Opinion
DOCKET NO. A-5518-12T2
08-21-2015
DR. CARLO E. AMATO, THE ACCIDENT AND INJURY TREATMENT CENTER, INC., and CHIROPRACTIC CARE CONSULTANTS, INC., Plaintiffs-Appellants/Cross-Respondents, v. MICHAEL CORTESE, Defendant, and SAUNDRA CORTESE, Defendant-Respondent/Cross-Appellant.
Steven A. Lang argued the cause for appellants/cross-respondents (Pressler and Pressler, L.L.P., attorneys; Mr. Lang, on the briefs). Steven E. Nelson argued the cause for respondents/cross-appellants (Nelson, Fromer, Crocco & Jordan, attorneys; Mr. Nelson, of counsel; Jeffrey Zajac, on the briefs).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Waugh, Maven, and Carroll. On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1240-05. Steven A. Lang argued the cause for appellants/cross-respondents (Pressler and Pressler, L.L.P., attorneys; Mr. Lang, on the briefs). Steven E. Nelson argued the cause for respondents/cross-appellants (Nelson, Fromer, Crocco & Jordan, attorneys; Mr. Nelson, of counsel; Jeffrey Zajac, on the briefs). PER CURIAM
Plaintiffs Carlo E. Amato, the Accident and Injury Treatment Center, Inc., and Chiropractic Care Consultants, Inc., appeal the Law Division's orders dismissing their claims against defendant Saundra Cortese, including their effort, pursuant to the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, to invalidate asset transfers made by defendant Michael Cortese to his wife Saundra. Saundra cross-appeals the denial of her application for attorneys' fees. We affirm.
Because the defendants share the same last name, we refer to them by their first names for the sake of clarity.
I.
We discern the following facts and procedural history from the record on appeal.
A.
Michael and Saundra were married in 1975 and had one son, born in November 1990. In the 1980s, Michael owned a business designing, manufacturing, and selling women's clothing. He sold his business in 1989 for approximately $1,000,000. He was essentially retired after the sale. At some point during the marriage, Saundra became a spiritual counselor and ordained minister with the Universal Brotherhood.
Michael and Saundra owned a house in Bay Head, which they purchased in 1982, and a house in Boca Raton, Florida, which they purchased in 1994. After purchasing the Boca Raton property, the family lived in New Jersey during the summers and Florida during the winters.
In June 2003, after Saundra discovered recordings of Michael having sex with other women, she "threw him out" of the Boca Raton home. Saundra concluded that "the marriage was over and that she and [Michael] would never again live together as husband and wife." Michael moved into the Bay Head property.
Michael had struggled with physical and psychological problems before and after he and Saundra began living apart. Saundra knew that Michael had severe back pain, which resulted in surgeries and problems with prescription drugs. In late 1999 or early 2000, Michael was admitted to an inpatient facility for treatment of his drug problem. Saundra's recollection at trial was that he had been diagnosed with depression and bi-polar disorder at that time.
After the couple broke up in 2003, Michael was hospitalized in Massachusetts for "increasing marital conflict resulting relatively directly from a pattern of sexual compulsion." He was discharged after approximately a week because he refused to consent to a search after he was suspected of having brought a gun into the facility. He was hospitalized again in Louisiana for about eleven days starting on or about November 21, 2003. When discharged, his prognosis was described as "Poor."
B.
Michael knew Amato for several years before he and Saundra separated. They had become friends when the Corteses lived near Amato in Bay Head, and subsequently had homes near each other in Florida. Michael's friendship with Amato unraveled after it was alleged that Michael began a sexual relationship with Amato's girlfriend and provided her with Oxycontin and other drugs in late 2003 or early 2004.
Amato's girlfriend also filed a civil action against Michael, which was eventually settled.
By the spring and early summer of 2004, Michael and Amato were filing criminal charges against one another for harassment and other offenses. The girlfriend eventually obtained a temporary restraining order against Michael.
Saundra testified that she was not aware of any problems between Michael and Amato before April 2004, when Amato called her in Florida and told her "some despicable things [involving Michael] that were going on at Bay Head." Saundra told Michael about the calls. He asked her to write down the substance of the conversations so he could give the information to his attorney. Saundra sent Michael an email on April 15, summarizing her conversations with Amato. Saundra testified that she "didn't want to know anything about this dirt," but she did comply with Michael's request.
The April 2004 email included the following:
carlo is not afraid of michael if mc thinks he is going to win he will not hesitate to go after mc he implied he would take you down legally because it is his town.
if mc does not stop this he and his girlfriend would not hesitate to take his house and all his assets and i saundra replied why would you want to hurt [my son] and me, he said because mc is a physcopath [sic] and a liar and he has michaels paper trail.
In the email, Saundra also reported that Amato said he thought Michael might have had sex with his girlfriend when she was high, but that Amato and she "are like glue and they are very happy together." Saundra added that Amato told her "to tell [Michael] to pipe down and stop this shit and he would not press charges against him he said his girlfriend['s] father is the chief of police and he wants to arrest michael but they are holding off to see if michael stops."
According to Saundra, when she wrote the April 2004 email, she understood that Amato was threatening to take Michael's assets because of a fear that Michael had transmitted or was going to transmit Hepatitis C to the girlfriend and, through her, to Amato. She maintained that she did not consider his statement to be a real threat that Amato would sue. Saundra acknowledged that she had heard Michael complain of being victimized by Amato, but maintained that she had no idea until long after the fact that Michael was filing complaints against Amato or had arranged to have Amato arrested.
Michael was diagnosed with Hepatitis C in about 2002, although it is unclear how long he had suffered from the disease at the time of diagnosis. Michael's deposition testimony reflected the same understanding of Amato's threats. He testified, "Amato's threats at this time was that he wanted to take action against me for having sex with [his girlfriend] because I had Hepatitis C and she was going to catch Hepatitis C and give it to him. That's what that was all about, as I remember it."
Michael also asserted that Amato called his son and "terrorized him," telling the son that his father was going to go to jail and, "We're going to take your house. You're not going to have a place to live," but it is not clear from the record when this occurred.
By the summer of 2004, according to Patrolman William Alan Hoffman, it was common knowledge at the Bay Head Police Department that Michael and Amato were both involved with the same woman and that "there were problems between the three of them as a result of that." It was also known that Saundra was in Florida and "not in the picture at all."
On August 16, 2004, an "anonymous caller" placed a call to the Lakewood Township police and spoke with Detective Oscar A. Valmon. The caller told Valmon that a quantity of illegal drugs were in a metal box attached to Amato's BMW. The caller provided Amato's office address in Lakewood and other details. Valmon testified that the amount of detail given was very unusual for an anonymous tip.
When the police confronted Amato at his office, he consented to a search of his BMW. The police found several different controlled dangerous substances (CDS) in a metal pencil box magnetically attached to the undercarriage of the BMW. Amato was arrested and charged with possession of Oxycodone, pending additional charges following testing of the other substances found in the box.
A few days later, Valmon received another call from the same anonymous caller, who was upset that no report of Amato's arrest had been published in the newspapers. The caller placed multiple calls to Valmon over the next few days. After some investigation, Valmon determined that Michael was the anonymous caller.
The criminal charges against Amato were dismissed after the police concluded that the drugs were "more than likely planted" by Michael. However, Michael was not prosecuted for his actions because the prosecutor concluded there was insufficient proof to establish, beyond a reasonable doubt, that Michael had planted the CDS.
The jury in Amato's tort action against Michael found that Michael had planted the CDS.
Michael and Amato's disputes continued after Amato's arrest. On August 18, 2004, Hoffman went to the Bay Head property in response to a report that an unidentified male had called Saundra and told her that Michael was holding two women there without their consent. Michael spoke with Hoffman and characterized an anonymous call made to Saundra earlier that day as harassing, threatening, and demeaning. He also alleged the caller was probably Amato.
Hoffman contacted Saundra while he was at the Bay Head property. She confirmed that she had received such a call, but she did not seem upset by it. She did not mention Amato as the possible caller. The police determined that the call had been made from a pay phone in Point Pleasant Beach.
Hoffman testified that he had known Michael and his family for many years and had seen him many times. He characterized Michael as always cordial, friendly, professional, and well kept. In the summer of 2004, however, Hoffman observed a distinct change in Michael's personality, noting that he was very angry and irritable.
On September 15, Michael went to the Lakewood Police Department to turn himself in on an outstanding warrant he had just learned about. Officer Erick Menck, who processed Michael's arrest that day, testified that Michael told him other people were setting him up and charging him with false things as a result of a "love triangle that went bad," but they were really the ones who were involved in selling drugs. Michael gave Menck a DVD, which he said "was a little bit of an outline of what was going on." Its contents included a narration by Michael and photographs of Amato's girlfriend "possibly doing narcotics or some type of drug."
The next day, Michael called Menck and asked to meet with him to "run a couple of things by" him. Menck described Michael as unshaven, nervous, and shaky when they met. Michael told Minck that he "had to hide money because of the events that were transpiring," and that he "couldn't stand" the stress of "the parties, you know, charging each other with things, accusations going back and forth." Michael floated the idea of Menck shooting Amato's girlfriend and asked him to think it over.
Menck reported the incident to his supervisors and the prosecutor's office. He then contacted Michael to set up another meeting, at which he would wear a wire. Menck met Michael the evening of September 18. He described Michael as calmer and less disheveled than the day before. He spoke coherently, but rambled and got very excited when speaking about Amato and his girlfriend.
Menck agreed that he would have a third person plant CDS in Amato's office and beat him up. Michael left and returned with Oxycontin, cocaine, and a switchblade. Michael handed Menck a note that read: "Handle it anyway you want; 1500 paid in full. If the blond is there, smack her in the mouth." Michael was arrested that night. While in custody, he "had something of a cardiac episode" and was hospitalized for two nights.
Michael was indicted in June 2005. In March 2006, he pled guilty to second-degree possession with intent to distribute cocaine in excess of one-half ounce. Michael was sentenced to six years in prison; he served about one year and was then released on the Intensive Supervision Program. All obligations related to his sentence ended in February 2010.
On April 15, 2005, Amato filed suit against Michael, alleging a variety of causes of action, including defamation and filing the false police reports that led to his arrest. Amato filed an amended complaint in August to add his two businesses as additional plaintiffs. The amended complaint also named Saundra as a defendant. In October 2006, Amato filed a second amended complaint, adding the UFTA claim against Michael and Saundra.
In December, Saundra successfully moved for dismissal of all claims against her except for the UFTA claim. The tort claims against Michael were tried during April and May 2009. The jury found in Amato's favor. On June 19, 2009, the trial judge entered a judgment against Michael for $2,276,904.10, comprised of (1) $1,600,000 in compensatory damages, (2) $400,000 in punitive damages, and (3) prejudgment interest of $276,904.10.
Following the trial judge's denial of Amato's motion for summary judgment on his UFTA claim, a second judge tried that claim in May 2012 without a jury.
C.
Prior to 2003, Michael handled all of the family's finances. Saundra never questioned his decisions and trusted him implicitly. Michael made the financial decisions and arrangements for large purchases or mortgages. Saundra testified she would go along to "sign here, sign here, sign here."
The couple routinely charged their expenses to an American Express (Amex) account they had opened in the 1970s. The Amex bill listed their charges separately, so it was apparent what had been charged by each during the month. The Amex and other bills were paid out of a joint checking account at Chase Bank.
Michael received a private disability payment and automatic deposits from "the Federal government," which were deposited into the Chase account. Saundra's income as a spiritual counselor was also deposited in the account. In addition, $8600 was automatically transferred from a joint Morgan Stanley account to the Chase account every month.
Saundra testified that, after she and Michael began living separately, she had to start paying the bills and taking care of the finances because Michael "started getting like, not himself" and "bills weren't getting paid." After Michael attempted to withdraw $30,000 from the Morgan Stanley account using an authorization containing her forged signature in early or mid-2004, Saundra realized that she needed to protect herself and her son. Consequently, she took control of assets she thought Michael could liquidate for cash. By January 2005, most joint assets other than the Bay Head property had been transferred to Saundra's name alone.
Michael and Saundra purchased the Bay Head property as tenants by the entireties in December 1982 for $410,000. It had no mortgage. Saundra testified that it was worth between three and five million dollars. The trial judge noted that "there was relatively little testimony with regard to [the] fair market value" of the Bay Head property at the time of the transfers at issue in 2004 and 2005, but it appeared to be "up to [five] million dollars, unencumbered." Although Michael did not transfer any interest in the Bay Head property to Saundra, she became its sole owner at his death in January 2013.
On August 3, 2004, Michael executed a quitclaim deed transferring his interest in the Boca Raton property to Saundra for ten dollars. Saundra executed the document on August 16, and it was recorded on August 24. According to Saundra, she took Michael "out of the mortgage" in exchange for the quitclaim deed. Michael testified he executed the quitclaim deed because "the house was for my wife and my son, not for me." As noted earlier, Saundra remained in the Boca Raton property when the defendants separated in 2003, while Michael lived in Bay Head.
Saundra refinanced the Boca Raton property with a $1,540,000 mortgage in her name only in August 2005.
The couple purchased the Boca Raton property as husband and wife for $660,000 in May 1994. The house underwent significant renovation during 2002 and the first half of 2003. By the end of July 2003, there was a mortgage of approximately $1,550,000.
There was little evidence concerning the value of the Boca Raton property. At a deposition in July 2010, Michael estimated its value to be under two million dollars. There was also a reference during his deposition to a $2,200,000 appraisal in 2006, but the appraisal was not admitted into evidence at trial.
Sema Coskun, who worked for the private investigative firm that performed an asset investigation on Michael in 2005, testified for Amato. She estimated the 2004 value of the Boca Raton property as $1,895,936 and the 2006 value as $1,857,006. The judge did not credit her testimony, and characterized her valuation as a net opinion. As a result, the judge held the evidence did not establish a value for the Boca Raton property in excess of the mortgage at the time the title was transferred to Saundra.
Saundra testified that, in late 2003 or early 2004, she had learned that homesteading in Florida would save considerable taxes. She had a New Jersey driver's license until October 2004, when she obtained a Florida license. Saundra filed an application for an Ad Valorem Tax Exemption on November 2, 2004. Saundra characterized it as "ridiculous" that she had not done that earlier. She maintained that her application to be homesteaded in Florida had nothing to do with Michael's arrest in September 2004.
The trial judge found that there was "nothing untoward" about the quitclaim deed to the Boca Raton property because Michael signed it nearly two weeks before the anonymous call to the Lakewood police, which the judge characterized as the pivotal date for the UFTA claim. He concluded there was nothing to suggest that Michael and Saundra could have foreseen what would happen in the future and that they were not conspiring about future actions involving Amato in any way. The judge found instead that the transfer was "the product of the recognition" by both Saundra and Michael that they had an "unsalvageable marriage" and "that something need[ed] to be done."
At the time of their separation, Michael and Saundra owned four vehicles: two Mercedes Benz cars, a Lamborghini truck, and a Jeep. After the separation, the Jeep and Lamborghini truck were located in New Jersey and the two Mercedes Benz cars were in Florida. All four vehicles were titled in Michael's name when purchased.
Michael purchased the Jeep in 2000 for cash, but he could not remember the price. The Jeep was seized when he was arrested in September 2004, but he purchased it back from the State for approximately $5000 following the institution of a forfeiture action. The Jeep was Michael's primary vehicle during the following years. He transferred the title to the Jeep to Saundra in October 2004.
Michael purchased the Lamborghini truck in the late 1980s for approximately $100,000 in cash. Title to that vehicle was also transferred to Saundra in October. No evidence was presented at trial concerning the value of the Lamborghini at the time of transfer.
The Mercedes Benz cars were model years 2000 and 2001 and were purchased new for cash. Saundra could not remember how much they cost. Michael transferred title to the 2000 Mercedes Benz to Saundra in September. Title to the 2001 car was transferred in October. No evidence was introduced to establish their value at the time of transfer.
Saundra testified she was concerned that Michael would sell all the vehicles for ready cash. She testified she transferred all of the vehicles into her name alone because she "wanted [her] name added to the cars" and it was her understanding that "in the State of New Jersey, you can't have two names" on a title.
We note that her understanding is factually incorrect.
Michael testified at deposition that he transferred the vehicle titles to Saundra
[b]ecause I came to realize and recognize that my behavior was strange. I [] learned that I was manic. I was spending money like crazy and I thought it would be best that ISaundra did not pay Michael for the transfer of the titles to the vehicles.
get rid of the cars in my name so I wouldn't go out and sell them and spend the money.
As outlined above, Saundra had become concerned about Michael's excessive spending after he tried to withdraw $30,000 from the Morgan Stanley account. The account manager testified that Michael did not have Saundra's signature when he first attempted to withdraw the money. After he declined the withdrawal and told Michael that both signatures were required, Michael submitted a document the manager "had reason to believe [she] hadn't signed." During a subsequent telephone call among the three of them, Michael was verbally abusive of Saundra, but she agreed to allow him to make the withdrawal.
When Saundra asked whether there had been any other withdrawals by Michael, she learned that Michael had taken multiple withdrawals ranging between $10,000 and $20,000 and signed her name without her knowledge.
At some point in August or September 2004, Saundra contacted Richard Galex, an attorney licensed to practice in New Jersey and Florida, who had represented Michael and her in the past. After she explained to Galex that Michael had spent approximately $100,000 foolishly, he agreed that action should be taken to minimize Michael's control over their funds. Galex testified that Michael signed a power of attorney in favor of Saundra on September 21.
Galex testified that Michael signed two originals on September 21, 2004, but that his secretary incorrectly put the date of September 19, 2004, on one of them later. Amato made much of the date discrepancy at trial, but the judge found that it made no difference to the issues at trial, and Amato did not dispute that finding.
Galex knew that Michael had been arrested a few days before he signed the power of attorney. Michael was also consulting Galex with respect to the municipal court complaints between Amato and himself. Galex testified that Michael came to his office on Sunday, September 12, to go over the complaints. Michael told Galex that he wanted to pursue a civil lawsuit against Amato's girlfriend and her parents, but Galex told him he was not interested in taking that case.
Galex denied that the execution of the power of attorney was related to Michael's arrest or the possibility of a civil lawsuit by Amato. He explained:
There was no claim. There was nothing. [T]here was a woman that was very upset that her husband was spending down the family assets. And I'll tell you one more thing, if somebody had said to me on that day, we fear there's going to be a civil lawsuit, I never, ever, in the world would have prepared a Power of Attorney or any other instrument that somebody would someday claim could be used to defraud somebody. I don't do that.
Galex testified that, when he prepared the power of attorney, he did not know about the August 2004 incident in which Amato was arrested because of the drugs attached to his car and "[i]t didn't dawn on [him] that there'd be a lawsuit" by Amato connected to the facts surrounding Michael's September 2004 arrest. The trial judge held that he was "satisfied without any reservation" that Galex provided credible testimony and that he was not in any way involved with a scheme to hide or seclude assets.
Michael testified that he did not remember the exact circumstances concerning the power of attorney. However, he testified that he signed the power of attorney because he was manic and his wife "needed to take control of . . . [a]ll the financial matters and whatever needed to be taken care of on a family basis."
Using the power of attorney, Saundra had the joint Morgan Stanley account changed to an account in her name only. The transfer became effective in January 2005. The total value of the joint accounts at the time of transfer in January 2005 was approximately $1,600,000. By the time of trial in 2012, Saundra testified, there was nothing left of Michael's half interest in the Morgan Stanley account and almost nothing left of hers because the money had gone to pay their separate expenses following the transfer of the account to her name only.
There was significant evidence that Michael was in an atypical physical and emotional state when the events described above transpired. For example, when Hoffman saw Michael just two days after Amato's arrest in August 2004, he found him to be very angry and irritable, noting that it was a "distinct change" from prior years. Menck described Michael as disheveled and "somewhat paranoid," as well as easily excited and rambling when he spoke of Amato and his girlfriend. The trial judge found that testimony credible and significant.
The trial judge denied Michael and Saundra's motion for a directed verdict at the close of Amato's case. After hearing further evidence and closing arguments, the judge placed an oral decision on the record explaining his reasons for finding that Amato had failed to show, by the required clear and convincing evidence, that any fraudulent transfers had taken place. He entered a judgment of no cause of action on July 16, 2012.
On August 15, Saundra moved for an award of attorneys' fees and costs under N.J.S.A. 2A:15-59.1, alleging that Amato's UFTA claim against her was frivolous. Saundra subsequently filed an amended motion seeking attorneys' fees and costs against Amato's trial counsel under Rule 1:4-8.
Amato filed a motion for the partition and sale of Michael's share of the Bay Head property. On November 7, the trial judge denied partition, but ordered the sale of Michael's half interest in the property, subject to Saundra's right to occupy the property and her right of survivorship and defeasance should Michael predecease her. Saundra was to be "accountable to the purchaser" for half of the rental value of the home, subject to an offset for half of the cost of real estate taxes, insurance, and necessary repairs. However, Michael died in January 2013, before the sale took place.
The trial judge heard argument on Saundra's application for counsel fees in April. He denied the application in a May 1, 2013 order. On May 21, Amato sought an award of attorneys' fees and costs against both Saundra and her attorney, arguing that her motion for similar relief had been frivolous. He also moved to vacate the no-cause judgment on his UFTA claim. Following argument on June 26, the judge denied both motions. The implementing order was entered on July 12. This appeal followed.
II.
On appeal, Amato contends the motion judge erred when he dismissed the tort claim against Saundra. He further contends that the trial judge erred in finding that there were no fraudulent transfers. He argues that the judge's findings as to the "badges of fraud" were wrong and that intent to defraud under N.J.S.A. 25:2-25 and -26 was conclusively established. Amato also argues that, because Michael was insolvent as a matter of law when the transfers were made without consideration, the transfers were fraudulent under N.J.S.A. 25:2-27(a), which provides that
[a] transfer made . . . by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made . . . if the debtor made the transfer . . . without receiving a reasonably equivalent value in exchange for the transfer . . . and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer.
When reviewing the decision of a trial judge sitting without a jury, an appellate court should defer to the judge's factual findings if they are "supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). Our Supreme Court has noted that "we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interest of justice." Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011) (citations and internal quotation marks omitted). "Deference is especially appropriate 'when the evidence is largely testimonial and involves questions of credibility.'" Cesare v. Cesare, 154 N.J. 394, 412 (1998) (quoting In re Return of Weapons to J.W.D., 149 N.J. 108, 117 (1997)). The required deference has its basis in the fact that the trial judge, who has observed witnesses and heard them testify, is in the best position to assess credibility. RAB Performance Recoveries, L.L.C. v. George, 419 N.J. Super. 81, 86 (App. Div. 2011).
Nevertheless, an appellate court will reverse a trial judge's findings if they are so wide of the mark as to constitute "a manifest denial of justice." Hisenaj v. Kuehner, 194 N.J. 6, 25 (2008) (citation omitted). A trial judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
Before turning to the applicable law, we address the trial judge's findings of fact. It is apparent that the judge listened carefully to the witnesses and observed their demeanor while they testified. His findings of fact are well supported in the record. We find nothing in the record to suggest that those findings were "'so wide of the mark that a mistake must have been made,'" N.J. Div. of Youth & Family Servs. v. M.M., 189 N.J. 261, 279 (2007) (quoting C.B. Snyder Realty, Inc., v. BMW of N. Am., Inc., 233 N.J. Super. 65, 69 (App. Div.), certif. denied, 117 N.J. 165 (1989)). To the extent we have any differences with the judge's legal conclusions based on those facts, we will articulate them as appropriate.
The UFTA is intended to "prevent a debtor from placing his or her property beyond a creditor's reach" and from "deliberately cheat[ing] a creditor by removing his property from 'the jaws of execution.'" Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475 (1999) (citation omitted). If a fraudulent transfer is proven, a creditor can "undo the wrongful transaction so as to bring the property within the ambit of collection." Ibid.
The plaintiff bears the burden of establishing a UFTA claim by the heightened standard of clear and convincing evidence. See Jecker v. Hidden Valley, Inc., 422 N.J. Super. 155, 164 (App. Div. 2011), certif. denied, 210 N.J. 28 (2012); Barsotti v. Merced, 346 N.J. Super. 504, 520 (App. Div. 2002). Model Civil Jury Charge 1.19 defines "clear and convincing" evidence as evidence that produces "a firm belief or conviction that the allegations sought to be proved by the evidence are true. It is evidence so clear, direct, weighty in terms of quality, and convincing as to cause [the factfinder] to come to a clear conviction of the truth of the precise facts in issue." In addition, that heightened standard precludes a result "reached by a mere balancing of doubts or probabilities." Ibid.
i.
Amato argues that the timing of the transfer of the title to the Boca Raton property "can lead to no conclusion but that" Michael was divesting himself of assets "before escalating his harassment" of Amato and his girlfriend.
Michael signed the quitclaim deed on August 3, 2004, which was more than a week before he engineered Amato's August 16 arrest. Amato's arrest was the event the judge characterized as the "trigger date" for purposes of analysis under the UFTA. Based on that time frame, the judge rejected the notion that Michael, or Saundra, were transferring assets in anticipation of Michael harming Amato or his girlfriend. He explained: "Unless someone is really omniscient, has a plan that has been started from the very beginning, has his wife as a co-conspirator . . . none of which is in this case because it would be [] fiction. There is nothing untoward about this," referring to the signing of the quitclaim deed. He added that it would be "bizarre" to "look at property that is so encumbered."
In addition, the trial judge determined that the Boca Raton property was not an "asset" for the purposes of the UFTA because Amato had failed to prove that there was any equity left in the heavily mortgaged property. At the time of its transfer in August 2004, there was a mortgage of $1.5 million. The judge rejected Coskun's testimony that the property was worth $1.8 million, having determined that it was a net opinion. He also discounted Michael's estimate, given during his July 2010 deposition, that the property was worth "about under 2 million," as vague and given five years after the relevant time.
The UFTA defines "asset" as "property of a debtor," not including property "encumbered by a valid lien," property "generally exempt under nonbankruptcy law," or "[a]n interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant." N.J.S.A. 25:2-21. The transfer of a fully encumbered property "does not involve an asset of the debtor" and does not come within the scope of the UFTA. Jecker, supra, 422 N.J. Super. at 166 (citation omitted). See also Karo Mktg. Corp., Inc. v. Playdrome Am., 331 N.J. Super. 430, 444 (App. Div.), certif. denied, 165 N.J. 603 (2000) (holding that where a purported asset has no monetary worth, a claimant has "failed to demonstrate a cause of action under the [UFTA] . . . because technically no asset of value was transferred").
The judge's factfinding with respect to Amato's failure to establish the value for the Boca Raton property in excess of the mortgage was amply supported by the record. We reach the same conclusion with respect to his decision to reject Coskun's testimony. Consequently, we find no error in the judge's ultimate conclusion that the Boca Raton property was not an "asset" for UFTA purposes, as well as the judge's finding that Michael and Saundra did not act with fraudulent intent with respect to the quitclaim deed.
ii.
Amato next contends that the trial evidence "conclusively proves" the three elements required by N.J.S.A. 25:2-27(a) for a finding of fraudulent transfer. Consequently, he argues that the trial judge's "badges of fraud" analysis and questions of fraudulent intent are irrelevant.
Amato's N.J.S.A. 25:2-27(a) argument was not made in the second amended complaint, which alleged only that "[a]ll transfers were made with intent to hinder, delay[,] and defraud." It was not raised during Amato's opening statement at trial, or argued in his closing statement. Instead, it was raised for the first time in his motion for reconsideration. That is not an appropriate vehicle for raising new arguments, especially those that have not been tried. D'Atria v. D'Atria, 242 N.J. Super. 392, 401 (Ch. Div. 1990). We nevertheless discuss the issue.
A claim under N.J.S.A. 25:2-27(a) requires the plaintiff to prove, by clear and convincing evidence, that (1) his claim arose before the transfer; (2) the debtor was insolvent at the time of the transfer; and (3) the transferee did not pay any consideration. There is no doubt that, as of August 16, 2004, Amato could be considered a creditor under the UFTA. A "creditor" is "a person who has a claim," and a "claim" is "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." N.J.S.A. 25:2-21.
Other than the Boca Raton property, which we have already determined was not an asset within the meaning of the UFTA, the transfers took place after August 16. We will assume, for present purposes, that Saundra paid no consideration for the transfers, although we find no error in the trial judge's conclusion that Saundra's use of Michael's half of the Morgan Stanley account to pay his expenses constituted "reasonably equivalent value" for the transfer.
N.J.S.A. 25:2-23(a) provides that a "debtor who is not paying his debts as they become due is presumed to be insolvent." Amato does not contend that Michael failed to pay his debts as they became due and has not offered any evidence to support such an assertion. Although Saundra testified that Michael was not paying bills in a timely manner after their separation, it is clear from the record that this was due to Michael's physical and mental condition and not a lack of funds.
"Debt" is defined as "liability on a claim." N.J.S.A. 25:2-21.
N.J.S.A. 25:2-23(b) provides that "[a] debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets, at a fair valuation." Amato argues that Michael was insolvent under N.J.S.A. 25:2-23(b). However, our review of the record satisfies us that Amato did not carry his burden to prove, by clear and convincing evidence, that the sum of Michael's debts was greater than the fair market value of his assets at the time of the transfers or as a result of them.
The trial judge did not address Amato's N.J.S.A. 25:2-27(b) argument because it was not raised at trial. However, he found in another context that the transfers did not render Michael insolvent, largely because he retained an "undivided one-half interest" in the Bay Head property, which was unencumbered. The judge observed that, while "there was relatively little testimony with regard to its fair market value," it could have been as high as five million dollars.
We agree with Amato that, because the Bay Head property was owned by the entireties, Michael was not entitled to half of its value. However, Michael's interest was nevertheless an asset under the UFTA and had some value. Creditors of a debtor spouse can levy upon and sell the debtor spouse's one-half interest in the life estate for the joint lives of tenants by the entireties, as well as the debtor spouse's right of survivorship, as was done in this case. Freda v. Commercial Trust Co., 118 N.J. 36, 45 (1990); King v. Greene, 30 N.J. 395, 412-13 (1959). See also Newman v. Chase, 70 N.J. 254, 266 (1976) (holding that policy considerations generally preclude partition of properties held by tenants in the entireties).
The fair market value of Michael's life estate and survivorship interest at the time of the transfers in October 2004 and January 2005, when the transfers were made, would have required expert testimony, which Amato did not provide. Had he raised the issue in a timely manner, he would have had the opportunity to offer such an expert. We reject the suggestion that we should look to its value in 2010, at the time of Amato's partition application. We will not speculate to cure Amato's failure to provide the required proofs in a timely manner.
In addition, Amato offered no proof to establish that Michael had no other assets that could have been included in an insolvency determination. The record does not establish that the joint assets discussed at trial were the only assets owned by Michael. It was Amato's burden to establish their absence, rather than Saundra's to establish their existence. The record reflects that the joint Chase account was never transferred to Saundra's name alone, and the balance in that account fluctuated between $13,000 and $49,500 from September 2004 to March 2005. There was also reference to a checking account at Sun Trust Bank, but the record does not reveal whether any funds in that account would have qualified as an "asset" under UFTA.
With respect to the debt side of the calculation, the full amount of the judgment Amato obtained in 2009 cannot appropriately be included in a calculation of Michael's debts in 2004 and early 2005 for N.J.S.A. 25:2-23(b) purposes. The Eleventh Circuit, applying New Jersey law in a bankruptcy case, reached that result in Advanced Telecomm. Network, Inc. v. Allen, 490 F.3d 1325 (11th Cir. 2007), cert. denied, 552 U.S. 1188, 128 S. Ct. 1326, 170 L. Ed. 2d 73 (2008).
At the time of the transfer at issue in Advanced Telecommunications, the debtor was the subject of a pending claim for $39 million. The claim was settled, approximately eighteen months after the transfer, for $10.5 million. Id. at 1330. The Eleventh Circuit held that the bankruptcy judge had erred in discounting the claim entirely as a debt, but also rejected the creditor's contention that the full $10.5 million settlement amount should have been counted as a debt at the time of transfer. Ibid.
The Eleventh Circuit outlined the proper approach as follows:
New Jersey law requires a bankruptcy court conducting an insolvency analysis to include the value of "claims" against the debtor. Under New Jersey law, a "claim" means "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." [N. J.S.A.] 25:2-21. By its plain terms, this includes WATS' pending claim against ATN -- a prototypical contingent liability.
The "fair value" of a contingent liability, of course, should be discounted according to the possibility of its ever becoming real. Thus in this case the bankruptcy court should have estimated the expected value of a judgment against ATN (ATN's own lawyers had already placed it in the millions well before the case actually settled for $10.5 million), and then multiplied that value by the chance that ATN would face such a judgment (thus, for example, halving the judgment's value if ATN faced only a fifty percent chance of an adverse judgment). The Seventh Circuit Court of Appeals set forth the leading statement of this approach in In re Xonics Photochemical:
[A] contingent liability is not certain--and often is highly unlikely--ever to become an actual
liability. To value the contingent liability it is necessary to discount it by the probability that the contingency will occur and the liability will become real.
Consequently, the court reversed and remanded for a calculation of the fair value of the claim at the time of the transfer, which presumably would be greater than zero but less than $10.5 million. Id. at 1336, 1338. That approach is appropriately followed in this case.
841 F.2d 198, 200 (7th Cir. 1998). Thus, "[t]he asset or liability must be reduced to its present, or expected, value before a determination can be made whether the firm's assets exceed its liabilities." [Ibid.] (citations omitted) (emphasis added).
[Id. at 1335 (second and third alterations in original).]
We decline to follow the contrary approach taken in SEC v. Antar, 120 F. Supp. 2d 431, 434, 443-45 (D.N.J. 2000).
Absent the ability to make a reasonable calculation of assets and debts, a factfinder cannot make a determination of solvency or insolvency at a specific point in time. In raising the issue after the trial, Amato failed to provide an adequate factual basis for such a calculation.
iii.
Amato further argues that, even if a finding of "actual intent to hinder, delay, or defraud" under N.J.S.A. 25:2-25 was required to prove fraudulent transfers in this case, the trial judge erred in holding that he failed to prove that intent by clear and convincing evidence.
Amato contends that two statements made by Michael were admissions requiring a finding of actual intent to defraud. First, Menck testified that on September 15, 2004, Michael told him he "had to hide money because [of] all the events that were transpiring" with Amato and his girlfriend. However, Menck also testified that Michael "just didn't really seem like himself" at the time he made the statement. He was unshaven and his hands were shaking. Menck thought he "was somewhat paranoid." In addition, Michael was rambling about knowing "a lot of people and the DEA," said he "had to leave the country at times," and claimed to have "snuck back into the country through the Dominican Republic, through Cuba, through whatever other countries, and ultimately through Canada." The trial judge noted that the evidence showed Michael was "close to being unstable" when those events transpired. We find no error in the trial judge's conclusion that Michael's statement, made under those circumstances, was not indicative of an actual intent to preclude Amato from collecting any future judgment.
Second, Amato argues that Michael's response to a question at his July 2010 deposition was also indicative of his intent to defraud at the time of the transfers. When asked why he had done nothing to pay Amato's judgment, Michael responded, "I don't want to." We are unconvinced by Amato's argument that Michael's response "demonstrated that he had retained control over the transferred assets." The judge did not err in finding that what appears to have been a flippant response was not proof of intent by clear and convincing evidence.
Amato is also critical of the judge's discussion concerning Saundra's lack of knowledge and complicity in Michael's actions. He points to what he contends was a suggestion by the judge that transfers for supporting a child are immune from the UFTA. Contrary to Amato's assertions, the judge did not hold that Amato was required to prove a conspiracy, nor did he suggest that a transfer for child-support purposes was immune under the UFTA.
The statements at issue were made in the context of Amato's argument that Galex, who prepared the power of attorney, was involved with Saundra in an intentional plan to hide assets, which argument the judge rejected. Because Michael and Saundra opted not to divorce, the judge concluded that the "necessity" of paying their continuing expenses and dealing "with the needs of their son," especially in light of the hard reality that Michael would likely be going to prison, provided a "rational" reason for the transfer of the Morgan Stanley account to Saundra's sole control. The issue being discussed was intent, not whether there is a statutory exemption.
Amato asserts that the trial judge erred in finding only one "badge" of fraud and concluding that Amato had failed to prove intentional fraud. These "badges" are factors the courts generally look to in determining whether the circumstances of a particular transaction give rise to the conclusion that a transfer was made with actual intent to defraud. Gilchinsky, supra, 159 N.J. at 476.
"'Badges of fraud' represent circumstances that so frequently accompany fraudulent transfers that their presence gives rise to an inference of intent." Ibid. They "do not of themselves or per se constitute fraud, but they are facts having a tendency to show the existence of fraud" and, because of this, "are said to be facts which throw suspicion on a transaction, and which call for an explanation." Ibid. (quoting Schall v. Anderson's Implement, Inc., 484 N.W.2d 86, 91 (Neb. 1992)).
N.J.S.A. 25:2-26 provides a non-exclusive list of the "badges of fraud" that New Jersey courts should consider in determining actual intent. The statute provides, in relevant part, as follows:
In determining actual intent under subsection a. of [N.J.S.A.] 25:2-25 con-
sideration may be given, among other factors, to whether:
a. The transfer or obligation was to an insider;
b. The debtor retained possession or control of the property transferred after the transfer;
c. The transfer or obligation was disclosed or concealed;
d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
e. The transfer was of substantially all the debtor's assets;
f. The debtor absconded;
g. The debtor removed or concealed assets;
h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
j. The transfer occurred shortly before or shortly after a substantial debt was incurred . . . .
[N .J.S.A. 25:2-26.]
The judge found that, because the assets were transferred to Michael's wife, they were to an "insider," thus establishing the first badge of fraud. Amato does not specifically challenge the judge's determination that "subsections (f) and (g) do not apply," because Michael did not abscond and the assets were not removed or concealed, respectively. In any event, those determinations are fully supported by the evidence. Michael certainly never absconded and the location of the transferred assets was not concealed. Accounts were retitled, but the assets were not moved to secret accounts or otherwise hidden.
Amato argues that the judge erred in failing to consider that Michael retained use of the 2000 Jeep after title was transferred to Saundra. Amato is correct that the evidence shows that Michael continued using the Jeep until at least 2010. Amato further argues the evidence showed that Michael also continued to use the Lamborghini, which remained in New Jersey after the transfer of title.
The evidence established that the Lamborghini was purchased in 1987 for about $100,000. Amato established no value for the Lamborghini at the time of transfer. Although Saundra testified that she did not "deprive" Michael of the use of the vehicles after the titles were transferred, there is no evidence in the record that Michael actually used any vehicle other than the Jeep, or if he did, the extent of such use. Under all the circumstances, we find no error in the judge's determination that Michael's use of the Jeep and possible use of the Lamborghini did not evince a retention of control over transferred assets sufficient to establish a badge of fraud under the UFTA.
Control over the Morgan Stanley account was transferred to Saundra specifically to preclude Michael from having any power to access it. Saundra continued to pay Michael's expenses after the account was transferred, but there is nothing in the record to support the contention that Michael could dictate the manner in which she did so or that he would have had any recourse if she had decided to stop paying his expenses.
Amato further argues that the trial judge was obliged to find that the badge concerning suit or threatened suit, N.J.S.A. 25:2-26(d), was established by the April 2004 email, and that the judge erred in concluding it was not an "actual threat to sue." As previously discussed, the judge concluded that there may have been a threat of suit concerning infection of Amato's girlfriend with Hepatitis C. However, the April 2004 email was written four months before Amato's arrest on August 16, the date the judge characterized as the "pivotal date" or "fulcrum date" for the purposes of the UFTA. Consequently, we find no error.
We need not address Amato's remaining contentions concerning badges of fraud. We do not find them persuasive and, as we have already held, we find the judge's factfinding to be amply supported in the record, particularly in light of Amato's enhanced burden of proof. We reach the same conclusion with respect to the judge's overall conclusion that Amato failed to prove intent to defraud by clear and convincing evidence. The judge's decision to accept Saundra's testimony that the transfers were needed to safeguard assets from unwarranted dissipation and that the existence of a potential claim was not a motivating factor in the transfers finds ample support in the record.
See R. 2:11-3(e)(1)(E).
iv.
Amato contends that the trial judge committed reversible error in excluding admission of what purports to be a November 23, 2005 letter from Saundra to Daniel Carluccio, the attorney who defended Michael in the criminal case arising from his arrest in September 2004.
The November 2005 letter was an attachment to another letter, which was sent by Carluccio to the Ocean County Prosecutor's Office in December 2005. In his cover letter, Carluccio described the attached document as follows:
I am also enclosing a letter to me from [Saundra] (Bates stamped 449-450) which explains in more detail the actions taken against her by Amato which caused Michael Cortese to respond by filing initial harassment complaints referred to in the discovery materials previously produced. [Saundra] will be a witness.The letter written by Carluccio was authenticated at trial by a witness from the Prosecutor's Office.
The authenticity of the November 2005 letter, which consists of two typed pages was disputed at trial. It is unsigned, although "Rev. Saundra Cortese" is typed at the top of the first page and at the end of the letter. Saundra testified that she did not write the letter. Carluccio, who had been listed as a witness, died before trial and was consequently unavailable to authenticate it. The witness from the Prosecutor's Office did not have personal knowledge of how Carluccio obtained the November 2005 letter or from whom he received it.
Towards the end of the trial, Amato sought to authenticate the November 2005 letter through a lawyer from Carluccio's firm, who was not on the witness list for the trial. Defense counsel objected to what he characterized as an effort "to spring" a witness at trial without giving him the opportunity to depose the witness or prepare a meaningful cross-examination. The trial judge sustained the objection, explaining that he was "not going to . . . allow to be opened up what could be . . . a need to utilize additional discovery in order to make certain that the parties are, at least prepared to address a late proffer."
A trial judge's "evidentiary determinations are subject to limited appellate scrutiny, as they are reviewed under the abuse of discretion standard." State v. Buda, 195 N.J. 278, 294 (2008). See also Brenman v. Demello, 191 N.J. 18, 31 (2007) (noting that "the palpable abuse of discretion standard" applies to issues of admissibility of evidence).
N.J.R.E. 901 provides that "[t]he requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter is what its proponent claims." The process of authenticating evidence "may proceed with relatively little attention to detail and technicality." We have held that proper authentication is "not merely formal," but goes "to the heart of procedural due process." Celino v. Gen. Accident Ins., 211 N.J. Super. 538, 544 (App. Div. 1986).
We see no error in the trial judge's exclusion of the November 2005 letter. It was a typed, unsigned document, the authenticity of which was denied by its purported author. Amato had no witness to authenticate it, other than a witness who was proposed at the last minute and whose identity was not disclosed in advance. Even assuming that Carluccio would not have forwarded the document to the Prosecutor's Office had he not believed it had been authored by Saundra, there is no explanation of how he received the document or from whom. It could have been given to him by Michael, his client, with the representation that it had been prepared by Saundra. However, the judge was aware that Michael had forged Saundra's signature on a Morgan Stanley withdrawal slip. We conclude that the typed "signature" was sufficient cause for concern about the source of the document, and that the judge's refusal to admit it was not an abuse of discretion.
In addition, we are satisfied that any error was harmless. The November 2005 letter mentions Amato's lawsuit threats, and characterizes many of his statements as "slanderous" or "malicious lie[s]." It also asserts that Amato "frivolously sued people all the time and was always after other people's money." Most significantly, the November 2005 letter paraphrased some statements made in Saundra's April 2004 email, which the trial judge determined did not reflect an "actual threat to sue." We cannot conclude that admission of the November 2005 letter, which contains assertions about threats of litigation by someone characterized as a malicious liar who brought frequent frivolous lawsuits, would have changed the outcome of the trial.
v.
Amato contends that the motion judge erred as a matter of law in dismissing the tort claims against Saundra on summary judgment, arguing that "a reasonable trier-of-fact could have inferred" from the existing evidence that Saundra "had motivation to, at a minimum, encourage [Michael's] tortious conduct."
We review a grant of summary judgment under the same standard as the motion judge. Rowe v. Mazel Thirty, LLC, 209 N.J. 35, 41 (2012). We must determine whether there are any genuine issues of material fact when the evidence is viewed in the light most favorable to the non-moving party. Id. at 38, 41. "The inquiry is 'whether the evidence presents a sufficient disagreement to require submission to a [finder of fact] or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995)). "[T]he legal conclusions undergirding the summary judgment motion itself" are reviewed "on a plenary de novo basis." Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 385 (2010).
In granting summary judgment, the motion judge determined that there was no evidence that Saundra "was involved in any of [the tortious] events or had any advance knowledge of it." He observed that, other than telephone calls "back and forth" with Amato and Michael, Saundra "appears to me to be a stranger to all of this that occurred, and there's no evidence, it would seem to me, from which a jury could reasonably find that she was involved in any of this."
The judge rejected Amato's argument that evidence showing communications between Michael and Saundra at the relevant time raised an inference of complicity. He noted that Michael and Saundra "were obviously involved in a high-conflict marital relationship where there were — you know, she apparently had reason to believe that he had been unfaithful to her. They had a lot of marital property that they owned jointly. . . . I'd be shocked if they weren't in communication with one another on a regular basis." The judge concluded that there was no evidence that "in any way shows that [Saundra] participated in any way or had any advance knowledge of [Michael] making any false complaints, police reports or complaints against Mr. Amato or anyone else."
The record reflects that the motion judge reviewed the record and the parties' arguments with care, as is evidenced by the fact that he refused to dismiss the UFTA claim, as to which he concluded that there were factual issues precluding summary judgment. Our own review of the record confirms that Amato failed to demonstrate a genuine issue of material fact with respect to the tort claims against Saundra, including his allegation that she was aware of Michael's tortious conduct toward Amato and that there was an "agreement" between Michael and Saundra to harm Amato and that there was active assistance by her. The fact that Saundra and Michael discussed Amato's calls to Saundra does not raise such an inference. Even if we assume that Saundra disliked Amato, there is no basis for an inference that Saundra participated in Michael's vendetta against him.
Consequently, we affirm the dismissal of Amato's tort claims against Saundra.
vi.
Both Saundra and Amato contend that the trial judge erred in denying their respective applications for an award of counsel fees against the other party and that party's attorneys for pursuing frivolous litigation, relying on N.J.S.A. 2A:15-59.1 and Rule 1:4-8(d).
The Supreme Court adopted Rule 1:4-8(d) following its determination that N.J.S.A. 2A:15-59.1 applied only to litigants and not their attorneys. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 557-58 (1993); Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 1:4-8 (2015). --------
A claim is considered frivolous when "no rational argument can be advanced in its support, when it is not supported by any credible evidence, when a reasonable person could not have expected its success, or when it is completely untenable." Belfer v. Merling, 322 N.J. Super. 124, 144 (App. Div.), certif. denied, 162 N.J. 196 (1999). False allegations of fact will not justify an award "unless they are made in bad faith, for the purpose of harassment, delay or malicious injury." McKeown-Brand, supra, 132 N.J. at 561 (internal quotation marks omitted). The litigant's actions must be evaluated from an objective perspective. Rosenblum v. Borough of Closter, 2 85 N.J. Super. 230, 240 (App. Div. 1995), certif. denied, 146 N.J. 70 (1996).
In addition, dismissal of a claim on summary judgment "does not predetermine that [a] plaintiff 'commenced, used or continued' [the] complaint 'in bad faith, solely for the purpose of harassment, delay or malicious injury' in violation of N.J.S.A. 2A:15-59.1(b)(1)." McKeown-Brand, supra, 132 N.J. at 563. Sanctions are not warranted where the party or the party's attorney had a reasonable, good faith belief in the merits of the action or defense. Wyche v. Unsatisfied Claim & Judgment Fund of N.J., 383 N.J. Super. 554, 561 (App. Div. 2006). Moreover, "'honest and creative advocacy should not be discouraged.'" Ibid. (quoting Iannone v. McHale, 245 N.J. Super. 17, 28 (App. Div. 1990)).
The statute and court rule have two complementary purposes. They are punitive, in that they seek to deter frivolous litigation. They are also compensatory, in that they provide for reimbursement of the legal expenses of the party who has been the subject of the frivolous action. Alpert, Goldberg, Butler, Norton & Weiss, P.C. v. Quinn, 410 N.J. Super. 510, 545 (App. Div. 2009), certif. denied, 203 N.J. 93 (2010); Ferolito v. Park Hill Ass'n, 408 N.J. Super. 401, 407 (App. Div.), certif. denied, 200 N.J. 502 (2009).
The statute and rule are interpreted strictly to ensure that persons are not dissuaded from accessing the courts. First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 432 (App. Div. 2007); DeBrango v. Summit Bancorp., 328 N.J. Super. 219, 226 (App. Div. 2000). They are not intended to vitiate the general rule that each litigant should bear his or her own litigation costs, even when the litigation is of marginal merit. Venner v. Allstate, 306 N.J. Super. 106, 113 (App. Div. 1997).
We have held that a pleading is not frivolous unless it is frivolous "as a whole." United Heart, L.L.C. v. Zahabian, 407 N.J. Super. 379, 394 (App. Div.), certif. denied, 200 N.J. 367 (2009).
[A] pleading cannot be deemed frivolous as a whole nor can an attorney be deemed to have litigated a matter in bad faith where, as in this case, the trial court denies summary judgment on at least one count in the complaint and allows the matter to proceed to trial.In that regard, we note that the motion judge denied Saundra's motion for summary judgment on the UFTA claim, even though he granted it as to the tort claims.
[Ibid.]
We review a trial judge's decisions on frivolous-litigation motions under an abuse of discretion standard. Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005). In Masone, we quoted Flagg v. Essex County Prosecutor, 171 N.J. 561, 571 (2002) (citations omitted), for the proposition that,
[a]lthough the ordinary "abuse of discretion" standard defies precise definition, it arises when a decision is "made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." In other words, a functional approach to abuse of discretion examines whether there are good reasons for an appellate court to defer to the particular decision at issue. It may be "an arbitrary, capricious, whimsical, or manifestly unreasonable judgment.""[A]buse of discretion is demonstrated if the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment." Masone, supra, 382 N.J. Super. at 193.
The trial judge denied Saundra's application for sanctions for both procedural and substantive reasons. Although he might have been able to resolve the procedural problems, he was not required to do so. On the merits, the trial judge, who actually sat through the trial, found that Amato's claims were not frivolous as that term is defined in the cases cited above. The fact that the motion judge, who did not try the case, suggested that there might be grounds for a frivolous-litigation claim in the future does not mean that the trial judged abused his discretion in holding otherwise. His view of the controversy between the parties was significantly broader and more in depth than that of the motion judge. We find no abuse of discretion in the denial of Saundra's motion.
Amato contends that Saundra's frivolous-litigation application was itself frivolous and that the trial judge abused his discretion in denying his frivolous-litigation application. Again, we disagree. We note initially that N.J.S.A. 2A:15-59.1 is not applicable to Saundra's motion because it applies only to "a complaint, counterclaim, cross-claim or defense of the nonprevailing person." Rule 1:4-8, however, would be applicable because the rule specifically refers to motions as being included in its scope.
The trial judge's finding that Amato and his counsel had not acted in bad faith does not require the conclusion that Saundra had, and losing a motion does not necessarily suggest an improper motive in bringing it. The motion judge, who denied Saundra's motion for sanctions when dismissing the tort claims cautioned that Amato
should understand that, first of all, there's been an awful lot of money spent on this litigation and there's likely to be a lot more money spent on this litigation, and at some point their client could very well be looking at a very, very significant adverse award for counsel fees. I understand that and [Amato] should understand that.He added that Amato "may very well at some point be looking at the real likelihood that this motion may very well be granted" and should "factor that in as they pursue this matter."
Under those circumstances, we conclude that it was not unreasonable for Saundra to renew her motion for attorneys' fees and costs after prevailing on the UFTA claim at trial. Consequently, we find no abuse of discretion in the trial judge's denial of Amato's own frivolous-litigation motion.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION