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Robert Lewis Rosen Associates, Ltd. v. Webb

A-2628-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

UFTA — Once a creditor no longer has a legally recognized right to payment, it no longer has any cause of action against a transferee pursuant to the Uniform Fraudulent Transfer Act.

An individual hired a sports agency to represent him. They executed a written agency agreement. It included an arbitration clause for the resolution of disputes. A dispute arose and the sports agency instituted arbitration. While the arbitration was still pending, the individual filed a separate ancillary action in federal court alleging various claims against the sports agency. The arbitrator then issued an award in favor of the sports agency. It included attorney’s fees and declared that the individual would owe the agency future commissions if certain television networks exercised the individual’s renewal options. A few weeks after the issuance of the award, the individual conveyed his interest in his marital home to his wife for a value much lower than market value.

The United States District Court confirmed the arbitration award, but rejected the agency’s claim for attorney’s fees. It made no mention of any obligation of the individual to pay the agency for future commissions. On further appeal, the United States Court of Appeals affirmed. The agency domesticated the judgment in New Jersey under the Uniform Enforcement of Foreign Judgments Act and filed a complaint against the individual and his wife in the Chancery Division. It alleged that the transfer of the residence and other property to the wife was a fraudulent conveyance in violation of the Uniform Fraudulent Transfer Act (UFTA). The individual made a cross motion to fix the amount due.

The Chancery Division ordered that the agency’s claim be dismissed upon the payment by the individual of an amount fixed by the Court. It held that by payment of the fixed sum, the domesticated judgment would be completely paid and the agency’s fraudulent transfer claim would be moot. The individual paid, and the Court dismissed the agency’s claim. The case was dismissed despite the agency’s filing of another motion in federal court seeking an “additional judgment” against the individual because the networks had, in fact, exercised the individual’s renewal options. The agency appealed the lower court’s dismissal.

The Appellate Division reversed the Chancery Division’s decision and revived the UFTA claim. It held that the action was not moot because the agency was still a creditor based on its entitlement to receive future commissions. It remanded the case to the Chancery Division.

The individual tendered an additional sum of money to the agency, claiming it represented all additional funds owed under the “supplemental judgment.” It then demanded that the agency dismiss the UFTA action. The agency acknowledged that the debt under the original and supplemental judgments had been satisfied, but claimed that the individual still owed the agency for its legal fees. The individual and his wife filed a motion to dismiss the UFTA claim because the agency was no longer a creditor. In response, the agency filed a second demand for arbitration, seeking to recover the legal fees and expenses it incurred enforcing and defending the arbitration award. The Chancery Division stayed the proceedings, pending the outcome of the arbitration. The arbitrator dismissed the demand for arbitration, and denied the claim for legal fees because the United State’s District Court had considered and rejected that claim during the earlier proceeding. The arbitrator noted that the arbitration provision at issue did not empower him to award attorney fees or costs with respect to numerous other litigations, appeals, and administrative proceedings. The agency filed a petition in the United State’s District Court seeking to vacate the arbitrator’s denial of its request for legal fees.

The Chancery Division dismissed the agency’s complaint and rejected its argument that it still had a claim pending in the federal court. It ruled that the individual had paid everything he had been obligated to pay. It found that the debtor creditor relationship was over. The agency appealed.

The Appellate Division affirmed. It noted that while the appeal was pending, the individual submitted the opinion from the United State’s District Court that had found no basis to vacate the arbitrator’s decision and confirmed the award. That judgment was also affirmed by the United States Court of Appeals. The Court held that under the plain reading of the UFTA, the agency was no longer a “creditor” because it no longer had a legally recognized right to payment.

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