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New Jersey Department of Environmental Protection v. Caldeira

338 N.J. Super. 203, 768 A.2d 782 (App. Div. 2001)

FRAUDULENT TRANSFERS; STATUTE OF LIMITATIONS—The State of New Jersey must act within the Statute of Limitations contained within the Fraudulent Transfer Act, and not the longer 10 year general Statute of Limitations for actions by the State.

The owner of a solid waste collection company transferred: (1) substantially all of his stock to his son; (2) all his stock in an equipment leasing company; and (3) a landfill operator owned by him forgave substantial debt owed by the solid waste collection company. No consideration supported any of these transactions. Almost ten years later, a state agency commenced a fraudulent transfer action, seeking to void the transfers, an accounting, and the delivery of all the proceeds of the transfers to the agency to be held in escrow in connection with a debt owed to it. The original owner of the companies argued that the statute of limitations under the Fraudulent Transfer Act had run out, and that the state’s action was time-barred. Under the Fraudulent Transfer Act, an action must be brought within four years after the allegedly fraudulent transfer and, under some cases, later, but clearly within one year after the transfer was or could reasonably have been discovered by the claimant. In opposition, the state agency argued that the general statute of limitations applicable to the “State” under N.J.S. 2A:14-1.2 applied. That general statute of limitations provides, in part: “Except where a limitations provision expressly and specifically applies to actions commenced by the State, or where a longer limitations period would otherwise apply, and subject to any statutory provisions or common law rules extending limitations periods, any civil action commenced by the State shall be commenced within ten years next after the cause of action shall have accrued.” This general statute of limitations was a Legislative response to the Supreme Court’s abrogation of the doctrine that “no time runs against the king.” In essence, the state agency argued that the four-year statute of limitations in the Act did not apply to the “State” because it could not be shown that a shorter time limitation “expressly and specifically” applied to the “State” before the abrogation of the doctrine gave the state immunity. The Appellate Division disagreed. It pointed out that the Fraudulent Transfer Act limitations provision was enacted before the Supreme Court abrogated the doctrine. Hence, contrary to the state agency’s assertion, actions brought by the “State” and its governmental units in fact were controlled by the limitations periods provided in the Fraudulent Transfer Act prior to the abrogation of the doctrine. The fact that a shorter limitations period had never been applied to the particular obligation sought to be satisfied by the state agency was held to be irrelevant because the cause of action was under the Fraudulent Transfer Act. In sum, the Court concluded that the four-year time limitation under the Fraudulent Transfer Act “expressly and specifically” applied to actions commenced by a state agency under the Fraudulent Transfer Act, and not the general ten-year statute of limitations otherwise applicable to actions by the State. Another issue raised by the Court was whether the state agency was to be charged with constructive knowledge that certain aspects of the transfer had taken place. It was clear that one department of the state agency was aware of the transfers relatively shortly after the transfers took place. The state agency, however, argued that the division of the agency seeking to collect the debt should not be charged with knowledge of the transfer, because the disclosure statement was maintained by a different department within the agency as “a confidential document.” The Court rejected that argument, especially under the factual circumstances in this matter, and held that it was reasonable for the state agency to be charged with the knowledge of the transfers if any one of its departments had “knowledge.”

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