SASCO 1997 NI, LLC v. Zudkewich, 767 A.2d
469 (N.J. 2001)
2001 N.J. LEXIS 183,*;166 N.J. 579; 767
A.2d 469
SASCO 1997 NI, LLC, a Delaware Limited
Liability Company, successor-in-interest to ALI, INC., a Delaware Corporation,
Plaintiff-Appellant, v. ARIK A. ZUDKEWICH and ROCHELLE ZUDKEWICH,
Defendants-Respondents.
A-94 September Term 1999
SUPREME COURT OF NEW JERSEY
166 N.J. 579; 767 A.2d 469; 2001 N.J.
LEXIS 183
October 23, 2000, Argued
March 1, 2001, Decided
PRIOR HISTORY: [*1] On certification
to the Superior Court, Appellate Division.
DISPOSITION: Reversed and remanded.
COUNSEL: Jonathan T.K. Cohen argued the
cause for appellant (Fischbein Badillo Wagner Harding, attorneys; Mr. Cohen,
Jamiee Katz Sussner [*6] and Bruce D. Vargo, on the briefs).
Michael S. Etkin argued the cause for
respondents (Lowenstein Sandler, attorneys).
Joseph Lubertazzi, Jr., argued the cause
for amici curiae New Jersey Bankers Association, Summit Bank and Valley
National Bank (Jamieson, Moore, Peskin & Spicer, attorneys for New Jersey
Bankers Association, and McCarter and English, attorneys for Summit Bank and
Valley National Bank; Mr. Lubertazzi and Dennis R. Casale, of counsel; Steven
Beckelman, Sheila E. Calello, Joseph R. Scholz and Chaviva B. Schoffman, on the
brief).
JUDGES: The opinion of the Court was
delivered by ZAZZALI, J. CHIEF JUSTICE PORITZ and JUSTICES STEIN, COLEMAN,
LONG, VERNIERO and LaVECCHIA join in JUSTICE ZAZZALI's opinion.
OPINIONBY: ZAZZALI
OPINION:
The opinion of the Court was delivered by
ZAZZALI, J.
In this case, defendant Arik Zudkewich
personally guaranteed two large commercial loans in 1989. Within months he
transferred his home, later sold for $ 1.2 million, to his wife for $ 1.00. The
lender gave notice of default to the primary obligor in December 1994, and
judgment was entered in July 1997 against defendant. In April 1998, the
creditor sued to set aside the transfer as fraudulent [*7] under
New Jersey's Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34.
The trial court dismissed that claim as untimely, and the Appellate Division
affirmed.
There are two issues presented: (1)
whether the four-year UFTA statute of limitations commenced at the time of the
transfer or at the time of the judgment; and (2) when could the creditor
"reasonably have . . . discovered" the transfer, the event that
starts the running of the one-year tolling provision of the statute. We hold
that the four-year provision runs from the date of transfer, rather than the date
of judgment. SASCO did not file suit within four years of the date of transfer,
and therefore does not fall within that provision. We also conclude that a
reasonable commercial creditor would have performed an asset search, at the
very latest, when it gave formal notice of default to the primary obligor. The
interests of justice require that we apply that holding purely prospectively.
Therefore, although SASCO did not comply with that rule, we reverse and remand
for the trial court to adjudicate SASCO's UFTA claim.
I.
On December 19, 1989, Midlantic Bank,
N.A., plaintiff's predecessor-in-interest, [*8] loaned $ 2.9
million to Gateway 195 (Gateway), a partnership formed to develop commercial real
estate. Defendant Arik A. Zudkewich was one of Gateway's nine general partners.
Two large parcels of commercial real estate in Hamilton secured the loan. In
addition, all of Gateway's general partners, including Zudkewich, gave
Midlantic personal guaranties. Midlantic subsequently assigned the loan to ALI
Inc. (ALI).
On December 6, 1994, ALI gave Gateway
formal notice that it considered Gateway in default and demanded immediate
payment. Later that month, ALI filed a complaint in the Law Division against
Gateway and eight of the general partners, Zudkewich included. In March 1995,
Gateway declared bankruptcy. ALI, Gateway, and five of the eight general
partners named in the lawsuit, not including Zudkewich, entered into a
settlement agreement. That settlement was coordinated with the resolution of
the bankruptcy proceeding. Gateway agreed to transfer the two Hamilton
properties to ALI and sell four other properties to reduce the outstanding
balance on the loan. Gateway was unable to pay the full balance, so ALI
continued with the Law Division action against Zudkewich and the two other
partners [*9] who did not settle. When it appeared that ALI was
going to obtain a default judgment against Zudkewich, ALI ordered an
investigative search on his assets. In early August 1997, ALI obtained the
judgment in the total amount of $ 1,300,347.50. At about the same time, ALI
transferred its interests in the litigation to plaintiff, SASCO 1997 NI, LLC,
(SASCO), n1 for a nominal fee.
- - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - -
n1 For simplicity, SASCO hereinafter also
refers to Midlantic and ALI.
- - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - -
The asset search disclosed that on May 1,
1990, a few months after Zudkewich personally guaranteed the loan, he
transferred his interest in the marital residence to his wife, Rochelle, for $
1.00. The home was later sold for $ 1.2 million.
Zudkewich and Rochelle recorded the deed
of transfer on May 8, 1990, and the property was sold in 1992. They moved into
a new home in Millburn. That home was later sold for a profit of approximately
$ 1.5 million, and the Zudkewiches then moved into a Short Hills home. Rochelle
alone was named on the title of the Millburn and Short [*10] Hills
properties.
On April 23, 1998, SASCO filed a
complaint against Zudkewich and Rochelle, alleging a violation of the UFTA,
fraud, conversion, unjust enrichment, and requesting imposition of a
constructive trust. Defendants moved to dismiss, contending that the UFTA's
statute of limitations barred SASCO's claims. The Law Division granted the
motion, and SASCO appealed. The Appellate Division affirmed in an unpublished
opinion. We granted certification, 163 N.J. 397, 749 A.2d 370 (2000), and
allowed the New Jersey Bankers Association, Summit Bank, and Valley National
Bank to appear as amici curiae.
II.
In 1984, the National Conference of
Commissioners on Uniform State Laws (Commissioners) approved the UFTA. At least
thirty-nine states and the District of Columbia have since adopted the UFTA,
either in whole or in part. In 1988, New Jersey enacted the UFTA, L. 1988, c.
74, § 1, to replace this State's Uniform Fraudulent Conveyance Act (UFCA),
which had been the law since 1919. Flood v. Caro Corp., 272 N.J. Super. 398,
403, 640 A.2d 306 (App. Div. 1994). Prior to the UFTA "statutes of
limitations applicable to the avoidance of fraudulent transfers and obligations
[*11] varied widely from state to state and [were] frequently
subject to uncertainties in their application." Uniform Fraudulent
Transfers Act comment 2 on § 9, 7A U.L.A. 643, 666 (1984). To remedy those
inconsistencies, the Commissioners recommended the enactment of a uniform
statute of limitations. Ibid. The Commissioners intended section 9 of the UFTA
to "mitigate the uncertainty and diversity that have characterized the
decisions applying statutes of limitations to actions to fraudulent transfers
and obligations." Ibid. New Jersey accepted that recommendation and
enacted Section 9 essentially verbatim. L. 1988, c. 74, § 1 (codified at
N.J.S.A. 25:2-31). That section provides:
A cause of action with respect to a
fraudulent transfer or obligation under this article is extinguished unless
action is brought:
a. Under subsection a. of [ N.J.S.A.]
25:2-25, within four years after the transfer was made or the obligation was
incurred or, if later, within one year after the transfer or obligation was or
could reasonably have been discovered by the claimant;
b. Under subsection b. of [ N.J.S.A.]
25:2-25 [*12] or subsection a. of [N.J.S.A.] 25:2- 27, within four
years after the transfer was made or the obligation was incurred; or
c. Under subsection b. of [ N.J.S.A.]
25:2-27, within one year after the transfer was made or the obligation was
incurred.
[ N.J.S.A. 25:2-31 (emphasis added).]
SASCO contends that Zudkewich transferred
the property with "actual intent to hinder, delay, or defraud,"
N.J.S.A. 25:2-25a, and therefore that its claim is subject to the statute of
limitations set forth in N.J.S.A. 25:2-31a. That section contains two
provisions. The first requires that a claimant file suit within four years
after the date of transfer. Ibid. The second provides that if a claimant files
after that period, the complaint is nonetheless timely if filed within one year
after the date the claimant discovered or "could reasonably have . . .
discovered" the transfer. Ibid. The issue here is whether SASCO's
complaint was timely under either provision.
"When interpreting a statute, our
overriding goal must be to determine the Legislature's intent." State,
Dep't of Law & Pub. Safety v. Gonzalez, 142 N.J. 618, 627, 667 A.2d 684
(1995); [*13] accord Roig v. Kelsey, 135 N.J. 500, 515, 641 A.2d
248 (1994); Lesniak v. Budzash, 133 N.J. 1, 8, 626 A.2d 1073 (1993). "Ordinarily,
the language of the statute is the surest indicator of the Legislature's
intent." Alan J. Cornblatt, P.A. v. Barow, 153 N.J. 218, 231, 708 A.2d 401
(1998) (citing Strasenburgh v. Straubmuller, 146 N.J. 527, 539, 683 A.2d 818
(1996)). "If the language is plain and clearly reveals the meaning of the
statute, the court's sole function is to enforce the statute in accordance with
those terms." State, Dep't of Law & Pub. Safety v. Bigham, 119 N.J.
646, 651, 575 A.2d 868 (1990). In addition to the provision in question, we
also consider the overall legislative scheme. Fiore v. Consolidated
Freightways, 140 N.J. 452, 466, 659 A.2d 436 (1995). "Our task is to
harmonize the individual sections and read the statute in the way that is most
consistent with the overall legislative intent." Ibid.
III.
SASCO first asks us to interpret the
four-year provision of N.J.S.A. 25:2-31a to run from the date it obtained the
judgment against [*14] Zudkewich. That section, as noted, provides
in part that a plaintiff must file an action "within four years after the
transfer was made." N.J.S.A. 25:2-31a. Thus, the explicit language
provides that the four-year provision runs from the date of transfer rather
than the date of judgment. That language is the surest indicator of the
Legislature's intent. Cornblatt, supra, 153 N.J. at 231. Here, the complaint
was not filed until eight years after the transfer. Therefore, the plain
language of the statute demonstrates that SASCO's complaint was untimely.
SASCO's request also conflicts with
another portion of the UFTA, N.J.S.A. 25:2-21, which defines a
"claim" under the UFTA to include "a right to payment, whether
or not the right is reduced to judgment." N.J.S.A. 25:2-21 (emphasis
added). "The UFTA does not prevent a present or future 'creditor' from
seeking a remedy prior to judgment." Intili v. DiGiorgio, 300 N.J. Super.
652, 659, 693 A.2d 573 (Ch. Div. 1997) (citations and footnotes omitted); see
Flood v. Caro Corp., supra, 272 N.J. Super. at 405 ("Any creditor, [*15]
with or without a judgment, may prosecute a suit . . . to avoid the transfer to
the extent necessary to satisfy the claim . . . .") (emphasis added).
Thus, the explicit language of the UFTA demonstrates that the date of judgment
is not critical to the limitations provisions of the UFTA.
The Commissioners' adoption of the UFTA
supports that conclusion. Under an English statute enacted in 1571, during the
reign of Queen Elizabeth I, a judgment generally was a prerequisite to a
fraudulent conveyance action. Peter A. Alces & Luther M. Dorr, Jr., A
Critical Analysis of the New Uniform Fraudulent Transfer Act, 1985 U. Ill. L.
Rev. 527, 532 n.32 (1985). That requirement was accepted in the United States
in some jurisdictions. Ibid. The UFTA's predecessor, the UFCA, eliminated that
rule. Dorr, 1985 U. Ill. L. Rev. at 536. Elizabethan England may have required
a judgment as a condition precedent to a fraudulent conveyance action in 1571
but New Jersey did not impose such a prerequisite when Zudkewich made this
transfer in 1990. Therefore, both the explicit language of and the intent
underlying the UFTA demonstrate that the statute operates without regard to
when the creditor [*16] obtains a judgment. That fact substantially
undermines SASCO's contention that the date of judgment determines when the
four-year provision begins to run.
SASCO points to an out-of-state decision
concluding that the UFTA four-year limitations period should commence on the
date the creditor obtains a judgment in the underlying action and not on the
date of the challenged transfer. Cortez v. Vogt, 52 Cal. App. 4th 917, 60 Cal.
Rptr. 2d 841, 843 (Cal. Ct. App. 1997) ("Where an alleged fraudulent
transfer occurs while an action seeking to establish the underlying liability
is pending, and where a judgment establishing the liability later becomes
final, we construe the four-year limitation period [of UFTA § 9], i.e.,
the language 'four years after the transfer was made or the obligation was
incurred,' to accommodate a tolling until the underlying liability becomes
fixed by a final judgment."); see also Eskridge v. Nalls, 852 P.2d 818,
820 (Okla. Ct. App. 1993) (holding that Oklahoma's general fraud statute of
limitations did not run on pre-UFTA fraudulent conveyance action until
underlying litigation was reduced to judgment, and expressly refusing to
[*17] decide the issue under the UFTA). Other jurisdictions have
concluded differently. See, e.g., Levy v. Markal Sales Corp., 311 Ill. App. 3d
552, 724 N.E.2d 1008, 1014, 244 Ill. Dec. 120 (Ill. App. Ct. 2000) ("The
four-year [UFTA] limitation period . . . commences from the date the transfer
is made, and not on the date judgment is entered."), appeal denied, 189
Ill. 2d 660, 246 Ill. Dec. 915, 731 N.E.2d 764 (Ill. 2000); First Southwestern
Fin. Servs. v. Pulliam, 912 P.2d 828, 830 (N.M. Ct. App. 1996) (holding that
UFTA limitation commences on date of transfer); Supreme Bakery, Inc. v. Bagley,
742 A.2d 1202, 1205 (R.I. 2000) (holding that UFTA's four-year provision runs
from date of transfer). We agree with the latter decisions. The explicit
language of the UFTA provides that the four-year provision runs from the date
"the transfer was made," N.J.S.A. 25:2-31a, and indicates that the
Legislature concluded that the date of judgment was not determinative of the
timeliness of claims under the UFTA. N.J.S.A. 25:2-21. We cannot ignore that
intent. SASCO filed its complaint eight years after the transfer
[*18] was made, and the complaint was therefore untimely.
IV.
The analysis then shifts to the one-year
tolling provision to determine if SASCO's complaint was timely under that
provision. As noted, if the action is brought after the expiration of the
four-year period, it will be considered timely if it is filed "within one
year after the transfer or obligation was or could reasonably have been
discovered by the claimant." N.J.S.A. 25:2-31a.
There are two possible constructions of
that statutory language. The first is that "could reasonably" refers
to the means by which the claimant can uncover the transfer or obligation.
Under that interpretation, the applicability of the tolling provision hinges
upon whether the specific claimant, SASCO here, by using reasonable means,
could have discovered the transfer. Commercial creditors request asset searches
frequently. Thus, if SASCO's predecessors had conducted a timely search they
undoubtedly would have uncovered the transfer. Under that interpretation, SASCO
would have had to file within one year of the date of the transfer because an
asset search could have uncovered the transfer as early as the date the deed
[*19] was recorded.
However, another interpretation of the
statutory language is that "could reasonably" refers to the claimant,
rather than the means of uncovering the transfer. Under that interpretation,
the critical issue is when an objectively reasonable claimant would have
discovered the transfer. Because there are two possible interpretations, we
must look behind the plain language to discern the Legislature's true intent.
The Commissioners drafted the tolling
provision to mirror the common-law discovery rule which, they noted, was
generally applicable to fraud actions. National Conference of Commissioners on
Uniform State Laws, Proceedings in Committee of the Whole on the Uniform
Fraudulent Transfer Act 117 (July 29, 1984); id. at 112 (quoting one
commissioner, who stated that "there are a whole host of bodies of law on
tolling the statute of limitations, and . . . section (a) incorporates one of
them specifically in the statute, in terms of discovery"); see id. at 116,
117 (stating that the tolling provision would not run until "discovery or
reasonable opportunity to discover"). New Jersey applied the discovery
rule to fraud actions long before the UFTA, creating the inference [*20]
that by accepting the Commissioners' recommendation and enacting § 9
almost verbatim, the Legislature intended the tolling provision to follow New
Jersey's discovery rule jurisprudence. See Lopez v. Swyer, 62 N.J. 267, 275
n.2, 300 A.2d 563 (1973) ("In case of fraud the period of limitation, in
equity, begins to run only from the discovery of the fraud or the time when, by
reasonable diligence, it could have been discovered."); Dreier Co., Inc.
v. Unitronix Corp., 218 N.J. Super. 260, 274, 527 A.2d 875 (App. Div. 1986);
Partrick v. Groves, 115 N.J. Eq. 208, 211, 169 A. 701 (E. & A. 1934);
Giehrach v. Rupp, 112 N.J. Eq. 296, 302-03, 164 A. 465 (E. & A. 1933); Sun
Bldg. & Loan Ass'n v. Rashkes, 119 N.J. Eq. 443, 451, 183 A. 274 (Ch.
1936); Lincoln v. Judd, 49 N.J. Eq. 387, 389, 24 A. 318 (Ch. 1892). Thus, the
Legislature intended to incorporate the discovery rule jurisprudence applicable
to fraud actions into the tolling provision of N.J.S.A. 25:2-31a. That intent
demonstrates conclusively that the critical question is when a reasonable
commercial creditor [*21] would have known about the transfer,
rather than whether SASCO could, using reasonable means, have discovered the
transfer. See Freitag v. McGhie, 133 Wn.2d 816, 947 P.2d 1186, 1189 (Wash.
1997) ("We . . . hold the discovery rule is also incorporated into the
UFTA statute of limitations.").
SASCO and amici contend that a reasonable
commercial creditor would not perform an asset search on a guarantor until
after it obtains a judgment against the guarantor. They base that conclusion on
certifications submitted by counsel and two employees of companies involved in
the commercial lending industry, all of whom assert that no commercial creditor
requests pre-judgment asset searches. SASCO and amici, however, blink the
distinction between the industry standard and reasonableness. The industry
standard is not necessarily determinative of how a reasonable creditor would
behave. See Wellenheider v. Rader, 49 N.J. 1, 7, 227 A.2d 329 (1967)
("Proof of an industry custom is not dispositive of the question of duty.
The standard of conduct is reasonable care, that care which a prudent [person]
would take in the circumstances. The customs of an industry [*22]
are not conclusive on the issue of the proper standard of care; they are at
most evidential of this standard."); Thermographic Diagnostics, Inc. v.
Allstate Ins. Co., 241 N.J. Super. 88, 90, 574 A.2d 485 (App. Div. 1990)
("Proof of an industry custom is not conclusive on the issue of
reasonableness but merely evidential."), aff'd, 125 N.J. 491, 516, 593
A.2d 768 (1991); cf. Klimko v. Rose, 84 N.J. 496, 506 n.4, 422 A.2d 418 (1980)
("An industry or professional standard or custom . . . is not conclusive
if, regardless of the standard or custom, the exercise of reasonable care would
call for a higher standard . . . ."). While not determinative, that
standard does inform our decision.
SASCO's interpretation undermines
considerations of judicial economy, because it would encourage a creditor to file
suit against a guarantor before determining whether the guarantor had any
assets. If the guarantor did not, the creditor would nonetheless engage in
lengthy and costly litigation to reduce the guarantee to a judgment that may
prove worthless. Not only would a reasonable creditor not follow such a course,
that rule would encourage unnecessary [*23] litigation contrary to
public policy. See Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 350-51, 476
A.2d 250 (1984) (stating that "prevention of needless litigation" and
"reduction of unnecessary burdens of time and expense" "have a
central place in the adjudication of all legal controversies") (quoting
City of Hackensack v. Winner, 82 N.J. 1, 32, 410 A.2d 1146 (1980)). We note the
apparent inconsistency in SASCO's assertion that performing an asset search
prior to obtaining a judgment "is considered a wasteful expenditure,"
when instituting costly litigation that may ultimately end in a worthless
judgment is not. SASCO's interpretation also would allow a creditor to defer
its fraudulent conveyance claim until a judgment has been obtained against the
debtor, which undermines the core purposes of a statute of limitations,
eliminating stale claims and creating repose. Martinez v. Cooper Hosp. Univ.
Med. Ctr., 163 N.J. 45, 51-52, 747 A.2d 266 (2000). For those reasons, we
reject SASCO's contention. In our view, a reasonable creditor would perform an
asset search when the loan goes into default. At that time, the creditor would
seek to [*24] obtain all pertinent information, including an asset
search of the guarantors, in order to make a fully informed decision about how
to proceed. The creditor then presumably would refrain from instituting
litigation against a guarantor it knew to be judgment-proof, thus avoiding
unnecessary litigation that not only inconveniences the parties but burdens the
judicial system.
Amici urge us to avoid adopting a rule
that would require commercial creditors to run investigative searches on every
guarantor every four years, regardless of whether the loans are in default.
According to amici and SASCO, asset searches cost between $ 1,000 and $ 1,500
per guarantor, and can exceed $ 2,000. Such a rule would impose substantial
costs on commercial creditors that they would likely pass on to borrowers,
increasing the cost of credit. Although we do not foresee the banking
apocalypse proffered by amici, our conclusion is sensitive to those concerns.
Commercial creditors will have to perform asset searches only when a debtor
defaults on a loan, rather than on every guarantor every four years, assuaging
the fears of amici concerning the burden on commercial creditors. Our
conclusion [*25] also avoids the risk that commercial creditors
will have to file suit under the UFTA when the loan is still performing, which
could create a strained relationship between debtor and creditor.
At the latest, the Gateway loan was in
default in December of 1994. n2 A reasonable commercial creditor would have
conducted an asset search at that time. Because that search would have
disclosed the transfer, SASCO had until December of 1995 to file a complaint.
SASCO did not file until December of 1998. Therefore, the complaint was
untimely.
- - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - -
n2 We need not determine precisely when
the loan went into default because, even assuming that it did so just before
SASCO gave notice of the default in December of 1994, the complaint was
untimely.
- - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - -
For a creditor to fail to act when a
debtor defaults on the loan is not reasonable. Prudence dictates that the
creditor fully investigate the situation prior to instituting costly and
lengthy litigation that may ultimately prove fruitless. That result is sensitive
to interests of judicial [*26] economy, as well as to the valid
concerns of lenders. Under our conclusion, the necessary searches will be fewer
in number than the parade of horribles presented by SASCO and amici, and will
not unduly burden lenders.
V.
SASCO also contends that we should remand
to the trial court for a hearing to determine the reasonableness of its
conduct. Generally, a trial court should conduct a hearing on that issue when
the plaintiff alleges that he or she falls within the discovery rule. Lopez,
supra, 62 N.J. at 274-76. However, when there are no issues of credibility, the
motion court may decide the issue without a hearing and may instead rely on
affidavits or certifications. Lopez, 62 N.J. at 275; Lapka v. Porter Hayden
Co., 162 N.J. 545, 557-58, 745 A.2d 525 (2000). There is no factual dispute in
this case that would require a hearing. It is undisputed that SASCO did not
file a complaint until four years after it declared the loan in default.
Therefore, a remand is unnecessary. Lapka, supra, 162 N.J. at 558
("Because the record here unquestionably establishes plaintiff's awareness
of the essential facts, no formal hearing was necessary to resolve the
discovery [*27] rule issue.").
We also affirm the dismissal of SASCO's
claims of fraud, conversion, unjust enrichment, and constructive trust. SASCO
has not demonstrated fraud prima facie because it has not proven "a
material misrepresentation of a presently existing or past fact." Gennari
v. Weichert Co. Realtors, 148 N.J. 582, 610, 691 A.2d 350 (1997). SASCO also
cannot prove that defendants exercised improper control over its property, and
therefore failed to state a claim for conversion. Charles Bloom & Co. v.
Echo Jewelers, 279 N.J. Super. 372, 381, 652 A.2d 1238 (App. Div. 1995). SASCO
also has failed to "show both that defendant received a benefit and that
retention of that benefit without payment would be unjust," such that its
unjust enrichment claim must fail. VRG Corp. v. GKN Realty Corp., 135 N.J. 539,
554, 641 A.2d 519 (1994). We decline to impose a constructive trust based on
the facts in this record.
VI.
Finally, we must determine whether our
decision should follow the general rule of retroactivity or whether we should
apply the rule prospectively. "Prospective application is appropriate when
a decision establishes a new [*28] principle of law by overruling
past precedent or by deciding an issue of first impression." Montells v.
Haynes, 133 N.J. 282, 295, 627 A.2d 654 (1993). In making that determination, we
must also consider whether retroactivity furthers the purpose of our decision
and whether applying the decision retroactively would produce "substantial
inequitable results." Ibid. Those considerations lead us to the conclusion
that our decision should apply purely prospectively, more specifically, to
transfers that occur after the date of this opinion.
Our decision today addresses an issue of
first impression. No New Jersey court has interpreted the one-year tolling
provision of N.J.S.A. 25:2-31 until this case. There is a paucity of
out-of-state caselaw on the issue. With little guidance, SASCO reasonably
relied on a plausible, although incorrect, interpretation of the law.
Prospective application is proper when "'a court renders a first-instance
or clarifying decision in a murky or uncertain area of the law,' or when a
member of the public could reasonably have 'relied on a different conception of
the state of the law.'" Montells, supra, 133 [*29] N.J. at 298
(quoting Oxford Consumer Discount Co. v. Stefanelli, 104 N.J. Super. 512, 521,
250 A.2d 593 (App. Div. 1969), aff'd, 55 N.J. 489, 262 A.2d 874 (1970)).
Penalizing SASCO, which relied on a reasonable interpretation of the law, is
inequitable.
SASCO also reasonably relied on a practice
apparently dominant throughout the industry. In light of that practice,
retroactive application would likely preclude creditors from recovery in a
substantial number of cases, greatly prejudicing not only SASCO, but the entire
commercial lending industry. See Rutherford Educ. Ass'n v. Board of Educ., 99
N.J. 8, 28, 489 A.2d 1148 (1985) (considering during prospectivity analysis the
financial impact on boards of education generally); Cogliati v. Ecco High
Frequency Corp., 92 N.J. 402, 416-17, 456 A.2d 524 (1983) (considering during
prospectivity analysis possible liability incurred by sellers of real
property). The purpose of the rule, to instruct commercial creditors to conduct
asset searches at the time of default, would not be served by penalizing either
SASCO in this case or commercial creditors generally. Based on those
[*30] concerns, we conclude that pure prospectivity is appropriate
in this case.
While pure prospectivity is appropriate
regardless of the strength of SASCO's claim, the equities involved also support
the conclusion that SASCO should be allowed to proceed. We assume that SASCO is
a savvy lender that knew the loan was in default in December of 1994 and made a
business decision not to incur the costs of an investigative search. We would
have less difficulty concluding that SASCO should suffer the consequences of
that decision in more benign circumstances. Here, however, our decision could
allow Zudkewich to escape liability. Without deciding the issue, Miller v.
Estate of Sperling, 166 N.J. 370, 2001 N.J. LEXIS 7, *34-35, 2001 WL 46687, *10
(N.J. 2001) (refusing to decide proximate cause issue because parties had not
had opportunity to brief and argue issue and did not request adjudication on
that ground), we can fairly infer, on the facts elucidated to date, that
Zudkewich fraudulently transferred his interest in the home to avoid paying on
the guarantee. Assuming that to be the case, Zudkewich played a suburban shell
game to hide homes and avoid creditors. It is thus inequitable to hold
[*31] that SASCO, despite its sophistication, cannot have its day
in court to prove that fact and, if so, thereupon recover that amount from
Zudkewich. Above all, "our tradition is to confine a decision to
prospective application when fairness and justice require." Montells,
supra, 133 N.J. at 297. The ostensible merit of SASCO's claim is neither the
linchpin of, nor necessary to, the determination of whether to apply our
holding prospectively. However, that consideration reinforces our conclusion.
SASCO, as we have discussed, contends
that the one-year tolling provision should run from the date of judgment.
Although we disagree, that position is not unreasonable. More to the point, our
prior caselaw has not addressed the one-year provision in a definitive way.
SASCO also reasonably relied upon the predominant industry practice, which is
to wait until judgment to conduct an asset search. We are satisfied that in
this case running the one-year provision from judgment is fair, in light of the
unsettled state of the law and SASCO's reliance on the industry standard.
Therefore, we conclude that SASCO timely filed its UFTA complaint, and we
reverse and remand.
VII.
In summary, [*32] we conclude
that the four-year limitations period runs from the date of the transfer,
rather than from the date the commercial creditor obtains a judgment against
the guarantor. We also reject SASCO's contention that a reasonable commercial
creditor would not perform an investigative search until after obtaining a
judgment against a guarantor of the underlying loan. Instead, we hold that a
reasonable creditor would perform that search at the time of default. Our
decision applies to all conveyances after the date of this opinion, and does
not apply to this case. We therefore reverse and remand for the trial court to
adjudicate SASCO's UFTA claim.
CHIEF JUSTICE PORITZ and JUSTICES STEIN,
COLEMAN, LONG, VERNIERO and LaVECCHIA join in JUSTICE ZAZZALI's opinion.