Opinion
No. 96-6228, 96-6229
March 28, 1997
MEMORANDUM
Debtor Lynn Mugno appeals from the bankruptcy court's judgment that her debt owed to Casale is non-dischargeable, as provided in 11 U.S.C. § 523 (a)(4), because the debt derives from defalcation by Mugno while acting in a fiduciary capacity. The bankruptcy court also held that the collateral estoppel effect of the prior judgment entered by the New Jersey Superior Court prevented Mugno from contesting her fiduciary capacity.
Mugno argues that the bankruptcy court erred in granting Casale judgment without providing Mugno with the safeguard of a formal summary judgment proceeding, and erred in its findings regarding collateral estoppel and debt discharge. In reply, Casale contends that Mugno's appeal is premature. In addition, Casale asserts two alternative grounds for affirming the bankruptcy court's ruling that Mugno acted as a fiduciary.
For the reasons that follow, the court affirms the judgment of the bankruptcy court.
I. BACKGROUND
The following facts are uncontested by the parties.
The Mugno and Casale are sisters, and sole heirs of their mother, the late Catherine Santacroce (Santacroce).
In September, 1988, more than one year prior to her death, Santacroce sold her New Jersey residence for $170,000, which after deductions yielded proceeds of $158,192. (Exhib. 20 at 27; Exhib. 24 at 27.) Santacroce invested $100,000 from the proceeds in two certificates of deposit (CDs), and gave $30,000 to Mugno, which Mugno claims was intended to repay an existing debt. The remaining $28,129 was deposited in Santacroce's checking account at Spencer Savings and Loan (Spencer account). (Exhib. 24 at 29.)
On March 22, 1989, the CDs matured yielding a sum of $100,666.00. The same day, Santacroce and Mugno met with Vincent Mezzetti, a financial advisor acquainted with Mugno. Following this consultation, Santacroce handed the $100,666 over to Mugno, who deposited the money into her personal account at Warwick Savings Bank (Warwick). In addition, Mugno opened a Liquid Green Mutual Fund account (Liquid Green account) in her own name with a check of $60,000 drawn on the Warwick account. Over the next few months, Mugno used money from these accounts to pay for Santacroce's expenses, including rent, utilities, telephone, health insurance and pharmacy.
Santacroce died intestate on December 27, 1989, and Mugno was appointed administrator of the estate. Mugno had previously been granted power of attorney by Santacroce in 1988 and, shortly after Santacroce's death, Mugno exercised this authority to give $11,800 from the Spencer account to Casale.
Although New Jersey statutes use the feminine administratix, the court chooses to avoid using the unnecessary suffix. See William A. Sabin, The Gregg Reference Manual ¶ 840 (7th ed. 1992) (recommending avoidance of use of feminine suffixes such as ess, ette, and trix); Random House Dictionary of the English Language 2026 (2d ed. 1987) ("Legal documents still use administratrix, executrix and inheritrix, and the like, but these forms are too giving way to the to, forms"), Webster's Third International Dictionary 28 (1981) (defining administrator as "person legally vested by a probate court with the right of administration of an estate").
Mugno's exercise of power of attorney was probably improper in that ordinarily the power of attorney terminates with the death of the grantor.
In May, 1990, Mugno and her husband purchased real estate in Berks County, Pennsylvania for $137,000, making a down payment of $42,000. The Mugno's had previously purchased land in Pike County, Pennsylvania. Both parcels are held in tenancy by the entireties. Some of the funds used to purchase both parcels came from Santacroce.
On May 29, 1990, Casale filed a complaint in the New Jersey Superior Court of Bergen County, New Jersey, Docket No. 135P155M146617, alleging that Mugno had wrongfully obtained control of $130,000 of the assets of Santacroce's estate. In reply, Mugno contended that Santacroce had given Mugno the $130,000 as a gift.
On July 11, 1990, after a three day trial, the New Jersey court found Mugno not credible and entered judgment in favor of Casale and the estate of Santacroce, and found that the $100,666 that Santacroce gave to Mugno from the sale of the CDs was not a gift, but rather had been given to Mugno to invest on Santacroce's behalf. The court stated: "[The] testimony . . . was consistent with an understanding and intention that the money be held by [Mugno] to be used for the benefit of her mother. . . Furthermore, there is no question that [Mugno] was in a position of trust and confidence with her mother." (Exhib. 22 at 15-16.) The court further concluded that of the $100,666 transferred to Mugno, only $22,123.00 had been properly expended for Santacroce's benefit. Based on these findings, the court entered judgment in favor of Casale for $51,731.37, which sum included attorney fees and interest. In addition, the court extended a prior order restraining Mugno from disposing of the two Pennsylvania parcels of real estate purchased with Santacroce's assets. The record does not disclose whether any appeal was taken from this decision.
On September 18, 1992, Mugno filed a petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania.
On December 31, 1992, Casale filed a complaint to determine dischargeability against Mugno pursuant to 11 U.S.C. § 523 (a)(2)(A), (a)(4) and (a)(6), at Adversary No. 92-2550 (dischargeability complaint). In addition, Casale filed a complaint against Mugno and her husband, James L. Mugno, to set aside an allegedly fraudulent conveyance of real property from Mugno to her husband, at Adversary No. 92-2551 (entireties complaint).
On July 14, 1993, Casale moved for summary judgment on the dischargeability complaint on the strength of the collateral estoppel effects of the New Jersey judgment. On July 15, Mugno replied with a motion to dismiss the entireties complaint with respect to James Mugno for lack of jurisdiction. On January 27, 1994, the bankruptcy court granted Mugno's motion to dismiss the entireties claim against James Mugno, and denied Casale's motion for summary judgment. With respect to the collateral estoppel effects of the New Jersey judgment, the bankruptcy court stated that Mugno was not estopped from litigating the debt because the New Jersey judgment did not contain a specific finding of actual fraud. However, the bankruptcy court indicated that Mugno might be estopped from litigating whether Santacroce gave her the $100,666 as a gift.
On October 18, 1994, Casale filed her second summary judgment motion on the basis of fiduciary defalcation under § 523 (a)(4). In her motion, Casale raised the following three theories to support her contention that Mugno acquired the $100,666 while acting in a fiduciary capacity: (1) the actions of the parties reveal the existence of an express trust between Mugno and Santacroce; (2) Mugno was a fiduciary because she had power of attorney to manage Santacroce's affairs; and (3) Mugno was a fiduciary pursuant to her appointment as administrator of the Santacroce Estate. On October 12, 1995, the bankruptcy court denied Casale's second motion for summary judgment on the ground that genuine issues of material fact existed.
On December 11, 1995, Casale filed a motion in limine to exclude evidence from trial relating to Santacroce's intent in giving the $100,666 to Mugno. By order dated August 8, 1996, the bankruptcy court granted Casale's motion in limine, holding that Mugno was precluded by the collateral estoppel effects of the New Jersey judgment from introducing testimony concerning whether Santacroce had given Mugno the $100,666 as a gift, whether Mugno was in a position of trust and confidence with Santacroce, and whether Mugno had properly expended the money given to her by Santacroce. The bankruptcy court found that the New Jersey court had already decided these issues. The bankruptcy court then vacated its orders denying Casale's two prior motions for summary judgment, and entered judgment in favor of Casale on the § 523 (a)(4) portion of her dischargeability complaint, concluding that the findings of the New Jersey court were sufficient to satisfy the express trust requirements of § 523 (a)(4). (Exhib. 5 at 5.) The court also ordered that a consolidated trial be held on the remaining portions of Casale's complaints.
On September 12, 1996, Mugno appealed the bankruptcy court's decision on the dischargeability complaint and on September 24, 1996, Mugno filed motions in the bankruptcy court to dismiss the entireties complaint, and to stay all proceedings on both complaints pending disposition of this appeal.
II. DISCUSSION
Mugno argues that the court erred in its August 6, 1996 decision for the following reasons: (1) the bankruptcy court violated Mugno's procedural rights because the court exceeded the parameters of a motion in limine in granting judgment for Casale; (2) the New Jersey findings are not binding on the bankruptcy court because all requisites for collateral estoppel are not satisfied; and (3) the New Jersey findings do not establish the existence of an express trust.
In reviewing an appeal from the bankruptcy court, the district court must apply the clearly erroneous test for factual findings, and plenary review for legal conclusions. In re Brown, 951 F.2d 564, 567 (3d Cir. 1991). "Mixed questions of law and fact must be divided into their respective components and the appropriate test applied." Id.
However, before addressing Mugno's arguments, the court must first resolve a preliminary issue raised by Casale — whether the present appeal was filed prematurely from a non-final order.
A. Timing of Mugno's Appeal
Casale argues that Mugno's appeal is premature because the bankruptcy court's order on the dischargeability portion of Casale's complaint was not a final order. Casale notes that her suit to have Mugno's conveyance of real property set aside still awaits trial. Further, Casale argues that by filing a motion to stay all proceedings relating to her adversary complaints, Mugno concedes that the bankruptcy court's order is not final.
This court has jurisdiction to hear appeals from interlocutory and final judgments, orders and decrees of the bankruptcy court. 28 U.S.C. § 158 (a). Final decrees and orders of the bankruptcy court may be appealed as a right, while appeals of interlocutory decrees and orders may be granted by the district court in response to a party's motion or sua sponte if no motion is filed but a notice of appeal is timely filed. 11 U.S.C. § 8001 (a), (b), and (c). Therefore, this court has jurisdiction to entertain Mugno's appeal if the bankruptcy court's order is final, or if the court chooses to grant an interlocutory appeal.
The concept of finality is more broadly construed in the case of bankruptcy appeals. In re Amatex Corp. 755 F.2d 1034, 1039 (3d Cir. 1985). Any order within a bankruptcy case that concludes an individual adversary proceeding is final and reviewable. Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539, 1548 (11th Cir. 1996). A court may enter a final judgment on one or more but fewer than all claims when to delay resolution on a discrete claim or claims until after the conclusion of bankruptcy proceedings would waste time and resources. In re White Beauty View, Inc., 841 F.2d 524 (3d Cir. 1988).
Here, the bankruptcy court's order on Casale's dischargeability complaint is final. Casale filed two adversary complaints: one for nondischargeability and one to set aside a conveyance of real property. Each is a distinct and separate complaint. In her dischargeability complaint, Casale raises three independent grounds for finding Mugno's debt non-dischargeable: (1) the debt was obtained by false pretense or fraud as provided in § 523 (a)(2)(A); (2) the debt arose from defalcation by debtor while in a fiduciary capacity as stated in § 523 (a)(4); and (3) the debtor caused wilful and malicious injury of creditor's property as per § 523 (a)(6). The bankruptcy court's finding of defalcation is sufficient cause alone to grant judgment in favor of Casale on her dischargeability complaint. Again, this court's judgment will not be affected by further bankruptcy proceedings on Casale's entireties complaint, regardless of the outcome of that claim. Moreover, if this court affirms the bankruptcy court's judgment, trial on the § 523 (a)(2)(A) and (a)(6) portions of the dischargeability complaint will not be required. If this court chooses to reverse, trial may proceed in the bankruptcy court on both of Casale's adversary complaints at the same time.
Consequently, the bankruptcy court's order was a complete and final judgment on the merits of a discrete adversary complaint and, hence, the court has jurisdiction to hear the appeal.
In the interest of judicial economy, even if the bankruptcy court's order were not final, the court would chose to exercise its discretion and consider this appeal sua sponte pursuant to 11 U.S.C. § 8003 (c).
B. Procedural Correctness of Granting Judgment Through Motion In Limine Procedure
Mugno argues that the bankruptcy court erred in granting Casale judgment because the court's actions exceeded the parameters of a motion in limine. Specifically, Mugno argues that the bankruptcy court erred in granting judgment in the absence of a formal motion for summary judgment because Mugno was denied the accompanying procedural protection of notice, and was under no obligation to marshall all evidence in support of her claim.
In Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064, 1070 (3d Cir. 1990), the Third Circuit held that the district court erred in granting summary judgment pursuant to defendants motion in limine. The court stated that unlike a summary judgment motion, which is designed to eliminate trial where no genuine issue of fact exists, the purpose of a motion in limine motion is "to narrow the evidentiary issues for trial and to eliminate unnecessary trial interruptions. Id. at 1069. The court reasoned that the plaintiff had been denied an opportunity to marshall his evidence in support of his claim as a result of the absent of a formal summary judgment motion. Id. at 1070. Further, the court held that plaintiff had been denied the procedural protection of ten days notice prior to a judgment on the merits, as required by Fed.R.Civ.P. 56. Id.
Unlike Bradley, however, here the bankruptcy court had adjudicated two prior motions for summary judgment on the issues upon which it later grounded its judgment. In her first motion for summary judgment, Casale argued that she was entitled to summary judgment on her dischargeability complaint on any one of three grounds — (1) false pretenses and actual fraud. (2) defalcation, and (3) wilful and malicious injury. In her second motion for summary judgment, Casale argued the collateral estoppel effects of the New Jersey judgment with respect to defalcation only. Consequently, Mugno had previously been given notice of Casale s arguments, and given an opportunity to marshall all the evidence to oppose Casale's contentions.
In effect, in granting judgment to Casale, the bankruptcy court merely reconsidered and corrected its prior determination of Casale's summary judgment motions. "It is well settled that a court of equity has the power to vacate or otherwise modify its own decrees' Kelly v. Greer, 334 F.2d 434, 436 (3d Cir. 1964). The bankruptcy court has broad power to reconsider its prior decisions. In the case of In re Pottasch Brothers, Inc., 79 F.2d 613 (2d Cir. 1935), Judge Learned Hand spoke of the bankruptcy judge's "ancient and elementary power to reconsider his orders," and stated that there is no reason why a referee's order "should be as immutable as the Twelve Tables, once the ink is dry." Id. at 616.
In addition, "if [a court's order] be only interlocutory, the court at any time before final decree may modify or rescind it." John Simmons Co. v. Grier Bros. Co., 258 U.S. 82, 88 (1922). Accord United States v. Jerry, 487 F.2d 600, 605 (3d Cir. 1973) ("so long as the district court has jurisdiction over the case, it possesses inherent power over interlocutory orders, and can reconsider them when it is consonant with justice to do so."). Here, the bankruptcy court's previous orders with respect to Casale's motions for summary judgment were interlocutory and, consequently, it was well within the court's power to subsequently reverse its decision.
Therefore, the bankruptcy court's judgment in favor of Casale did not violate Mugno's procedural rights.
Mugno further argues that the bankruptcy court's order is inconsistent with the Federal Rules of Evidence. Mugno claims that the court's exclusion of a wide range of testimony concerning Mugno's relationship with her mother violated Fed.R.Evid. 401, 402, and 403 because such evidence is relevant and its probative value outweighs any possible prejudicial or burdensome effect.
The purpose of a motion in limine is to narrow the evidentiary issues for trial and to eliminate unnecessary trial interruptions. Bradley, 913 F.2d at 1069. Collateral estoppel, because it can limit the facts at issue, frequently is the subject of a motion in limine. Oshop v. United States, 1993 W.L. 643357 (W.D. Pa., Dec. 8, 1993).
Mugno's argument confuses how the doctrine of collateral estoppel and rules of evidence operate in trial procedure. The doctrine of collateral estoppel dictates that one court's prior determination of facts is binding on another court's subsequent findings in the same suit. Evidentiary rules, in contrast, determine what evidence can be used to prove facts in issue at trial. Fed.R.Evid. 402 states that all relevant evidence is admissible, and Fed.R.Evid. 401 defines relevant as "evidence having any tendency to make the existence of a fact that is of any consequence to the determination of the action more probable or less probable than it would be without the evidence." However, if the doctrine to collateral estoppel precludes consideration of a factual issue, that issue is not a fact to be determination at trial and, thus, the rules of evidence do not apply to that issue.
Here, the bankruptcy court decided that Mugno's gift defense was precluded by the New Jersey court's previous findings and, hence, was not an issue to be determined at trial.
C. Determination of Collateral Estoppel Effect
Mugno argues that the bankruptcy court's collateral estoppel determination was in error because the New Jersey court's determinations concerning Santacroce's intent, Mugno's fiduciary duty, and the propriety of Mugno's use of Santacroce's money do not meet the requisites for preclusion. Mugno contends that she did not have a full and fair opportunity to litigate the gift defense and, further, the bankruptcy court should have held a hearing on the fairness of the New Jersey proceedings. As proof that the New Jersey proceedings were incomplete, Mugno points to the New Jersey court's opinion, which acknowledged that the decision reflected considerable time restraint. Further, Mugno contends that the she was denied the opportunity to present testimony of a number of witnesses who were prepared to support her position.
Principles of collateral estoppel apply to discharge exception proceedings in bankruptcy court. Grogan v. Garner, 111 S.Ct. 654, 658 n. ii (1991); In re Brown, 951 F.2d 564, 568 (3d Cir. 1991); In re Braen, 900 F.2d 621, 630 (3d Cir. 1990), cert. denied, 498 U.S. 1066 (1991). "[A] federal court must give to state-court judgment the same preclusive effect as would be given that judgment under the law of the state in which the judgment was rendered." Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984). See also (Gregory v. Chehi, 843 F.2d 111, 116 (3d Cir. 1988).
For the collateral estoppel to bar litigation of an issue, the following must occur:
(1) the issue sought to be precluded must be the same as that involved in the prior action; (2) that issue must have actually been litigated; (3) it must have been determined by a valid and final judgment; and (4) the determination must have been essential to the prior judgment.
Matter of Ross, 602 F.2d 604, 608 (3d Cir. 1979).
Here, the bankruptcy court correctly determined that issues of fact in the dischargeability determination had previously been litigated and decided by the New Jersey court, and that the New Jersey court's determination of these issues was essential to its judgment. The New Jersey court conducted a three day trial on Casale's claims against Mugno on behalf of the Santacroce estate. At the hearing, Mugno was represented by counsel, and numerous witnesses appeared for both parties. Following the trial, the court rendered a lengthy opinion from the bench, and granted judgment in favor of Casale based on the following three findings. First, the court concluded that Santacroce did not give the proceeds of the CD sale to Mugno as a gift. The court found the testimony of Mugno and her witnesses either lacking in credibility or not inconsistent with a determination that Santacroce handed the money to Mugno to hold in trust. Further, the court found that Santacroce had not demonstrated any intent to disinherit Casale. Instead, the court concluded that Santacroce had given the money to Mugno to be invested on Santacroce's behalf, and for Mugno to use the money for Santacroce's needs as they arose. (Exhib. 22, at 5.) Finally, the New Jersey court found that Mugno had misappropriated most of the money that she held in trust for Santacroce.
Mugno additionally argues that the circumstances of the New Jersey trial warrant an exception to the doctrine of collateral estoppel. According to subsection 28 (5) of the Restatement (Second) of Judgments:
Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation in a subsequent action between the parties is not precluded [if] [t]here is a clear and convincing need of a new determination of the issue . . . because the parties sought to be precluded, as a result of the conduct of his adversary or other special circumstances, did not have an adequate opportunity or incentive to obtain a full and fair adjudication in the initial action.
Mugno contends that she was denied a full and fair opportunity to raise her gift defense because the New Jersey court denied her the opportunity to present all favorable witnesses, and because the New Jersey court was hampered by considerable time restraints.
However, the above exception is narrow in scope and does not apply here. In outlining the reach of subsection 28 (5), the Third Circuit held as follows:
Comment j to this section adds that an exception may be appropriate when "one of the parties may have been laboring under a mental or physical disability that impeded effective litigation and that since has been removed." The Restatement cautions, however, that the instances in which subsection (5) justify an exception to preclusion "must be the rare exception, and litigation to establish an exception in a particular case should not be encouraged. Thus it is important to admit an exception only when the need for a redetermination of the issue is a compelling one.
In re Braen, 900 F.2d at 628 (quoting Restatement (Second) of Judgments § 28 (5) comment g (1980)).
Here, Mugno has produced no evidence that any party had been laboring under a disability at the time of the New Jersey hearings. Mugno makes no accusation that she was denied her day in court because of errors on the part of her trial counsel. See Boughner v. Secretary of HEW, 572 F.2d 976 (3d Cir. 1978) (party relieved from consequences of judgment because party denied day in court when lawyer failed altogether to respond to motion for summary judgment). Mugno's claim that the New Jersey court did not make a full determination because of time constraints is without merit. The trial lasted three days, Mugno mounted a substantial defense, and the court rendered a final 34 page opinion which was detailed and well reasoned. The court's only reference to a time constraint was his apology for perhaps repeating items because he did not take additional time to craft the opinion, but the court specifically stated this did not affect the terms of his basic decision. (Exhib. 22 at 2.) Again, the New Jersey court's decision to exclude the testimony of some of Mugno's witnesses was an evidentiary ruling well within the court's discretion, and Mugno was afforded an adequate opportunity to contest that ruling.
New Jersey court luff it testimony of foot witnesses that Mugno proposed to call. The court ruled that the proposed testimony was cumulative because each of the four individuals would testify to background information that had already been presented. None of the four persons were witness to the transfer either the $30,000 or the $100,666, and none could testify to what Santacroce said or intended by the transactions. Further, the court appeared to believe that presenting the additional testimony would cause an unnecessary delay in that the trial was drawing to a close, all four witnesses were not then available, and to hold the trial over for another day would have required the trial to be postponed for an extended period. (Exhib. 21 at 128-29.)
Furthermore, the correct forum for Mugno to contest — New Jersey courts evidentiary ruling is the New jersey court of appeals.
In sum, Mugno had a full and fair opportunity to litigate her case and she lost. Consequently, the bankruptcy court was correct in ruling that Mugno's gift defense and related issues were precluded by the collateral estoppel effects of the New Jersey judgment.
D. Dischargeability Determination
Mugno argues that the bankruptcy court erred in concluding that she was a fiduciary. and that the debt owed to Casale was nondischargeable under § 523 (a)(4) Mugno contends that the New Jersey court merely conclude that the money given to Mugno as not a gift, without determining if fiduciary duty existed. Further, Mugno argues that the bankruptcy court erroneously relic on the express trust theory articulated in In re Borbridge, 90 B.R. 728 (Bankr. E.D. Pa. 1988), aff'd, 114 B.R. 63 (E.D. Pa. 1990), because the facts here do not coincide with the Borbridge facts.
Mugno rests her argument on lack of fiduciary capacity and does not contest the bankruptcy court's finding of defalcation. This strategy makes sense because of a fiduciary duty existed, the New Jersey judgment would preclude Mungo from asserted that expended the funds on Santacroce's needs. See Black's Law Dictionary 417 (6th ed. 1990) (defining defalcation as "act of embezzling, failure to meet an obligation misappropriation of trust funds or money held in any fiduciary capacity; failure to properly account for such funds.").
Mugno points out four factual differences between this suit and Borbridge. In Borbridge the court found that the debtor held funds on behalf of his mother under an express trust because his mother gave him the funds to protect the assets from a sibling, the debtor had control over his mother's accounts, the debtor paid interest to his mother on money he had expended on himself, and the debtor had no records to prove repayment of misappropriated funds. Borbridge, 90 B.R. at 735-37. However, these factual differences are no dispositive of the issue of fiduciary capacity; the facts that give rise to an express trust are not limited excluively to those found in Borboridge.
Section 523 (a)(4) exempts from discharge an. debt arising from fraud or defalcation by the debtor while acting in fiduciary capacity. P re Manzo, 106 B.R. 69, 71 (Bankr. E.D. Pa. 1989). "The existence of a fiduciary relationship in the form of an express trust is a prerequisite of nondischargeability for fraud or defalcatior under section 523 (a)(4)." Id. at 734. An express trust may be oral, and the existence of the trust may be proved b circumstance evidence. Id. at 735. Words explicitly creating a trust are not necessary:
The parties manifestation of intention ultimately controls whether or not a trust relationship exists, but failure to expressly designate the relationship as one of trust does not necessarily negate its existence. . . . When the language of the parties fails to clearly indicate their intention, it may be ascertained by other objective manifestations of intent, such as the facts and circumstances surrounding the transaction and the relationship of the parties.
In re Penn Central Transportation Co., 486 F.2d 519, 524 (3d Cir. 1973) (en banc) (citations omitted), cert. denied, 415 U.S. 990 (1974).
Here, the bankruptcy court was correct in including that, based on the New Jersey court's findings of fact. Mugno and Santacroce created an express trust when Santacroce gave the proceeds from the sale of the CDs to Mugno. Under New Jersey law, an express trust can be created in writing or orally. Kronisch v. Howard Savings Institution, 382 A.2d 376 (N.J.Super.Ct. 1977). aff'd in relevant part and rev'd in part, 392 A.2d 178 (N.J. 1978). The language creating the trust
must be reasonably certain in its material terms is requisite of certainty includes the subject matter embraced within the trust the beneficiaries or person in "whose behalf it is created, the nature and quantity of interest which they are to have, and the manner in which the trust it to be performed. If the language is so vague, general or equivocal that any of these elements of the trust is left in real uncertainty then the trust must fail.
Kronish, 382 A.2d at 376 (quoting 3 Pomeroy, Equity Jurisprudence § 1009 at 1012-1013 (5th ed. 1941)) Although the New Jersey court did not specifically state that Mugno held funds pursuant to an express trust created by Santacroce, the court made factual findings which clearly establish all the elements for an express trust. The New Jersey court concluded that Santacroce turned over the money to Mrs Mugno to be handled by her, to be invested by her or held by her, to be used for her mother's needs as they arose. (Exhib. 22 at 4-5.) The New Jersey court found that Santacroce words in giving the money to Mugno, together with Mugno's response, indicated that Santacroce "was relying on Mugno to make those decisions [regarding the investments] that Santacroce did not want to make." (Exhib. 22 at 31.) Further, the New Jersey court found that immediately after Santacroce gave the funds to Mugno, the latter used the money for the benefit and needs of her mother, thus confirming the conclusion that Mugno held the money in trust for Santacroce.
E. Alternative Grounds for Nondischargeability Determination
Casale proposes two alternative grounds for affirming the bankruptcy court's determination that the debt arose from Mugno's defalcation while acting in a fiduciary capacity. First, Casale argues that Mugno owed a fiduciary duty to Santacroce because Mugno had power of attorney to handle Santacroce's financial affairs. Second, Casale argues that Mugno's fiduciary duty arises from her appointment as administrator of Santacroce's estate. Although not relied on by the bankruptcy court in its judgment, or argued by Casale in her motion in limine, both issues are preserved for appeal because Casale raised both issues in her second motion for summary judgment, and this appeal addresses, in part, the bankruptcy court's reversal of its previous denial of summary judgment.
Turning to Casale's power of attorney argument, Casale notes that Santacroce executed a written power of attorney in late 1988, authorizing Mugno to manage her financial affairs. (Casale exhib. A-i.) Subsequently, Santacroce transferred the bulk of the proceeds from the sale of her home to Mugno, and Mugno failed to account for $78,543.00 of the transferred sum.
However, 11 U.S.C. § 523 (a)(4) prohibits discharges of any debts for fraud or defalcation while acting in a fiduciary capacity. (emphasis added). The existence of an express trust aside, Mugno did not obtain or misappropriate Santacroce's funds through her authority in having power of attorney. Indeed, one of the few times Mugno exercised her power of attorney was to release $11,800 from the Spencer account to Casale shortly after Santacroce died.
Similarly, Mugno did not commit fraud or defalcation with respect to Santacroce's money while acting in her capacity as administrator of Santacroce's estate. Mugno obtained possession of Santacroce's funds prior to the latter's demise and Mugno's subsequent appointment as administrator. Consequently, Mugno obtained and spent the funds independent of her role as administrator. Cf. In re Kleppinger, 27 B.R. 530 (Bankr. M.D. Pa. 1982) (holding that debtor who as personal representative of decedent brought suit and recovered damages for wrongful death, and later misappropriated damages, breached fiduciary duty owed to beneficiaries).
In sum, Casale's theories that Mugno breached a fiduciary duty owed to Santacroce in her capacity of having power of attorney and being administrator of the decedent's estate do not provide alternative grounds for affirming the bankruptcy court's nondischargeability determination.
III. CONCLUSION
The findings of the New Jersey court preclude Mugno from denying that she held Santacroce's money pursuant to an express trust. Consequently, the bankruptcy court's judgment that the debt owed by Mugno to Casale is not dischargeable is affirmed.
An appropriate order follows.
ORDER
AND NOW, THIS DAY OF March, 1997, upon consideration of the appeal of debtor Lynn Mugno with respect to the August 7, 1996 order of the bankruptcy court, and appellee's response thereto, IT IS ORDERED that the judgment of the bankruptcy court is AFFIRMED.