Revised September 2, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 96-31147
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TEXAS LOTTERY COMMISSION,
Plaintiff-Appellant,
versus
THERESA THANH TRAN,
Defendant-Appellee.
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Appeal from the United States District Court
for the Southern District of Texas
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August 17, 1998
Before WIENER, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
WIENER, Circuit Judge:
In this bankruptcy case, Plaintiff-Appellant Texas Lottery Commission (the “Commission”)
appeals the judgment of the district court affirming the bankruptcy court’s hol ding that the Texas
Lottery Act does not make lottery ticket sales agents fiduciaries of the state. The effect of that ruling
was to prevent the debt of Defendant-Appellee Theresa Than Tran (“Tran”) to the Commission from
being held to be nondischargeable under § 523(a)(4) of the Bankruptcy Code.1 Concluding that the
bankruptcy court’s holding is correct, we affirm.
1
11 U.S.C. § 523(a)(4) (1994).
I
FACTS AND PROCEEDINGS
Tran operated a food store in Houston, Texas known as E.Q.’s Grocery Store. In May 1992,
the Texas Lottery Commission licensed Tran as an agent under the Texas Lottery Act2 (the “Act”)
to sell lottery tickets from her store. The Act provides that the proceeds of the sales of lottery tickets
and any unsold tickets “shall be held in trust for the benefit of the state” and imposes specified
bookkeeping requirements on ticket sales agents. The Act does not require a ticket sales agent to
maintain a separate bank account for the proceeds of such sales or otherwise to segregate the
proceeds of lottery ticket sales from the agent’s general funds, and Tran did not do so. Similarly, the
Act does not expressly prohibit an agent from spending lottery ticket proceeds on items not related
to the lottery.
Tran and her husband jointly filed a voluntary petition in the bankruptcy court for the
Southern District of Texas, seeking protection under the Bankruptcy Code. The Commission filed
an adversary complaint in the bankruptcy proceeding contesting the dischargeability of Tran’s debt
for ticket sales proceeds not delivered to the Commission. The Commission argued that Tran was
a fiduciary under the Act and that Tran’s debt was, therefore, nondischargeable under § 523(a)(4)
of the Bankruptcy Code. Section 523(a)(4) exempts from discharge debts “for fraud or defalcation
while acting in a fiduciary capacity.” The bankruptcy court held that, although Tran was obligated
to the Commission for $80,000.00 in unpaid lottery ticket receipts, the debt was not excepted from
discharge, as a lottery ticket sales agent is not a fiduciary within the meaning of § 523(a)(4).
The Commission appealed to the district court, which affirmed the bankruptcy court’s
2
Tex. Gov’t Code Ann. § 466.001 - .409 (Supp. 1998).
2
judgment. The district court reasoned that, although the Act labeled the ticket sales proceeds (and
any unsold tickets) a trust fund, the Act does not impose on the ticket sales agent the types of duties
required to transform the seemingly typical agency relationship into a fiduciary relationship for the
purposes of § 523(a)(4). The district court placed particular emphasis on the fact that the Act does
not require a ticket sales agent to segregate lottery proceeds from the agent’s other funds. The
Commission timely filed a notice of appeal.
II
ANALYSIS
A. Standard of Review
Although this case has already been reviewed on appeal by the district court, we review the
bankruptcy court’s findings as though this were an appeal to us from the district court.3 We thus
review de novo the bankruptcy court’s legal conclusion —— affirmed by the district court —— that
a lottery sales agent is not a fiduciary within the meaning of § 523(a)(4).4
B. Applicable Law
As a general policy, bankruptcy law favors permitting a debtor to discharge his debts, thereby
affording him the proverbial “fresh start.”5 This policy admits exceptions, however, one of which is
3
Bennett v. Bennett (In re Bennett), 989 F.2d 779, 781 (5th Cir 1993).
4
Id.
5
Lines v. Frederick, 400 U.S. 18, 19, 91 S. Ct. 113, 113-14, 27 L. Ed. 2d 124, 127
(1970) (describing purposes of bankruptcy law to give debtor a “