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Cibelli v. Accent Garden Market

A-4572-02T3 (N.J. Super. App. Div. 2004) (Unpublished)

JUDGMENTS; DEBTORS; FRAUD—To a court, it appeared incredible that a sole proprietorship leased all of its assets, including its inventory, from its owner’s spouse, leading the court to believe that the documentation supporting such an arrangement was designed to defraud creditors.

A customer sued a garden store for a defective product and was awarded damages. These damages were not paid, leading the customer to obtain a writ of execution covering the personal property on the store’s premises. In response to the writ, an employee of the store, who had appeared at the trial on behalf of the store, intervened and asserted that he, not the store, owned the land on which the store was located. He claimed to be both an employee of the store and its landlord. He said that the business was owned and operated by his wife. He also claimed that all of the personal property on the premises, including its inventory, had been leased by his wife, and that it belonged to him until its sale. As evidence, he submitted a lease between himself and the store, which his wife had signed as the “Owner.” As additional evidence, he produced a trade name certificate for the store naming the wife as the owner.

The Law Division found that the employee’s assertions were based on a sham, and that the store was in fact his business. It held that nothing in the record suggested that the store had ever been incorporated, and the record allowed no conclusion other than that it was being operated as either a sole proprietorship or a partnership. Therefore, whether a corporate veil could be pierced was not relevant. The Appellate Division affirmed the holding of the lower court. First, it agreed with the lower court’s finding that the husband’s testimony about the personal property on the store’s premises belonging to him was not credible. As a matter of common business experience and practice, inventory on retail premises belongs to the business. Second, the Appellate Division affirmed the holding that the paper-trail scheme was intended to try to make the business judgment-proof and was intended to defraud creditors. There was such a unity of interest between the store and the husband that the Court refused to separate the business from the individual.

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