   was no dispute that Debtor was a fiduciary of an express trust
22   for purposes of the plaintiffs’ § 523(a)(4) claims.   The only
23   issue was whether Debtor had committed a defalcation(s) that
24   would except her debts to Parsons and ACIC from discharge.
25   Citing the Supreme Court’s Bullock decision, the bankruptcy
26   court characterized the applicable standard as “conduct that
27   would be deemed reckless, or recklessness to the point of
28   inferring a reckless disregard such as you would have in a

                                     -10-
 1   criminal situation.”    Hr’g Tr. (Aug. 6, 2014) at 25:5-7.   The
 2   bankruptcy court then concluded that Debtor’s breaches of her
 3   fiduciary duties met that standard and granted both summary
 4   judgment motions.
 5        Orders granting summary judgment in favor of ACIC and
 6   Parsons against Debtor were entered on September 15 and 16,
 7   2014, respectively.    The order in favor of Parsons was
 8   denominated a “judgment,” though it included a grant of the
 9   summary judgment motion.    The order in favor of ACIC was
10   denominated an “order granting summary judgment . . . ,” though
11   it included a statement that the debt was non-dischargeable
12   under § 523(a)(4).4
13        Debtor filed timely appeals from both summary judgment
14   decisions.
15                              II. JURISDICTION
16        The bankruptcy court had jurisdiction under 28 U.S.C.
17   §§ 1334 and 157(b)(2)(I).    We have jurisdiction under 28 U.S.C.
18
19        4
           Each order/judgment might technically be considered to
20   violate the separate judgment rule. See Rule 7058, making Civil
     Rule 58 applicable in adversary proceedings. “Ordinarily there
21   should be a separate document embodying a final judgment that is
     distinct from and in addition to an order granting a motion for
22   summary judgment.” Gaughan v. Edward Dittlof Revocable Trust
     (In re Costas), 346 B.R. 198, 200 n.3 (9th Cir. BAP 2006).
23   However, the requirement for a separate judgment may be
24   considered waived by the parties where the bankruptcy court
     clearly evidenced its intent that an order from which an appeal
25   has been taken represented its final decision in the matter, and
     the prevailing party does not object to the taking of an appeal
26   in the absence of a separate judgment. Bankers Trust Co. v.
     Mallis, 435 U.S. 381, 387-88 (1978). These requirements are
27   satisfied in these cases, and the separate judgment requirement
     is deemed waived to the extent it was not otherwise satisfied by
28   the expiration of the 150-day period in Civil Rule 58(c)(2)(B).

                                      -11-
 1   § 158.
 2                                 III. ISSUE
 3        Whether the bankruptcy court erred in concluding that
 4   Debtor’s conduct at issue met the standard for defalcation while
 5   acting in a fiduciary capacity for purposes of § 523(a)(4).
 6                        IV. STANDARDS FOR REVIEW
 7        We review bankruptcy court summary judgment orders de novo.
 8   Shahrestani v. Alazzeh (In re Alazzeh), 509 B.R. 689, 692-93
 9   (9th Cir. BAP 2014); Khaligh v. Hadaegh (In re Khaligh), 338
10   B.R. 817, 823 (9th Cir. BAP 2006), aff’d, 506 F.3d 956 (9th Cir.
11   2007).   Summary judgment is appropriate only “if the movant
12   shows that there is no genuine dispute as to any material fact
13   and the movant is entitled to judgment as a matter of law.”
14   Civil Rule 56(a); Rule 7056; Anderson v. Liberty Lobby, Inc.,
15   477 U.S. 242, 249 (1986).
16        We also review de novo the preclusive effects of state
17   court orders and judgments.    Whether issue preclusion is
18   available is a mixed question of law and fact.       Stephens v.
19   Bigelow (In re Bigelow), 271 B.R. 178, 183 (9th Cir. BAP 2001);
20   In re Khaligh, 338 B.R. at 823.    If issue preclusion is
21   available, the decision of the bankruptcy court to apply it is
22   reviewed for abuse of discretion.       Lopez v. Emergency Serv.
23   Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP
24   2007).   Under the abuse of discretion standard, reversal is
25   appropriate only where the bankruptcy court applied an incorrect
26   legal rule, or where its application of the law to the facts was
27   illogical, implausible or without support from inferences that
28   may be drawn from the record.    Ahanchian v. Xenon Pictures,

                                      -12-
 1   Inc., 624 F.3d 1253, 1258 (9th Cir. 2010), citing United States
 2   v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).    When
 3   a state’s preclusion law controls, the bankruptcy court is
 4   required to exercise such discretion consistent with the
 5   applicable state law.5   Gayden v. Nourbakhsh (In re Nourbakhsh),
 6   67 F.3d 798, 800-01 (9th Cir. 1995); In re Khaligh, 338 B.R. at
 7   823.
 8          We can affirm the bankruptcy court on any basis supported
 9   by the record.    ASARCO, LLC v. Union Pac. R.R., 765 F.3d 999,
10   1004 (9th Cir. 2014); Shanks v. Dressel, 540 F.3d 1082, 1086
11   (9th Cir. 2008).
12                              V. DISCUSSION
13          The only issue in these appeals is whether Debtor committed
14   a defalcation(s) while acting in a fiduciary capacity that
15   supports excepting her debts to Parsons and ACIC from discharge
16   for purposes of § 523(a)(4).6   We begin our analysis by noting
17   that we are bound by the principle that “exceptions to discharge
18   should be strictly construed against an objecting creditor and
19
20
            5
           Debtor does not contest or present any argument in either
21   of these appeals that the bankruptcy court misapplied California
     issue preclusion law. Accordingly, any such argument is deemed
22   waived. “We review only issues which are argued specifically
     and distinctly in a party’s opening brief.” Greenwood v. FAA,
23   28 F.3d 971, 977 (9th Cir. 1994), citing Miller v. Fairchild
24   Indus., Inc., 797 F.2d 727, 738 (9th Cir. 1986).
            6
25         Section 523(a)(4) provides an exception to an individual
     chapter 7 debtor’s discharge for debts “for fraud or defalcation
26   while acting in a fiduciary capacity, embezzlement, or larceny.”
     As noted by the bankruptcy court at the Hearing, Debtor does not
27   contest that, considering her conduct that resulted in the
     subject judgment debts, she was acting as a fiduciary of an
28   express trust.

                                     -13-
 1   in favor of the debtor.”   Snoke v. Riso (In re Riso), 978 F.2d
 2   1151, 1154 (9th Cir. 1992); Mele v. Mele (In re Mele), 501 B.R.
 3   357, 363 (9th Cir. BAP 2013).
 4        The battle lines between the parties are drawn based on the
 5   Supreme Court’s recent decision in Bullock v. BankChampaign,
 6   N.A., 133 S. Ct. 1754 (2013).   Prior to the Bullock decision,
 7   courts, including courts of appeals, had disagreed about the
 8   mental state required to support an exception to discharge based
 9   on a defalcation of a fiduciary under § 523(a)(4).    In fact, in
10   considering interpretation of § 523(a)(4), the Ninth Circuit had
11   held that the term “defalcation” included “even innocent acts of
12   failure to fully account for money received in trust.”      Sherman
13   v. S.E.C. (In re Sherman), 658 F.3d 1009, 1017 (9th Cir. 2011),
14   quoting Blyler v. Hemmeter (In re Hemmeter), 242 F.3d 1186, 1190
15   (9th Cir. 2001).
16        In Bullock, the debtor had served as the trustee of a
17   family trust with a single asset, a life insurance policy on his
18   father’s life.   Bullock, 133 S. Ct. at 1757.   The trust
19   agreement allowed the trustee to borrow against the life
20   insurance policy’s value, with any such loans to be repaid at
21   the “insurance company-determined 6% interest rate.”    Id.   The
22   debtor, in fact, took out several such loans, using some of the
23   loan funds for transactions that benefitted him personally.     Id.
24   However, all such loans were repaid in full with six percent
25   interest to the trust.   Id.
26        The debtor later was sued by his brothers in Illinois state
27   court (“State Court”), and the State Court ultimately determined
28   that the debtor had breached his fiduciary duty, finding that,

                                     -14-
 1   although the debtor “does not appear to have had a malicious
 2   motive in borrowing funds from the trust,” he nonetheless “was
 3   clearly involved in self-dealing.”       Id.   Accordingly, the State
 4   Court entered a judgment against the debtor that he sought to
 5   discharge in bankruptcy.   Id.
 6        The successor trustee bank (“Bank”) filed an adversary
 7   proceeding in bankruptcy to except the debtor’s judgment debt to
 8   the trust from his discharge under § 523(a)(4).       Id.   As in
 9   these appeals, the bankruptcy court granted summary judgment in
10   favor of the Bank, concluding that the debtor’s debt to the
11   trust was for defalcation while acting in a fiduciary capacity
12   and thus was excepted from his discharge under § 523(a)(4).          Id.
13   at 1758.
14        The Supreme Court granted certiorari to consider the scope
15   of the term “defalcation” in the § 523(a)(4) context and
16   concluded that it included a “culpable state of mind
17   requirement” to align it with the other claims for discharge
18   exceptions included in § 523(a)(4), i.e., fraud while acting in
19   a fiduciary capacity, embezzlement and larceny.       Id. at 1757 and
20   1760-61.   Following Bullock, it is clear that a finding of
21   “defalcation while acting in a fiduciary capacity” does not
22   support an exception to discharge under § 523(a)(4) on a “no
23   fault” or strict liability basis.       See id. at 1761.
24        What is not so clear is where to draw the line in
25   considering fiduciary defalcations that do not involve a
26   subjective intent to cause harm.    The expansive language used by
27   the Supreme Court in setting forth new standards leaves us with
28   some difficult problems of interpretation in this case.        The

                                      -15-
 1   Supreme Court described the standards for excepting a fiduciary
 2   defalcation from a debtor’s discharge under § 523(a)(4) as
 3   follows in Bullock:
 4        [W]here the conduct at issue does not involve bad
          faith, moral turpitude, or other immoral conduct, the
 5        term requires an intentional wrong. We include as
          intentional not only conduct that the fiduciary knows
 6        is improper but also reckless conduct of the kind that
          the criminal law often treats as the equivalent.
 7        Thus, we include reckless conduct of the kind set
          forth in the Model Penal Code. Where actual knowledge
 8        of wrongdoing is lacking, we consider conduct as
          equivalent if the fiduciary “consciously disregards”
 9        (or is willfully blind to) “a substantial and
          unjustifiable risk” that his conduct will turn out to
10        violate a fiduciary duty. ALI Model Penal Code
          § 2.02(2)(c), p. 226 (1985). See id., § 2.02 Comment
11        9, at 248 (explaining that the Model Penal Code’s
          definition of “knowledge” was designed to include
12        “‘wilful blindness’”). That risk “must be of such a
          nature and degree that, considering the nature and
13        purpose of the actor’s conduct and the circumstances
          known to him, its disregard involves a gross deviation
14        from the standard of conduct that a law-abiding person
          would observe in the actor’s situation.” Id.,
15        § 2.02(2)(c), at 226 (emphasis added).
16   Bullock at 1759-60 (emphasis in original).
17        The quoted language from the Bullock decision, in effect,
18   states three bases for determining that a fiduciary defalcation
19   supports an exception from a debtor’s discharge for the subject
20   debt:
21        First, debts resulting from acts of bad faith, moral
22   turpitude or other immoral conduct are excepted from discharge
23   under the § 523(a)(4) defalcation standard.   See Tomasi v.
24   Savannah N. Denoce Trust (In re Tomasi), No. CC-12-1401-KiTaD,
25   2013 WL 4399229, at *10 (9th Cir. BAP Aug. 15, 2013).    In the
26   Surcharge Judgment, the Probate Court awarded Debtor her
27   statutory commission as Estate administrator in the amount of
28   $65,262.07 as an offset against the surcharge award.    In

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 1   addition, in his objection to the Debtor’s Second Account,
 2   Parsons requested attorneys fees and costs under California
 3   Probate Code (“Probate Code”) § 11003(b).   Noting that Probate
 4   Code § 11003(b) required a finding that Debtor opposed Parsons’
 5   objection “without reasonable cause and in bad faith” to support
 6   an award of fees and costs, the Probate Court declined to award
 7   Parsons attorneys fees and costs.    No party has suggested that
 8   Debtor’s breaches of her fiduciary duties at issue in these
 9   appeals were the products of moral turpitude or other immoral
10   conduct.
11        Second, the § 523(a)(4) defalcation standard covers
12   intentional improper conduct and criminally reckless conduct.
13   Neither Parsons nor ACIC have claimed either before the
14   bankruptcy court or in these appeals that Debtor intentionally
15   breached her fiduciary duties or acted with criminal intent.    If
16   the Supreme Court had stopped after the first two sentences of
17   the above-quoted standards, we would be compelled to reverse the
18   bankruptcy court’s summary judgment decisions.
19        However, the Supreme Court went on to elaborate, in effect,
20   a third iteration of the defalcation standard under § 523(a)(4).
21   Citing the ALI Model Penal Code § 2.02(2)(c), the Supreme Court
22   determined that a fiduciary who breaches a fiduciary duty
23   without actual knowledge of wrongdoing but who consciously
24   disregards or is willfully blind to a substantial and
25   unjustifiable risk is subject to a § 523(a)(4) exception to
26
27
28

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 1   discharge for defalcation.7     We interpret this third iteration
 2   of the defalcation standard as essentially a heightened
 3   “recklessness” standard.
 4        Debtor argues that she essentially was held liable for not
 5   knowing the due date for the Estate’s estate tax return and not
 6   filing the estate tax return timely, even though she had
 7   retained an accounting firm to prepare the return.     She further
 8   argues that in these circumstances, excepting her judgment debts
 9   to Parsons and ACIC as defalcations for purposes of § 523(a)(4)
10   amounts to a strict liability determination of criminal
11   culpability, contrary to the standards set forth in Bullock.
12        Parsons and ACIC assert that Debtor knowingly and/or
13   recklessly disregarded her fiduciary obligations in at least
14   three respects: (1) she failed to marshal and file an inventory
15   and appraisal of the Estate’s assets so that the estate tax
16   return could be timely filed and the estate tax liability could
17   be timely paid; (2) she failed to file the estate tax return
18   timely, even though it was her ultimate responsibility to file
19   the return and make sure that the deadline was met; and (3) even
20   after the estate tax return deadline had passed, the estate tax
21
22        7
              ALI Model Penal Code § 2.02(2)(c) states:
23        Recklessly. A person acts recklessly with respect to
24        a material element of an offense when he consciously
          disregards a substantial and unjustifiable risk that
25        the material element exists or will result from his
          conduct. The risk must be of such a nature and degree
26        that considering the nature and purpose of the actor’s
          conduct and the circumstances known to him, its
27        disregard involves a gross deviation from the standard
          of conduct that a law-abiding person would observe in
28        the actor’s situation.

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 1   return was not completed and filed until many months after it
 2   was due.   In spite of having her accounting firm’s estimate of
 3   the estate tax to be paid, she dribbled in payments over a
 4   period of many months, thus exacerbating the penalties assessed
 5   and the amount of accrued interest that had to be paid.    In
 6   these circumstances, Parsons and ACIC both contend that the
 7   bankruptcy court’s summary judgment determinations were correct
 8   that Debtor’s judgment debts to them resulting from defalcations
 9   of her fiduciary duties were excepted from her discharge
10   pursuant to § 523(a)(4) under Bullock.
11        Our review of the undisputed facts in the record before us
12   leads us to the following conclusions:   Prior to her appointment
13   as Estate administrator, Debtor sought to be retained for
14   substantial Estate work that she was not competent to perform.
15        We agree with the Probate Court’s conclusion that it is
16   inconceivable that a trained attorney who practiced outside the
17   probate area but had agreed to accept a position as the
18   administrator of a substantial California probate estate would
19   not have reviewed the duties of an estate administrator under
20   the Probate Code to ascertain the requirements to file an
21   inventory and appraisal timely.   Debtor is not in the category
22   of “nonprofessional trustees, perhaps administering small family
23   trusts potentially immersed in intrafamily arguments,” for whom
24   the Supreme Court expressed particular concern in Bullock.      See
25   Bullock, 133 S. Ct. at 1761 (emphasis in original).   In any
26   event, when she signed and filed the Duties Statement with the
27   Probate Court, Debtor was aware that she had four months from
28   the date that letters of administration were issued to her (the

                                    -19-
 1   very same date) to file the Estate inventory and appraisal.
 2   Yet, in a patent exhibition of Debtor’s “pattern of lethargy
 3   when it came to working on” Estate matters, a partial inventory
 4   and appraisal for the Estate was not filed until February 2,
 5   2010, over seven months after it was due, and the final
 6   inventory and appraisal was not filed until June 2010, four
 7   months later.
 8        Debtor’s dilatory filing of the inventory and appraisal had
 9   two very adverse effects for the Estate.   First, the estate tax
10   return could not be prepared and filed in the absence of the
11   inventory and appraisal information.   Consequently, Debtor’s
12   late filing of the inventory and appraisal effectively
13   guaranteed that the estate tax return would be filed late.
14   Second, Debtor’s failure to inventory and appraise the Estate
15   until a date well beyond when the estate tax return was due
16   meant that she was caught flat-footed when she needed access to
17   Estate bank accounts to marshal assets and pay the estate tax,
18   as estimated by her accountants.   As pointed out by the Probate
19   Court, Debtor was entitled to access to all Estate bank accounts
20   from the date that she received her letter of administration,
21   February 27, 2009.
22        As administrator of the Estate, Debtor had the sole
23   responsibility to make sure that the estate tax return was filed
24   on time and the estate tax was paid.   Indeed, upon her
25   appointment as Estate administrator, Debtor knew that she bore
26   those responsibilities so long as the Estate had funds available
27   to pay the estate tax.   Yet, she testified before the Probate
28   Court that she relied entirely on the Wallin Firm to handle

                                    -20-
 1   estate tax return issues, admitting that she had no expertise in
 2   the tax area: “I don’t prepare my own taxes.   I never have in my
 3   entire life.”   Cal. Sup. Ct. Hr’g Tr. (Mar. 26, 2012) at 33:26-
 4   28 (Exh. 6, ECF No. 13, adv. no. 2:14-ap-01030).    Debtor further
 5   testified that she was advised by Edelblute that the estate tax
 6   return was due by August 15, 2009, and she “vehemently” denied
 7   that she ever was told that the estate tax return was due on
 8   August 3, 2009.   However, she did not present any corroborating
 9   testimony from Edelblute, by declaration or otherwise, and
10   Debtor’s testimony was undercut by the late Form 4768 request
11   for extension that she signed, which noted the past due deadline
12   for the estate tax return of August 3, 2009.   In any event, one
13   does not need to be an accountant or even an attorney to
14   calculate the deadline to file an estate tax return mandated by
15   26 U.S.C. § 6075(a), which requires that estate tax returns
16   “shall be filed within 9 months after the date of the decedent’s
17   death.”   Even if there was some question as to the exact
18   deadline date, no accounting expertise was needed to calendar a
19   date comfortably in advance of the deadline either to make sure
20   that the return could be filed by that date or to request an
21   extension.
22        The reality was that the deadline was missed, and Debtor
23   made only a nominal $10,000 payment on an estate tax liability
24   that the Wallin Firm estimated would be $825,000.   However, the
25   missed deadline to file the estate tax return and pay the estate
26   tax owed need not have been catastrophic for the Estate if
27   Debtor had diligently worked to get the estate tax return filed
28   and the tax liability paid as soon as possible thereafter.

                                    -21-
 1   However, the estate tax return apparently was not filed until
 2   September 15, 2010, over thirteen months after the return was
 3   due and after the IRS had sent a reminder that the estate tax
 4   return had not been filed in April 2010, approximately five
 5   months before.   Debtor made further estate tax payments starting
 6   in April 2010 through September 2010 totaling $1,316,000.
 7   However, by that time, it was too late to avoid the imposition
 8   of very large penalties and the accrual of substantial interest.
 9        In these circumstances, we simply disagree with Debtor that
10   concluding that she committed a defalcation in breach of her
11   fiduciary duties excepted from her discharge under § 523(a)(4)
12   is imposing strict liability on her for missing an estate tax
13   return deadline of which she was unaware.     The records in these
14   appeals reflect a pervasive and unjustified series of breaches
15   of fiduciary duties by Debtor in administering the Estate.     The
16   records further reflect that she consciously and recklessly
17   disregarded the substantial risks to the Estate of not filing
18   the estate tax return and paying the estate tax owed timely, or
19   at least as soon after the deadline passed as possible.      Debtor
20   was not merely negligent but was grossly negligent in performing
21   her duties as administrator of the Estate.     The materiality of
22   the risks Debtor blindly disregarded is fully reflected in the
23   $439,621.61 in interest and penalties ultimately assessed by the
24   IRS for the late filing of the estate tax return and the late
25   payment of the estate taxes owed.     We conclude that the
26   bankruptcy court did not err in granting summary judgments in
27   favor of Parsons and ACIC on their § 523(a)(4) adversary
28   proceeding claims based on Debtor’s multiple defalcations of her

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 1   fiduciary duties to the Estate.
 2                            VI. CONCLUSION
 3        For the foregoing reasons, we AFFIRM the bankruptcy court’s
 4   summary judgment decisions in both appeals.
 5
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 1   KURTZ, Bankruptcy Judge, dissenting:
 2
 3        While I appreciate the majority’s effort to make sense of
 4   Bullock’s recklessness standard, I have a different view of that
 5   standard.    The majority quotes selected portions of Bullock and
 6   concludes that, under Bullock, two different levels of
 7   recklessness are subsumed within the term “defalcation” as used
 8   in § 523(a)(4).    According to the majority, the first level of
 9   recklessness included consists of criminal recklessness.    The
10   majority then suggests that a second level of recklessness is
11   included, which is higher than the objective recklessness
12   standard Bullock explicitly rejected but lower than criminal
13   recklessness.
14        Unlike the majority, I have trouble reconciling this
15   second, non-criminal level of recklessness with Bullock’s
16   statements tying the requisite level of recklessness to criminal
17   law, to the Model Penal Code, and to intentionally wrongful
18   conduct.    See, e.g., Bullock, 133 S. Ct. at 1759 (“where the
19   conduct at issue does not involve bad faith, moral turpitude, or
20   other immoral conduct, the term [defalcation] requires an
21   intentional wrong.    We include as intentional not only conduct
22   that the fiduciary knows is improper but also reckless conduct
23   of the kind that the criminal law often treats as the
24   equivalent.”).    In short, I believe that Bullock identifies only
25   one level of recklessness as falling within the scope of
26   defalcation under § 523(a)(4), and that is a criminal level of
27   recklessness.
28        In this respect, and in several others, I prefer the

                                     -1-
 1   analysis of Bullock’s recklessness standard set forth in
 2   MacArthur Co. v. Cupit (In re Cupit), 514 B.R. 42 (Bankr. D.
 3   Colo. 2014).   In my view, In re Cupit correctly identifies
 4   Bullock’s standard as being closely connected to the criminal
 5   law definition of recklessness.   Id. at 50.   Furthermore, In re
 6   Cupit offers a number of crucial observations regarding the
 7   applicable standard, which include the following:
 8   • The applicable recklessness standard is predominantly
 9   subjective in nature and, in the first instance, focuses on the
10   debtor’s actual awareness of the risk that his or her conduct
11   might turn out to violate his or her fiduciary duties.     Id. at
12   50-51.
13   • The debtor is not reckless within the meaning of § 523(a)(4)
14   unless he or she consciously disregards or is willfully blind to
15   the risk of violating his or her fiduciary duties.   Id. at 51-
16   52.
17   • Both conscious disregard and willful blindness focus on the
18   subjective state of mind of the debtor – what he or she actually
19   was aware of and actually believed regardless of the objective
20   reasonableness of that awareness or those beliefs.   Id.
21   • If either of the above subjective elements are met, then the
22   court also must find that the risk ignored was both substantial
23   and unjustifiable.   Unlike the conscious disregard and willful
24   blindness elements, this element is predominantly objective in
25   nature, and requires the court to assess whether, in
26   disregarding (or blinding himself or herself to) the risk,
27   debtor grossly deviated “from the standard of conduct that a
28   law-abiding person would observe in the actor’s situation.”    Id.

                                    -2-
 1   at 52 (quoting Bullock, 133 S. Ct. at 1760).
 2          In addition to In re Cupit, I also find persuasive
 3   Cincinnati Ins. Co. v. Chidester (In re Chidester), 524 B.R.
 4   656, 661-62 (Bankr. W.D. Va. 2015), which followed In re Cupit.
 5   In re Chidester further refined Bullock’s recklessness standard
 6   in order to correctly apply it in the summary judgment context.
 7   In re Chidester held that, on summary judgment, it could rule in
 8   favor of the plaintiff-creditor on the recklessness issue only
 9   if, given the state of the record, no reasonable trier of fact
10   could have found in favor of the debtor: (1) regarding the
11   debtor’s subjective awareness of his or her fiduciary duties;
12   (2) regarding the debtor’s conscious disregard of (or willful
13   blindness to) the risk that his or her conduct might breach
14   those duties; and (3) regarding his or her subjective awareness
15   of the substantial and unjustified nature of that risk.     Id. at
16   662.    In re Chidester’s summary judgment standard is consistent
17   with Ninth Circuit precedent.    See Soremekun v. Thrifty Payless,
18   Inc., 509 F.3d 978, 984 (9th Cir. 2007) (“Where the moving party
19   will have the burden of proof on an issue at trial, the movant
20   must affirmatively demonstrate that no reasonable trier of fact
21   could find other than for the moving party.”).
22          Given the predominantly subjective nature of Bullock’s
23   recklessness standard and its focus on what the debtor actually
24   was aware of and actually believed at the time, I am persuaded
25   that a reasonable trier fact could find in favor of Heers on the
26   recklessness issue.    Indeed, when as here the defendant’s state
27   of mind is disputed and is properly at issue, I believe summary
28   judgment almost never will be appropriate.    Determining a

                                     -3-
 1   party’s state of mind typically requires choosing between two or
 2   more possible inferences as well as assessing the party’s
 3   credibility.   See, e.g., Wang v. Ke (In re Ke), 2013 WL 4170250,
 4   at *13-14 (Bankr. N.D.N.Y. Aug. 14, 2013), aff’d, 2014 WL
 5   4626329 (N.D.N.Y. Sept. 15, 2014); see also Hernandez v. New
 6   York, 500 U.S. 352, 364 (1991) (noting that a litigant’s state
 7   of mind, for purposes of determining intent, largely turns on
 8   the court’s assessment of the litigant’s credibility).
 9   Assessing credibility and choosing between two or more possible
10   inferences are tasks that simply cannot be performed properly in
11   the process of ruling on a summary judgment motion.   Anderson v.
12   Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
13        I agree with the majority that Heers’ performance of her
14   duties was quite poor and that the explanations and excuses she
15   offered in the probate proceedings for her conduct were
16   unsatisfactory.   I might even go so far as to characterize
17   Heers’ conduct as criminally negligent.   Nonetheless, based on
18   my view of Bullock’s recklessness standard, I cannot transmute
19   even criminal negligence into a summary judgment ruling that
20   Heers’ conduct rose to the same level as criminal recklessness.
21   See generally In re Cupit, 514 B.R. at 50-51 (distinguishing
22   between criminal negligence and criminal recklessness).
23        Accordingly, I respectfully dissent.   I would reverse the
24   bankruptcy court’s summary judgment ruling and would remand for
25   trial on the defalcation/recklessness issue.
26
27
28

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