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Banco Popular North America v. Gandi

360 N.J. Super. 414, 823 A.2d 809 (App. Div. 2003)

FRAUDULENT TRANSFERS; ATTORNEYS—Where there is no evidence that an attorney has made a misrepresentation about a client’s net worth in an opinion letter to a client’s lender, the attorney is not liable if the client made a fraudulent transfer that lowered the client’s net worth, but there may be liability for preparing the conveyance documents if the attorney knew the transfer was fraudulent.

A lender sued its borrower’s attorney advising its client to transfer his assets to his client’s wife, making him unable to fulfill his obligations to the lender and, therefore, allegedly in breach of a duty sold to the lender by the attorney. The lender also sued the borrower’s attorney for creditor fraud for assisting his client in illegally transferring assets out of the lender’s reach by preparing the deed. The lower court rejected the lender’s claims which were based on an opinion letter the attorney provided in connection with the loan. The attorney opined that, so long as the borrower’s net worth was at a certain level, the borrower was free to transfer assets without the lender’s permission. The lender argued that the opinion implied that the borrower’s net worth was at that certain level when the attorney knew that the borrower had transferred assets to his spouse reducing his net worth to below the required level at the time of the loan. It argued that the attorney breached its duty to the lender is providing an opinion letter with a false statement. The lower court disagreed, and the Appellate Division affirmed, finding that a fair reading of the provision did not support a conclusion that the borrower had the threshold net worth at the time of the loan. The lower court rejected the lender’s claim for creditor fraud, but the Appellate Division reversed, noting that an attorney who becomes an active participant in a client’s unlawful activity is not immune from liability. In this case, the attorney could have been liable because he prepared the conveyance documents that transferred assets from the borrower to his wife in order to thwart the creditor’s ability to collect on personal guaranties.

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