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Gilchinsky v. National Westminster Bank NJ

May 12, 1998


Argued: March 31, 1998

On appeal from the Superior Court of New Jersey, Law Division, Bergen County.

Before: Judges Pressler, Wallace and Conley.

The opinion of the court was delivered by: Wallace, Jr., J.A.D.

These appeals, calendared separately, are consolidated for the purpose of this opinion. The crucial issue is whether pension funds rolled over into an Individual Retirement Account (IRA) maintain their exemption from levy status under N.J.S.A. 25:2-1. The motion Judge found that the rollover to the IRA was a fraudulent conveyance and, therefore, concluded that the funds were subject to levy. We disagree and reverse.


Plaintiff Rogers and Hammerstein Organization (R&H) employed defendant Lea Gilchinsky in New York in various capacities from 1980 to 1991. R&H periodically deposited funds into the company's Profit Sharing Plan (the Plan) on behalf of Gilchinsky. Gilchinsky liked to gamble. In order to support her gambling habit, she began to embezzle funds from R&H. At some point, Gilchinsky's wrongdoing was discovered. R&H claimed that Gilchinsky diverted a total of $759,869 and only returned $28,700. Gilchinsky was subsequently indicted in New York for grand larceny in the second degree for theft of property in excess of $50,000. On May 15, 1992, she pled guilty to attempted grand larceny in the second degree, admitting she had taken property in excess of $50,000. She was sentenced to one year in prison.

On July 21, 1992, R&H filed suit against Gilchinsky in New York seeking to recover the funds she had stolen. In January 1993, R&H sought a restraining order and summary judgment against Gilchinsky for damages in the total amount of $935,643, representing approximately $731,000 in embezzled funds and $204,500 in salary and bonuses paid during the course of her embezzlement. On January 12, 1993, the trial court entered an order restraining Gilchinsky from making any sale or assignment of any personal and/or real property. In February 1993, the judge granted summary judgment in favor of R&H as to liability and partial judgment as to damages in the amount of $226,455.93 plus interest. Further, the Judge directed that a hearing be held in the future to determine the full extent of R&H's damages. *fn1

Meanwhile Gilchinsky established an IRA account with a branch of the National Westminster Bank NJ (NatWest) in Fort Lee, New Jersey. She had been banking there since 1991. In June 1994, Gilchinsky requested that R&H roll her pension funds in the Plan into her NatWest IRA. The value of Gilchinsky's interest in the Plan was fixed at $84,280.55 as of June 30, 1994.

In October 1994, R&H deposed Gilchinsky in aid of enforcement of its judgment. Gilchinsky acknowledged that she had an account with NatWest, but denied having an IRA.

On November 21, 1994, Gilchinsky wrote to R&H, enclosing the election form to execute the transfer of her share in the Plan into her IRA account. She wrote in part:

I have opened an Individual Retirement Account in my name with NatWest Bank at: 156 Linwood Plaza, Fort Lee, New Jersey 07024-Account Number . . .

Like most banks, NatWest dis-allows a direct rollover to an individual retirement account by a wire transfer -- to insure a paper trail, and since a wire transfer isn't a requirement by law, I trust that you will find the means to execute the immediate transfer of the funds in the said plan, with no further delay.

A settlement conference was held in New York on December 20, 1994. R&H sought to recover a substantial part of the Plan monies, but agreed to allocate a portion to Gilchinsky for her support and counsel fees. The parties were not able to reach an agreement. On December 28, 1994, Gilchinsky faxed a letter to R&H rejecting any settlement offer and reiterating her demand to transfer her money in the Plan to her IRA. On December 30, 1994, R&H complied with Gilchinsky's request and transferred $84,280 from the Plan to her IRA in NatWest.

On January 5, 1995, R&H filed a complaint on foreign judgment in the Law Division of Bergen County and on January 9, 1995, by order to show cause, sought a writ of attachment and domestication of the New York judgment. The motion Judge issued a writ attachment on January 10, 1995, and scheduled a hearing for January 25. At the hearing, Gilchinsky's New York counsel raised the issue of whether N.J.S.A. 25:2- 1 protected Gilchinsky's IRA account from attachment and indicated that perhaps the matter could be settled. The Judge gave counsel two days to accomplish settlement and, if no settlement could be reached, to submit opposing papers. Counsel did neither. On February 2, 1995, the Judge entered judgment against Gilchinsky, domesticating the New York judgment and directing the turnover of all property levied upon under the January 10 writ of attachment, including Gilchinsky's IRA account.

Although Discussions between counsel for the parties occurred, it was not until March 3, 1995, that Gilchinsky's New York counsel wrote to the Judge requesting a one-week stay of enforcement of the levy on the IRA account to permit Gilchinsky to obtain local counsel. On March 21, 1995, Gilchinsky's local counsel contacted Noah A. Kinigstein of NatWest and requested that the IRA funds not be distributed to R&H as it would be in violation of N.J.S.A. 25:2-1. Kinigstein informed counsel that the funds had not yet been transferred, but that Gilchinsky should move immediately for a stay. Counsel replied that he could not file such a motion until March 29. No motion for a stay was filed. On April 4, 1995, NatWest forwarded to R&H the funds previously held in Gilchinsky's IRA account.

On April 28, 1995, Gilchinsky initiated a separate action by way of complaint and order to show cause seeking a summary determination that her IRA was immune from levy. Oral argument was held on May 9, 1995, and by order dated May 18, 1995, the motion Judge denied Gilchinsky's application. Over one year later, R&H and NatWest moved for summary judgment in Gilchinsky's action, contending the complaint was barred by the entire controversy doctrine and that N.J.S.A. 25:2-1 did not protect Gilchinsky's IRA from attachment and levy. The motion Judge granted summary judgment against Gilchinsky on June 7, 1996, and dismissed her action on entire controversy grounds.

Gilchinsky moved for reconsideration on June 21, 1996, and simultaneously moved in R&H's action for relief under R. 4:50 from the February 2, 1995 judgment. Argument on both motions was held on September 13, 1996. The motion for reconsideration in Gilchinsky's action was denied by order dated September 13, 1996. However, the Judge granted Gilchinsky's motion for relief from the February 2, 1995 judgment, for the ...

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