Title: SASCO 1997 NI, LLC v. Zudkewich

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). ZAZZALI, J., writing for a unanimous Court. This appeal involves the statute of limitations for filing an action under New Jersey's Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34. The main issues are at what point the UFTA's four-year statute of limitations begins to run and at what point a creditor could reasonably have ... discovered the transfer in circumstances that permit the one-year tolling of the statute of limitations. The parties to this action under the UFTA are plaintiff, SASCO 1997 NI, LLC (referred to with its predecessors-in-interest as SASCO ), and defendants, Arik and Rochelle Zudkewich. In December 1989, SASCO made a loan of $2.9 million to Gateway 195 (Gateway), a partnership formed to develop commercial real estate. Arik Zudkewich was one of the nine general partners of Gateway, each of whom personally guaranteed the loan. On December 6, 1994, Gateway was considered to be in default on the loan and immediate payment of the loan was demanded. Gateway and eight of the nine partners, including Zudkewich, were sued. Several months later Gateway declared bankruptcy. Although most of the Gateway partners entered into a settlement of the litigation, which was coordinated with the resolution of the bankruptcy, Zudkewich and two other partners failed to settle, so the Law Division suit proceeded against them. Plaintiff obtained a judgment against Zudkewich in the amount of $1,300,347.50 in August 1997. Plaintiff had ordered an investigative search of Zudkewich's assets when it appeared that plaintiff was about to obtain a default judgment against him. The search revealed that on May 1, 1990, five months after he had guaranteed the Gateway loan, Zudkewich had transferred to his wife for $1 his interest in the couple's residence. The deed was recorded on May 8, 1990. The house was sold for $1.2 million in 1992. Title to the next two homes the couple lived in was in the wife's name only. On April 23, 1998, SASCO sued Arik and Rochelle Zudkewich, alleging a violation of the UFTA, fraud, conversion, unjust enrichment, and seeking the imposition of a constructive trust. The court granted defendants' motion to dismiss the claims, finding the UFTA claims barred by the statute of limitations. The Appellate Division affirmed the judgment. The Supreme Court granted SASCO's petition for certification. HELD: The four-year statute of limitations under the Uniform Fraudulent Transfers Act begins to run when the subject property is transferred. To obtain the benefits of the one-year tolling provision in actions concerning transfers made from this time forward, a creditor must undertake an asset search no later than the point at which the borrower defaults on the loan. 1. By the plain language of N.J.S.A. 25:2-31a, the four-year statute of limitations for bringing an action under the UFTA runs from the date of property transfer, not from the date of judgment. This accords with the intent of the Legislature. SASCO's complaint, filed eight years after Arik Zudkewich transferred his interest in the marital residence to his wife, is untimely under section 31a. (pp. 8-11) 2. Under the UFTA, an action filed after the four-year period will be considered timely if filed within one year after the transfer was or could reasonably have been discovered by the claimant. The inquiry to be made is when a reasonable commercial creditor would have learned of the transfer, not when SASCO, using reasonable means, could have discovered the transfer. (pp. 11-14) 3. A reasonable commercial creditor would perform an asset search of a loan's guarantors when a loan goes into default. Here, the loan was in default by December 1994. An asset search at that time would have disclosed the property transfer, so SASCO had until December 1995 to file its UFTA complaint. Because SASCO did not file until December 1998, the complaint was untimely. (pp. 14-18) 4. SASCO's claims of fraud, conversion, unjust enrichment, and for a constructive trust properly were dismissed and there is no factual issue present that requires a hearing. (pp. 18-19) 5. The tolling-provision issue is one of first impression, and having little guidance in caselaw, SASCO reasonably relied on a plausible, though incorrect, interpretation of the law. Accordingly, the decision of the Court will apply purely prospectively, that is, to transfers that occur after the date of the opinion. Pure prospectivity will avoid penalizing other commercial lenders who have followed the same practice as SASCO. (pp. 19-21) 6. It can fairly be inferred that Zudkewich fraudulently transferred his property. For that reason and because SASCO in an area of unsettled law reasonably relied on the predominant industry practice of waiting until judgment to conduct an asset search, it is fair in this case to find the one-year tolling provision to run from judgment and SASCO's complaint to be timely filed. (pp. 21-23) The judgment of the Appellate Division is AFFIRMED in part and REVERSED in part, and the matter is REMANDED to the Law Division to adjudicate SASCO's UFTA claim. CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN, LONG, VERNIERO, and LaVECCHIA join in JUSTICE ZAZZALI's opinion. SASCO 1997 NI, LLC, a Delaware Limited Liability Company, successor-in- interest to ALI, INC., a Delaware Corporation, Plaintiff-Appellant, v. ARIK A. ZUDKEWICH and ROCHELLE ZUDKEWICH, Defendants-Respondents. Argued October 23, 2000 -- Decided March 1, 2001 On certification to the Superior Court, Appellate Division. Jonathan T.K. Cohen argued the cause for appellant (Fischbein Badillo Wagner Harding, attorneys; Mr. Cohen, Jamiee Katz Sussner and Bruce D. Vargo, on the briefs). Michael S. Etkin argued the cause for respondents (Lowenstein Sandler, attorneys). Joseph Lubertazzi, Jr., argued the cause for amici curiae New Jersey Bankers Association, Summit Bank and Valley National Bank (Jamieson, Moore, Peskin & Spicer, attorneys for New Jersey Bankers Association, and McCarter and English, attorneys for Summit Bank and Valley National Bank; Mr. Lubertazzi and Dennis R. Casale, of counsel; Steven Beckelman, Sheila E. Calello, Joseph R. Scholz and Chaviva B. Schoffman, on the brief). The opinion of the Court was delivered by ZAZZALI, J. In this case, defendant Arik Zudkewich personally guaranteed two large commercial loans in 1989. Within months he transferred his home, later sold for $1.2 million, to his wife for $1.00. The lender gave notice of default to the primary obligor in December 1994, and judgment was entered in July 1997 against defendant. In April 1998, the creditor sued to set aside the transfer as fraudulent under New Jersey's Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34. The trial court dismissed that claim as untimely, and the Appellate Division affirmed. There are two issues presented: (1) whether the four-year UFTA statute of limitations commenced at the time of the transfer or at the time of the judgment; and (2) when could the creditor reasonably have . . . discovered the transfer, the event that starts the running of the one-year tolling provision of the statute. We hold that the four-year provision runs from the date of transfer, rather than the date of judgment. SASCO did not file suit within four years of the date of transfer, and therefore does not fall within that provision. We also conclude that a reasonable commercial creditor would have performed an asset search, at the very latest, when it gave formal notice of default to the primary obligor. The interests of justice require that we apply that holding purely prospectively. Therefore, although SASCO did not comply with that rule, we reverse and remand for the trial court to adjudicate SASCO's UFTA claim. a. Under subsection a. of [N.J.S.A.] 25:2-25, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant; b. Under subsection b. of [N.J.S.A.] 25:2-25 or subsection a. of [N.J.S.A.] 25:2- 27, within four years after the transfer was made or the obligation was incurred; or [N.J.S.A. 25:2-31 (emphasis added).] SASCO contends that Zudkewich transferred the property with actual intent to hinder, delay, or defraud, N.J.S.A. 25:2-25a, and therefore that its claim is subject to the statute of limitations set forth in N.J.S.A. 25:2-31a. That section contains two provisions. The first requires that a claimant file suit within four years after the date of transfer. Ibid. The second provides that if a claimant files after that period, the complaint is nonetheless timely if filed within one year after the date the claimant discovered or could reasonably have . . . discovered the transfer. Ibid. The issue here is whether SASCO's complaint was timely under either provision. [W]hen interpreting a statute, our overriding goal must be to determine the Legislature's intent. State, Dep't of Law & Pub. Safety v. Gonzalez, 142 N.J. 618, 627 (1995); accord Roig v. Kelsey, 135 N.J. 500, 515 (1994); Lezniak v. Budzash, 133 N.J. 1, 8 (1993). Ordinarily, the language of the statute is the surest indicator of the Legislature's intent. Alan J. Cornblatt, P.A. v. Barow, 153 N.J. 218, 231 (1998) (citing Strasenburgh v. Straubmuller, 146 N.J. 527, 539 (1996)). If the language is plain and clearly reveals the meaning of the statute, the court's sole function is to enforce the statute in accordance with those terms. State, Dep't of Law & Pub. Safety v. Bigham, 119 N.J. 646, 651 (1990). In addition to the provision in question, we also consider the overall legislative scheme. Fiore v. Consolidated Freightways, 140 N.J. 452, 466 (1995). Our task is to harmonize the individual sections and read the statute in the way that is most consistent with the overall legislative intent. Ibid. NO. A-94 SASCO 1997 NI, LLC, a Delaware Limited Liability Company, successor-in- interest to ALI, INC., a Delaware Corporation, Plaintiff-Appellant, v. ARIK A. ZUDKEWICH and ROCHELLE ZUDKEWICH, Defendants-Respondents. DECIDED March 1, 2001 Chief Justice Poritz