Krietzburg v. Mucci

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: THOMAS J. BUDD MUCCI, 	No. 7-09-11609 JA
Debtor.
JACK KRIETZBURG and
SHARON KRIETZBURG,
Plaintiffs,
v. 	Adv. No. 09-1098 J
THOMAS J. BUDD MUCCI,
Defendant.
MEMORANDUM OPINION
This matter is before the Court on the Motion For Summary Judgment and Memorandum
in Support Thereof (“Motion”)(Docket No.37) filed by Defendant Thomas J. Budd Mucci on
March 24, 2010. Plaintiffs’ Response to Defendant’s Motion for Summary Judgment
(“Response”)(Docket No.55) was filed May 13, 2010.
On July 17, 2009, Plaintiffs Jack Krietzburg and Sharon Krietzburg filed this adversary
proceeding against Thomas J. Budd Mucci pursuant to 11 U.S.C. §523(a)(4) seeking a
determination that a debt owed to them by Mr. Mucci is non-dischargeable. Mr. Mucci is an
attorney. The Krietzburgs’ claim arises as a result of Mr. Mucci’s representation of them in State
Court construction defect litigation (“State Court litigation”) entitled Krietzburg v. Kramer, et al,
CV 2005-1158. The Krietzburgs allege that Mr. Mucci improperly diverted settlement funds for
his own use after the settlement of the State Court litigation; failed to account for funds as paid to
him; and that the accounting he later provided was fraudulent. The Krietzburgs further assert
that although the parties agreed to an hourly fee billing arrangement at the inception of the State
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Court litigation, the billing arrangement was changed to a contingency fee when Daymon Ely
was retained to associate as Mr. Mucci’s co-counsel. They claim that Mr. Mucci was not entitled
to apply settlement proceeds to fees he would have earned had the fee arrangement always been
on an hourly basis. The Krietzburgs seek an accurate accounting from Mr. Mucci as well as a
determination that any settlement proceeds improperly retained by Mr. Mucci or other amounts
paid to him but not disbursed as agreed be deemed non-dischargeable. Finally, the Krietzburgs
seek treble damages and an award of their fees and costs incurred in pursuing this adversary
proceeding.
Mr. Mucci asserts that at all times he rendered services for the Krietzburgs in connection
with the State Court litigation on an hourly basis, including after the Daymon Ely was retained as
his co-counsel. Mr. Mucci asserts that all settlement funds he retained and other monies he was
paid were properly applied to pay his earned fees or to reimburse him for reimbursable costs.
Mr. Mucci disputes that he failed to provide an accurate accounting. He asserts that he provided
the Krietzburgs with an accounting on two separate occasions: first, during a Disciplinary Board
investigation commenced upon a complaint filed by the Krietzburgs; and second, in connection
with the instant adversary proceeding. Mr. Mucci asserts that because the Disciplinary Board
determined that no action would be taken, and that Deputy Disciplinary Counsel Joel L. Widman
made a specific determination that the Krietzburgs were aware of the legal fees and costs being
incurred and were in a position to challenge any improper bills, summary judgment is proper.1
1 See Defendant’s Motion for Summary Judgment at p.3. Defendant provided a copy of Mr. Widman’s letter dated
June 20, 2008, attached to the Motion for Summary as Exhibit 4, but the Court will not consider any statements
contained therein as the correspondence has not been authenticated. However, even if the Court were to consider
the letter, it would not affect the Court’s decision. Findings by an investigator do not have preclusive effect, and as
discussed below Plaintiffs have raised issues of material fact sufficient to preclude the Court from granting summary
judgment.
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The Court after consideration of the pleadings and briefs, the facts, and applicable law
has determined that Defendant’s motion for summary judgment should be denied.
A. 	SUMMARY JUDGMENT STANDARD
It is appropriate for the Court to grant summary judgment if the pleadings, discovery
materials, and any affidavits before the Court show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P.
56(c) made applicable to the adversary proceeding by Fed. R. Bankr.P. 7056. “[A] party seeking
summary judgment always bears the initial responsibility of informing the . . . court of the basis
for its motion, and . . . [must] demonstrate the absence of a genuine issue of material fact.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Courts must
review the evidentiary materials submitted in support of a motion for summary judgment to
ensure that the motion is properly supported by evidence.
A motion for summary judgment may be supported by affidavits, but affidavits are not
required. See Fed.R.Civ.P. 56(c)(2); Fed.R.Civ.P. 56(a)(A party claiming relieve may move
with or without supporting affidavits . . .”)(emphasis added). 	An affidavit offered in support of
or in opposition to a motion for summary judgment “must be made on personal knowledge, set
out facts that would be admissible in evidence, and show that the affiant is competent to testify
on the matters stated.” Fed.R.Civ.P. 56(e)(1). 	The party opposing a properly supported motion
for summary judgment, “may not rely merely on allegations or denials” contained in his or her
own pleading, but must “set out specific facts showing a genuine issue for trial.” Fed.R.Civ.P.
56(e)(2). 	In determining whether to grant a movant’s request for summary judgment, the Court
must view the facts in the light most favorable to the party opposing summary judgment.2
2 Harris v. Beneficial Oklahoma, Inc., (In re Harris), 209 B.R. 990, 995 (10th Cir. BAP 2007)(“When applying this
standard, we are instructed to ‘examine the factual record and reasonable inferences therefrom in the light most
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B. 	Undisputed Facts
In the spring of 2005, the Krietzburgs retained Mr. Mucci to represent them
in the State Court litigation on an hourly basis. See Exhibit 2 to Response, Affidavit of Sharon
Krietzburg at ¶ 2 and Answer to Complaint and Counterclaim at ¶4(b) and 10; Exhibit 5 to
Response, Deposition of Thomas Mucci at p.10. With the Krietzburgs’ consent, Mr. Mucci
engaged Butt, Thornton & Baehr (specifically Patrick Griebel of that firm) to serve as co-counsel
for the Krietzburgs with Mr. Mucci. Id. In the late summer or early fall of 2006, Daymon Ely
replaced Butt, Thornton & Baehr as co-counsel for the Krietzburgs with Mr. Mucci in the
litigation. See Exhibit (Docket No. 37-5) to Motion, Affidavit of Sharon Krietzburg dated
October 20, 2008 at ¶5 and Exhibit 5 to Response, Deposition of Thomas Mucci at p.11, lns 22-
25; p.12, lns 5-13; p.13, lns 11-15. The State Court litigation settled on or about July 9, 2007.
See Complaint at ¶7 and Answer to Complaint and Counterclaim at ¶7a. The Krietzburgs
advanced funds to Mr. Mucci for legal fees and costs prior to the settlement. See Answer and
Counterclaim at ¶12 and Exhibit 2 to Response, Affidavit of Sharon Krietzburg at ¶6. Settlement
proceeds were disbursed to Mr. Mucci as counsel for the Krietzburgs. See Complaint at ¶7 and
Answer to Complaint and Counterclaim at ¶7a. On April 17, 2009 Mr. Mucci filed a voluntary
petition under Chapter 7 of the Bankruptcy Code, Case No. 7-09-11609 JA.
C. 	DISCUSSION
Mr. Mucci seeks summary judgment on the Krietzburgs’ claim brought pursuant to
Section 523(a)(4) which provides that a debtor may not discharge “any debt…for fraud or
defalcation while acting in a fiduciary capacity ….” 11 U.S.C. §523(a)(4). A finding of non-
favorable to the party opposing summary judgment.’ “)); Wolf v. Prudential Ins. Co. of America, 50 F.3d 793, 796
(quoting Applied Genetics Int’l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990)(internal
quotation marks omitted); Henderson v. Inter-Chem Coal Co., 41 F.3d 567, 569 (10th Cir. 1994)(stating that the
court must “view all facts and any reasonable inferences that might be drawn from them in the light most favorable
to the nonmoving party . . .”).
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dischargeability under section 523(a)(4) requires a showing of the following elements: (1) the
existence of a fiduciary relationship between the debtor and the objecting party; and (2) a
defalcation committed by the debtor in the course of the fiduciary relationship.3 The fiduciary
duty contemplated by section 523(a)(4) is narrowly construed.4 Whether a fiduciary duty exists
is a question of federal law, but state law is relevant to the determination of whether a trust
relationship exists.5 The general definition of fiduciary, a relationship involving confidence,
trust and good faith, is too broad in the dischargeability context.6 The fiduciary relationship
contemplated in 11 U.S.C. §523(a)(4) is limited to those arising out of a pre-existing express or
technical trust, not an implied, resulting, or constructive trust.7 Defalcation within the context of
section 523(a)(4) is “ the misappropriation of trust funds held in any fiduciary capacity, and the
failure to properly account for such funds.” 8 An objective standard is used to determine
defalcation, and intent or bad faith is not a requirement. 9 Once a creditor has established that the
debtor is a fiduciary and that entrusted funds have not been paid, the burden shifts to the debtor
to “render an accounting to show that [the debtor] complied with its fiduciary duties.”10
The initial inquiry is whether Mr. Mucci acted in a fiduciary capacity of the type
contemplated by 11 U.S.C. § 523(a)(4) with respect to the funds he received from the settlement
of the State Court ligation and from the Krietzburgs to pay legal fees and costs. The Court finds
3 Fowler Bros. v. Young (In re Young), 91 F.3d 1267, 1371 (10th Cir. 1996)(stating that creditor has the burden to
prove the fiduciary relationship; existence of fiduciary relationship is a legal issue); Watson v. Parker (In re Parker),
264 B.R. 685, 700 (10th Cir. BAP 2001); Antlers Roof-Truss & Builders Supply v. Storie (In re Storie), 216 B.R.
283, 286 (10th Cir. BAP 1997).
4 Holaday v. Seay (In re Seay), 215 B.R. 780, 786 (10th Cir. BAP 1997).
5 Young, 91 F.3d at 1371; Storie, 216 B.R at 286.
6 In re Van De Water, 180 B.R. 283, 289 (Bankr.D.N.M. 1995)(citing In re Angelle, 610 F.2d 1335, 1338-39 (5th
Cir.1980)).
7In re Romero, 535 F.2d 618 (10th Cir.1976); In re Talcott, 29 B.R. 874 (Bankr.D.Kan.1983).
8 In re Zois, 201 B.R. 501, 506 (Bankr.N.D. Ill 1996)(citing Nuchief Sales, Inc. v. Harper (In re Harper), 150 B.R.
416, 419 (Bankr.E.D.Tenn.1993)).
9 Green v. Pawlinski (In re Pawlinski), 170 B.R. 380, 389 (Bankr.N.D.Ill.1994) (Schmetterer, J.); Blackhawk
B.M.X., Inc. v. Anderson (In re Anderson), 64 B.R. 331, 334 (Bankr.N.D.Ill.1986); In re Owens, 54 B.R. 162, 165
(Bankr.D.S.C.1984).
10 Storie, 216 B.R. at 288.
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that Mr. Mucci did act in such a fiduciary capacity as to any amounts he received other than to
pay earned fees or to reimburse him for costs already expended, regardless of whether there
existed an hourly fee or contingent fee agreement between the parties.
“Under Tenth Circuit law, to find a fiduciary relationship exists the court must find that
the money or property on which the debt at issue was based was entrusted to the debtor.” 11 In
New Mexico attorneys place themselves in a fiduciary capacity by virtue of the New Mexico
Rules of Professional Conduct. Rule of Professional Conduct 16-115 provides in pertinent part:
A. Holding another’s property separately. A lawyer shall hold
property of clients or third persons that is in a lawyer’s possession
in connection with a representation separate from the lawyer’s own
property. Funds shall be kept in a separate account maintained in
the state where the lawyer’s office is situated, or elsewhere with
the consent of the client or third person. Other property shall be
identified as such and appropriately safeguarded. Complete records
of such account funds and other property shall be kept by the
lawyer and shall be preserved for a period of five (5) years after
termination of the representation.
B. Client trust account deposits; discretionary. A lawyer may
deposit the lawyer’s own funds in a client trust account for the sole
purpose of paying bank service charges on that account, but only in
an amount necessary for that purpose.
C. Client trust account deposits; mandatory. A lawyer shall deposit
into a client trust account legal fees and expenses that have been
paid in advance, to be withdrawn by the lawyer only as fees are
earned or expenses incurred.
D. Notification of receipt of funds or property. Upon receiving
funds or other property in which a client or third person has an
interest, a lawyer shall promptly notify the client or third person.
Except as stated in this rule or otherwise permitted by law or by
agreement with the client, a lawyer shall promptly deliver to the
client or third person any funds or other property that the client or
third person is entitled to receive and, upon request by the client or
third person, shall promptly render a full accounting regarding
such property.
11 Allen v. Romero (In re Romero), 535 F.2d 618 (10th Cir.1976); See In re Young, 91 F.3d at 1371.
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NMRA, Rule 16-115. Mr. Mucci had a fiduciary duty to hold in trust any funds the Krietzburgs
paid to him other than earned legal fees, and to hold in trust the settlement proceeds, and to only
disburse the funds out of trust in accordance with the agreement of the parties. That is a type of
fiduciary duty contemplated by 11 U.S.C. §523(a)(4).12
The second inquiry is whether there has been a misappropriation of settlement proceeds or
other funds and whether the settlement proceeds and other funds have been or can be properly
accounted for. Mr. Mucci claims he properly applied all of the Krietzburgs’ payments to him
and the settlement proceeds he retained to earned fees under an hourly fee arrangement and for
reimbursable costs. The Krietzburgs contend that the payments and retained proceeds exceeded
the sum of earned fees and reimbursable costs, that fees were earned first under an hourly and
later under a contingent fee arrangement, and that the accountings Mr. Mucci provided were
fraudulent.
Mr. Mucci has not provided any evidence in support of his motion for summary judgment
regarding the amount of unpaid earned fees or the amount of outstanding reimbursable costs to
which he applied settlement proceeds or payments he received from the Krietzburgs, or the
amount of settlement proceeds he remitted to the Krietzburgs. Mr. Mucci relies on a letter from
Sharon Krietzburg to Daymon Ely dated June 4, 2007 in which Ms. Krietzburg admits that Mr.
Mucci provided the Krietzburgs with an accounting, and that she and her husband were “more
than satisfied.” That letter was written prior to the settlement of the State Court litigation, and
therefore also prior to Mr. Mucci’s receipt and disbursement of settlement proceeds.
12 Attorneys have a fiduciary duty of the type contemplated by 11 U.S.C. § 523(a)(4) in cases where an attorney
takes possession of a client’s property and is subject to rules of professional conduct which create a duty to
safeguard that property. E.g. Ball v. McDowell (In re McDowell), 162 B.R. 136, 139 (Bankr.N.D.Ohio 1993);
Ducey v. Doherty (In re Ducey), 160 B.R. 465, 469-470 (Bankr.D.N.H. 1993) (citing cases holding that a lawyer
who holds client funds has such a fiduciary duty of the type covered by section 523(a)(4)).
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The Court finds that affidavits of Jack Krietzburg and Sharon Krietzburg filed in support of
the Krietzburgs’ opposition to the Motion for Summary Judgment are sufficient to raise a
material issue as to whether the hourly fee arrangement between the Krietzburgs and Mr. Mucci
was converted to a contingent fee agreement when Daymon Ely was engaged as co-counsel with
Mr. Mucci in the State Court litigation, and that Mr. Mucci has not demonstrated that the alleged
contingent fee arrangement lacks sufficient specificity to create a binding agreement if such an
agreement were reached.13 Because the amount of settlement funds Mr. Mucci was entitled to
retain depends on the terms of the fee agreement between the Krietzburgs and Mr. Mucci and a
genuine issue exists as to those terms, a genuine issue exists regarding the amount of settlement
funds Mr. Mucci was entitled to retain. Further, based on the submissions in support of and in
opposition to the Motion for Summary Judgment, the Court finds a genuine issue exists
concerning application of the payments made by the Krietzburgs to Mr. Mucci for fees and costs.
In support of his assertion that he has properly accounted for all funds, Mr. Mucci relies
on two accountings, one given during a Disciplinary Board investigation commenced upon a
complaint filed by the Krietzburgs; and the other in connection with the instant adversary
proceeding. See Motion at ¶2. In support of his contention regarding the first accounting, Mr.
Mucci relies on a letter resulting from a disciplinary board investigation. However, the Court
must disregard the letter since it is not admissible under the Rules of Evidence.14 Second, Mr.
Mucci relies on a letter from Sharon Krietzburg to Daymon Ely dated June 4, 2007 in which Ms.
Krietzburg admits that Mr. Mucci provided them with an accounting, and that she and her
13 The Court will not consider the statements contained in Mr. Ely’s letter dated November 6, 2009 attached at
Exhibit 1 to the Response because it has not been authenticated and is inadmissible hearsay.
14 The letter is not admissible because it has not been authenticated as required by Rule 901 of the Federal Rules of
Evidence. Further, findings by an investigator do not have preclusive effect in this case. Because the findings do
not have preclusive effect, and the investigator has not been qualified to testify as an expert, the letter setting forth
the findings is inadmissible hearsay. Even if the Court were to consider the letter, however, it would not change the
ruling made by the Court on the Motion for Summary Judgment.
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husband were “more than satisfied.” Third, Mr. Mucci relies on discovery provided in this
adversary proceeding. The June 4, 2007 letter does not establish that Mr. Mucci accounted for
the use and disposition of the settlement funds because the letter was written before the State
Court litigation settled. The fact that Mr. Mucci provided an accounting as part of the discovery
in this adversary proceeding does not establish that the accounting is accurate. The affidavit of
Sharon Krietzburg, attached as Exhibit 2 to the Response, is sufficient to raise a genuine issue of
material fact regarding whether a full and accurate accounting has been provided.
CONCLUSION
Because there exist material issue of facts regarding whether Mr. Mucci misappropriated
funds while acting in a fiduciary capacity of the type contemplated by 11 U.S.C. §523(a)(4), and
whether he has provided a full and accurate accounting of those funds, the Court will deny
Defendant’s Motion. This Memorandum Opinion shall constitute the Court’s findings of fact
and conclusions of law under Rule 7052, Fed.R.Bankr.P. An appropriate order will be entered.
_______________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Entered on Docket Date: July 2, 2010
Copies to:
Daniel J Behles
Moore, Berkson & Gandarilla, P.C.
P.O. Box 7459
Albuquerque, NM 87194
Attorney for Defendant
Roger Eaton
Will Ferguson & Associates
1720 Louisiana Blve NE Ste 100
Albuquerque, NM 87110
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-and-
Walter L Reardon, Jr
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
-and-
Ada B. Priest
Madison, Harbour & Mroz
PO Box 25467
Albuquerque, NM 87125
Attorneys for Plaintiffs
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