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Banco Popular North America v. Gandi

184 N.J. 161, 876 A.2d 253 (2005)

ASSET TRANSFERS; FRAUD—An attorney who advises a client to transfer assets to avoid creditors and issues a misleading opinion letter may be liable for conspiracy to violate the Uniform Fraudulent Transfer Act and for misrepresentation.

A man operated three fast food restaurants. Each restaurant was owned by a separate corporation which the man was the sole shareholder. The bank loaned one of the corporations money and the man executed a personal guaranty in connection with the loan. At the time of the loan, the man’s assets consisted of two homes that he owned with his wife and securities in a mutual fund. Shortly thereafter, the man became involved in a legal dispute and retained an attorney for representation. The attorney advised the man to transfer all of his assets into his wife’s name. The attorney prepared the deeds and the man conveyed both homes to his wife. The man also transferred his mutual fund to his wife. A few months later, the bank issued another loan to one of the man’s corporations. The man executed a guaranty in connection with the loan. In it, he represented that he had not and would not sell or transfer any of his assets without the bank’s permission. Shortly thereafter, the bank issued another loan to one of the man’s corporations. Once again, the man executed a guaranty in which he agreed to maintain a minimum net worth during the term of the loan. The man’s attorney issued an opinion letter to the bank stating that he was unaware of any misrepresentations by his client. The man then defaulted on all of the loans and the bank obtained a judgment against the man. The bank then filed an action against the man and his wife claiming that they violated the Uniform Fraudulent Transfer Act (UFTA) by transferring the houses and the mutual fund. After discovering the attorney’s involvement in the transfers, the bank amended the complaint to join the attorney as a defendant. The bank asserted that the attorney was guilty of fraud, negligence, creditor fraud, and ethical violations by advising his client to transfer assets. In addition, the bank alleged that the attorney committed civil conspiracy by conspiring with his client to defraud his creditors. In response, the attorney filed a motion to dismiss the bank’s complaint for failure to state a claim upon which relief could be granted. The lower court granted the motion and the bank appealed. The Appellate Division upheld the dismissal of the common law fraud and negligence claim, but it reinstated the bank’s claim for creditor fraud and civil conspiracy. The bank then filed a petition for certification with respect to the negligence claims, and the attorney filed a cross-petition for certification regarding the creditor fraud action.

The New Jersey Supreme Court held that the bank’s creditor fraud action must be dismissed because there is no cause of action for creditor fraud in New Jersey. It found that the bank should have filed an action for conspiracy to violate the UFTA. Such an action would require the bank to prove that the attorney agreed to perform the fraudulent transfer, which, absent the conspiracy, would have given a right of action under the UFTA. The Court ruled that the attorney may also be liable for misrepresentations in the opinion letter he issued for one of the loans. Accordingly, the Court concluded that the bank’s action for creditor fraud was properly dismissed, but that the bank may proceed with claims for conspiracy under the UFTA and for misreprentation.


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