The opinion of the court was delivered by: Peter G. Sheridan, U.S.D.J.
Debtor, Vincenza Leonelli-Spina ("Spina") filed this appeal from the Bankruptcy Court's Order concluding that Spina's debt to John R. Albro ("Albro") was non-dischargeable. Spina claims that the Bankruptcy Court erred in granting summary judgment because the Bankruptcy Judge failed to undertake a full evidentiary hearing to determine whether the debt was based on fraud or defalcation.
There are two Superior Court of New Jersey cases involved in the outcome of this bankruptcy appeal.
On or around December 1994, Albro, a 25 year veteran police officer filed suit against his employer, Borough of Paramus (the "Borough"). Albro v. Borough of Paramus, Superior Court of New Jersey, Law Division, Docket No. BER-L-1537-96. ("Paramus Litigation"). Evidently, Albro applied for and accepted an early retirement package the Borough had offered. The offer provided a 30 day period in which an applicant could rescind or revoke his retirement application. Thereafter, Albro rescinded his application within the time period, but the Borough refused to accept his revocation.
Due to the Borough's refusal, Albro retained an attorney, John Feczko, to represent him in the matter. At that time, Spina was an associate in Feczko's law firm. No retainer agreement was signed, but Feczko and Spina orally agreed to take Albro's case on a contingency basis, or accept a fee awarded by the Court against the Borough.
Thereafter, the Division of Pensions of the State of New Jersey ("Pensions") began issuing pension checks to Albro. A representative of Pensions advised Albro that if the checks were cashed, Pensions would consider him retired, which, in turn, would undermine his claim for reinstatement. As a result of the advice, commencing in 1996, Albro endorsed the checks over to Feczko "as trustee," and the monies were placed into a trust account by the Feczko firm. At some point in late 1996, Spina terminated her employment with Feczko in order to start her own practice. Upon termination, Spina undertook Albro's case as part of her newly created practice.
Spina claims Albro signed a three page legal services agreement in December 1996, authorizing Spina to draw on the trust account for legal fees and costs at the rate of $250 per hour on the Paramus Litigation. Albro denies same, but concedes that he may have signed a one page agreement in 2002 (after the Paramus Litigation was over), which he admittedly did not read because he did not have his reading glasses and he trusted that Spina would not deceive him.
In September 4, 2001, a consent judgment between the Albros and the Borough was entered. The settlement included a retroactive promotion for Albro from lieutenant to captain effective December 31, 1993, and that Albro's retirement was effective as of January 1, 1995. Albro agreed to receive back wages and an increased pension that reflected his promotion, payment for sick leave and other miscellaneous benefits, plus $270,000 from the Borough for release of other claims. In addition, the Borough agreed to pay $165,000 by consent order of Albro's attorneys fees and costs.
After the Paramus Litigation, a second lawsuit arose involving the relationship of Spina and Albro. As noted above, Albro understood that the Consent Order awarded $165,000 was for the total legal fee due Spina during the course of the Paramus Litigation, Albro claims that he never received a bill from Spina, and never authorized Spina to withdraw money from the trust account. Much to Albro's surprise, Spina accessed the trust account and withdrew fees. Albro claims he would have refused the settlement in the Paramus Litigation had he known of Spina's activity. The amount taken from the trust account was for fees in addition to the $165,000 award. Albro demanded that Spina turn over the money in the trust account when he learned that the money belonged to him. Spina refused because she had withdrawn all the money to pay herself for Albro's representation. As a result, Albro filed a lawsuit against Spina. Albro v. Vincenza Leonelli-Spina, Superior Court of New Jersey, Law Division, Bergen County, Docket No. BER-L-1277-04 ("Spina Litigation").
On February 20, 2004, Albro filed a four count complaint against Spina. The complaint included facts about (a) Spina's failure to pay taxes on the monies in the trust account which Spina negligently failed to do; (b) her failure to provide accounting and bookkeeping of the funds in the trust account; and (c) her improper withdrawal of trust funds without Albro's permission. These activities were plead as breach of contract and negligence.*fn1
In a post-trial brief, Albro requested the Assignment Judge who heard the matter to find that Spina had engaged in conversion, fraud, breach of fiduciary duty, and breach of contract. Specifically, Albro's attorney revised his allegations to be (a) that Spina fraudulently misappropriated his funds in the trust account, (b) that Spina fraudulently induced him to sign the purported retainer agreement, (c) that Spina breached her fiduciary duty by withdrawing commingled funds in her trust account to pay legal fees, and (d) that Spina breached her contract with Albro by failing to make quarterly estimated tax payments. (A.R. ...