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Guido v. Spina


May 14, 2010


On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2627-07.

Per curiam.


Argued February 23, 2010

Before Judges Lihotz and Ashrafi.

In this case brought under the Uniform Fraudulent Transfer Act ("the Act"), N.J.S.A. 25:2-20 to -33, plaintiffs John Guido and All American Waste Service Inc. appeal from an order of February 13, 2009, dismissing their complaint with prejudice. The trial court concluded that they filed their complaint beyond the statute of limitations established by N.J.S.A. 25:2-31. We reverse.

The Act allows causes of action for fraudulent transfers of property that occurred both before and after an unpaid debt was incurred. In relevant part, N.J.S.A. 25:2-25 states:

Transfers Fraudulent As To Present And Future Creditors

A transfer made... by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made... if the debtor made the transfer...

a. With actual intent to hinder, delay, or defraud any creditor of the debtor....

In this case, plaintiffs' claim against defendants arose after the transfer of property alleged to have been made fraudulently to avoid payment.

The applicable statute of limitations is contained in N.J.S.A. 25:2-31, which states in relevant part:

Extinguishment Of Cause Of Action

A cause of action with respect to a fraudulent transfer... under this article is extinguished unless action is brought:

a. Under subsection a. of R.S. 25:2-25, within four years after the transfer was made... or, if later, within one year after the transfer... was discovered by the claimant;


Since plaintiffs' complaint was filed almost six years after defendants' alleged fraudulent transfer of property, the issue before us is whether it was brought within one year of plaintiffs' discovery of the transfer.

The relevant facts are not in dispute. Plaintiff John Guido owns the plaintiff demolition and waste removal business. On December 17, 2004, plaintiffs filed an amended complaint against Spina Group, Inc. and Robert and Barbara Spina alleging breach of warranties and negligence with respect to rental of an excavator machine. The complaint alleged that the machine caught fire while Guido was operating it on June 11, 2004, forcing him to jump from the operator's seat and causing injury to his leg. The complaint sought compensation for Guido's injury and consequential economic damages.

The Spina defendants in that cause of action brought a counterclaim, the basis of which is not revealed in the record before us. Guido eventually abandoned his claim for personal injury to his leg, and plaintiffs pursued only the economic claims arising from the fire. The complaint and counterclaim were tried before a jury in November 2006. Following the jury's verdict, judgment was entered on November 27, 2006, in favor of plaintiffs and against Spina Group, Inc. and Robert Spina for $97,475, and in favor of Spina Group, Inc. on its counterclaim for $77,475. All claims against Barbara Spina were dismissed.

After obtaining that judgment, plaintiffs learned that Robert Spina and Spina Group, Inc. lacked resources or insurance to pay the net $20,000 judgment. Through a judgment search, plaintiffs then learned that Robert Spina had three prior judgments against him docketed in 2000. They discovered that on June 25, 2001, a deed was recorded by which Robert Spina transferred his undivided joint interest with Barbara Spina in real property located in Chester, New Jersey, to her individually for $10.

On May 24, 2007, plaintiffs filed a second complaint asking that the court void the transfer of the Chester property under N.J.S.A. 25:2-29 to the extent necessary to satisfy plaintiffs' judgment against Robert Spina. Defendants filed an answer denying the essential allegations of plaintiffs' complaint and asserting the statute of limitations among other affirmative defenses. They also filed a counterclaim under the frivolous pleadings statute, N.J.S.A. 2A:15-59.1.

On the trial date in January 2009, the court and the attorneys attempted settlement and discussed issues in chambers that were not made part of the record. On the record, the court entertained an oral motion made by defendants to dismiss plaintiffs' complaint on statute of limitations grounds.

In their arguments before the trial court, the parties debated application of Sasco 1997 NI, LLC v. Zudkewich, 166 N.J. 579 (2001), to the facts of this case. Sasco, however, interpreted a prior version of the statute of limitations contained in N.J.S.A. 25:2-31a. The prior version provided that a complaint alleging fraudulent transfer must be filed within four years of the transfer or, "if later, within one year after the transfer... was or could reasonably have been discovered by the claimant." (Emphasis added.) In Sasco, supra, the Court stated that the statute as quoted was intended "to follow New Jersey's discovery rule jurisprudence." 166 N.J. at 589 (citing Lopez v. Swyer, 62 N.J. 267, 275 n.2 (1973)). Applying that jurisprudence, the Court held that commercial creditors could reasonably be expected to "perform an asset search when the loan goes into default" as opposed to waiting until they secure a judgment on the defaulted loan. Id. at 591. Because such an asset search would have disclosed the transfer alleged to have been fraudulent, the complaint in Sasco was untimely filed more than four years after the transfer and more than one year after plaintiff's loan went into default. Id. at 592.

After Sasco, the Legislature amended N.J.S.A. 25:2-31a to delete from the statute the phrase "or could reasonably have been" preceding the word "discovered." L. 2002, c. 100, § 1 (amending N.J.S.A. 25:2-31). As a result, the Supreme Court's holding in Sasco that commercial creditors were expected to perform a pre-judgment asset search was abrogated by the Legislative amendment, and the statute set a one-year limitations period from the date that the allegedly fraudulent transfer "was discovered" by the creditor.

In arguing the motion to dismiss in this case, the parties and the trial court made no reference to the amended statute. According to plaintiffs' brief on appeal, counsel was precluded from relying on the amended statute by the judge's off-the-record comments in chambers, stating that the 2002 amendment did not apply to this case. Defendants have not responded to that contention, but nevertheless, we do not rely on it for purposes of our decision. We simply note that nothing was said on the record as to why the 2002 amendment did not apply to this case.

Instead, the court conducted a plenary hearing on the issue of when plaintiffs could reasonably have discovered the allegedly fraudulent transfer of June 2001. The only witness at the hearing was plaintiff Guido, but the court rejected his testimony that asset searches are not conducted in his industry until after a judgment is obtained. The court stated:

[I]t is clear from the evidence that [plaintiffs'] claim accrued in June of 2004. And there was still time, within the statute of limitations, to bring this action, because a simple judgment search would have revealed those three judgments from 2000.

[I]t's reasonable that if one does a simple judgment search, just as apparently the plaintiff did in preparation for this litigation, and learns that there are judgments, then the reasonable next step is to do an asset search and determine whether or not there has been such a fraudulent transfer, such as is alleged here in this matter.

So, the long and short of it is, the Court does not find that the plaintiff acted within the statute of limitations... pursuant to the Fraudulent Transfer Act, and dismisses the plaintiff's complaint with prejudice.

We apply a plenary standard of review to the trial court's application of law to the facts, in particular, statutory interpretation. Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995). We may also take notice of plain error that was not raised before the trial court but is "clearly capable of producing an unjust result." R. 2:10-2. Here, we conclude that the trial court committed plain error in applying a superseded version of the statute of limitations and the abrogated holding of Sasco, supra, 166 N.J. at 591-92.

There is no dispute about the chronology of relevant dates. Robert Spina transferred his interest in the Chester property to Barbara Spina for $10 on June 21, 2001. Plaintiffs' damages and their underlying claims arose as a result of the machine catching on fire on June 11, 2004. After trial, plaintiffs obtained a net judgment of $20,000 on November 27, 2006. Nothing in the record demonstrates that plaintiffs actually discovered the June 2001 transfer of the Chester property before entry of that judgment. Guido testified that his attorney conducted a judgment and asset search after the judgment was entered, and they learned then about the June 2001 transfer of the Chester property. Plaintiffs filed their complaint alleging fraudulent transfer on May 24, 2007. This chronology establishes that plaintiffs filed their complaint more than four years after but within one year of discovering the transfer. Therefore, the complaint was timely filed under the amended statute.

In their brief, defendants repeat their argument before the trial court that plaintiffs' conduct failed to meet the standard the Supreme Court applied to commercial creditors in Sasco, supra, where the Court's inquiry was "when an objectively reasonable claimant would have discovered the transfer." 166 N.J. at 589. Under the amended statute, however, the time that plaintiffs could reasonably have discovered the transfer is no longer relevant. The holding of Sasco that commercial creditors are expected to conduct a pre-judgment asset search, id. at 592, has no application after amendment of the statute.

Because plaintiffs did not argue in open court that the amended statute must be applied, the record does not contain any statement of reasons explaining why the trial court applied the former statute. At the time of enactment in 2002, the Legislature indicated that the amendment would take effect immediately. L. 2002, c. 100, § 2. Plaintiffs filed suit on a claim that arose in 2004, after enactment of the amendment. Therefore, applying the amendment to their claim constitutes prospective, not retroactive, application of the amendment.

In addition, although the allegedly fraudulent transaction occurred before the amendment was enacted, by its terms the Act applies to transactions that preceded a claim, and the amendment made no change in that substantive provision. The amendment affected a procedural remedy or defense, the statute of limitations applicable to a claim that had not yet arisen at the time the statute was amended. It did not affect a substantive right of defendants, if repose from suit for a prior transfer of property is considered a substantive right. Cf. Short v. Short, 372 N.J. Super. 333, 339 (App. Div. 2004) (the amendment of wrongful death statute to eliminate statute of limitations applicable to claims based on homicide affected procedural, not substantive, rights, and the amendment applied to homicide that occurred twenty years earlier), certif. denied, 182 N.J. 429 (2005).

Because of our conclusion that the amended statute should have been applied in this case, we need not discuss other grounds raised by plaintiffs, such as, whether Guido could establish by his testimony a relevant industry practice in conducting an asset search; whether in the context of the facts here, plaintiffs are commercial creditors to whom the holding of Sasco was intended to apply; and whether, assuming that discovery rule jurisprudence as discussed in Sasco should be applied, the one-year limitations period would have begun to run when plaintiffs suffered economic damages as a result of the machine catching fire or when they obtained judgment on their causes of action.

With respect to the last issue, we note briefly defendants' argument that, under N.J.S.A. 25:2-21, "claim" is defined broadly to include "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." However, with respect to a cause of action alleging negligence or breach of warranties, as in this case, rather than a cause of action alleging default on a promise to pay, as in Sasco, plaintiffs can reasonably argue that they had no "right to payment" until they obtained a judgment. We need not decide whether the definition of "claim" contained in N.J.S.A. 25:2-21 applies to plaintiffs' cause of action before they obtained a judgment because the 2002 amendment makes that issue moot in the circumstances here. There is no dispute that plaintiffs filed their complaint alleging fraudulent transfer of property within one year of discovering the transfer.

The trial court erred in its application of the law. Therefore, we reverse dismissal of plaintiffs' complaint and remand to the Law Division for trial.


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