August 18, 2010
IN THE MATTER OF THE ESTATE OF DAVID B. MADDEN, DECEASED
On appeal from the Superior Court of New Jersey, Chancery Division, Sussex County, Docket No. P-298-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 2, 2010
Before Judges Carchman, Lihotz and Ashrafi.
Following a six-day bench trial, the trial judge dismissed plaintiff John Simon's complaint alleging, among other claims, that decedent, David B. Madden, made a series of fraudulent transactions to his wife, defendant Constance Kneule-Madden, resulting in an insolvent estate and depriving plaintiff of the ability to collect on an extant judgment. The judge concluded that plaintiff failed to sustain his burden of proof. We agree and affirm.
These are the facts adduced at trial. Plaintiff and decedent were close friends for many years. Throughout the course of their friendship, plaintiff entered into numerous business transactions with decedent. At one point, decedent borrowed large amounts of money from plaintiff to develop insurance programs associated with Pemaquid Underwriting Brokerage, Inc. (Pemaquid), an entity in which decedent was President and sole shareholder. Pemaquid was a broker, underwriter and managing agent for various insurance policies.
To memorialize the loan transactions and establish evidence of the debt, decedent executed an April 14, 2003 promissory note. Under the terms of the note, decedent agreed to pay $639,088 plus three-percent interest to plaintiff. The first payment under the promissory note was due on January 15, 2004, and payments were to be made on the fifteenth day of each month, for sixty months thereafter.
In February 2000, three years prior to the execution of the note, decedent was diagnosed with prostate cancer, and he underwent numerous medical treatments for his illness, including chemotherapy and different drug therapies. Decedent and his attorney, Robert Gaynor, began to develop an estate plan.
Decedent met with Gaynor for the first time on November 9, 2000, and Gaynor advised decedent that "for purposes of maximizing the estate planning, [they] needed to take assets out of [decedent's] name, out of joint name and put assets into [defendant]'s name, so that the two of them would be equal in terms of the bottom line to their estates." Gaynor recommended that the "assets that are jointly held or the assets that are in [decedent]'s name should be transferred, by reason of the unlimited marital deduction there would be no gift tax, . . . into [defendant]'s name." One of Gaynor's "main goals" in planning decedent's estate was to avoid a situation where one spouse dies with insufficient assets in the spouse's name to fund a credit shelter trust.
As of November 9, 2000, decedent valued the Pemaquid stock at $10 million. On March 10, 2003, in another meeting with Gaynor, decedent valued the Pemaquid stock at $2-3 million. However, Gaynor stated that, at that meeting, decedent noted that "Pemaquid has no value right now, but it will be worth somewhere between two and three million." Decedent also acknowledged, at that meeting, that he owed approximately $600,000 to plaintiff, but stated that the debt would be paid in full when Pemaquid was sold. In fact, at a May 15, 2003 meeting with Gaynor, decedent represented that Pemaquid was worth $3 million. According to Gaynor, he was retained specifically "to protect [decedent and defendant's] kids from having to pay excess unnecessary federal estate tax."
Decedent executed his Last Will and Testament (the Will) on March 13, 2003. The Will directed that all debts "shall be paid or satisfied by my Executrix from my estate . . . ." Decedent also devised to defendant all tangible personal property, interests in real property and the "rest residue and remainder" of decedent's estate. Plaintiff died on October 29, 2003, and his estate was admitted to probate on November 12, 2003. Defendant was appointed executrix of decedent's estate.
At the time decedent was diagnosed with cancer, decedent's assets included, among other things: a commercial office building in Randolph, New Jersey (the Randolph property), acquired on December 22, 1992; residential property in Hopatcong, New Jersey (the Hopatcong property), which was acquired on November 30, 1999, and used as a marital residence; residential property in Naples, Florida; Pemaquid stock that decedent valued in an estate planning session as worth $3 million; and various bank accounts, including a Valley National Bank (Valley) savings account (the savings account), which, as of May 30, 2003, had a balance of $110,495.13*fn1 . All of the real property was held by the parties as tenants by the entirety.
On June 11, 2003, decedent withdrew $102,500 from the savings account and deposited it into a joint checking account at Valley (the checking account). This money was apparently used to pay household bills and decedent's medical bills.
Decedent also transferred his interest as a tenant by the entirety in the Randolph property and the Hopatcong property to defendant on March 18, 2003.
In addition to these assets, decedent had an interest in two leases. Two pre-death transfers of these leases form the focal point of this appeal. These are the relevant facts. On December 15, 1992, decedent, as a tenant, entered into a commercial lease with Anthony and Angelina Maskello (the Roxbury lease or 1992 lease) for commercial property located at 247 Route 10, Roxbury, New Jersey. The lease was for a term of twenty-one years, and a total rental of $857,692. Paragraph five of the lease provides that "The Tenant shall not, without the written consent of the Landlord, assign or mortgage this Lease, but shall have the right to sublease." Paragraph 20 of the lease stated, however, that "if this lease or the estate of the Tenant hereunder shall pass to another . . . the Landlord may, if the Landlord so elects, at any time thereafter, terminate the lease . . . ." Paragraph 25 of the lease also stated that "[n]o additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Landlord and the Tenant."
One day after executing the Roxbury lease, decedent entered into a sublease agreement with Boston Chicken, Inc. for the Roxbury property (Boston Chicken sublease). The sublease, as the Roxbury lease, was in decedent's name only. As of 2007, Boston Chicken was paying approximately $85,000 a year to decedent, of which $44,704 was paid to the Maskellos; the remaining approximate $40,000 was retained by the decedent.
On May 26, 2000, the sublease was amended due to a change in ownership at Boston Chicken, Inc.; Golden Restaurant Operations, Inc. (Golden) became the sublessee, and the restaurant name was changed to "Boston Market." The term of this sublease was five years. Prior to the execution of the amendment of the sublease, decedent wrote to the Maskellos and advised that he had successfully obtained a two-percent increase in rent from Boston Market's new owners. Upon decedent's request, the Maskellos signed the letter as a memorialization that the rent for the Roxbury lease would also increase by two-percent.
On July 16, 2003, decedent executed a document assigning his interest and rights in the Boston Chicken sublease to defendant for one dollar. On September 22, 2003, decedent's attorney, William Fisher, wrote to Golden seeking its consent to such a transfer. At this time, Golden had become Boston Market Corp., an entity owned by McDonald's Corp. McDonald's consented to decedent's transfer in a November 11, 2003 letter.
Defendant and Angelina Maskello were close, personal friends. Angelina represented to defendant that, following decedent's death, the Roxbury lease could be terminated. Although the terms of the lease did not provide for a termination on decedent's death, defendant understood that to be the case, so she and Angelina entered into a month-to-month tenancy, which was not memorialized in a written agreement.
Angelina Maskello died in January 2006, and her son, Anthony Maskello, Jr., assumed responsibility for handling the month-to-month lease with defendant. Anthony believed, after discussing with his attorney, that because decedent had died, he was free to terminate the lease and enter into a new lease with another party. However, Anthony also iterated at trial that defendant attempted to have him sign a document stating that Angelina had terminated the lease; Anthony did not sign the document because he had no knowledge of those particular facts. He stated that he had "no reason to know one way or the other because I had never been involved in it until after my mom died[.]"
Ultimately, Anthony and defendant entered into a new lease, dated June 1, 2007 (the June 2007 lease). The June 2007 lease contained new and materially different terms than the original lease. For example, the term of the June 2007 lease was for seven years, ending in May 2014, while the original lease ended in December 2013*fn2 . Furthermore, the rent increases in the June 2007 lease were greater than the rent increases under the 1993 lease. Paragraph 30 of the June 2007 lease also stated that the document "represents the only lease in effect."
When asked at trial whether he considered the Roxbury lease to be in-effect during the period between decedent's death and the June 2007 lease, Anthony stated that "[a]s far I knew, I kept getting checks." During this time, defendant used the money received from the Boston Chicken sublease to pay the rent on the June 2007 lease and "used the other rent for [her] own use and purposes[,]" including $170,000 to litigate a claim against a tenant in the Randolph building. She did not pay anything on account of the outstanding debt owed to plaintiff.
At the time of trial, defendant managed the Randolph property, was responsible for its approximately $1 million mortgage and "incurr[ed] a lot of debt on the building over the past five years . . . ." Defendant sold the Naples property for a loss to pay off its mortgage.
Also following decedent's death, defendant attempted to manage Pemaquid, but she acknowledged that she "didn't have an understanding of how to run the company." The departure of two key managers -- Jeffrey Packard, President of Pemaquid, and Sharon Carlson, the sales director -- also resulted in a loss of Pemaquid's business. As a result, on March 22, 2004, Pemaquid filed for bankruptcy. At various times Pemaquid's assets were valued between $1 million and $10 million, and Pemaquid had earned approximately $6.2 million in gross income in 2002, approximately $1.2 million in 2003 and, as of the time of filing for bankruptcy in 2004, had earned $29,347. Pemaquid's debts were valued at approximately $20 million, $18 million of which related to a claim by Legion Insurance Company (Legion), which the bankruptcy petition described as "contingent," "unliquidated" and "disputed." Pemaquid also collected $1.1 million in a separate lawsuit against Cunningham Lindsey, U.S., Inc. (C-L), of which decedent's Estate collected $275,000, and Pemaquid had the right to seek to collect over $11 million from the excess carriers of C-L. There were insufficient assets to fund the credit shelter trust established for decedent's children. Critically important, at the time of decedent's death in October 2003, Pemaquid was still an operating entity transacting business in the insurance industry.
On January 16, 2004, plaintiff filed a complaint against decedent's estate, defendant, individually and as executrix of the estate, Pemaquid, Madden Insurance Agency, Inc. and D&H Alternative Risk Solutions, seeking, among other things, recovery on the promissory note between decedent and plaintiff. The case was referred to arbitration, and nearly two years later, the arbitrator awarded plaintiff $690,302.60, including interest; this award was confirmed in a December 19, 2005 judgment in the Law Division.
On April 25, 2006, plaintiff filed the present complaint against the estate, defendant, individually and as executrix, and decedent's minor children. Plaintiff alleged, among other things, that certain transfers of decedent's assets prior to his death were fraudulent transactions made for the purpose of defrauding plaintiff; that defendants conspired to place decedent's assets outside the reach of plaintiff; that defendant breached a fiduciary duty to plaintiff; and that defendant misappropriated the assets of the estate.
Plaintiff asserted that several of decedent's pre-death transactions were fraudulent, including: (1) the purchase of real property in Naples by decedent and defendant as tenants by the entirety; (2) the use of funds in decedent's name to pay down the mortgage on decedent's and defendant's marital home; (3) the alleged use of funds to reduce a mortgage on real property in Randolph; (4) the transfer of funds held in decedent's name; (5) an alleged transfer of life insurance policies into trust for defendant and decedent's children; (6) the assignment and transfer to defendant of the Boston Chicken sublease and Roxbury lease.
After defendant was ordered to file an informal accounting, and exceptions were filed, a trial was held resulting in the judge concluding that "the proofs taken as true fail to rise to the level of clear and convincing evidence to establish an actionable fraud.  Defendant is credible regarding the [family] financial history and the reasons for taking the actions she did to protect her family."
The judge determined, in reference to the assignment of the Boston Chicken sublease to defendant, that "[defendant] was now the Landlord to the Boston Chicken [sub]lease." "However, the Estate remained the tenant on the original lease with the Maskellos, as that lease was not assignable." He further determined, though, that "[u]pon her husband's death, [defendant] entered into negotiations and a new lease with the Maskellos where she renewed and extended the terms of the lease." The judge concluded, as to the assignment of the Boston Chicken sublease as well as the June 2007 lease with Anthony, that "[t]hese actions of [defendant] reveal an effort to protect her and her children rather than a deliberate scheme to avoid a creditor. The negotiations of the new lease represent a good business decision, rather than fraudulent activity."
As to Pemaquid, the judge found:
[t]he allegations that the decedent knew that the Pemaquid shares were worthless at the time he made the transfers is unsubstantiated. There was sufficient evidence to show that at the time decedent undertook this estate plan, he believed Pemaquid to be financially capable of repaying the debts due; including the debt owed to [p]laintiff.  Plaintiff's position that the decedent knew that Pemaquid had become a worthless asset is not substantiated by any credible proof. Pemaquid did not declare bankruptcy until after the decedent's death, following the departure of two if its managers, and after [defendant] became responsible for the company. These factors led to the bankruptcy when Pemaquid shares became worthless. At no time did the decedent defraud [p]laintiff to prevent [p]laintiff from collecting a debt. In fact during the estate planning session, the decedent established that he believed Pemaquid shares to be worth $3 million.
Ultimately, the judge concluded that defendant's actions did not evidence intention to defraud creditors. He dismissed plaintiff's claims for failure to prove a claim upon which relief could be granted. This appeal followed.
We first state the standard of review that informs our decision. We must defer to the trial judge's factual findings supporting these legal conclusions, so long as "there is sufficient credible evidence in the record to support the findings." Brunson v. Affinity Fed. Credit Union, 199 N.J. 381, 397 (2009) (quoting State v. Adams, 194 N.J. 186, 203 (2008)). We recognize that the trial court has had the "opportunity to make first-hand credibility judgments about the witnesses who appear on the stand; it has a 'feel of the case' that can never be realized by a review of the cold record." N.J. Div. of Youth & Family Servs. v. L.L., 201 N.J. 210, 226 (2010) (quotations omitted) (quoting N.J. Div. of Youth & Family Servs. v. E.P., 196 N.J. 88, 104 (2008)). However, we recognize in this trial, the critical participant in the transactions in question is now deceased.
We "may not 'engage in an independent assessment of the evidence as if [we] were the court of first instance.'" In re Taylor, 158 N.J. 644, 656 (1999) (quoting State v. Locurto, 157 N.J. 463, 471 (1999)). We must "limit our review of those findings and recommendations to a consideration of whether they are supported by sufficient credible evidence in the record[.]" State v. Chun, 194 N.J. 54, 88-89, cert. denied, ___ U.S. ___, 129 S.Ct. 158, 172 L.Ed. 2d 41 (2008). If the trial judge's factual findings are supported by sufficient credible evidence, this court "must accept" its findings. State v. Arthur, 184 N.J. 307, 320 (2005).
Although plaintiff focuses on the nature of the assignments of the leases, the focal point of the attack on the bona fides of the various transfers as well as the estate plan is the status of Pemaquid at the time of the transfers. We will first consider plaintiff's various claims as to the leases and then address the issue of the stock.
Plaintiff first alleges that the Roxbury lease and Boston Chicken sublease were assets that belonged to decedent, individually, at the time of his death in October 2003. Plaintiff asserts that the assignments of the lease and sublease were not executed between decedent and the Maskellos prior to decedent's death in October 2003, and the leases were probate assets of the estate. Plaintiff also claims that the course of performance between decedent and the landlord confirms that the attempted assignment was not valid.
In a related argument, plaintiff asserts that because the Roxbury lease and Boston Chicken sublease were probate assets of decedent's estate, their revenues should have been used by defendant to pay plaintiff's promissory note, pursuant to N.J.S.A. 3B:22-2*fn3 . Rather, plaintiff asserts that defendant "converted and wasted the income from the Roxbury Lease and Boston Chicken Sublease for her own personal benefit rather than pay the Estate's creditor , who had statutory priority over the Estate's beneficiaries."
Decedent assigned the Boston Chicken sublease, in which decedent was the landlord, to defendant prior to death. Plaintiff focuses on the absence of written consent from the Maskellos pursuant to the terms of the 1992 lease. However, the written consent clause of the 1992 lease applies only to the primary lease. The 1992 lease provides that "Tenant shall not without the written consent of the Landlord, assign or mortgage this Lease, but shall have the right to sublease." (Emphasis added). Neither the Roxbury lease nor the Boston Chicken sublease restricted decedent's right to assign the sublease, and the Maskellos were not required to consent to the assignment of the sublease. In sum, decedent effectively assigned the Boston Chicken sublease prior to his death.*fn4
Nothing in the record supports the view that during the course of performance of the Boston Chicken sublease decedent was required to obtain the Maskellos' consent before the sublease could be amended or assigned. When Golden was substituted as the sublessee, decedent wrote to the Maskellos and advised them that he had successfully obtained a two-percent increase in rent from Boston Market's new owners. Upon decedent's request, the Maskellos signed that letter as a memorialization that the rent for the Roxbury lease would also increase by two-percent. Decedent did not, however, seek the Maskellos assent prior to the amendment of the sublease. The flaw in plaintiff's argument is that notwithstanding any formal consent, the Maskellos recognized the assignment and acted in a manner consistent with such assignment.
Plaintiff's claim that the assignment violated the Statute of Frauds is equally without merit. Pursuant to N.J.S.A. 25:1-11a [a] transaction intended to transfer an interest in real estate shall not be effective to transfer ownership of the interest unless:
(1) a description of the real estate sufficient to identify it, the nature of the interest, the fact of the transfer and the identity of the transferor and the transferee are established in a writing signed by or on behalf of the transferor[.]
Here, the assignment of the Boston Chicken sublease states that decedent is the lessee of the Roxbury property, and Maskello is the owner/lessor; that decedent is the sub-lessor to Boston Market; and that decedent desires to transfer his rights in the lease to defendant. The assignment is signed by decedent and defendant and provides that decedent "assigns to [defendant] all his right, title and interest in and to the lease and sublease to [defendant.]" This is sufficient to satisfy the Statute of Frauds.
We reach a similar conclusion that the Roxbury lease was not part of the probate estate. As noted, paragraph 20 of the Roxbury lease stated that "if this lease or the estate of the Tenant hereunder shall pass to another . . . the Landlord may, if the Landlord so elects, at any time thereafter, terminate the lease . . . ." Defendant and Anthony both interpreted this clause to mean that, upon decedent's death, the Landlord had the option to terminate the lease. According to defendant, she and Angelina entered into a month-to-month lease, which, based on their close friendship, was not memorialized in a written agreement. Furthermore, Anthony also stated that he believed he was free to terminate the lease and enter into a new lease with another party after decedent's death.
Neither the landlords nor tenants to the Roxbury lease considered that lease to be in effect after decedent's death. Plaintiff's arguments regarding paragraph 25 of the Roxbury lease are inapposite; the landlord and tenant to the lease believed the lease to be terminated, and it was not necessary for them to execute a written modification.
The leases were properly assigned by decedent prior to his death. That finding does not resolve the matter, as plaintiff also claims that such transfers were fraudulent.
According to plaintiff, whether or not the Roxbury lease and Boston Chicken sublease were probate assets when decedent died, "any assignment by [decedent] to [defendant] of these assets between July 16, 2003 and October 2003 . . . constituted fraudulent transfers to place these assets beyond the reach of [plaintiff]." This is so, argues plaintiff, because decedent was "fully aware his company had completely collapsed financially . . . before commencing his transfers to [defendant]." Because decedent transferred his other assets, his "only possible assets of value to satisfy creditors were the Roxbury lease and Boston Chicken Sublease." Plaintiff claims that the estate was rendered "totally insolvent" as a result of:
(a) the transfer of the Randolph commercial property and Hopatcong home for no consideration; (b) the worthless value of Pemaquid stock as of March 10, 2003; (c) and the depletion of all bank account funds by the Maddens on June 2, 2003, before the July 16, 2003 transfer. These transfers, according to plaintiff, were in violation of the Uniform Fraudulent Transfer Act (UFTA).
Pursuant to N.J.S.A. 25:2-25 (Section 25):
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 or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
a. With actual intent to hinder, delay, or defraud any creditor of the debtor; or
b. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(2) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they become due. [(Emphasis added).]
In considering whether decedent had "actual intent," under Section 25a, to defraud plaintiff, we must consider, among other factors, whether:
a. The transfer or obligation was to an insider;
b. The debtor retained possession or control of the property transferred after the transfer;
c. The transfer or obligation was disclosed or concealed;
d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
e. The transfer was of substantially all the debtor's assets;
f. The debtor absconded;
g. The debtor removed or concealed assets;
h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
j. The transfer occurred shortly before or shortly after a substantial debt was incurred; and
k. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. [N.J.S.A. 25:2-26 (Section 26).]
Fraud must be demonstrated by clear and convincing evidence. See In re Gross, 202 N.J. 39 (2010); In re Niles Trust, 176 N.J. 282, 300 (2003).*fn5 We must determine whether these so-called "badges of fraud are present, not whether some factors are absent." Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 477 (1999). We note that a debtor is considered "insolvent if the sum of the debtor's debts is greater than all of the debtor's assets, at a fair valuation." N.J.S.A. 25:2-23a.
Again, we defer to the trial judge's factual findings regarding the transfer of decedent's assets when supported by sufficient credible evidence in the record, Brunson, supra, 199 N.J. at 397, but the "'legal consequences that flow from established facts are not entitled to any special deference.'" State v. Elders, 192 N.J. 224, 252 (2007) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)). In sum, we owe no special deference in determining whether decedent's transactions were fraudulent, pursuant to Section 25 of the UFTA.
The only "badge of fraud" present in this case is that the Boston Chicken sublease was assigned to an "insider", defendant, who was clearly a "relative of the debtor[.]" N.J.S.A. 25:2-22a(1).
Although decedent assigned the Boston Chicken sublease to defendant, he did not transfer "substantially all [of his] assets[,]" contrary to Section 26e; the record demonstrates that decedent kept Pemaquid shares in his name and intended that the company was to be sold to satisfy plaintiff's note. Again, the value of Pemaquid at the time of the transfer becomes a dominant factor in assessing decedent and ultimately, defendant's conduct.
At the time of his death, decedent estimated that Pemaquid's shares were worth $3 million, and he planned for Pemaquid to be sold to satisfy his debt to plaintiff. The fortunes of the company, however, changed significantly following his death. Defendant became significantly involved in a company that she knew little about, and two of Pemaquid's key managers departed. Furthermore, Legion had a disputed judgment for $18 million against Pemaquid, which, at the time of trial, was in settlement discussions. These factors, which arose following decedent's death, materially contributed to Pemaquid's bankruptcy and the ultimate worthlessness of its shares.
Decedent assigned his interest as a tenant by the entirety in the Randolph property and the Hopatcong property to defendant on March 18, 2003, but this property would have passed to defendant, by operation of law, had title remained as tenants by the entirety. As to the savings account, there was sufficient evidence in the record to establish that it was a joint account and would have passed to defendant at decedent's death.
The transfer of assets to defendant was part of the estate plan that was explained by Gaynor. On its face, it provides a reasonable basis to explain the bona fides of the various transfers of property including the leases. The trial judge determined, in its examination of defendant's actions, that these actions "reveal[ed] an effort to protect her and her children rather than a deliberate scheme to avoid a creditor." He also determined that defendant was "credible regarding the [family] financial history and the reasons for taking the actions she did to protect her family." As noted, we will defer to these credibility determinations. See L.L., supra, 201 N.J. at 226.
Ultimately, the record contains sufficient evidence for the trial court to have concluded that decedent was not insolvent or did not become insolvent shortly after, and as a result of, assigning the Boston Chicken sublease, contrary to Section 26i. As noted, a debtor is insolvent "if the sum of the debtor's debts is greater than all of the debtor's assets, at a fair valuation." N.J.S.A. 25:2-23a. The promissory note from decedent to plaintiff to memorialize the debt of $639,088 was executed on April 14, 2003. At that time, decedent owned the shares of Pemaquid, which he estimated on May 15, 2003, as being worth $3 million and it presented no proofs to establish that Pemaquid shares were worthless at that time or prior to decedent's death. Pemaquid declared bankruptcy several months after decedent passed away, after defendant became involved in running Pemaquid, despite her inexperience, after the departure of two managers and after Legion had a disputed judgment for $18 million. These factors, more than the assignment of the Boston Chicken sublease, caused decedent's estate to be insolvent. Moreover, Pemaquid declared bankruptcy on March 22, 2004, nearly a year after the issuance of the promissory note.
The trial court could also conclude on the basis of the evidence presented that the requisite intent to establish fraud under the statute had not been proven. We reach the same conclusion as to the claim that decedent intended to incur debts beyond his ability to pay them as they became due, contrary to Section 25b(2).*fn6 The record permits the conclusion that decedent did not intend to incur debts beyond his ability to pay them, as his own handwritten notes reflect an intent to sell Pemaquid to satisfy the debt. The proofs presented support the conclusion that for reasons arising after his death, Pemaquid's shares became worthless. However, this does not reflect an intent to incur debts beyond decedent's ability to pay them sufficient to meet the statutory requirements.
Plaintiff also alleges that decedent's transactions were fraudulent, contrary to N.J.S.A. 25:2-27 (Section 27), regarding transfers fraudulent as to present creditors. Section 27 provides:
a. A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
b. A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
The key distinction between Section 25 and Section 27 is that a fraudulent intent is not necessary to substantiate a claim of fraud pursuant to Section 27; plaintiff need only demonstrate that decedent became insolvent as a result of the transfers, without receiving reasonably equivalent value, pursuant to Section 27a, or that decedent was insolvent and transferred to an insider, and the insider had reasonable cause to believe decedent was insolvent, pursuant to Section 27b. The record supports neither claim.
First, as noted, plaintiff did not demonstrate that decedent became insolvent as a result of the assignments of the Boston Chicken sublease. Many of the transfers, including the transfer of the Randolph property and the Hopatcong property, would have transferred to defendant, by operation of law, if title remained in both names at the time of defendant's death. The savings account was also in defendant's name, so the transfer from the funds to the checking account was of no legal significance. The only transfer of significance was the assignment of the Boston Chicken sublease.
As already noted, Pemaquid was to be sold and its assets used to satisfy the debt to plaintiff. That Pemaquid went bankrupt was not the result of the transfer of the Boston Chicken sublease, but mismanagement and the loss of personnel.
We have previously noted that critical to the analysis regarding Pemaquid is that at the time of his death, decedent was actively involved in a viable, ongoing concern that generated income and retained value. Plaintiff offered little at trial to suggest otherwise other than speculation as to various actions that were pending in favor or against the company. No proofs, expert or otherwise, were presented to suggest that at the time of the transfers, Pemaquid was without the stated value or that the events that followed decedent's death were not the precipitating cause of the demise of the company. Ultimately, the judge found that the company had value, a finding supported by the evidence.
We conclude sufficient credible evidence supports the trial court's determination that plaintiff failed to demonstrate decedent or defendant violated the UFTA.
Finally, plaintiff argues that defendant violated her fiduciary and statutory obligations to plaintiff by "wasting and misapplying $645,000 in probate assets for her own personal benefit while failing to satisfy the estate's obligations to [plaintiff]." Plaintiff claims that defendant violated her fiduciary duty because the first Article in decedent's Will directs that all his debt be "paid or satisfied by my Executrix from my estate as soon after my death as is practicable and advantageous to the administration of my estate." We find this claim meritless.
This claim is derivative of plaintiff's first claim regarding the lease as the funds allegedly misused were from rents collected from the Boston Chicken sublease. Having found that the lease was properly assigned and not an asset of the estate, this claim must fail.
Furthermore, no fiduciary relationship existed between defendant and plaintiff. The Supreme Court has described the fiduciary relationship as follows:
The essence of a fiduciary relationship is that one party places trust and confidence in another who is in a dominant or superior position. A fiduciary relationship arises between two persons when one person is under a duty to act for or give advice for the benefit of another on matters within the scope of their relationship. Restatement (Second) of Torts § 874 cmt. a (1979); see In re Stroming's Will, 12 N.J. Super. 217, 224 (App. Div.), certif. denied, 8 N.J. 319 (1951) (stating essentials of confidential relationship "are a reposed confidence and the dominant and controlling position of the beneficiary of the transaction"); Blake v. Brennan, 1 N.J. Super. 446, 453 (Ch. Div. 1948) (describing "the test [as] whether the relationship between the parties were of such a character of trust and confidence as to render it reasonably certain that the one party occupied a dominant position over the other"); Bogert, Trusts and Trustees 2d § 481 (1978) (stating "[t]he exact limits of the term 'fiduciary relation' are impossible of statement. Depending upon the circumstances of the particular case or transaction, certain business, public or social relationships may or may not create or involve a fiduciary character."). [McKelvey v. Pierce, 173 N.J. 26, 57 (2002) (quoting F.G. v. MacDonell, 150 N.J. 550, 563-64 (1997)).]
We have noted that "as a general proposition, creditor-debtor relationships rarely give rise to a fiduciary duty 'inasmuch as their respective positions are essentially adversarial.'" N.J. Econ. Dev. Auth. v. Pavonia Rest., Inc., 319 N.J. Super. 435, 446 (App. Div. 1998) (quoting Globe Motor Car Co. v. First Fidelity Bank, 273 N.J. Super. 388, 393 (Law Div. 1993), aff'd, 291 N.J. Super. 428 (App. Div.), certif. denied, 147 N.J. 263 (1996)).
An executor owes a fiduciary duty to beneficiaries of the estate, not creditors, and the executor only pays the debts of the estate when he or she is legally obligated to do so. Semler v. Core States Bank, 301 N.J. Super. 164, 177 (App. Div.), certif. denied, 151 N.J. 467 (1997). The executor must exercise caution to ensure that there are no defenses to any creditor of the estate, such as statute of limitations. Creditors of the estate and the beneficiaries are competing for the same dollars of the estate, and the executor's goals are to protect the estate and the beneficiaries, not the creditors. Pavonia Rest., supra, 319 N.J. Super. at 446.
Nothing in the record indicates that defendant, as executrix of decedent's estate, owed a fiduciary duty to plaintiff, a creditor of the estate.