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James v. Black United Fund of New Jersey, Inc.

A-5450-98T5 (N.J. Super. App. Div. 2001) (Unpublished)

FRAUDULENT TRANSFERS; EMPLOYER-EMPLOYEE—An employee who is owed back wages or who possesses a judgment for damages arising out of employment is a creditor entitled to protection under the Fraudulent Transfer Act.

A non-profit social services organization hired a black man as director of one of its programs. Approximately 1-1/2 years later, the employee was fired. He filed discrimination complaints with the New Jersey Division on Civil Rights and the federal Equal Employment Opportunity Commission, alleging he had been discriminated against based on his gender and in violation of Title VII and the New Jersey Law Against Discrimination. Thereafter, the employee filed a complaint against his employer. During the litigation, and without the employee’s knowledge, his employer began negotiating to sell all of its property. Thereafter, it sold all of its real property for significantly less than its appraised value. Immediately before trial, the employer’s counsel advised the court that his client would not appear. The employee was awarded a default judgment in damages. He then sued both his employer and the buyer for enforcement and satisfaction of the judgment. The lower court sided with him concluding that the employer “made a fraudulent transfer with the actual intent to defraud [the employee] because at the time the transfer was made, the negotiations were concealed during active litigation wherein [the employer] had reason to believe it may become responsible for a money judgment. . . . [Further, the buyer] took the property for substantially less than its value.” Accordingly, the lower court granted summary judgment and entered a final judgment against the buyer. The buyer appealed, arguing that there were genuine issues of material fact as to whether the Uniform Fraudulent Transfer Act (UFTA) was applicable, and alternatively, that the four year statute of limitations had passed. The Appellate Division held that the employee’s claims under the UFTA related back to the date of the complaint and were not time barred. It held further that the employee was a “creditor” under the UFTA because he had a “right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” It then reviewed the factors in N.J.S. 25:2-6 which establish whether “fraudulent intent” exists. Based on its review of these “badges of fraud” factors, and a review of the underlying facts, the Court concluded that there was “ample and conclusive evidence of actual intent [by the employer] to hinder, delay, or defraud” its employee. However, the Court recognized the possible existence of a valid defense that “a transfer or obligation is not voidable . . . against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee.” Here, there was no question that the buyer acted in good faith when it purchased the property; however, the Court determined that the consideration paid for the property was not “a reasonably equivalent value.” On this basis, it upheld the lower court’s grant of summary judgment in favor of the employee.

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